<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. 80 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 80 [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:
(785) 431-3127
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)
[X] on October 15, 1997, pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1) on October 15, 1997,
pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2) on October 15, 1997,
pursuant to paragraph (a)(2) 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 26, 1996.
<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
EXPLANATORY NOTE
This Post-Effective Amendment No. 80 (the "Amendment")
to the Registrant's Registration Statement on Form N-1A
(File Nos. 2-19458 and 811-1136) is being filed solely for
the purpose of updating the financial statements of the
Value Series of the Registrant in accordance with the
undertaking filed as part of the Series' initial
Registration Statement. As a result, the Amendment does not
affect the Registrant's currently effective Asset
Allocation Series or Social Awareness Series prospectuses,
which prospectuses are hereby incorporated by reference as
most recently filed pursuant to Rule 497 under the
Securities Act of 1933, as amended.
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
<PAGE>
PART B (Continued) STATEMENT OF ADDITIONAL INFORMATION
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); SIMPLE 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>
SECURITY
FUNDS
================================================================================
PROSPECTUS
October 15, 1997
* Security Growth and Income Fund
* Security Equity Fund
- Equity Series
- Global Series
- Value Series
- Small Company Series
* Security Ultra Fund
* Application
[SDI Logo]
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
SECURITY GROWTH AND INCOME FUND
SECURITY EQUITY FUND PROSPECTUS
EQUITY SERIES OCTOBER 15, 1997
GLOBAL SERIES
VALUE SERIES
SMALL COMPANY SERIES
SECURITY ULTRA FUND
MEMBERS OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 HARRISON, TOPEKA, KANSAS 66636-0001
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 foreign 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 Value Fund ("Value Fund") is to seek
long-term growth of capital by investing primarily in a diversified portfolio of
common stocks, securities convertible into common stocks, preferred stocks, and
warrants which the Investment Manager believes are undervalued.
The investment objective of Security Small Company Fund ("Small Company
Fund") is long-term growth of capital. Small Company Fund seeks this objective
primarily through investment in domestic and foreign equity securities of small
market capitalization companies (defined as companies with market
capitalizations of less than $1 billion at the time of purchase).
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. Certain additional information is contained in a "Statement of
Additional Information" about the Funds, dated October 15, 1997, which has been
filed with the Securities and Exchange Commission. The Statement of Additional
Information, as it may be supplemented from time to time, is incorporated by
reference in this Prospectus. It is available at no charge by writing Security
Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001, or by calling (785)
431-3127 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 BOARD 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............................. 8
Growth and Income Fund................................................... 8
Equity Fund.............................................................. 10
Global Fund.............................................................. 10
Value Fund............................................................... 12
Small Company Fund....................................................... 12
Ultra Fund............................................................... 13
Investment Methods and Risk Factors........................................ 14
Management of the Funds.................................................... 21
Portfolio Management..................................................... 22
How to Purchase Shares..................................................... 23
Alternative Purchase Options............................................. 23
Class A Shares........................................................... 23
Security Equity Fund's Class A Distribution Plan......................... 24
Class B Shares........................................................... 24
Class B Distribution Plan................................................ 25
Calculation and Waiver of Contingent Deferred Sales Charges.............. 25
Arrangements with Broker-Dealers and Others.............................. 26
Purchases at Net Asset Value............................................. 26
How to Redeem Shares....................................................... 27
Telephone Redemptions.................................................... 27
Dividends and Taxes........................................................ 28
Foreign Taxes............................................................ 29
Determination of Net Asset Value........................................... 29
Trading Practices and Brokerage............................................ 29
Performance................................................................ 29
Shareholder Services....................................................... 30
Accumulation Plan........................................................ 30
Systematic Withdrawal Program............................................ 30
Exchange Privilege....................................................... 31
Retirement Plans......................................................... 31
General Information........................................................ 31
Organization............................................................. 31
Stockholder Inquiries.................................................... 32
Appendix A - Class A Shares Reduced Sales Charges.......................... 33
Rights of Accumulation................................................... 33
Statement of Intention................................................... 33
Reinstatement Privilege.................................................. 33
<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 None(2) 5% during the first
price or redemption proceeds, whichever is lower) year, decreasing to
0% in the sixth and
following years
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND SMALL
INCOME FUND EQUITY FUND GLOBAL FUND VALUE FUND COMPANY FUND ULTRA FUND
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(after fee waivers)(3) 1.29% 1.29% 1.04% 1.04% 2.00% 2.00% 0.00% 0.00% 0.00% 0.00% 1.31% 1.31%
12b-1 Fees(4) None 1.00% None 1.00% None 1.00% None 1.00% 0.25% 1.00% None 1.00%
Other Expenses(5) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.24% 1.24% 1.24% 1.24% 0.00% 0.00%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses(6) 1.29% 2.29% 1.04% 2.04% 2.00% 3.00% 1.24% 2.24% 1.49% 2.24% 1.31% 2.31%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
EXAMPLE
You would pay the 1 Year $ 70 $ 73 $ 68 $ 71 $ 77 $ 80 $69 $ 73 $ 72 $ 73 $ 70 $ 73
following expenses 3 Years 96 102 89 94 117 123 95 100 102 100 97 102
on a $1,000 investment 5 Years 124 143 112 130 159 178 -- -- -- -- 125 144
assuming (1) 5 percent 10 Years 204 263 177 237 277 332 -- -- -- -- 206 265
annual return and
(2) redemption at the
end of each time period
EXAMPLE
You would pay the 1 Year $ 70 $ 23 $ 68 $ 21 $ 77 $ 30 $69 $ 23 $ 72 $ 23 $ 70 $ 23
following expenses on 3 Years 96 72 89 64 117 93 95 70 102 70 97 72
a $1,000 investment, 5 Years 124 123 112 110 159 158 -- -- -- -- 125 124
assuming (1) 5 percent 10 Years 204 263 177 237 277 332 -- -- -- -- 206 265
annual return and
(2) no redemption
</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," page 23.
(3) The Investment Manager has agreed to waive the investment advisory fees of
Value Fund and Small Company Fund; absent such fee waiver, "Management
Fees" would have been 1.00%.
(4) Long-term holders of shares that are subject to an asset-based sales charge
may pay more than the equivalent of the maximum front-end sales charge
otherwise permitted by NASD Rules.
(5) The amount of "Other Expenses" of Value Fund and Small Company Fund is
based on estimated amounts for the period ending September 30, 1997.
(6) The Investment Manager has agreed to waive the investment advisory fee of
1% of Value Fund and Small Company Fund; absent such fee waiver, "Total
Fund Operating Expenses" would have been as follows: 2.24% for Class A
shares and 3.24% for Class B shares of Value Fund and 2.49% for Class A
shares and 3.24% for Class B shares of Small Company Fund.
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, Value, Small Company 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 21. See "How to
Purchase Shares," page 23, 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 financial highlights, for each of the years in the period ended
September 30, 1996, have been audited by Ernst & Young LLP. Such information for
each of the five years in the period ended September 30, 1996, 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, 1996
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 the six-month period ended March 31, 1997, the four-month period ended
August 31, 1997 for Value Fund, and each of the years in the period ended
September 30, 1991, is not covered by the report of Ernst & Young LLP.
SECURITY GROWTH AND INCOME FUND (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(g) 1993 1992 1991 1990 1989(b) 1988 1987
---------- ------- ------- ------- ---- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning
of period..................... $ 9.05 $ 7.93 $ 6.96 $ 7.84 $ 7.13 $ 7.31 $ 7.43 $ 9.06 $ 8.43 $ 8.33 $ 9.61
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.082 0.18 0.16 0.13 0.21 0.35 0.45 0.52 0.44 0.54 0.51
Net gains (losses) on securities
(realized & unrealized)....... 0.188 1.373 1.183 (0.713) 0.876 (0.016) 0.992 (0.978) 1.114 0.55 (0.87)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total from investment operations 0.270 1.553 1.343 (0.583) 1.086 0.334 1.442 (0.458) 1.554 1.09 (0.36)
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... (0.072) (0.158) (0.158) (0.128) (0.218) (0.343) (0.474) (0.509) (0.537) (0.54) (0.50)
Distributions (from capital
gains)........................ (0.708) (0.275) (0.215) (0.169) (0.158) (0.171) (1.088) (0.663) (0.387) (0.45) (0.42)
Return of capital............... --- --- --- --- --- --- --- --- --- --- ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total distributions............. (0.780) (0.433) (0.373) (0.297) (0.376) (0.514) (1.562) (1.172) (0.924) (0.99) (0.92)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net asset value end of period... $ 8.54 $ 9.05 $ 7.93 $ 6.96 $ 7.84 $ 7.13 $ 7.31 $ 7.43 $ 9.06 $ 8.43 $ 8.33
====== ====== ====== ====== ====== ====== ====== ====== ====== ===== =====
Total return (a)................ 2.89% 20.31% 20.25% (7.6)% 15.6% 4.7% 22.3% (5.8)% 19.9% 13.8% (4.7)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $72,150 $73,273 $67,430 $65,328 $81,982 $75,436 $77,418 $70,588 $84,964 $81,357 $84,493
Ratio of expenses to average
net assets.................... 1.26% 1.29% 1.31% 1.28% 1.26% 1.27% 1.28% 1.28% 1.10% 0.78% 0.74%
Ratio of net income to average
net assets.................... 1.83% 2.09% 2.21% 1.70% 2.80% 4.79% 6.14% 6.24% 5.93% 6.22% 5.02%
Portfolio turnover rate......... 99% 69% 130% 163% 135% 74% 103% 66% 49% 47% 32%
Average commission paid per
investment security traded (h) $0.0580 $0.0625 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
SECURITY GROWTH AND INCOME FUND (CLASS B)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(e)
---------- ------- ------- -------
PER SHARE DATA
Net asset value beginning
of period..................... $ 8.94 $ 7.85 $ 6.90 $ 7.83
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.032 0.09 0.08 0.05
Net gains (losses) on securities
(realized & unrealized)....... 0.188 1.353 1.179 (0.694)
------ ------ ------ ------
Total from investment operations 0.220 1.443 1.259 (0.644)
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... (0.032) (0.078) (0.094) (0.117)
Distributions (from capital
gains)........................ (0.708) (0.275) (0.215) (0.169)
Return of capital............... --- --- --- ---
------ ------ ------ ------
Total distributions............. (0.740) (0.353) (0.309) (0.286)
------ ------ ------ ------
Net asset value end of period... $ 8.42 $ 8.94 $ 7.85 $ 6.90
====== ====== ====== ======
Total return (a)................ 2.35% 19.01% 19.07% (8.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $3,781 $2,247 $1,130 $668
Ratio of expenses to average net
assets........................ 2.26% 2.29% 2.31% 2.27%
Ratio of net income to average
net assets.................... 0.85% 1.09% 1.21% 1.03%
Portfolio turnover rate......... 99% 69% 130% 178%
Average commission paid per
investment security traded (h) $0.0580 $0.0625 N/A N/A
- --------------------------------------------------------------------------------
2
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
SECURITY EQUITY FUND (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(g) 1993 1992 1991 1990 1989 1988 1987
---------- ------- ------- ------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning
of period..................... $ 7.54 $ 6.55 $ 5.54 $ 6.73 $ 5.86 $ 5.82 $ 4.82 $ 6.53 $ 4.74 $ 6.95 $ 5.39
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.02 0.05 0.04 0.05 0.12 0.09 0.12 0.15 0.15 0.14 0.14
Net gains (losses) on securities
(realized & unrealized)....... 0.379 1.482 1.377 0.085 1.165 0.475 1.403 (1.115) 1.758 (1.05) 1.88
----- ------ ----- ----- ----- ----- ----- ------ ----- ------ -----
Total from investment operations 0.399 1.532 1.417 0.135 1.285 0.565 1.523 (0.965) 1.908 (0.91) 2.02
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... (0.041) (0.060) --- (0.120) (0.053) (0.132) (0.148) (0.166) (0.118) (0.11) (0.14)
Distributions (from capital
gains)........................ (0.648) (0.482) (0.407) (1.205) (0.362) (0.393) (0.375) (0.579) --- (1.19) (0.32)
Return of capital............... --- --- --- --- --- --- --- --- --- --- ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total distributions............. (0.689) (0.542) (0.407) (1.325) (0.415) (0.525) (0.523) (0.745) (0.118) (1.30) (0.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Net asset value end of
period........................ $ 7.25 $ 7.54 $ 6.55 $ 5.54 $ 6.73 $ 5.86 $ 5.82 $ 4.82 $ 6.53 $ 4.74 $ 6.95
====== ====== ====== ====== ====== ====== ====== ====== ====== ===== =====
Total return (a)................ 5.34% 24.90% 27.77% 1.95% 22.7% 10.2% 34.2% (15.9)% 41.2% (10.6)% 40.1%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $600,067 $575,680 $440,339 $358,237 $375,565 $313,582 $295,030 $226,186 $283,662 $231,807 $288,431
Ratio of expenses to average net
assets........................ 1.03% 1.04% 1.05% 1.06% 1.06% 1.06% 1.08% 1.08% 0.99% 0.72% 0.66%
Ratio of net income to average
net assets.................... 0.52% 0.75% 0.87% 0.86% 1.95% 1.48% 2.34% 2.72% 2.62% 2.78% 2.15%
Portfolio turnover rate......... 72% 64% 95% 79% 95% 83% 61% 97% 86% 142% 151%
Average commission paid per
investment security traded (h) $0.0600 $0.0609 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
SECURITY EQUITY FUND (CLASS B)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(e)
---------- ------- ------- -------
PER SHARE DATA
Net asset value beginning
of period..................... $ 7.36 $ 6.43 $ 5.49 $ 6.81
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss).... (0.02) (0.02) (0.01) 0.01
Net gains (losses) on securities
(realized & unrealized)....... 0.388 1.449 1.357 (0.005)
------ ------ ------ ------
Total from investment operations 0.368 1.429 1.347 0.005
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... --- (0.017) --- (0.12)
Distributions (from capital
gains)........................ (0.648) (0.482) (0.407) (1.205)
Return of capital............... --- --- --- ---
------ ------ ------ ------
Total distributions............. (0.648) (0.499) (0.407) (1.325)
------ ------ ------ ------
Net asset value end of period... $ 7.08 $ 7.36 $ 6.43 $ 5.49
====== ====== ====== ======
Total return (a)................ 5.03% 23.57% 26.69% (0.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $58,810 $38,822 $19,288 $7,452
Ratio of expenses to average
net assets.................... 2.04% 2.04% 2.05% 2.07%
Ratio of net loss to average
net assets.................... (0.47)% (0.13)% (0.01)% (0.01)%
Portfolio turnover rate......... 72% 64% 95% 80%
Average commission paid per
investment security traded (h) $0.0600 $0.0609 N/A N/A
- --------------------------------------------------------------------------------
3
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
SECURITY GLOBAL FUND (CLASS A)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(f)
---------- ------- ------- -------
PER SHARE DATA
Net asset value beginning
of period..................... $12.42 $10.94 $10.84 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss).... (0.03) 0.01 (0.02) (0.03)
Net gains on securities
(realized & unrealized)....... 0.669 1.874 0.31 0.87
------ ------ ----- -----
Total from investment operations 0.639 1.884 0.29 0.84
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... (0.376) (0.248) --- ---
Distributions (from capital
gains)........................ (0.783) (0.156) (0.19) ---
Return of capital............... --- --- --- ---
------ ------ ----- -----
Total distributions............. (1.159) (0.404) (0.19) ---
------ ------ ----- -----
Net asset value end of period... $11.90 $12.42 $10.94 $10.84
====== ====== ===== =====
Total return (a)................ 5.50% 17.73% 2.80% 8.40%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $22,018 $19,644 $16,261 $20,128
Ratio of expenses to average net
assets........................ 2.00% 2.00% 2.00% 2.00%
Ratio of net income (loss) to
average net assets............ (0.21)% 0.07% (0.17)% (0.01)%
Portfolio turnover rate......... 138% 142% 141% 73%
Average commission paid per
investment security traded (h) $0.0116 $0.0338 N/A N/A
SECURITY GLOBAL FUND (CLASS B)
FISCAL YEAR ENDED SEPTEMBER 30
--------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(e)(f)
---------- ------- ------- ----------
PER SHARE DATA
Net asset value beginning
of period..................... $12.18 $10.74 $10.75 $9.96
INCOME FROM INVESTMENT
OPERATIONS:
Net investment loss............. (0.07) (0.10) (0.12) (0.12)
Net gains on securities
(realized & unrealized)....... 0.637 1.841 0.30 0.91
------ ------ ----- -----
Total from investment
operations.................... 0.567 1.741 0.18 0.79
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... (0.304) (0.145) --- ---
Distributions (from capital
gains).......................... (0.783) (0.156) (0.19) ---
Return of capital................ --- --- --- ---
------ ------ ----- -----
Total distributions............. (1.087) (0.301) (0.19) ---
------ ------ ----- -----
Net asset value end of period... $11.66 $12.18 $10.74 $10.75
====== ====== ===== =====
Total return (a)................ 4.97% 16.57% 1.79% 7.90%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $9,647 $7,285 $5,433 $3,960
Ratio of expenses to average net
assets........................ 3.00% 3.00% 3.00% 3.00%
Ratio of net loss to average net
assets........................ (0.56)% (0.93)% (1.17)% (0.01)%
Portfolio turnover rate......... 138% 142% 141% 73%
Average commission paid per
investment security traded (h) $0.0116 $0.0338 N/A N/A
- --------------------------------------------------------------------------------
4
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
SECURITY VALUE FUND (CLASS A)
PERIOD ENDED AUGUST 31
----------------------
1997(g)(j)(k)
-------------
PER SHARE DATA
Net asset value beginning
of period..................... $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.030
Net gains on securities
(realized & unrealized)....... 2.230
Total from investment operations 2.260
LESS DISTRIBUTIONS
Dividends (from net
investment income)............ ---
Distributions (from capital
gains)........................ ---
Return of capital............... ---
------
Total distributions............. ---
------
Net asset value end of period... $12.26
======
Total return (a)................ 22.60%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $2,701
Ratio of expenses to average net
assets (m).................... 1.09%
Ratio of net income to average
net assets.................... 0.90%
Portfolio turnover rate......... 25%
Average commission paid per
investment security traded (h) $0.0600
SECURITY VALUE FUND (CLASS B)
PERIOD ENDED AUGUST 31
----------------------
1997(g)(j)(k)
PER SHARE DATA
Net asset value beginning
of period..................... $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... ---
Net gains on securities
(realized & unrealized)....... 2.230
Total from investment operations 2.230
LESS DISTRIBUTIONS
Dividends (from net
investment income)............ ---
Distributions (from capital
gains)........................ ---
Return of capital............... ---
------
Total distributions............. ---
------
Net asset value end of period... $12.23
======
Total return (a)................ 22.30%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $3,187
Ratio of expenses to average net
net assets (m)................ 1.96%
Ratio of net income to average
net assets.................... 0.03%
Portfolio turnover rate......... 25%
Average commission paid per
investment security traded (h) $0.0600
- --------------------------------------------------------------------------------
5
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
SECURITY ULTRA FUND (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(g) 1993 1992 1991(c)(d) 1990(c) 1989(b)(c) 1988(c) 1987
---------- ------- ------- ------- ---- ---- ---------- ------- ---------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning
of period.................... $ 8.25 $ 8.20 $ 6.82 $ 8.13 $ 6.66 $ 6.72 $ 4.46 $ 7.89 $ 6.29 $ 5.36 $ 9.35
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss).... (0.05) (0.05) (0.02) (0.056) (0.028) (0.09) (0.03) (0.14) (0.12) (0.02) 0.13
Net gains (losses) on securities
(realized & unrealized)....... (0.601) 1.096 1.535 (0.188) 1.791 0.202 2.525 (2.845) 1.72 1.135 (1.89)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations (0.651) 1.046 1.515 (0.244) 1.763 0.112 2.495 (2.985) 1.60 1.115 (1.76)
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... --- --- --- --- --- --- --- --- --- (0.125) (0.35)
Distributions (from capital
gains)........................ (0.579) (0.996) (0.135) (1.066) (0.293) (0.172) (0.235) (0.445) --- (0.06) (1.88)
Return of capital............... --- --- --- --- --- --- --- --- --- --- ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............. (0.579) (0.996) (0.135) (1.066) (0.293) (0.172) (0.235) (0.445) --- (0.185) (2.23)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value end of period... $ 7.02 $ 8.25 $ 8.20 $ 6.82 $ 8.13 $ 6.66 $ 6.72 $ 4.46 $ 7.89 $ 6.29 $ 5.36
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (a)................ (8.40)% 15.36% 22.69% (3.6)% 26.8% 1.5% 58.4% (39.6)% 25.4% 21.4% (24.1)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $64,007 $74,230 $66,052 $60,695 $71,056 $57,128 $65,449 $31,486 $66,841 $68,700 $62,246
Ratio of expenses to average net
assets........................ 1.26% 1.31% 1.32% 1.33% 1.30% 1.32% 1.61% 2.58% 3.53% 1.54% 0.84%
Ratio of net income (loss) to
average net assets............ (0.59)% (0.61)% (0.31)% (0.80)% (0.50)% (0.46)% (0.51)% (1.82)% (1.66)% (0.24)% 1.45%
Portfolio turnover rate......... 75% 161% 180% 111% 101% 142% 163% 96% 89% 120% 301%
Average commission paid per
investment security traded (h) $0.0600 $0.0606 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
SECURITY ULTRA FUND (CLASS B)
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(e)
---------- ------- ------- -------
PER SHARE DATA
Net asset value beginning
of period..................... $8.03 $8.11 $6.81 $8.30
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss).... (0.12) (0.13) (0.09) (0.103)
Net gains (losses) on securities
(realized & unrealized)....... (0.541) 1.046 1.525 (0.321)
------ ------ ------ ------
Total from investment operations (0.661) 0.916 1.435 (0.424)
LESS DISTRIBUTIONS
Dividends (from net investment
income)....................... --- --- --- ---
Distributions (from capital
gains)........................ (0.579) (0.996) (0.135) (1.066)
Return of capital............... --- --- --- ---
------ ------ ------ ------
Total distributions............. (0.579) (0.996) (0.135) (1.066)
------ ------ ------ ------
Net asset value end of period... $ 6.79 $ 8.03 $ 8.11 $ 6.81
====== ====== ====== ======
Total return (a)................ (8.77)% 13.81% 21.53% (5.7)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period
(thousands)................... $4,415 $2,698 $5,428 $1,254
Ratio of expenses to average net
assets........................ 2.25% 2.31% 2.32% 2.36%
Ratio of net loss to average net
assets........................ (1.56)% (1.61)% (1.32)% (1.76)%
Portfolio turnover rate......... 75% 161% 180% 110%
Average commission paid per
investment security traded (h) $0.0600 $0.0606 N/A N/A
- --------------------------------------------------------------------------------
6
<PAGE>
(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 1987 and 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.
<TABLE>
<CAPTION>
(c) SECURITY ULTRA FUND
-------------------------------------------------------------------
1988 1989 1990 1991
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt outstanding at end of period....................... $ --- $17,742,849 $8,207,425 $ ---
Weighted average debt outstanding during the period..... 4,217,187 13,322,428 5,948,569 970,096
Weighted average month-end shares outstanding........... 11,834,629 9,374,183 7,713,750 8,817,652
Average debt per share.................................. .36 1.42 .77 .11
Interest expense per share.............................. .03 .17 .08 .01
</TABLE>
Borrowings and related interest, if any, were immaterial in 1987, 1992,
1993, 1994, 1995, 1996 and 1997.
(d) 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.
(e) Class "B" shares were initially offered 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 Fund was initially capitalized on October 1, 1993, with a
net asset value of $10 per share.
(g) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(h) Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
reflected in the Fund's statement of operations. Shares traded on a
principal basis, such as most over-the-counter and fixed-income
transactions, are excluded. Generally, non-U.S. commissions are lower than
U.S. commissions when expressed as cents per share but higher when
expressed as a percentage of transactions because of the lower per-share
prices of many non-U.S. securities.
(i) Unaudited figures for the six months ended March 31, 1997. Percentage
amounts for the period, except total return, have been annualized.
(j) Unaudited figures for the period May 1, 1997 (date of inception) to August
31, 1997. Percentage amounts have been annualized, except for total return.
(k) Security Value Fund was initially capitalized on May 1, 1997, with a net
asset value of $10 per share.
(m) Fund expenses were reduced by the Investment Manager during the period, and
expense ratios absent such reimbursement would have been 2.09% for Class A
and 2.96% for Class B.
- --------------------------------------------------------------------------------
7
<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. Equity Fund, Global Fund, Value Fund and Small
Company Fund are series of Security Equity Fund. Each of Growth and Income Fund,
Equity Fund, Global Fund, Value Fund, Small Company Fund and 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 (for the
Value Fund and Small Company Fund, this limitation applies only with respect to
75 percent of the value of its total assets) 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 under "Investment Methods and Risk
Factors.") Such other securities may include (i) securities convertible into
common stocks; (ii) preferred stocks; (iii) debt securities issued by U.S.
corporations; (iv) securities issued by the U.S. Government or any of its
agencies or instrumentalities, including Treasury bills, certificates of
indebtedness, notes and bonds; (v) securities issued by foreign governments,
their agencies, and instrumentalities, and foreign corporations, provided that
such securities are denominated in U.S. dollars; (vi) higher yielding, high risk
debt securities (commonly referred to as "junk bonds"); and (vii) zero coupon
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 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.
As discussed above, Growth and Income Fund may invest in foreign debt
securities that are denominated in U.S. dollars. Such foreign debt securities
may include debt of foreign governments, including Brady Bonds, and debt of
foreign corporations. The Fund expects to limit its investment in foreign debt
securities, excluding Canadian securities, to not more than 15 percent of its
total assets and its investment in debt securities of issuers in emerging
markets, excluding Brady Bonds, to not more than 5 percent of its net assets.
See the discussion of the risks associated
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
8
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
with investing in foreign securities and, in particular, Brady Bonds under
"Investment Methods and Risk Factors."
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. The Fund may purchase securities that are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and subject to the Fund's policy that not more
than 15 percent of its total assets will be invested in illiquid 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. See the
discussion of when-issued securities, restricted securities, and repurchase
agreements under "Investment Methods and Risk Factors."
The Fund may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also provide for the commencement of
regular interest payments at a deferred date. See "Investment Methods and Risk
Factors" for a discussion of zero coupon securities.
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.
Debt securities issued by governments in emerging markets can differ from
debt obligations issued by private entities in that remedies from defaults
generally must be pursued in the courts of the defaulting government, and legal
recourse is therefore somewhat diminished. Political conditions, in terms of a
government's willingness to meet the terms of its debt obligations, also are of
considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in emerging markets in the event of default by the
governments under commercial bank loan agreements.
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, 1996, the dollar weighted average of
Growth and Income Fund's holdings (excluding equities) had the following credit
quality characteristics.
- --------------------------------------------------------------------------------
9
<PAGE>
PERCENT OF
INVESTMENT NET ASSETS
- ---------- ----------
U.S. Government Securities........................ 0%
Cash and other Assets, Less Liabilities........... 2.46%
Rated Fixed Income Securities
A.............................................. 0%
Baa/BBB........................................ 1.13%
Ba/BB.......................................... 8.84%
B.............................................. 7.56%
Caa/CCC........................................ 0%
D.............................................. 1.02%
Unrated Securities Comparable in Quality to
A.............................................. 0%
Baa/BBB........................................ 0%
Ba/BB.......................................... 0%
B.............................................. 0%
Caa/CCC........................................ 0%
------
21.01%
The foregoing table is intended solely to provide disclosure about Growth and
Income Fund's asset composition during the year ended September 30, 1996. 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 under
"Investment Methods and Risk Factors.") 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.
See the discussion of repurchase agreements under "Investment Methods and Risk
Factors."
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, Real Estate Investment Trusts (REITs), 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. The Fund may purchase securities that are restricted as to
disposition under federal securities laws, provided that such securities are
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and
subject to the Fund's policy that not more than 10 percent of its assets will be
invested in illiquid securities. See the discussion of restricted securities
under "Investment Methods and Risk Factors."
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 the
Fund's Sub-Adviser, Lexington Management Corporation ("Lexington"), Global Fund
may temporarily invest up to 100 percent of its assets in debt obligations
consisting of repurchase agreements (with maturities of up to seven days), 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 Lexington. The Fund
will be moved into a defensive position when, in the judgment of Lexington,
conditions in the securities markets would make pursuing the Fund's basic
investment strategy inconsistent with the best interests of the
- --------------------------------------------------------------------------------
10
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
shareholders. Global Fund may utilize bank demand accounts and repurchase
agreements, 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 Lexington 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 in developed countries. While Global Fund invests only in countries
that Lexington 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 "Investment Methods and Risk
Factors"--"Foreign Investment Risks" and "Currency Risk" for a discussion of the
risks associated with investing in foreign securities.
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed whenever Lexington
deems it appropriate to do so, without regard to the length of time a particular
security has been held. The operating expenses of the Fund can be expected to be
higher than those of an investment company investing exclusively in United
States securities.
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 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. 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 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 Lexington deems it appropriate to do so. See the discussion of
forward commitments under "Investment Methods and Risk Factors."
- --------------------------------------------------------------------------------
11
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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.
VALUE FUND
The investment objective of the Value Fund is to seek long-term growth of
capital. The Value Fund will seek to achieve its objective through investment in
a diversified portfolio of securities. Under normal circumstances the Fund will
consist primarily of various types of common stock, which may include ADRs, and
securities convertible into common stocks which the Investment Manager believes
are undervalued relative to assets, earnings, growth potential or cash flows.
See the discussion of ADRs under "Investment Methods and Risk Factors." Under
normal circumstances, the Fund will invest at least 65 percent of its total
assets in the securities of companies which the Investment Manager believes are
undervalued.
The Value Fund may also invest in (i) preferred stocks; (ii) warrants; and
(iii) investment grade debt securities (or unrated securities of comparable
quality). The Value Fund may purchase securities on a "when-issued" or "delayed
delivery basis" in excess of customary settlement periods for the type of
security involved. The Fund may purchase securities which are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and subject to the Fund's policy that not more
than 15 percent of its net assets will be invested in illiquid securities. The
Value Fund 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. 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. See the discussion of when-issued securities, restricted securities
and repurchase agreements under "Investment Methods and Risk Factors." The Fund
may borrow as set forth in the Statement of Additional Information. However, as
an operating policy, the Fund will not purchase portfolio securities when
borrowings exceed 5 percent of total Fund assets.
SMALL COMPANY FUND
The investment objective of the Small Company Fund is to seek long-term
growth of capital. The Fund invests primarily in equity securities of small
market capitalization companies ("small company stocks"). Market capitalization
means the total market value of a company's outstanding common stock. The Fund
anticipates that under normal market conditions, the Fund will invest at least
65 percent of its assets in equity securities of domestic and foreign companies
with market capitalizations of less than $1 billion at the time of purchase. The
equity securities in which the Fund may invest include common stocks, preferred
stocks (both convertible and non-convertible), warrants and rights. It is
anticipated that the Fund will invest primarily in companies whose securities
are traded on foreign or domestic stock exchanges or in the over-the-counter
market ("OTC"). The Fund also may invest in securities of emerging growth
companies, some of which may have market capitalizations over $1 billion.
Emerging growth companies are companies which have passed their start-up phase
and which show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time. The Fund also may invest in
equity securities of issuers which are directly or indirectly engaged in the
exploration, development or distribution of hard assets. See "Investment Methods
and Risk Factors"--"Hard Asset Securities."
Under normal conditions, the Fund intends to invest primarily in small
company stocks; however, the Fund is also permitted to invest up to 35 percent
of its assets in equity securities of domestic and foreign issuers with a market
capitalization of more than $1 billion at the time of purchase, debt obligations
and domestic and foreign money market instruments, including bankers
acceptances, certificates of deposit and discount notes of U.S. Government
securities. Debt obligations in which the Fund may invest will be investment
grade debt obligations, although the Fund may invest up to 5 percent of its
assets in non-investment grade debt obligations. (See the discussion of the
risks associated with investing in non-investment grade debt securities under
"Special Risks of High Yield Investing," page 9.) In addition, for temporary or
emergency purposes, the Fund can invest up to 100 percent of total assets in
cash, cash equivalents, U.S. Government securities, commercial paper and certain
other money market instruments, as well as repurchase agreements collateralized
by these types of securities. The Fund also may invest in reverse repurchase
agreements and shares of other non-affiliated investment companies. See the
discussion of such securities under "Investment Methods and Risk Factors."
The Fund may purchase an unlimited number of foreign securities, including
securities of companies in emerging markets. The Fund may invest in foreign
securities, either directly or indirectly through the use of depositary
receipts. Depositary receipts, including American Depositary Receipts ("ADRs"),
European Depository Receipts and American Depository Shares are generally issued
by banks or trust companies and evidence ownership of underlying foreign
securities. The Fund also may invest in securities of foreign investment funds
or trusts (including passive foreign investment companies). See the discussion
of foreign
- --------------------------------------------------------------------------------
12
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
securities, emerging market risks, currency risk and ADRs under "Investment
Methods and Risk Factors."
The Fund may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options and futures transactions
for hedging or risk management purposes. See the discussion of currency risk
under "Investment Methods and Risk Factors."
At various times the Fund may invest in derivative instruments for hedging
or risk management purposes or for any other permissible purpose consistent with
the Fund's investment objective. Derivative transactions in which the Fund may
engage include the writing of covered put and call options on securities and the
purchase of put and call options thereon, the purchase of put and call options
on securities indexes and exchange-traded options on currencies and the writing
of put and call options on securities indexes. The Fund may enter into spread
transactions and swap agreements. The Fund also may buy and sell financial
futures contracts which may include interest-rate futures, futures on currency
exchanges, and stock and bond index futures contracts. The Fund may enter into
any futures contracts and related options without limit for "bona fide hedging"
purposes (as defined in the Commodity Futures Trading Commission regulations)
and for other permissible purposes, provided that aggregate initial margin and
premiums on positions engaged in for purposes other than "bona fide hedging"
will not exceed 5 percent of its net asset value, after taking into account
unrealized profits and losses on such contracts. See "Investment Methods and
Risk Factors"--"Derivative Instruments," "Futures Contracts and Related Options"
and "Futures and Options Risk" below.
The Fund may engage in short selling against the box, provided that no more
than 15 percent of the value of the Fund's net assets is in deposits on short
sales against the box at any one time. The Fund also may invest in real estate
investment trusts ("REITs") and other real estate industry companies or
companies with substantial real estate investments. See the discussion of real
estate securities under "Investment Methods and Risk Factors."
The Fund may invest in restricted securities, including Rule 144A
securities (subject to the Fund's limit of 15 percent of net assets invested in
illiquid securities), and may lend its portfolio securities to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. See the discussion of restricted securities and lending of
portfolio securities under "Investment Methods and Risk Factors." The Fund also
may invest without limitation in securities purchased on a when-issued or
delayed delivery basis as discussed under "Investment Methods and Risk Factors."
While there is careful selection and constant supervision by the Fund's
Sub-Adviser, Strong Capital Management, Inc. ("Strong"), there can be no
guarantee that the Fund's objective will be achieved. Strong invests in
companies whose earnings are believed to be in a relatively strong growth trend,
and, to a lesser extent, in companies in which significant further growth is not
anticipated but which are perceived to be undervalued. In identifying companies
with favorable growth prospects, Strong considers factors such as prospects for
above-average sales and earnings growth; high return on invested capital;
overall financial strength; competitive advantages, including innovative
products and services; effective research, product development and marketing;
and stable, capable management.
Investing in securities of small-sized and emerging growth companies may
involve greater risks than investing in larger, more established issuers since
these securities may have limited marketability and, thus, they may be more
volatile than securities of larger, more established companies or the market
averages in general. Because small-sized companies normally have fewer shares
outstanding than larger companies, it may be more difficult for the Fund to buy
or sell significant numbers of such shares without an unfavorable impact on
prevailing prices. Small-sized companies may have limited product lines, markets
or financial resources and may lack management depth. In addition, small-sized
companies are typically subject to wider variations in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning small-sized companies than for larger,
more established ones.
Securities of issuers in "special situations" also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in "special situations"
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control.
Although investing in securities of emerging growth companies or issuers in
"special situations" offers potential for above-average returns if the companies
are successful, the risk exists that the companies will not succeed and the
prices of the companies' shares could significantly decline in value. Therefore,
an investment in the Fund may involve a greater degree of risk than an
investment in other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies.
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
- --------------------------------------------------------------------------------
13
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 under "Investment Methods and Risk Factors.") 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 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 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. See the discussion of
futures contracts and the risks associated with investing in such contracts
under "Investment Methods and Risk Factors."
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 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.
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Funds are described in the
"Investment Objective and Policies" section of this Prospectus and in the Funds'
Statement of Additional Information. The following is a description of certain
additional risk factors related to various securities, instruments and
techniques. The risks so described only apply to those Funds which may invest in
such securities and instruments or 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.
BORROWING -- Each Fund may borrow money from banks as a temporary measure
for emergency purposes. Growth and Income and Ultra Funds may borrow up to 5
percent of total assets, Equity and Global Funds up to 10 percent of total
assets and Value and Small Company Funds up to 33 1/3 percent of total assets.
None of Growth and Income, Ultra, Equity or Global Funds may borrow for
investment purposes. Value and Small Company Funds may borrow for investment
purposes and may borrow from sources other than banks. To the extent that a Fund
purchases securities while it has outstanding borrowings, it is using leverage,
i.e. using borrowed funds for investment. Leveraging will exaggerate the effect
on net asset value of any increase or decrease in the market value of a Fund's
portfolio. Money borrowed for leveraging will be subject to interest costs that
may or may not be recovered by appreciation in the securities purchased. A Fund
may be required to maintain minimum average balances in connection with
borrowings 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.
SHARES OF OTHER INVESTMENT COMPANIES. Small Company Fund may invest in
shares of other investment companies. The Fund's investment in shares of other
investment companies may not exceed immediately after purchase 10 percent of the
Fund's total assets and no more than 5 percent of its total assets may be
invested in the shares of any one investment company. Investment in the shares
of other investment companies has the effect of requiring shareholders to pay
the operating expenses of two mutual funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS) -- Each Fund 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
- --------------------------------------------------------------------------------
14
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
company's securities. ADRs are publicly traded on exchanges or over-the-counter
in the United States. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies of foreign nations,
which are in addition to the usual risks inherent in domestic investments. See
"Foreign Investment Risks" below.
FOREIGN INVESTMENT RISKS -- Each Fund may invest in foreign securities
either directly or through ADRs. Investment in foreign securities involves risks
and considerations not present in domestic investments. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. The securities of non-U.S. issuers generally are not
registered with the SEC, nor are the issuers thereof usually subject to the
SEC's reporting requirements. Accordingly, there may be less publicly available
information about foreign securities and issuers than is available with respect
to U.S. securities and issuers.
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. Although the
Funds generally invest only in securities that are regularly traded on
recognized exchanges or OTC, from time to time, foreign securities may be
difficult to liquidate rapidly without adverse price effects. Certain costs
attributable to foreign investing, such as custody charges and brokerage costs,
are higher than those attributable to domestic investing. 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 customary settlement time for
United States securities.
A 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 Funds, political or social instability, or diplomatic
developments which could affect the investments of the Funds 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.
EMERGING MARKETS RISKS -- In addition to the risks associated with
investment in foreign securities, investment in securities of issuers in
developing or emerging markets involves special risks, including less social,
political, and economic stability; smaller securities markets and lower trading
volume, which may result in a lack of liquidity and greater price volatility;
certain national policies that may restrict a Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests, or expropriation or confiscation of assets or property,
which could result in the Fund's loss of its entire investment in that market;
and less developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property. In addition,
brokerage commissions, custodial services, withholding taxes, and other costs
relating to investment in emerging markets generally are more expensive than in
the U.S. and certain more established foreign markets. Economies in emerging
markets generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be affected adversely by trade
barriers, exchange controls, managed adjustments in relative currency values,
and other protectionist measures negotiated or imposed by the countries with
which they trade.
CURRENCY RISK -- The Global and Small Company Funds invest in securities
denominated in currencies other than the U.S. dollar and, as a result, 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 a 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 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.
BRADY BONDS -- The Growth and Income and Small Company Funds may invest in
"Brady Bonds," which are debt restructurings that provide for the exchange of
cash and loans for newly issued bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructuring under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady. Brady Bonds
- --------------------------------------------------------------------------------
15
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
recently have been issued by the governments of Argentina, Brazil, Bulgaria,
Costa Rica, Dominican Republic, Jordan, Mexico, Nigeria, The Philippines,
Uruguay, Venezuela, Ecuador and Poland and are expected to be issued by other
emerging market countries. Approximately $150 billion in principal amount of
Brady Bonds has been issued to date. Investors should recognize that Brady Bonds
have been issued only recently and, accordingly, do not have a long payment
history. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
secondary market for Latin American debt. The Salomon Brothers Brady Bond Index
provides a benchmark that can be used to compare returns of emerging market
Brady Bonds with returns in other bond markets, e.g., the U.S. bond market.
Growth and Income Fund may invest in collateralized Brady Bonds,
denominated in U.S. dollars. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at the time and
is adjusted at regular intervals thereafter.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Each of the Funds may
purchase securities on a when-issued or forward commitment basis. 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 Funds will enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be; however, a Fund may dispose of a commitment prior to settlement if the
Investment Manager (or Sub-Adviser) 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 a Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, a segregated account consisting of cash
or liquid securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked to market daily. There is a risk that the securities may not be delivered
and that the Fund may incur a loss.
ZERO COUPON SECURITIES -- The Growth and Income and Small Company Funds may
invest in certain zero coupon securities that are "stripped" U.S. Treasury notes
and bonds. These Funds also may invest in zero coupon and other deep discount
securities issued by foreign governments and domestic and foreign corporations,
including certain Brady Bonds and other foreign debt and payment-in-kind
securities. Zero coupon securities pay no interest to holders prior to maturity,
and payment-in-kind securities pay interest in the form of additional
securities. However, a portion of the original issue discount on zero coupon
securities and the "interest" on payment-in-kind securities will be included in
the investing Fund's income. Accordingly, for the Fund to qualify for tax
treatment as a regulated investment company and to avoid certain taxes (see
"Taxes" in the Statement of Additional Information), the Fund may be required to
distribute an amount that is greater than the total amount of cash it actually
receives. These distributions must be made from the Fund's cash assets or, if
necessary, from the proceeds of sales of portfolio securities. The Fund will not
be able to purchase additional income-producing securities with cash used to
make such distributions and its current income ultimately may be reduced as a
result. Zero coupon and payment-in-kind securities usually trade at a deep
discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of interest
in cash.
REAL ESTATE SECURITIES -- The Global and Small Company Funds may invest in
equity securities of real estate investment trusts ("REITs"), and the Small
Company Fund may invest in other real estate industry companies or companies
with substantial real estate investments and therefore, the Funds may be subject
to certain risks associated with direct ownership of real estate and with the
real estate industry in general. These risks include, among others: possible
declines in the value of real estate; possible lack of availability of mortgage
funds; extended vacancies of properties; risks related to general and local
economic conditions; overbuilding; increases in competition, property taxes and
operating expenses; changes in zoning laws; costs resulting from the clean-up
of, and liability to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from floods,
earthquakes or other natural disasters; limitations on and variations in rents;
and changes in interest rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents.
- --------------------------------------------------------------------------------
16
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive income from the collection of interest payments.
REITs are not taxed on income distributed to shareholders provided they comply
with several requirements of the Internal Revenue Code, as amended (the "Code").
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.
REPURCHASE AGREEMENTS -- Each Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which a Fund would acquire a security
for a relatively short period (usually not more than seven 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 each
of the Funds 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 intention of each Fund, except the Small Company Fund,
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 Funds 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 Funds intend to limit repurchase agreements to
institutions believed by the Investment Manager (or Sub-Adviser) to present
minimal credit risk.
REVERSE REPURCHASE AGREEMENTS -- The Small Company Fund may enter into
reverse repurchase agreements with the same parties with whom it may enter into
repurchase agreements. Reverse repurchase agreements involve the sale of
securities held by the Fund pursuant to its agreement to repurchase them at a
mutually agreed upon date, price and rate of interest. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with an approved custodian containing cash or liquid
securities having a value not less than the repurchase price (including accrued
interest). The assets contained in the segregated account will be
marked-to-market daily and additional assets will be placed in such account on
any day in which the assets fall below the repurchase price (plus accrued
interest). The Fund's liquidity and ability to manage its assets might be
affected when it sets aside cash or portfolio securities to cover such
commitments. Reverse repurchase agreements involve the risk that the market
value of the securities retained in lieu of sale may decline below the price of
the securities the Fund has sold but is obligated to repurchase. Investment in
reverse repurchase agreements may result in a decrease in the Fund's net asset
value per share if interest rates rise during the term of the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Reverse repurchase agreements are considered to be borrowings under
the Investment Company Act of 1940 (the "1940 Act").
LENDING PORTFOLIO SECURITIES -- From time to time, the Small Company Fund
may lend its portfolio securities to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. In
connection with such loans, the Fund will receive collateral consisting of cash,
U.S. Government securities or irrevocable letters of credit. Such collateral
will be maintained at all times in an amount equal to at least 100 percent of
the current market value of the loaned securities. The Fund can increase its
income through the investment of such collateral. The Fund continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice.
The Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the Fund.
RESTRICTED SECURITIES -- The Small Company Fund may purchase securities
that are restricted as to disposition under the federal securities laws,
including restricted securities that are eligible for resale to qualified
institutional investors pursuant to Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). The Growth and Income and Global Funds may purchase
Rule 144A Securities.
Restricted securities cannot be sold to the public without registration
under the Securities Act of 1933 ("1933 Act"). Unless registered for sale,
restricted securities can be sold only in privately negotiated transactions or
pursuant to an exemption from registration. Restricted securities are generally
considered illiquid and, therefore, subject to the Fund's limitation on illiquid
securities.
- --------------------------------------------------------------------------------
17
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk which may result in substantial
losses. The securities may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Fund. In particular, Rule 144A Securities may be resold only to qualified
institutional buyers in accordance with Rule 144A under the Securities Act of
1933. Unregistered securities may also be sold abroad pursuant to Regulation S
under the 1933 Act. Companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. Acting pursuant to
guidelines established by the Board of Directors of the Funds, some restricted
securities and Rule 144A Securities may be considered liquid.
In making the determination regarding the liquidity of Rule 144A
Securities, the Investment Manager (or Sub-Adviser) will consider trading
markets for the specific security taking into account the unregistered nature of
a Rule 144A security. In addition, the Investment Manager (or Sub-Adviser) 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).
CONVERTIBLE SECURITIES -- Each Fund may invest in convertible securities. A
convertible security is a fixed income security or preferred stock that may be
converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics similar to
both debt obligations and equity securities. Although to a lesser extent than
with debt obligations generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock, and therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt obligations, convertible securities are investments that provide
for a stable stream of income with generally higher yields than common stocks.
Of course, like all debt obligations, there can be no assurance of current
income because the issuers of the convertible securities may default on their
obligations. Convertible securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar quality because of
the potential for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because the market value of securities will
fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
WARRANTS -- 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).
DEBT SECURITIES -- Each Fund may invest in debt securities. The market
value of all debt securities is affected by changes in the prevailing interest
rates. The market value of such instruments generally reacts inversely to
interest rate changes. If the prevailing interest rates decrease, the market
value of debt obligations generally increases. If the prevailing interest rates
increase, the market value of debt obligations generally decreases. In general,
the longer the maturity of a debt obligation, the greater its sensitivity to
changes in interest rates.
Investment-grade debt obligations include (1) bonds or bank obligations
rated in one of the four highest rating categories by any nationally recognized
statistical rating organization ("NRSRO") (e.g., Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group ("Standard & Poor's")); (2) U.S. government
securities (as described below); (3) commercial paper rated in one of the three
highest ratings categories of any NRSRO; (4) short-term bank obligations that
are rated in one of the three highest categories by any NRSRO, with respect to
obligations maturing in one year or less; (5) repurchase agreements involving
investment-grade debt obligations; or (6) unrated debt obligations which are
determined by the Adviser or a Sub-Adviser to be of comparable quality.
- --------------------------------------------------------------------------------
18
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by the Adviser or a Sub-Adviser
to consider what action, if any, the Fund should take consistent with its
investment objective; such event will not automatically require the sale of the
downgraded securities. Securities rated in the fourth highest category by an
NRSRO, although considered investment-grade, have speculative characteristics
and may be subject to greater fluctuations in value than higher-rated
securities.
U.S. GOVERNMENT SECURITIES -- Each Fund may invest in U.S. Government
securities which include obligations issued or guaranteed (as to principal and
interest) by the United States Government or its agencies (such as the Small
Business Administration, the Federal Housing Administration, and Government
National Mortgage Association), or instrumentalities (such as Federal Home Loan
Banks and Federal Land Banks), and instruments fully collateralized with such
obligations such as repurchase agreements. Some U.S. Government securities, such
as Treasury bills and bonds, are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. Government National Mortgage Association (GNMA) certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is guaranteed by the
full faith and credit of the U.S. Government. Although U.S. Government
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, shares of the Funds are not so guaranteed in any way.
DERIVATIVE INSTRUMENTS -- Derivative instruments may be exchange-traded or
traded in OTC transactions between private parties. OTC transactions are subject
to the credit risk of the counterparty to the instrument and are less liquid
than exchange-traded derivatives since they often can only be closed out with
the other party to the transaction. When required by guidelines of the
Securities and Exchange Commission ("SEC"), the Fund will set aside permissible
liquid assets or securities positions that substantially correlate to the market
movements of the derivatives transactions in a segregated account to secure its
obligations under derivative transactions. Segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. As a result, there is a possibility that
segregation of a large percentage of the Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations. In order to maintain its required cover for a derivative
transaction, the Fund may need to sell portfolio securities at disadvantageous
prices or times since it may not be possible to liquidate a derivative position.
The successful use of derivative transactions by the Fund is dependent upon
the Investment Manager's (or Sub-Adviser's) ability to correctly anticipate
trends in the underlying asset. Hedging transactions are subject to risks; if
the Investment Manager (or Sub-Adviser) incorrectly anticipates trends in the
underlying asset, the Fund may be in a worse position than if no hedging had
occurred. In addition, there may be imperfect correlation between the Fund's
derivative transactions and the instruments being hedged.
FUTURES CONTRACTS AND RELATED OPTIONS -- Ultra Fund may buy and sell
futures contracts and Small Company Fund may buy and sell futures contracts (and
options on such contracts) to hedge all or a portion of its portfolio or 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. Small Company Fund may also write call options and
purchase put options on financial futures contracts as a hedge to attempt to
protect the Fund's securities from a decrease in value. When a 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 may include 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. 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, each Fund that may invest in such
instruments has 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
- --------------------------------------------------------------------------------
19
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 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 the Fund's net assets; and
(ii) with respect to each futures contract purchased or long position in an
option contract, each Fund will set aside in a segregated account cash or liquid
securities in an amount equal to the market value of such contract less the
initial margin deposit.
The Staff of the 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 indices 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 consisting of cash or liquid
securities 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 indices 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.
Each Fund will conduct its purchases and sales of any futures contracts and
writing of related options transactions in accordance with the foregoing.
FUTURES AND OPTIONS RISK -- Futures contracts and options can be highly
volatile and could result in reduction of a Fund's total return, and a 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. Losses from
options and futures could be significant if a Fund is unable to close out its
position due to distortions in the market or lack of liquidity. A Fund's risk of
loss from the use of futures extends beyond its initial investment and could
potentially be unlimited.
The use of futures and options involves investment risks and transaction
costs to which a Fund would not be subject absent the use of these strategies.
If the Investment Manager seeks to protect a Fund against potential adverse
movements in the securities markets using these instruments, and such markets do
not move in a direction adverse to such Fund, such 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: (a) the risk that securities prices will
not move in the direction anticipated; (b) imperfect correlation between the
price of futures and options and movements in the prices of the securities being
hedged; (c) the fact that skills needed to use these strategies are different
from those needed to select portfolio securities; (d) the possible absence of a
liquid secondary market for any particular instrument at any time; and (e) the
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences. A 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 such Fund.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of a hedge. Such correlation, particularly with
respect to options on stock indices and stock index futures, is imperfect, and
such risk increases as the composition of the Fund diverges from the composition
of the relevant index. The successful use of these strategies also depends on
the ability of the Investment Manager (or Sub-Adviser) to correctly forecast
general stock market price movements.
HARD ASSET SECURITIES -- The Small Company Fund may invest in equity
securities of issuers which are directly or indirectly engaged to a significant
extent in the exploration development or distribution of one or more of the
following: precious metals; ferrous and non-ferrous metals; gas, petroleum,
petrochemical and/or other commodities (collectively, "Hard Assets"). The
production and marketing of Hard Assets may be affected by actions and changes
in governments. In addition, Hard Asset securities may be cyclical in nature.
During periods of economic or financial instability, the securities of some Hard
Asset companies may be subject to broad price fluctuations, reflecting the
volatility of energy and basic materials prices and the possible instability of
supply of various Hard Assets. In addition, some Hard Asset companies also may
be subject to the risks generally associated with extraction of natural
resources, such as the risks of mining and oil drilling, and the risks of the
hazard associated with natural resources, such as fire, drought, increased
regulatory and environmental costs, and others. Securities of Hard Asset
- --------------------------------------------------------------------------------
20
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
companies may also experience greater price fluctuations than the relevant Hard
Asset. In periods of rising Hard Asset prices, such securities may rise at a
faster rate, and, conversely, in times of falling Hard Asset prices, such
securities may suffer a greater price decline.
MANAGEMENT OF THE FUNDS
The management of the Funds' business and affairs is the responsibility of
the Board of Directors. Security Management Company, LLC (the "Investment
Manager"), 700 Harrison St., Topeka, Kansas, is responsible for selection and
management of the Funds' portfolio investments. The Investment Manager is a
limited liability company, which is ultimately controlled by Security Benefit
Life Insurance Company, a mutual life insurance company. The Investment Manager
also acts as investment adviser to Security Asset Allocation Fund, Security
Social Awareness Fund, Security Income Fund, Security Tax-Exempt Fund, Security
Cash Fund and SBL Fund. On September 30, 1996, the aggregate assets of all of
the Funds under the investment management of the Investment Manager were
approximately $3.4 billion.
The Investment Manager has engaged Lexington Management Corporation
("Lexington"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to
provide certain investment advisory services to Global Fund. Lexington is a
wholly-owned subsidiary of Lexington Global Asset Managers, Inc., a Delaware
corporation with offices at Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a majority voting control of the outstanding shares of
Lexington Global Asset Managers, Inc. Lexington was established in 1938 and
currently manages over $3.5 billion in assets.
The Investment Manager has engaged Strong Capital Management, Inc.
("Strong"), 900 Heritage Reserve, Menomonee Falls, Wisconsin 53051, to provide
certain investment advisory services to the Small Company Fund. Strong is a
privately held corporation which is controlled by Richard S. Strong. Strong was
established in 1974 and currently manages over $27 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 and Small Company Fund, the Investment Manager
supervises the management of these Funds' portfolios by the Sub-Advisers,
Lexington and Strong. 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 is not aware of any state
that currently imposes limits on the level of mutual fund expenses.) 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.
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, 1.50 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 1.50 percent of the
remaining average net assets of this Fund, calculated daily and payable monthly.
The Investment Manager pays Lexington an amount equal to .50 percent of the
average net assets of Global Fund, calculated on a daily basis and payable
monthly. For the investment advisory services provided to the Value Fund and
Small Company Fund, the Investment Manager receives, on an annual basis, a fee
of 1 percent of the average daily net assets of each Fund, calculated daily and
payable monthly. The Investment Manager pays Strong with respect to the Small
Company Fund, an annual fee based on the combined average net asset of the Fund
and another fund to which Strong provides advisory services. The fee is equal to
.50 percent of the combined average net assets under $150 million, .45 percent
of the combined average net assets at or above $150 million but less than $500
million, and .40 percent of the combined average net assets at or above $500
million. As compensation for providing administrative, bookkeeping, accounting
and pricing services to the Value Fund and Small Company Fund, the Investment
Manager receives on an annual basis, a fee of .09 percent of the average daily
net assets of each Fund, calculated daily and payable monthly.
For the period October 1, 1996 to March 31, 1997, the total expenses, as a
percentage of average net assets, were 1.26 percent for Class A and 2.26 percent
for Class B shares of Growth and Income Fund; 1.03 percent for Class A and 2.04
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 1.26 percent for Class A and 2.25
percent for Class B shares of Ultra Fund. For the period May 1, 1997 (date of
inception) to August 31, 1997, the total expenses for
- --------------------------------------------------------------------------------
21
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
Class A and Class B shares of Value Fund were 1.09 percent and 1.96 percent,
respectively. Expense information for the Small Company Fund is not yet
available as it did not begin operations until October of 1997.
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, Jim Schier, and Chuck
Lauber. Jim Schier, Portfolio Manager, assumed day-to-day responsibility for
managing this portion of the portfolio in October 1997. 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, Barb Davison, David Eshnaur, Elaine Miller
and Paulette Schwerdt. Tom Swank, 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
Lexington. Richard T. Saler and Alan Wapnick, the lead managers, have had
day-to-day responsibility for managing Global Fund since 1994. VALUE FUND is
managed by the Large Capitalization Team of the Investment Manager described
above. Mr. Schier has had day-to-day responsibility for managing the Value Fund
since its inception in 1997. SMALL COMPANY FUND is managed by Ronald C. Ognar of
Strong. He has had day-to-day responsibility for managing Small Company Fund
since its inception in 1997. 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. OGNAR, portfolio manager of Strong, is a Chartered Financial Analyst
with more than 25 years of investment experience. Mr. Ognar joined Strong in
April 1993 after two years as a principal and portfolio manager with RCM Capital
Management. Prior to his position at RCM Capital Management, he was a portfolio
manager at Kemper Financial Services in Chicago. Mr. Ognar began his investment
career in 1968 at LaSalle National Bank. He is a graduate of the University of
Illinois with a bachelor's degree in accounting.
MR. SALER is a Senior Vice President of Lexington and is responsible for
international investment analysis and portfolio management. He has eleven years
of investment experience. Mr. Saler has focused on international 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.
MR. SCHIER, Portfolio Manager of the Investment Manager, has 13 years
experience in the investment field and is a Chartered Financial Analyst. While
employed by the Investment Manager, he also served as a research analyst. Prior
to joining the Investment Manager in 1995, he was a portfolio manager for
Mitchell Capital Management from 1993 to 1995. From 1988 to 1995 he served as
Vice President and Portfolio Manager for Fourth Financial. Prior to 1988, Mr.
Schier served in various positions in the investment field for Stifel Financial,
Josepthal & Company and Mercantile Trust Company. Mr. Schier earned a bachelor
of business degree from the University of Notre Dame and an M.B.A. from
Washington University.
MS. SHIELDS, Portfolio Manager of the Investment Manager, has eight years
experience in the securities field. Ms. Shields has been a portfolio manager
since 1994, and prior to that time, she served as a research analyst for the
Investment Manager. She is a Chartered Financial Analyst. Ms. Shields graduated
from Washburn University with a Bachelor of Business Administration degree,
majoring in finance and economics. She joined the Investment Manager in 1989.
MR. SWANK has over ten 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. From
1982 to 1984, he was employed as a Bank Holding Company Examiner for the Federal
Reserve Bank of Kansas City - Denver Branch. Mr. Swank graduated from Miami
University in Ohio with a Bachelor of Science degree in Finance in 1982. He
earned a Master of Business Administration degree from the University of
Colorado and is a Chartered Financial Analyst.
- --------------------------------------------------------------------------------
22
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
MR. WAPNICK is a Senior Vice President of Lexington and is responsible for
portfolio management. He has 27 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.
HOW TO PURCHASE SHARES
Security Distributors, Inc. (the "Distributor"), 700 Harrison St., Topeka,
Kansas, a wholly-owned subsidiary of Security Benefit Group, Inc., 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 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 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," page 25.
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
- --------------------------------------------------------------------------------
23
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 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, Asset
Allocation, Social Awareness, Value, Small Company 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.
SECURITY EQUITY FUND'S CLASS A DISTRIBUTION PLAN
In addition to the sales charge deducted from Class A shares at the time of
purchase, Small Company Fund is authorized, under a Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Class A
Distribution Plan"), to use its assets to finance certain activities relating to
the distribution of its shares to investors. This Plan permits payments to be
made by this Fund to the Distributor to finance various activities relating to
the distribution of its Class A shares to investors, including, but not limited
to, the payment of compensation (including incentive compensation to securities
dealers and other financial institutions and organizations) to obtain various
distribution-related and/or administrative services for the Fund.
Under the Class A Distribution Plan, a monthly payment is made to the
Distributor in an amount computed at an annual rate of .25 percent of the
average daily net asset value of Small Company Fund's Class A shares. The
distribution fee is charged to the Fund in proportion to the relative net assets
of its Class A shares. The distribution fees collected may be used by Small
Company Fund to finance distribution activities, for example advertisements.
The Class A Distribution Plan authorizes payment by the Class A shares of
this Fund of the cost of preparing, printing and distributing prospectuses and
Statements of Additional Information to prospective investors and of
implementing and operating the Plan.
In addition, compensation to securities dealers and others is paid from
distribution fees at an annual rate of .25 percent of the average daily net
asset value of Class A shares sold by such dealers and remaining outstanding on
the Small Company Fund's books to obtain certain administrative services for the
Small Company Fund's Class A stockholders. The services include, among other
things, processing new stockholder account applications and serving as the
primary source of information to customers in answering questions concerning the
Fund and its transactions with the Fund. The Distributor is also authorized to
engage in advertising, the preparation and distribution of sales literature and
other promotional activities on behalf of Small Company Fund. Other promotional
activities which may be financed pursuant to the Plan include (i) informational
meetings concerning the Fund for registered representatives interested in
selling shares of the Fund and (ii) bonuses or incentives offered to all or
specified dealers on the basis of sales of a specified minimum dollar amount of
Class A shares of the Fund by the registered representatives employed by such
dealer(s). The expenses associated with the foregoing activities will include
travel expenses, including lodging. From time to time, the Distributor may spend
an amount on promotional activities that exceeds the amount of distribution fees
that have been collected under the plan. In this event, the Distributor would
seek reimbursement for such expenditures from distribution fees collected in
future years. Additional information may be obtained by referring to the Fund's
Statement of Additional Information.
Small Company Fund's Class A Distribution Plan may be terminated at any
time by vote of the directors of Equity Fund, who are not interested persons of
the Fund as defined in the 1940 Act or by vote of a majority of the outstanding
Class A shares. In the event the Class A Distribution Plan is terminated by the
Fund's Class A stockholders or the Board of Directors, the payments made to the
Distributor pursuant to the Plan up to that time would be retained by the
Distributor. Any expenses incurred by the Distributor in excess of those
payments would be absorbed by the Distributor.
CLASS B SHARES
Class B shares 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 or original purchase price,
whichever is lower, otherwise payable to the stockholder. The deferred sales
charge is retained by the Distributor.
- --------------------------------------------------------------------------------
24
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 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 each 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 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.
- --------------------------------------------------------------------------------
25
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 may 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 30 for details.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Investment Manager or Distributor, from time to time, will provide
promotional incentives or pay a bonus to certain dealers whose representatives
have sold or are expected to sell significant amounts of the Funds and/or
certain other funds managed by the Investment Manager. Such promotional
incentives will include payment for attendance (including travel and lodging
expenses) by qualifying registered representatives (and members of their
families) at sales seminars at luxury resorts within or without the United
States. Bonus compensation may include reallowance of the entire sales charge
and may also include, with respect to Class A shares, an amount which exceeds
the entire sales charge and, with respect to Class B shares, an amount which
exceeds the maximum commission. The Distributor, or the Investment Manager, may
also provide financial assistance to certain dealers in connection with
conferences, sales or training programs for their employees, seminars for the
public, advertising, sales campaigns, and/or shareholder services and programs
regarding one or more of the funds managed by the Investment Manager. Certain of
the promotional incentives or bonuses may be financed by payments to the
Distributor under a Rule 12b-1 Distribution Plan. The payment of promotional
incentives and/or bonuses will not change the price an investor will pay for
shares or the amount that the Funds will receive from such sale. No compensation
will be offered to the extent it is prohibited by the laws of any state or
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A
shares is reallowed may be deemed to be an "underwriter" under federal
securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Funds' Board of Directors would consider what
action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. The
Investment Manager or Distributor also may pay a marketing allowance to dealers
who meet certain eligibility criteria. This allowance is paid with reference to
new sales of Fund shares in a calendar year. To be eligible for this allowance
in any given year, the dealer must sell a minimum of $2,000,000 of Class A and
Class B shares during that year. The marketing allowance ranges from .15 percent
to .75 percent of aggregate new sales depending upon the volume of shares sold.
See the Funds' Statement of Additional Information for more detailed information
about the marketing allowance.
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
- --------------------------------------------------------------------------------
26
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
transferred or resold except through redemption or repurchase by or on behalf of
the Funds.
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, LLC, 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 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
- --------------------------------------------------------------------------------
27
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
received on the next business day. Telephone redemptions are not accepted for
IRA and 403(b)(7) accounts. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of the account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and 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 telephone redemption request, provided the Investment Manager complied
with its procedures. Thus, a stockholder who authorizes telephone redemptions
may bear the risk of loss from a fraudulent or unauthorized request. The
telephone redemption privilege may be changed or discontinued at any time by the
Investment Manager or the Funds.
During periods of severe market or economic conditions, telephone
redemptions may be difficult to implement and stockholders should make
redemptions by mail as described 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 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
- --------------------------------------------------------------------------------
28
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 last 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 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, 1996, was Growth and Income Fund - 69 percent; Equity Fund - 64
percent; Global Fund - 142 percent; and Ultra Fund - 161 percent. The annualized
portfolio turnover rate for the Value Fund for the period May 1, 1997 (date of
inception) to August 31, 1997, was 25 percent. The portfolio turnover rate is
not yet available for the Small Company Fund as it did not begin operations
until October of 1997. Higher portfolio turnover (portfolio turnover of 100
percent or more) 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 the Value Fund will generally be less than 150
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. The portfolio
turnover of Small Company Fund is not expected to exceed 200 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 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.
- --------------------------------------------------------------------------------
29
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
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 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.
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
- --------------------------------------------------------------------------------
30
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
Charges," page 25. 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, for shares of the other mutual funds distributed
by the Distributor or for shares of Security Cash Fund at net asset value. The
other funds currently distributed by the Distributor include Security Asset
Allocation, Social Awareness, Value, Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield, Emerging Markets Total Return, Global Asset Allocation,
Global High Yield and Tax-Exempt Funds. Exchanges may be made only in those
states where shares of the fund into which an exchange is to be made are
qualified for sale. No service fee is presently imposed on such an exchange.
Class A and Class B shares of the Funds may be exchanged for Class A and Class B
shares, respectively, of another fund distributed by the Distributor or for
shares of 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 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
Security Growth and Income, Equity and Ultra Funds are Kansas corporations,
the Articles of Incorporation of which provide for the issuance of an indefinite
number of shares of common stock in one or more classes or series. Security
Equity Fund has authorized capital stock of $.25 par value and currently issues
its shares in six series, Equity Fund, Global Fund, Asset Allocation Fund,
Social Awareness Fund, Value Fund and Small Company Fund. 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 have authorized capital stock 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;
- --------------------------------------------------------------------------------
31
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
(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 the corporation'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.
- --------------------------------------------------------------------------------
32
<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 (or, if
applicable, 36-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.
- --------------------------------------------------------------------------------
33
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
[SDI LOGO} BULK RATE
U.S. POSTAGE
700 SW Harrison St. PAID
Topeka, KS 66636-0001 TOPEKA, KS
(785) 431-3127 PERMIT NO. 385
<PAGE>
- --------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND
(formerly Security Investment Fund)
SECURITY EQUITY FUND
* EQUITY SERIES
* GLOBAL SERIES
* ASSET ALLOCATION SERIES
* SOCIAL AWARENESS SERIES
* VALUE SERIES
* SMALL COMPANY SERIES
SECURITY ULTRA FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 15, 1997
RELATING TO THE PROSPECTUS DATED OCTOBER 15, 1997, AS IT MAY BE SUPPLEMENTED
FROM TIME TO TIME
(785) 431-3127
(800) 888-2461
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Security Management Company, LLC
700 SW Harrison Street
Topeka, Kansas 66636-0001
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
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
October 15, 1997
(RELATING TO THE PROSPECTUS DATED OCTOBER 15, 1997,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME)
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus dated October 15, 1997, as it may be
supplemented from time to time. A Prospectus may be obtained by writing or
calling Security Distributors, Inc., 700 SW Harrison Street, Topeka, Kansas
66636-0001, or by calling (785) 431-3127 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.................................................... 4
Equity Fund........................................................... 4
Global Fund........................................................... 4
Asset Allocation Fund................................................. 6
Social Awareness Fund................................................. 8
Value Fund............................................................ 9
Small Company Fund.................................................... 9
Security Ultra Fund..................................................... 11
Investment Methods and Risk Factors........................................ 12
Investment Policy Limitations.............................................. 29
Security Growth and Income Fund's Fundamental Policies.................. 30
Security Equity Fund's Fundamental Policies............................. 30
Security Ultra Fund's Fundamental Policies.............................. 32
Officers and Directors..................................................... 33
Remuneration of Directors and Others....................................... 34
How to Purchase Shares..................................................... 35
Alternative Purchase Options............................................ 35
Class A Shares.......................................................... 36
Security Equity Fund's Class A Distribution Plan........................ 36
Class B Shares.......................................................... 37
Class B Distribution Plan............................................... 37
Calculation and Waiver of Contingent Deferred Sales Charges............. 38
Arrangements With Broker-Dealers and Others............................. 38
Purchases at Net Asset Value............................................ 39
Accumulation Plan.......................................................... 40
Systematic Withdrawal Program.............................................. 40
Investment Management...................................................... 41
Portfolio Management.................................................... 44
Code of Ethics.......................................................... 46
Distributor................................................................ 46
Allocation of Portfolio Brokerage.......................................... 47
How Net Asset Value is Determined.......................................... 48
How to Redeem Shares....................................................... 49
Telephone Redemptions................................................... 50
How to Exchange Shares..................................................... 51
Exchange by Telephone................................................... 51
Dividends and Taxes........................................................ 52
Organization............................................................... 55
Legal Proceedings.......................................................... 56
Custodian, Transfer Agent and Dividend-Paying Agent........................ 56
Independent Auditors....................................................... 56
Performance Information.................................................... 56
Retirement Plans........................................................... 58
Individual Retirement Accounts (IRAs)...................................... 58
SIMPLE IRAs................................................................ 59
Pension and Profit-Sharing Plans........................................... 59
403(b) Retirement Plans.................................................... 59
Simplified Employee Pension Plans (SEPPs).................................. 59
Financial Statements....................................................... 60
Appendix A................................................................. 61
Appendix B................................................................. 63
<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 49.)
Each of Security Growth and Income Fund ("Growth and Income Fund"), the
Equity Series ("Equity Fund"), Global Series ("Global Fund"), Asset Allocation
Series ("Asset Allocation Fund"), Social Awareness Series ("Social Awareness
Fund"), Value Series ("Value Fund"), and Small Company Series ("Small Company
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 29. 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 52.)
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
35.)
Professional investment advice is provided to each Fund by Security
Management Company, LLC (the "Investment Manager"). The Investment Manager has
appointed Lexington Management Corporation ("Lexington") to provide certain
investment advisory services to Global Fund, Meridian Investment Management
Corporation ("Meridian") to provide quantitative investment research and
investment advisory services to the Asset Allocation Fund and Strong Capital
Management, Inc. ("Strong) to provide investment advisory services to Small
Company Fund.
The Funds receive investment advisory, administrative, accounting, and
transfer agency services from the Investment Manager for a fee. The fee for each
of the Growth and Income, Equity and Ultra 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, Social Awareness, Value, and
Small Company Funds, to the Investment Manager for investment advisory,
administrative and transfer agency services. The investment advisory fee for
Asset Allocation, Social Awareness, Value, and Small Company Funds on an annual
basis is equal to 1% of the average daily net assets of each 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 $60,000. The
administrative fee for the Social Awareness, Value, and Small Company Funds on
an annual basis is equal to .09% of the average daily net assets of each
respective Fund. The transfer agency fee for the Asset Allocation, Social
Awareness, Value, and Small Company Funds 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, Social Awareness, Value, and Small Company Funds) 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. The Asset Allocation, Social Awareness, Value, and Small Company
Funds pay all of their expenses not assumed by the
1
<PAGE>
Investment Manager or Security Distributors, Inc. (the "Distributor") as
described under "Investment Management," page 41.
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
state. See "Investment Management," page 41 for a discussion of the Investment
Manager and the Investment Management and Services Agreements.
Under a Distribution Plan adopted with respect to the Class A shares of
Small Company Fund, pursuant to Rule 12b-1 under the Investment Company Act of
1940, the Small Company Fund is authorized to pay the Distributor an annual fee
of .25% of the average daily net assets of the Class A shares of that Fund to
finance various distribution-related activities. Under Distribution Plans
adopted with respect to the Class B shares of the Funds, pursuant to Rule 12b-1,
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 A Distribution
Plan," page 36 and "Class B Distribution Plan," page 37.)
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 (i) securities convertible into common stocks; (ii)
preferred stocks; (iii) debt securities issued by U.S. corporations; (iv)
securities issued by the U.S. Government or any of its agencies or
instrumentalities, including Treasury bills, certificates of indebtedness, notes
and bonds; (v) securities issued by foreign governments, their agencies, and
instrumentalities, and foreign corporations, provided that such securities are
denominated in U.S. dollars; (vi) higher yielding, high risk debt securities
(commonly referred to as "junk bonds"); and (vii) zero coupon 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
2
<PAGE>
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.
As discussed above, Growth and Income Fund may invest in foreign debt
securities that are denominated in U.S. dollars. Such foreign debt securities
may include debt of foreign governments, including Brady Bonds, and debt of
foreign corporations. The Fund expects to limit its investment in foreign debt
securities, excluding Canadian securities, to not more than 15% of its total
assets and its investment in debt securities of issuers in emerging markets,
excluding Brady Bonds, to not more than 5% of its net assets. See the discussion
of the risks associated with investing in foreign securities and, in particular,
Brady Bonds and emerging markets under "Investment Methods and Risk Factors."
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. The Fund may purchase securities that are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and subject to the Fund's policy that not more
than 15% of its total assets will be invested in illiquid securities. 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. See the discussion of
when issued securities, restricted securities, and repurchase agreements under
"Investment Methods and Risk Factors" and see the discussion of restricted
securities under the same heading in the prospectus.
The Fund may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also provide for the commencement of
regular interest payments at a deferred date. See "Investment Methods and Risk
Factors" for a discussion of zero coupon securities.
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 years ended September 30, 1996, 1995 and 1994 was as follows: 1996 - 69%,
1995 - 130% and 1994 - 163%. The portfolio turnover rate of Class B shares of
Growth and Income Fund for the fiscal years ended September 30, 1996 and 1995
was 69% and 130%, respectively. 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 not usually 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. Debt securities issued by governments in emerging markets can
differ from debt obligations issued by private entities in that remedies from
defaults generally must be pursued in the courts of the defaulting government,
and legal recourse is therefore somewhat diminished. Political conditions, in
terms of a government's willingness to meet the terms of its debt obligations,
also are of considerable significance. There can be no assurance that the
holders of commercial bank debt may not contest
3
<PAGE>
payments to the holders of debt securities issued by governments in emerging
markets in the event of default by the governments under commercial bank loan
agreements.
SECURITY EQUITY FUND
Security Equity Fund currently issues its shares in six series -- Equity
Series ("Equity Fund"), Global Series ("Global Fund"), Asset Allocation Series
("Asset Allocation Fund"), Social Awareness Series ("Social Awareness Fund"),
Value Series ("Value Fund") and Small Company Series ("Small Company 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. 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.
The portfolio turnover rate of Class A shares of Equity Fund for fiscal
years ended September 30, 1996, 1995 and 1994 was as follows: 1996 - 64%, 1995 -
95% and 1994 - 79%. The portfolio turnover rate for Class B shares of Equity
Fund for the fiscal years ended September 30, 1996 and 1995 was 64% and 95%,
respectively. 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, real estate investment trusts (REITs), 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
4
<PAGE>
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 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.
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 may enter into repurchase agreements only with
(a) securities dealers that have a total capitalization of at least $40,000,000
and a ratio of aggregate indebtedness to net capital of no more than 4 to 1, or,
alternatively, net capital equal to 6% of aggregate debit balances, or (b) banks
that have at least $1,000,000,000 in assets and a net worth of at least
$100,000,000 as of its most recent annual report. In addition, the aggregate
repurchase price of all repurchase agreements held by the Fund with any broker
shall not exceed 15% of the total assets of the Fund or $5,000,000, whichever is
5
<PAGE>
greater. The Fund will not enter into repurchase agreements maturing in more
than seven days if the aggregate of such repurchase agreements and other
illiquid investments would exceed 10%. 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
years ended September 30, 1996 and 1995 was 142% and 141%, respectively. 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 years ended September 30, 1996 and 1995 was 142% and
141%, respectively. 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"); zero coupon securities 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 real estate securities, 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, 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 Fund's Sub-Adviser, Meridian Investment Management Corporation
("Meridian"), conducts quantitative investment research and uses the research to
strategically allocate 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. Meridian then
determines 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.
6
<PAGE>
Meridian identifies sectors of the domestic and international economy in
which the Fund will invest and then determines which equity securities to
purchase within the identified sectors.
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 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 also
invest in shares of other investment companies as discussed under "Investment
Methods and Risk Factors," below.
The Fund may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also provide for the commencement of
regular interest payments at a deferred date. See "Investment Methods and Risk
Factors" for a discussion of zero coupon securities.
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 would 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, for the fiscal year ended September 30, 1996 was 75%. The
portfolio turnover rate for Asset Allocation Fund, for the period June 1, 1995
(inception) to September 30, 1995 was 129%. Portfolio turnover is the percentage
of the lower of security sales or
7
<PAGE>
purchases to the average portfolio value and would be 100% if all securities in
the Fund were replaced within a period of one year.
SOCIAL AWARENESS FUND
The investment objective of Social Awareness Fund is to seek capital
appreciation by investing in various types of securities which meet certain
social criteria established for the Fund. Social Awareness Fund will invest in a
diversified portfolio of common stocks (which may include ADRs), convertible
securities, preferred stocks and debt securities. See "Investment Methods and
Risk Factors" - "American Depositary Receipts." From time to time, the Fund may
purchase government bonds or commercial notes on a temporary basis for defensive
purposes.
Securities selected for their appreciation possibilities will be primarily
common stocks or other securities having the investment characteristics of
common stocks, such as securities convertible into common stocks. Securities
will be selected on the basis of their appreciation and growth potential.
Securities considered to have capital appreciation and growth potential will
often include securities of smaller and less mature companies. Such companies
may present greater opportunities for capital appreciation because of high
potential earnings growth, but may also involve greater risk. They may have
limited product lines, markets or financial resources, and they may be dependent
on a limited management group. Their securities may trade less frequently and in
limited volume, and only in the over-the-counter ("OTC") market or on smaller
securities exchanges. As a result, the securities of smaller companies may have
limited marketability and may be subject to more abrupt or erratic changes in
value than securities of larger, more established companies. The Fund may also
invest in larger companies where opportunities for above-average capital
appreciation appear favorable and the Fund's social criteria are satisfied.
The Social Awareness Fund may enter into futures contracts (a type of
derivative) (or options thereon) 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 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 assets. The Fund may also write call and put options
on a covered basis and purchase put and call options on securities and financial
indices. The aggregate market value of the Fund's portfolio securities covering
call or put options will not exceed 25% of the Fund's net assets. See the
discussion of options and futures contracts under "Investment Methods and Risk
Factors." Under normal circumstances, the Social Awareness Fund will invest all
of its assets in issuers that meet its social criteria as set forth below and
that offer investment potential. Because of the limitations on investment
imposed by the social criteria, the availability of investment opportunities for
the Fund may be limited as compared to those of similar funds which do not
impose such restrictions on investment.
The Social Awareness Fund will not invest in securities of companies that
engage in the production of nuclear energy, alcoholic beverages or tobacco
products.
In addition, the Fund will not invest in securities of companies that
significantly engage in: (1) the manufacture of weapon systems; (2) practices
that, on balance, have a detrimental effect on the environment; or (3) the
gambling industry. The Fund will monitor the activities identified above to
determine whether they are significant to an issuer's business. Significance may
be determined on the basis of the percentage of revenue generated by, or the
size of operations attributable to, such activities. The Fund may invest in an
issuer that engages in the activities set forth above, in a degree that is not
deemed significant by the Investment Manager. In addition, the Fund will seek
out companies that have contributed substantially to the communities in which
they operate, have a positive record on employment relations, have made
substantial progress in the promotion of women and minorities or in the
implementation of benefit policies that support working parents, or have taken
notably positive steps in addressing environmental challenges.
The Investment Manager will evaluate an issuer's activities to determine
whether it engages in any practices prohibited by the Fund's social criteria. In
addition to its own research with respect to an issuer's activities, the
Investment Manager will also rely on other organizations that publish
information for investors concerning the social policy implications of corporate
activities. The Investment Manager may rely upon information provided by
advisory firms that provide social research on U.S. corporations, such as
Kinder, Lydenberg & Domini & Co., Inc., Franklin Insight, Inc. and
Prudential-Bache Capital Funding. Investment selection on the basis of social
attributes is a relatively new practice and the sources for this type of
information are not well established. The Investment
8
<PAGE>
Manager will continue to identify and monitor sources of such information to
screen issuers which do not meet the social investment restrictions of the Fund.
If after purchase of an issuer's securities by Social Awareness Fund, it is
determined that such securities do not comply with the Fund's social criteria,
the securities will be eliminated from the Fund's portfolio within a reasonable
time. This requirement may cause the Fund to dispose of a security at a time
when it may be disadvantageous to do so. The annualized portfolio turnover rate
for the period November 4, 1996, to March 31, 1997, was 22% for Social Awareness
Fund. 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.
VALUE FUND
The investment objective of the Value Fund is to seek long-term growth of
capital. The Value Fund will seek to achieve its objective through investment in
a diversified portfolio of securities. Under normal circumstances the Fund will
consist primarily of various types of common stock, which may include ADRs, and
securities convertible into common stocks which the Investment Manager believes
are undervalued relative to assets, earnings, growth potential or cash flows.
See the discussion of ADRs under "Investment Methods and Risk Factors." Under
normal circumstances, the Fund will invest at least 65% of its total assets in
the securities of companies which the Investment Manager believes are
undervalued.
The Value Fund may also invest in (i) preferred stocks; (ii) warrants; and
(iii) investment grade debt securities (or unrated securities of comparable
quality). The Value Fund may purchase securities on a "when-issued" or "delayed
delivery basis" in excess of customary settlement periods for the type of
security involved. The Fund may purchase securities which are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and subject to the Fund's policy that not more
than 15% of its net assets will be invested in illiquid securities. The Value
Fund 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. 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. See the discussion of when-issued securities, restricted securities
and repurchase agreements under "Investment Methods and Risk Factors."
The annualized portfolio turnover rate for the period May 1, 1997 (date of
inception) to August 31, 1997, was 25% for Value Fund. 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. A 100% turnover rate is substantially greater than that of
most mutual funds.
SMALL COMPANY FUND
The investment objective of the Small Company Fund is to seek long-term
growth of capital. The Fund invests primarily in equity securities of small
market capitalization companies ("small company stocks"). Market capitalization
means the total market value of a company's outstanding common stock. The Fund
anticipates that under normal market conditions, the Fund will invest at least
65% of its assets in equity securities of domestic and foreign companies with
market capitalizations of less than $1 billion at the time of purchase. The
equity securities in which the Fund may invest include common stocks, preferred
stocks (both convertible and non-convertible), warrants and rights. It is
anticipated that the Fund will invest primarily in companies whose securities
are traded on foreign or domestic stock exchanges or in the over-the-counter
market ("OTC"). The Fund also may invest in securities of emerging growth
companies, some of which may have market capitalizations over $1 billion.
Emerging growth companies are companies which have passed their start-up phase
and which show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time.
Under normal conditions, the Fund intends to invest primarily in small
company stocks; however, the Fund is also permitted to invest up to 35% of its
assets in equity securities of domestic and foreign issuers with a market
capitalization of more than $1 billion at the time of purchase, debt obligations
and domestic and foreign money market instruments, including bankers
acceptances, certificates of deposit and discount notes of U.S. Government
securities. Debt obligations in which the Fund may invest will be investment
grade debt obligations, although the Fund may invest up to 5% of its assets in
non-investment grade debt obligations. In addition, for temporary or
9
<PAGE>
emergency purposes, the Fund can invest up to 100% of total assets in cash, cash
equivalents, U.S. Government securities, commercial paper and certain other
money market instruments, as well as repurchase agreements collateralized by
these types of securities. The Fund also may invest in reverse repurchase
agreements and shares of other non-affiliated investment companies. See the
discussion of such securities under "Investment Methods and Risk Factors" in the
Prospectus.
The Fund may purchase an unlimited number of foreign securities, including
securities of companies in emerging markets. The Fund may invest in foreign
securities, either directly or indirectly through the use of depositary
receipts. Depositary receipts, including American Depositary Receipts ("ADRs"),
European Depository Receipts and American Depository Shares are generally issued
by banks or trust companies and evidence ownership of underlying foreign
securities. The Fund also may invest in securities of foreign investment funds
or trusts (including passive foreign investment companies). See the discussion
of foreign securities, emerging growth stocks, currency risk and ADRs under
"Investment Methods and Risk Factors."
Some of the countries in which the Fund may invest may not permit direct
investment by outside investors. Investment in such countries may only be
permitted through foreign government-approved or government-authorized
investment vehicles, which may include other investment companies. Investing
through such vehicles may involve frequent or layered fees or expenses and may
also be subject to limitation under the Investment Company Act of 1940. See
"Investment Methods and Risk Factors" - "Shares of Other Investment Companies"
for more information.
The Fund may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options and futures transactions
for hedging or risk management purposes. See the discussion of currency risk
under "Investment Methods and Risk Factors."
At various times the Fund may invest in derivative instruments for hedging
or risk management purposes or for any other permissible purpose consistent with
the Fund's investment objective. Derivative transactions in which the Fund may
engage include the writing of covered put and call options on securities and the
purchase of put and call options thereon, the purchase of put and call options
on securities indexes and exchange-traded options on currencies and the writing
of put and call options on securities indexes. The Fund may enter into spread
transactions and swap agreements. The Fund also may buy and sell financial
futures contracts which may include interest-rate futures, futures on currency
exchanges, and stock and bond index futures contracts. The Fund may enter into
any futures contracts and related options without limit for "bona fide hedging"
purposes (as defined in the Commodity Futures Trading Commission regulations)
and for other permissible purposes, provided that aggregate initial margin and
premiums on positions engaged in for purposes other than "bona fide hedging"
will not exceed 5% of its net asset value, after taking into account unrealized
profits and losses on such contracts. See "Investment Methods and Risk Factors"
for more information on options, futures (and options thereon) and other
derivative instruments.
The Fund may acquire warrants which are securities giving the holder the
right, but not the obligation, to buy the stock of an issuer at a given price
(generally higher that the value of the stock at the time of issuance), on a
specified date, during a specified period, or perpetually. Warrants may be
acquired separately or in connection with the acquisition of securities. The
Fund may purchase warrants, valued at the lower of cost or market value, of up
to 5% of the Fund's net assets. Included in that amount, but not to exceed 2% of
the Fund's net assets, may be warrants that are not listed on any recognized
U.S. or foreign stock exchange. Warrants acquired by the Fund in units or
attached to securities are not subject to these restrictions.
The Fund may engage in short selling against the box, provided that no more
that 15% of the value of the Fund's net assets is in deposits on short sales
against the box at any one time. The Fund also may invest in real estate
investment trusts ("REITs") and other real estate industry companies or
companies with substantial real estate investments. See the discussion of real
estate securities under "Investment Methods and Risk Factors."
The Fund may invest in restricted securities, including Rule 144A
securities. See the discussion of restricted securities under "Investment
Methods and Risk Factors." The Fund also may invest without limitation in
securities purchased on a when-issued or delayed delivery basis as discussed
under "Investment Methods and Risk Factors."
While there is careful selection and constant supervision by the Fund's
Sub-Adviser, Strong Capital Management, Inc. ("Strong"), there can be no
guarantee that the Fund's objective will be achieved. Strong invests in
companies whose earnings are believed to be in a relatively strong growth trend,
and, to a lesser extent, in
10
<PAGE>
companies in which significant further growth is not anticipated but which are
perceived to be undervalued. In identifying companies with favorable growth
prospects, Strong considers factors such as prospects for above-average sales
and earnings growth; high return on invested capital; overall financial
strength; competitive advantages, including innovative products and services;
effective research, product development and marketing; and stable, capable
management.
Investing in securities of small-sized and emerging growth companies may
involve greater risks than investing in larger, more established issuers since
these securities may have limited marketability and, thus, they may be more
volatile than securities of larger, more established companies or the market
averages in general. Because small-sized companies normally have fewer shares
outstanding than larger companies, it may be more difficult for the Fund to buy
or sell significant numbers of such shares without an unfavorable impact on
prevailing prices. Small-sized companies may have limited product lines, markets
or financial resources and may lack management depth. In addition, small-sized
companies are typically subject to wider variations in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning small-sized companies than for larger,
more established ones.
Securities of issuers in "special situations" also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in "special situations"
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control.
Although investing in securities of emerging growth companies or issuers in
"special situations" offers potential for above-average returns if the companies
are successful, the risk exists that the companies will not succeed and the
prices of the companies' shares could significantly decline in value. Therefore,
an investment in the Fund may involve a greater degree of risk than an
investment in other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies.
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 net assets.
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 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 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
11
<PAGE>
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 years ended September 30, 1996, 1995 and
1994 was as follows: 1996 - 161%, 1995 - 180% and 1994 - 111%. The portfolio
turnover rate of Class B shares of Ultra Fund for the fiscal years ended
September 30, 1996 and 1995 was 161% and 180%, respectively. 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.
SHARES OF OTHER INVESTMENT COMPANIES. Certain of the Funds may invest in
shares of other investment companies. The Fund's investment in shares of other
investment companies may not exceed immediately after purchase 10 percent of the
Fund's total assets and no more than 5 percent of its total assets may be
invested in the shares of any one investment company. Investment in the shares
of other investment companies has the effect of requiring shareholders to pay
the operating expenses of two mutual funds.
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 and Small Company Funds) 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.
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,
12
<PAGE>
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When issued securities and forward commitments may be sold prior to the
settlement date, but the Funds will enter into when issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be; however, a 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 a
Fund disposes of the right to acquire a when issued security prior to its
acquisition or disposes of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. At the time a Fund enters into a
transaction on a when issued or forward commitment basis, a segregated account
consisting of cash or liquid securities equal to the value of the when issued or
forward commitment securities will be established and maintained with its
custodian and will be marked to market daily. There is a risk that the
securities may not be delivered and that the Fund may incur a loss.
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. ADRs and European Depositary Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries are not
necessarily denominated in the same currency as the securities into which they
may be converted. General, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, while EDRs
(also referred to as Continental Depositary Receipts (CDRs"), in bearer form,
may be denominated in other currencies and are designed for use in European
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. For purposes of the Fund's investment
policies, ADRs and EDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR or EDR representing ownership
of common stock will be treated as common stock.
Depositary receipts are issued through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the cost
of such facilities and the depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities.
RESTRICTED SECURITIES. Restricted securities cannot be sold to the public
without registration under the Securities Act of 1933 ("1933 Act"). Unless
registered for sale, restricted securities can be sold only in privately
negotiated transactions or pursuant to an exemption from registration.
Restricted securities are generally considered illiquid and, therefore, subject
to the Fund's limitation on illiquid securities.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk which may result in substantial
losses. The securities may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Fund. In particular, Rule 144A Securities may be resold only to qualified
institutional buyers in accordance with Rule 144A under the Securities Act of
1933. Rule 144A permits the resale to "qualified institutional buyers" of
"restricted securities" that, when issued, were not of the same class as
securities listed on a U.S. securities exchange or quoted in the National
Association of Securities Dealers Automated Quotation System (the "Rule 144A
Securities"). A "qualified institutional buyer" is defined by Rule 144A
generally as an institution, acting for its own account or for the accounts of
other qualified institutional buyers, that in the aggregate owns and invests on
a discretionary basis at least $100 million in securities of issuers not
affiliated with the institution. A dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate owns and
invests on a discretionary basis at least $10 million in securities of issuers
not affiliated with the dealer may also qualify as a qualified institutional
buyer, as well as an Exchange Act registered dealer acting in a riskless
principal transaction on behalf of a qualified institutional buyer.
13
<PAGE>
The Funds' Board of Directors is responsible for developing and
establishing guidelines and procedures for determining the liquidity of Rule
144A Securities. As permitted by Rule 144A, the Board of Directors has delegated
this responsibility to the Investment Manager or relevant Sub-Adviser. In making
the determination regarding the liquidity of Rule 144A Securities, the
Investment Manager or relevant Sub-Adviser will consider trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition, the Investment Manager or relevant Sub-Adviser 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 and other restricted securities
could have the effect of increasing the amount of a Fund's assets invested in
illiquid securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities.
REAL ESTATE SECURITIES. Certain of the Funds may invest in equity
securities of real estate investment trusts ("REITs") and other real estate
industry companies or companies with substantial real estate investments and
therefore, such Funds may be subject to certain risks associated with direct
ownership of real estate and with the real estate industry in general. These
risks include, among others: possible declines in the value of real estate;
possible lack of availability of mortgage funds; extended vacancies of
properties; risks related to general and local economic conditions;
overbuilding; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code, as amended (the "Code"). 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.
ZERO COUPON SECURITIES. Certain of the Funds may invest in certain zero
coupon securities that are "stripped" U.S. Treasury notes and bonds. These Funds
also may invest in zero coupon and other deep discount securities issued by
foreign governments and domestic and foreign corporations, including certain
Brady Bonds and other foreign debt and payment-in-kind securities. Zero coupon
securities pay no interest to holders prior to maturity, and payment-in-kind
securities pay interest in the form of additional securities. However, a portion
of the original issue discount on zero coupon securities and the "interest" on
payment-in-kind securities will be included in the investing Fund's income.
Accordingly, for the Fund to qualify for tax treatment as a regulated investment
company and to avoid certain taxes (see "Taxes" in the Statement of Additional
Information), the Fund may be required to distribute an amount that is greater
than the total amount of cash it actually receives. These distributions must be
made from the Fund's cash assets or, if necessary, from the proceeds of sales of
portfolio securities. The Fund will not be able to purchase additional
income-producing securities with cash used to make such distributions and its
current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or
par value and will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
FOREIGN INVESTMENT RISKS. Investment in foreign securities involves risks
and considerations not present in domestic investments. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. The securities of non-U.S. issuers generally are not
registered with the SEC, nor are the issuers thereof usually subject to the
SEC's reporting requirements. Accordingly, there may be less publicly available
information about foreign securities and issuers than is available with respect
to U.S. securities and issuers. 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
14
<PAGE>
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 customary settlement time for United States
securities. A 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.
BRADY BONDS. Growth and Income and Small Company Funds may invest in "Brady
Bonds," which are debt restructurings that provide for the exchange of cash and
loans for newly issued bonds. Brady Bonds are securities created through the
exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructuring
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady. Brady Bonds recently have been issued by the
governments of Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic,
Jordan, Mexico, Nigeria, The Philippines, Uruguay, Venezuela, Ecuador and
Poland, and are expected to be issued by other emerging market countries.
Approximately $150 billion in principal amount of Brady Bonds has been issued to
date, the largest proportion having been issued by Mexico and Venezuela.
Investors should recognize that Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the U.S. dollar) and are actively traded in the secondary market for Latin
American debt. The Salomon Brothers Brady Bond Index provides a benchmark that
can be used to compare returns of emerging market Brady Bonds with returns in
other bond markets, e.g., the U.S. bond market.
Growth and Income Fund may invest only in collateralized Brady Bonds
denominated in U.S. dollars. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed rate par bonds or floating rate discount bonds, are
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the bonds. Interest payments on such bonds generally are
collateralized by cash or securities in an amount that, in the case of fixed
rate bonds, is equal to at least one year of rolling interest payments or, in
the case of floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate at the time and
is adjusted at regular intervals thereafter.
EMERGING COUNTRIES. Certain Funds may invest in debt securities in emerging
markets. Investing in securities in emerging countries may entail greater risks
than investing in debt securities in developed countries. These risks include
(i) less social, political and economic stability; (ii) the small current size
of the markets for such securities and the currently low or nonexistent volume
of trading, which result in a lack of liquidity and in greater price volatility;
(iii) certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; and (v) the
absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
POLITICAL AND ECONOMIC RISKS. Investing in securities of non-U.S. companies
may entail additional risks due to the potential political and economic
instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.
An investment in the Fund is subject to the political and economic risks
associated with investments in emerging markets. Even though opportunities for
investment may exist in emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging market countries previously
expropriated large quantities of real and personal property similar
15
<PAGE>
to the property which will be represented by the securities purchased by the
Fund. The claims of property owners against those governments were never finally
settled. There can be no assurance that any property represented by securities
purchased by the Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Fund could lose a
substantial portion of its investments in such countries. The Fund's investments
would similarly be adversely affected by exchange control regulation in any of
those countries.
RELIGIOUS AND ETHNIC INSTABILITY. Certain countries in which the Funds may
invest may have vocal minorities that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for wide-spread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of the Fund's investment in
those countries.
FOREIGN INVESTMENT RESTRICTIONS. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Funds. As illustrations,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investments by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Such securities held by Growth and Income Fund will not
be registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning foreign issuers of such securities held
by the Fund than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Investment Manager will take appropriate
steps to evaluate the proposed investment, which may include interviews with its
management and consultations with accountants, bankers and other specialists.
There is substantially less publicly available information about foreign
companies than there are reports and ratings published about U.S. companies and
the U.S. Government. In addition, where public information is available, it may
be less reliable than such information regarding U.S. issuers.
ADVERSE MARKET CHARACTERISTICS. Securities of many foreign issuers may be
less liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities exchanges and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities exchange transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause it to
miss attractive opportunities. Inability to dispose of a portfolio security due
to settlement problems either could result in losses to the Fund due to
subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. The Investment Manager or relevant Sub-Adviser will consider
such difficulties when determining the allocation of the Fund's assets.
NON-U.S. WITHHOLDING TAXES. A Fund's investment income and gains from
foreign issuers may be subject to non-U.S. withholding and other taxes, thereby
reducing the Fund's investment income and gains.
CURRENCY RISK. Because certain Funds, under normal circumstances, may
invest substantial portions of its total assets in the securities of foreign
issuers which are denominated in foreign currencies, the strength or weakness of
the U.S. dollar against such foreign currencies will account for part of the
Fund's investment
16
<PAGE>
performance. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of the Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in the Fund's net asset value and any net investment income and capital
gains to be distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.
Although the Funds value assets daily in terms of U.S. dollars, the Funds
do not intend to convert holdings of foreign currencies into U.S. dollars on a
daily basis. A Fund will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
("spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
sell that currency to the dealer.
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 or liquid securities 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 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.
17
<PAGE>
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.
WRITING (SELLING) COVERED PUT OPTIONS. A put option gives the purchaser of
the option the right to sell, and the writer (seller) has the obligation to buy,
the underlying security or currency at the exercise price during the option
period (American style) or at the expiration of the option (European style). So
long as the obligation of the writer continues, he may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring him to
make payment of the exercise price against delivery of the underlying security
or currency. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
Certain Funds may write American or European style covered put options and
purchase options to close out options previously written by the Fund.
Certain Funds may write put options on a covered basis, which means that
the Fund would either (i) maintain in a segregated account cash or liquid
securities in an amount not less than the exercise price at all times while the
put option is outstanding; (ii) sell short the security or currency underlying
the put option at the same or higher price than the exercise price of the put
option; or (iii) purchase an option to sell the underlying security or currency
subject to the option having an exercise price equal to or greater than the
exercise price of the "covered" option at all times while the put option is
outstanding. (The rules of a clearing corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.) The Fund
would generally write covered put options in circumstances where the Investment
Manager or relevant Sub-Adviser wishes to purchase the underlying security or
currency for the Fund's portfolio at a price lower than the current market price
of the security or currency. In such event the Fund would write a put option at
an exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. Since the Fund would also receive interest
on debt securities or currencies maintained to cover the exercise price of the
option, this technique could be used to enhance current return during periods of
market uncertainty. The risk in such a transaction would be that the market
price of the underlying security or currency would decline below the exercise
price less the premiums received. Such a decline could be substantial and result
in a significant loss to the Fund. In addition, the Fund, because it does not
own the specific securities or currencies which it may be required to purchase
in the exercise of the put, cannot benefit from appreciation, if any, with
respect to such specific securities or currencies. In order to comply with the
requirements of several states, the Fund will not write a covered put option if,
as a result, the aggregate market value of all portfolio securities or
currencies covering put or call 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
18
<PAGE>
offset against the value of assets covering written puts and calls, the value of
purchased puts and calls on identical securities or currencies.
PREMIUM RECEIVED FROM WRITING CALL OR PUT OPTIONS. A Fund will receive a
premium from writing a put or 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. By writing a put option, a Fund assumes the risk that it
may be required to purchase the underlying security for an exercise price higher
than its then current market value, resulting in a potential capital loss if the
purchase price exceeds the market value plus the amount of the premium received,
unless the security subsequently appreciates in value.
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 Fund 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 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 CALL OPTIONS. Certain Funds may purchase American or European
call options. The Fund may enter into closing sale transactions with respect to
such options, exercise them or permit them to expire. The Fund may purchase call
options for the purpose of increasing its current return.
Call options may also be purchased by a Fund for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to a Fund in purchasing a large block of securities
or currencies that would be more difficult to acquire by direct market
purchases. So long as it holds such a call option rather than the underlying
security or currency itself, the Fund is partially protected from any unexpected
decline in the market price of the underlying security or currency and in such
event could allow the call option to expire, incurring a loss only to the extent
of the premium paid for the option.
To the extent required by the laws of certain states, the Fund may not be
permitted to commit more than 5% of its assets to premiums when purchasing call
and put options. Should these state laws change or should the Fund obtain a
waiver of their application, the Fund may commit more than 5% of its assets to
premiums when purchasing call and put options. The Fund may also purchase call
options on underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. Call options may also
be purchased at times to avoid realizing losses. For example, where the Fund has
written a call option on an underlying security or currency having a current
market value below the price at which such security or currency was purchased by
the Fund, an increase in the market price could result in the exercise of the
call option written by the Fund and the realization of a loss on the underlying
security or currency with the same exercise price and expiration date as the
option previously written.
19
<PAGE>
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 CALL AND 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 call or 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.
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,
20
<PAGE>
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.
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.
21
<PAGE>
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 and bond 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 liquid
securities 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.
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
22
<PAGE>
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 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
23
<PAGE>
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 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 cash or liquid securities 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.
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
24
<PAGE>
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 or relevant
Sub-Adviser 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 or relevant Sub-Adviser'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 or
relevant Sub-Adviser 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
25
<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.
To the extent necessary to comply with applicable regulations, 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 or liquid
securities, 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.
FORWARD CURRENCY CONTRACTS AND RELATED OPTIONS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the Contract.
These contracts are principally traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
Depending on the investment policies and restrictions applicable to a Fund,
a Fund will generally enter into forward foreign currency exchange contracts
under two circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when the Investment Manager or relevant Sub-Adviser believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, including the U.S. dollar, it may enter into
a forward contract to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the Fund
may hedge all or part of its foreign currency exposure through the use of a
basket of currencies or a proxy currency where such currencies or currency act
as an effective proxy for other currencies. In such a case, the Fund may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may
26
<PAGE>
be more efficient and economical than entering into separate forward contracts
for each currency held in the Fund. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
The Fund will also not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate a Fund to deliver an amount of foreign currency in excess of the value
of the Fund's portfolio securities or other assets denominated in that currency.
The Funds, however, in order to avoid excess transactions and transaction costs,
may maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets to which the forward contracts
relate (including accrued interest to the maturity of the forward contract on
such securities) provided the excess amount is "covered" by liquid securities,
denominated in any currency, at least equal at all times to the amount of such
excess. For these purposes the securities or other assets to which the forward
contracts relate may be securities or assets denominated in a single currency,
or where proxy forwards are used, securities denominated in more than one
currency. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, the Investment
Manager and relevant Sub-Advisers believe that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served.
At the maturity of a forward contract, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for a Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver. However, as noted, in order to avoid excessive
transactions and transaction costs, the Fund may use liquid securities,
denominated in any currency, to cover the amount by which the value of a forward
contract exceeds the value of the securities to which it relates.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund entering into a forward contract for the sale
of a foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
The Funds dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Funds
reserve the right to enter into forward foreign currency contracts for different
purposes and under different circumstances. Of course, the Funds are not
required to enter into forward contracts with regard to their foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager or relevant Sub-Adviser. It also should be realized that
this method of hedging against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange at a future date. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result from an increase in the value of that currency.
Although the Funds value their assets daily in terms of U.S. dollars, they
do not intend to convert their holdings of foreign currencies into U.S. dollars
on a daily basis. They will do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion,
27
<PAGE>
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. As
noted above, a currency futures contract sale creates an obligation by a Fund,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by a Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract. If the holder decides not to enter into the contract, the
premium paid for the option is fixed at the point of sale.
SWAPS, CAPS, FLOORS AND COLLARS. Certain Funds may enter into interest
rate, securities index, commodity, or security and currency exchange rate swap
agreements for any lawful purpose consistent with the Fund's investment
objective, such as for the purpose of attempting to obtain or preserve a
particular desired return or spread at a lower cost to the Fund than if the Fund
had invested directly in an instrument that yielded that desired return or
spread. The Fund also may enter into swaps in order to protect against an
increase in the price of, or the currency exchange rate applicable to,
securities that the Fund anticipates purchasing at a later date. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to several years. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Swap agreements may include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interests rates exceed a specified rate, or "cap";
interest rate floors under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and interest rate collars, under which a party
sells a cap and purchases a floor, or vice versa, in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Funds, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Fund's
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
value of the positions held by each party to the agreement (the "net amount").
The Fund's obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Fund) and any accrued but unpaid net amounts owed to
a swap counterparty will be covered by the maintenance of a segregated account
consisting of cash or liquid securities.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective will depend, in part, on the Investment Manager or
relevant Sub-Adviser's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments. Swap
agreements may be considered to be illiquid. Moreover, the Fund bears the risk
of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. Certain
restrictions imposed on the Fund's by the Internal Revenue Code may limit a
Series' ability to use swap agreements. The swaps market is largely unregulated.
The Funds will enter swap agreements only with counterparties that the
Investment Manager or relevant Sub-Adviser reasonably believes are capable of
performing under the swap agreements. If there is a default by the other party
to such a transaction, the Fund will have to rely on its contractual remedies
(which may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
SPREAD TRANSACTIONS. Certain Funds may purchase covered spread options from
securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Fund the right to put, or sell, a security that it owns at a fixed dollar spread
or fixed yield spread in
28
<PAGE>
relationship to another security that the Fund does not own, but which is used
as a benchmark. The risk to the Funds in purchasing covered spread options is
the cost of the premium paid for the spread option and any transaction costs. In
addition, there is no assurance that closing transactions will be available. The
purchase of spread options will be used to protect the Fund against adverse
changes in prevailing credit quality spreads, i.e., the yield spread between
high quality and lower quality securities. Such protection is only provided
during the life of the spread option.
HYBRID INSTRUMENTS. Hybrid instruments combine the elements of futures
contracts or options with those of debt, preferred equity or a depository
instrument ("Hybrid Instruments"). Often these Hybrid Instruments are indexed to
the price of a commodity or particular currency or a domestic or foreign debt or
equity securities index. Hybrid Instruments may take a variety of forms,
including, but not limited to, debt instruments with interest or principal
payments or redemption terms determined by reference to the value of a currency
or commodity at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. The risks of
investing in Hybrid Instruments reflect a combination of the risks from
investing in securities, futures and currencies, including volatility and lack
of liquidity. Reference is made to the discussion of futures and forward
contracts in this Statement of Additional Information for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity or
currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between a Fund and the seller of the Hybrid Instrument, the
creditworthiness of the contract party to the transaction would be a risk factor
which the Fund would have to consider. Hybrid Instruments also may not be
subject to regulation of the CFTC, which generally regulates the trading of
commodity futures by U.S. persons, the SEC, which regulates the offer and sale
of securities by and to U.S. persons, or any other governmental regulatory
authority.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional
income, certain of the Funds may make secured loans of Fund securities amounting
to not more than 33 1/3% of its total assets. Securities loans are made to
broker/dealers, institutional investors, or other persons pursuant to agreements
requiring that the loans be continuously secured by collateral at least equal at
all times to the value of the securities lent marked to market on a daily basis.
The collateral received will consist of cash, U.S. Government securities,
letters of credit or such other collateral as may be permitted under its
investment program. While the securities are being lent, the Fund will continue
to receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. The Fund will not have the right to vote securities while
they are being lent, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by the Investment Manager or relevant Sub-Adviser to be of good standing and
will not be made unless, in the judgment of the Investment Manager or relevant
Sub-Adviser, the consideration to be earned from such loans would justify the
risk.
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.
29
<PAGE>
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.
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 Fundamental Policy 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. The Fund does not interpret Fundamental Policy 7 or 14 as
prohibiting transactions in financial futures contracts.
SECURITY EQUITY FUND'S FUNDAMENTAL POLICIES
Security Equity Fund's fundamental policy limitations, which are applicable
to each of Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness
Fund, Value Fund and Small Company 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, Social Awareness
Fund, Value Fund and Small Company 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.
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.
30
<PAGE>
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, Social Awareness Fund, Value Fund and Small Company Fund
may borrow up to 33 1/3% of 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, Social Awareness Fund,
Value Fund and Small Company Fund.
7. Not to buy securities on margin or effect short sales of securities;
provided, however, that Asset Allocation Fund, Social Awareness Fund and
Value Fund may make margin deposits in connection with transactions in
options, futures, and options on futures and provided further that this
investment limitation does not apply to Small Company Fund.
8. Not to issue senior securities; provided, however, that Asset Allocation
Fund, Social Awareness Fund, Value Fund and Small Company Fund may issue
senior securities in compliance with the Investment Company Act of 1940.
9. Not to invest in the securities of other investment companies; provided,
however, that this investment limitation does not apply to Asset Allocation
Fund, Social Awareness Fund, Value Fund and Small Company Fund which may
invest in the securities of other investment companies. (Social Awareness
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, Social Awareness Fund, Value Fund and Small
Company 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 than 1/2 of 1%
of such securities, or if all such persons together own more than 5% of
such securities; provided, however, that this limitation does not apply to
the Small Company Fund.
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.
14. Not to own, buy or sell real estate, commodities or commodity contracts;
provided, however, that Asset Allocation Fund, Social Awareness Fund, Value
Fund and Small Company Fund may enter into forward currency contracts and
forward commitments, and transactions in futures, options, and options on
futures. (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, Social Awareness Fund, Value Fund and Small
Company 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, Social Awareness Fund, Value Fund and Small Company 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, Social
Awareness Fund, Value Fund and Small Company 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
31
<PAGE>
whose activities include such exploration and development and provided
further that this investment limitation does not apply to Small Company
Fund.
The Fund interprets Fundamental Policy 14 to prohibit the purchase of real
estate limited partnerships. The Fund does not interpret Fundamental Policy 7 or
14 as prohibiting transactions in options, financial futures contracts or
options on financial futures contracts; however, with respect to Equity and
Global Funds, transactions in options and options on financial futures contracts
are subject to the limits set forth in Fundamental Policy 17.
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.
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.
The Fund does not interpret Fundamental Policy 8 or 13 as prohibiting
transactions in financial futures contracts.
32
<PAGE>
OFFICERS AND DIRECTORS
The officers and directors of the Funds and their principal occupations for
at least the last five years are as follows. Unless otherwise noted, the address
of each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
JOHN D. CLELAND,* President and Director Senior Vice President and Managing Member Representative,
Security Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
DONALD A. CHUBB, JR.,** Director Business broker, Griffith & Blair Realtors. Prior to 1997,
2222 SW 29th Street President, Neon Tube Light Company, Inc.
Topeka, Kansas 66611
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
HUGH L. THOMPSON, Director President Emeritus, Washburn University. Prior to June
2728 Newfound Harbour Drive 1997, President, Washburn University.
Merritt Island, Florida 32952
JAMES R. SCHMANK, Vice President and Treasurer Senior Vice President, Treasurer, Chief Fiscal Officer and
Managing Member Representative, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
MARK E. YOUNG, Vice President Vice President, Security Management Company, LLC; Assistant
Vice President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
JANE A. TEDDER, Vice President Vice President and Senior Economist, Security Management
(Equity Fund only) Company, LLC; Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
TERRY A. MILBERGER, Vice President Senior Vice President and Senior Portfolio Manager,
(Equity Fund only) Security Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
AMY J. LEE, Secretary Secretary, Security Management Company, LLC; Vice
President, Associate General Counsel and Assistant
Secretary, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
BRENDA M. HARWOOD, Assistant Treasurer Assistant Vice President, Assistant Treasurer and Assistant
and Assistant Secretary Secretary, Security Management Company, LLC; Assistant Vice
President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
CINDY L. SHIELDS, Assistant Vice President Assistant Vice President and Portfolio Manager, Security
(Equity and Ultra Fund only) Management Company, LLC; Assistant Vice President, Security
Benefit Group, Inc. and Security Benefit Life Insurance
Company. Prior to August 1994, Junior Portfolio Manager,
Research Analyst, Junior Research Analyst and Portfolio
Assistant, Security Management Company.
THOMAS A. SWANK, Assistant Vice President Vice President and Portfolio Manager, Security Management
(Growth and Income Fund only) Company, LLC; Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
JIM SCHIER, Assistant Vice President Assistant Vice President and Portfolio Manager, Security
(Equity Fund only) Management Company, LLC; Assistant Vice President, Security
Benefit Group, Inc. and Security Benefit Life Insurance
Company. Prior to February 1997, Assistant Vice President
and Senior Research Analyst, Security Management Company,
LLC. Prior to August 1995, Portfolio Manager, Mitchell
Capital Management. Prior to March 1993, Vice President and
Portfolio Manager, Fourth Financial.
CHRISTOPHER D. SWICKARD, Assistant Secretary Assistant Vice President and Assistant Counsel, Security
Benefit Group, Inc. and Security Benefit Life Insurance
Company. Prior to June 1992, student at Washburn
University School of Law.
</TABLE>
- --------------------------------------------------------------------------------
*These directors are deemed to be "interested persons" of the Funds under the
Investment Company Act of 1940, as amended, 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, LLC of
the accounting functions for the Funds.
- --------------------------------------------------------------------------------
The directors and officers of the Funds hold identical offices in the other
Funds managed by the Investment Manager, except Ms. Tedder who is also Vice
President of SBL Fund and Security Income Fund, Mr. Milberger who is also Vice
President of SBL Fund, Ms. Shields who is also Assistant Vice President of SBL
Fund and Messrs. Swank and Schier who are Assistant Vice President of SBL Fund
and Security Income Fund. (See the table under "Investment Management," on page
41, 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. Harwood 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
$133 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 and Social Awareness 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 and Social Awareness Funds pay their respective share of directors'
fees and travel costs. (See page 41, "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, 1996, and the aggregate compensation paid to each of the directors
during calendar year 1996 by all seven of the registered investment companies to
which the Investment Manager provides
34
<PAGE>
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION
------------------------------------- TOTAL
COMPENSATION
ESTIMATED FROM THE
ANNUAL SECURITY FUND
SECURITY SECURITY SECURITY BENEFITS COMPLEX,
NAME OF DIRECTOR GROWTH AND EQUITY ULTRA UPON INCLUDING
OF THE FUND INCOME FUND FUND FUND RETIREMENT THE FUNDS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Willis A. Anton, Jr. $1,508 $1,508 $1,508 $0 $18,100
Donald A. Chubb, Jr. 1,541 1,591 1,518 0 18,300
John D. Cleland 0 0 0 0 0
Donald L. Hardesty 1,508 1,508 1,508 0 18,100
Penny A. Lumpkin 1,541 1,591 1,518 0 18,300
Mark L. Morris, Jr. 1,541 1,591 1,518 0 18,300
Jeffrey B. Pantages 0 0 0 0 0
Hugh Thompson 788 788 788 0 9,450
- -----------------------------------------------------------------------------------------------
</TABLE>
The Investment Manager compensates its officers and directors who may also
serve as officers or directors of the Funds. On September 30, 1997, the Funds'
officers and directors (as a group) beneficially owned less than one percent of
the total outstanding Class A shares of Growth and Income Fund, Equity Fund,
Global Fund, Asset Allocation Fund, Social Awareness Fund, Value Fund and Ultra
Fund.
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 40.) 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.
35
<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:
- --------------------------------------------------------------------------------
SALES CHARGE
-----------------------------------------
PERCENTAGE PERCENTAGE OF PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING NET AMOUNT REALLOWABLE
AT OFFERING PRICE PRICE INVESTED TO DEALERS
- --------------------------------------------------------------------------------
Less than $50,000...................... 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)
- --------------------------------------------------------------------------------
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.
SECURITY EQUITY FUND'S CLASS A DISTRIBUTION PLAN
As discussed in the Prospectus, Small Company Fund has a Distribution Plan
for its Class A shares pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The Plan authorizes the Fund to pay an annual fee to the Distributor of
.25% of the average daily net asset value of the Class A shares of the Fund to
finance various activities relating to the distribution of such shares of the
Fund to investors. These expenses include, but are not limited to, the payment
of compensation (including compensation to securities dealers and other
financial institutions and organizations) to obtain various administrative
services for the Fund. These services include, among other things, processing
new shareholder account applications and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Fund. The Distributor is required to
report in writing to the Board of Directors of Equity Fund and the board will
review at least quarterly the amounts and purpose of any payments made under the
Plan. The Distributor is also required to furnish the board with such other
information as may reasonably be requested in order to enable the board to make
an informed determination of whether the Plan should be continued.
The Plan became effective on October 15, 1997. The Plan will continue from
year to year, provided that such continuance is approved at least annually by a
vote of a majority of the Board of Directors of the Fund, including a majority
of the independent directors cast in person at a meeting called for the purpose
of voting on such
36
<PAGE>
continuance. The Plan can be terminated at any time on 60 days' written notice,
without penalty, if a majority of the disinterested directors or the Class A
shareholders vote to terminate the Plan. Any agreement relating to the
implementation of the Plan terminates automatically if it is assigned. The Plan
may not be amended to increase materially the amount of payments thereunder
without approval of the Class A shareholders of the Fund.
Because all amounts paid pursuant to the Distribution Plan are paid to the
Distributor, the Investment Manager and its officers, directors and employees,
including Mr. Cleland (director of the Fund), Messrs. Young, Schmank and
Swickard, Ms. Tedder, Ms. Lee and Ms. Harwood (officers of the Fund), all may be
deemed to have a direct or indirect financial interest in the operation of the
Distribution Plan. None of the independent directors have a direct or indirect
financial interest in the operation of the Distribution Plan.
Benefits from the Distribution Plan may accrue to the Fund and its
stockholders from the growth in assets due to sales of shares to the public
pursuant to the Distribution Agreement with the Distributor. Increases in the
Small Company Fund's net assets from sales pursuant to its Distribution Plan and
Agreement may benefit shareholders by reducing per share expenses, permitting
increased investment flexibility and diversification of Small Company Fund's
assets, and facilitating economies of scale (e.g., block purchases) in the
Fund's securities transactions.
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 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
37
<PAGE>
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
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
contingent deferred sales charge), (iv) "financial hardship" of a participant in
the plan, as that term is defined in Treasury Regulation Section
1.401(k)-1(d)(2), as amended from time to time, (v) termination of employment of
a participant in the plan, (vi) any other permissible withdrawal under the terms
of the plan. The contingent deferred sales charge will also be waived in the
case of certain redemptions of Class B shares of the Funds pursuant to a
systematic withdrawal program. (See "Systematic Withdrawal Program," page 40.)
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Investment Manager or Distributor, from time to time, will provide
promotional incentives or pay a bonus, to certain dealers whose representatives
have sold or are expected to sell significant amounts of the Funds and/or
certain other funds managed by the Investment Manager. Such promotional
incentives will include payment for attendance (including travel and lodging
expenses) by qualifying registered representatives (and members of their
families) at sales seminars at luxury resorts within or without the United
States. Bonus compensation may include
38
<PAGE>
reallowance of the entire sales charge and may also include, with respect to
Class A shares, an amount which exceeds the entire sales charge and, with
respect to Class B shares, an amount which exceeds the maximum commission. The
Distributor, or the Investment Manager, may also provide financial assistance to
certain dealers in connection with conferences, sales or training programs for
their employees, seminars for the public, advertising, sales campaigns, and/or
shareholder services and programs regarding one or more of the funds managed by
the Investment Manager. Certain of the promotional incentives or bonuses may be
financed by payments to the Distributor under a Rule 12b-1 Distribution Plan.
The payment of promotional incentives and/or bonuses will not change the price
an investor will pay for shares or the amount that the Funds will receive from
such sale. No compensation will be offered to the extent it is prohibited by the
laws of any state or self-regulatory agency, such as the National Association of
Securities Dealers, Inc. ("NASD"). A dealer to whom substantially the entire
sales charge of Class A shares is reallowed may be deemed to be an "underwriter"
under federal securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the Funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund's Board of Directors would consider what
action, if any, would be appropriate.
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 $2,000,000 of Class A and Class B shares during that
year. The applicable marketing allowance factors are set forth below.
- --------------------------------------------------------------------------------
APPLICABLE MARKETING
AGGREGATE NEW SALES ALLOWANCE FACTOR*
- --------------------------------------------------------------------------------
Less than $2 million................................... .00%
$2 million but less than $5 million.................... .15%
$5 million but less than $10 million................... .25%
$10 million but less than $15 million.................. .35%
$15 million but less than $20 million.................. .50%
or $20 million or more................................. .75%
- --------------------------------------------------------------------------------
* The maximum marketing allowance factor applicable per this schedule will be
applied to all new sales in the calendar year to determine the marketing
allowance payable for such year.
- --------------------------------------------------------------------------------
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
39
<PAGE>
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 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 38.
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.
40
<PAGE>
INVESTMENT MANAGEMENT
Security Management Company, LLC (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. The Investment Manager is a limited liability company controlled by its
members, Security Benefit Life Insurance Company and Security Benefit Group,
Inc. ("SBG"). SBG is an insurance and financial services holding company
wholly-owned by Security Benefit Life Insurance Company, 700 SW Harrison Street,
Topeka, Kansas 66636-0001. Security Benefit Life, a mutual life insurance
company with $15.5 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, July 26, 1996, February 7, 1997 and July 25, 1997, respectively, to
provide for the Investment Manager to serve as investment adviser to Asset
Allocation Fund, Social Awareness Fund, Value Fund and Small Company Fund. The
Agreements were last renewed by the Funds' Board of Directors at a regular
meeting held on November 1, 1996.
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 07663, 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 Lexington Global Asset Managers,
Inc., a Delaware corporation with offices at Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and other related entities have a majority voting control of the
outstanding shares of Lexington Global Asset Managers, Inc. Lexington was
established in 1938 and currently manages over $3.5 billion in assets.
The Investment Manager has entered into a sub-advisory research agreement
with Meridian Investment Management Corporation ("Meridian"), 12835 East
Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112. Pursuant to the
agreement, Meridian furnishes investment advisory, statistical and research
facilities, supervises and arranges for the purchase and sale of equity
securities on behalf of the Fund and provides for the compilation and
maintenance of records pertaining to such investment advisory services, subject
to the control and supervision of the Board of Directors of the Fund and the
Investment Manager. Meridian is a wholly-owned subsidiary of Meridian Management
& Research Corporation which is controlled by its two stockholders, Michael J.
Hart and Craig T. Callahan. The Investment Manager pays Meridian an annual fee
equal to a percentage of the average daily closing value of the net assets of
Asset Allocation Fund, computed on a daily basis, according to the following
schedule:
41
<PAGE>
- ---------------------------------------------------------------------
AVERAGE DAILY NET ASSETS OF THE FUND ANNUAL FEE
- ---------------------------------------------------------------------
Less than $100 million.............................. .40%, plus
$100 million but less than $200 million............. .35%, plus
$200 million but less than $400 million............. .30%, plus
$400 million or more................................ .25%
- ---------------------------------------------------------------------
The Investment Manager has engaged Strong Capital Management, Inc.
("Strong"), 900 Heritage Reserve, Menomonee Falls, Wisconsin 53051, to provide
investment advisory services to the Small Company Fund. For such services, the
Investment Manager pays Strong, an annual fee based on the combined average net
assets of Small Company Fund and another fund for which the Investment Manager
has engaged Strong to provide advisory services. The fee is equal to .50% of the
combined average net assets under $150 million, .45% of the combined average net
assets at or above $150 million but less than $500 million, and .40% of the
combined average net assets at or above $500 million. 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. Strong is a
privately held corporation which is controlled by Richard S. Strong. Strong was
established in 1974 and currently manages over $27 billion in assets.
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 also agreed to arrange for others (or itself) to
provide to the Funds, except Asset Allocation, Social Awareness, Value and Small
Company Funds, 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, Social Awareness, Value and
Small Company Funds. 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, Social Awareness, Value and Small Company Funds will pay
all of their respective 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. Asset Allocation, Social
Awareness, Value and Small Company Funds will also pay for the preparation and
distribution of the prospectus to their shareholders and all expenses in
connection with registration under the Investment Company Act of 1940 and the
registration of their capital stock under federal and state securities laws.
Asset Allocation, Social Awareness, Value and Small Company Funds will pay
nonrecurring expenses as may arise, including litigation expenses affecting
them.
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 Investment Manager is not
aware of any state that currently imposes limits on the level of mutual fund
expenses.)
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 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.
42
<PAGE>
Separate fees are paid by Asset Allocation, Social Awareness, Value and
Small Company Funds to the Investment Manager for investment advisory,
administrative and transfer agency services. With respect to Asset Allocation
Fund the Investment Manager receives, on an annual basis, an investment advisory
fee equal to 1% of the average daily net assets of the 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
$60,000. With respect to the Social Awareness, Value and Small Company Funds,
the Investment Manager receives, on an annual basis, an investment advisory fee
equal to 1% of the average daily net assets of the respective Funds, calculated
daily and payable monthly. The Investment Manager has agreed to waive the
investment advisory fee of Social Awareness, Value and Small Company Funds for
the fiscal year ending September 30, 1997. The Investment Manager also receives,
on an annual basis, an administrative fee equal to .09% of the average daily net
assets of the Social Awareness, Value and Small Company Funds. For transfer
agency services provided to each of the Asset Allocation, Social Awareness,
Value and Small Company Funds, 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, 1996, 1995 and 1994, the Funds
paid the following amounts to the Investment Manager for its services: 1996 -
$919,674, 1995 - $839,358 and 1994 - $948,953 for Growth and Income Fund; 1996 -
$5,528,818, 1995 - $4,185,144 and 1994 - $3,926,084 for Equity Fund; and 1996 -
$862,190, 1995 - $816,039 and 1994 - $819,550 for Ultra Fund. Global Fund paid
the Investment Manager for its services for 1996 - $470,077, 1995 - $457,489,
and for the period October 5, 1993 to September 30, 1994 - $346,421. Asset
Allocation Fund paid the Investment Manager for investment advisory,
administrative and transfer agency services for fiscal year ended September 30,
1996 - $39,560, $36,957 and $5,571, respectively. For this period, the
Investment Manager waived $24,236 of the investment advisory fee and reimbursed
the Fund $19,620 of the Administrative and transfer agency fees. Asset
Allocation Fund paid the Investment Manager for investment advisory,
administrative and transfer agency services for the period June 1, 1995 (date of
inception) to September 30, 1995 - $10,134, $10,456 and $790, respectively. For
this period, the Investment Manager reimbursed the Fund $16,615 of the
administrative and transfer agency fees. For the period November 4, 1996 (date
of inception) to March 31, 1997, the Investment Manager waived its entire
advisory fee for the Social Awareness Fund in the amount of $10,785. For the
same period, the Social Awareness Fund paid the Investment Manager for
administrative and transfer agency services, $972 and $860, respectively. For
the period May 1, 1997 (date of inception) to August 31, 1997, the Investment
Manager waived its entire advisory fee for the Value Fund in the amount of
$11,162. For the same period, the Value Fund paid the Investment Manager for
administrative and transfer agency services, $1,005 and $920, respectively.
The total expenses for Growth and Income Fund, Equity Fund, Global Fund,
Asset Allocation Fund and Ultra Fund, respectively, for the fiscal year ended
September 30, 1996 were 1.29%, 1.04%, 2.00%, 2.00% and 1.31% of the average net
assets of each Fund's Class A shares for the fiscal year. Total expenses of
Class B shares for Growth and Income Fund, Equity Fund, Global Fund, Asset
Allocation Fund and Ultra Fund, respectively, for the fiscal year ended
September 30, 1996 were 2.29%, 2.04%, 3.00%, 3.00% and 2.31% of the average net
assets of each Fund's Class B shares for the fiscal year. The total expenses for
Class A and Class B shares of Social Awareness Fund for the period November 4,
1996 (date of inception) to March 31, 1997, were 1.42% and 2.17%, respectively,
of the average net assets for the period. The total expenses of the average net
assets for Class A and Class B shares of Value Fund for the period May 1, 1997
(date of inception) to August 31, 1997, were 1.09% and 1.96%, respectively.
Expense information is not yet available for Small Company Fund as it did not
begin operations until October of 1997.
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.
43
<PAGE>
The following persons are affiliated with the Funds and also with the
Funds' investment adviser, Security Management Company, LLC, in these
capacities:
- --------------------------------------------------------------------------------
POSITION(S) WITH SECURITY
NAME POSITION(S) WITH THE FUNDS MANAGEMENT COMPANY, LLC
- --------------------------------------------------------------------------------
James R. Schmank Vice President and Treasurer Senior Vice President,
Treasurer, Chief Fiscal
Officer and Managing
Member Representative
John D. Cleland President and Director Senior Vice President and
Managing Member
Representative
Jane A. Tedder Vice President Vice President and Senior
(Equity Fund only) Economist
Terry A. Milberger Vice President Senior Vice President and
(Equity Fund only) Senior Portfolio Manager
Mark E. Young Vice President Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Assistant Treasurer and Assistant Vice President,
Assistant Secretary Assistant Treasurer and
Assistant Secretary
Cindy L. Shields Assistant Vice President Assistant Vice President
(Equity and Ultra Fund only) and Portfolio Manager
Thomas A. Swank Assistant Vice President Vice President and
(Growth and Income Fund only) Portfolio Manager
James P. Schier Assistant Vice President Assistant Vice President
(Equity Fund only) and Portfolio Manager
- --------------------------------------------------------------------------------
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, Jim Schier and Chuck
Lauber. Jim Schier, Portfolio Manager, assumed day-to-day responsibility for
managing this portion of the portfolio in October 1997. 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, Barb Davison, David Eshnaur, Elaine Miller
and Paulette Schwerdt. 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 Lexington. 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 of the Investment Manager and Meridian. The team is responsible for
day-to-day management of the Fund. Jane Tedder, Senior Economist of the
Investment Manager, has day-to-day responsibility for managing the fixed-income
portion of the Fund's portfolio. She has had responsibility for the Fund since
January 1996. Pat Boyle, Portfolio Manager of Meridian, has day-to-day
responsibility for managing the equity portion of the Fund's portfolio. He has
had day-to-day responsibility for the equity portion of the Fund since August
1997. SOCIAL AWARENESS FUND and ULTRA FUND are managed by the Investment
Manager's Small Capitalization Team and Social Responsibility Team,
respectively, each of 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 Ultra Fund
since 1994 and for managing Social Awareness Fund since its inception in 1996.
VALUE FUND is managed by the Large Capitalization Team of the Investment Manager
described above. Jim Schier, Portfolio Manager, has had day-to-day
responsibility for managing the Value Fund since its inception in 1997. SMALL
COMPANY FUND is managed by Ronald C. Ognar of Strong. He has had day-to-day
responsibility for managing Small Company Fund since its inception in 1997.
Pat Boyle is a research analyst and portfolio manager of Meridian. He has
four years of investment experience and is a Chartered Financial Analyst. Mr.
Boyle graduated from the University of Denver with a B.S.B.A. degree in Finance.
44
<PAGE>
John D. Cleland has been involved in the securities industry for more than
30 years. Before joining the Investment Manager in 1968, he was involved in the
investment business in securities and residential and commercial real estate for
approximately ten years. Mr. Cleland earned a Bachelor of Science degree from
the University of Kansas and an M.B.A. from Wharton School of Finance,
University of Pennsylvania.
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.
Ronald C. Ognar, Portfolio Manager of Strong, is a Chartered Financial
Analyst with more than 25 years of investment experience. Mr. Ognar joined
Strong in April 1993 after two years as a principal and portfolio manager with
RCM Capital Management. Prior to his position at RCM Capital Management, he was
a portfolio manager at Kemper Financial Services in Chicago. Mr. Ognar began his
investment career in 1968 at LaSalle National Bank. He is a graduate of the
University of Illinois with a bachelor's degree in accounting.
James P. Schier, Assistant Vice President and Portfolio Manager of the
Investment Manager, has 13 years experience in the investment field and is a
Chartered Financial Analyst. While employed by the Investment Manager, he also
served as a research analyst. Prior to joining the Investment Manager in 1995,
he was a portfolio manager for Mitchell Capital Management from 1993 to 1995.
From 1988 to 1995 he served as Vice President and Portfolio Manager for Fourth
Financial. Prior to 1988, Mr. Schier served in various positions in the
investment field for Stifel Financial, Josepthal & Company and Mercantile Trust
Company. Mr. Schier earned a Bachelor of Business degree from the University of
Notre Dame and an M.B.A. from Washington University.
Cindy L. Shields is a Portfolio Manager of the Investment Manager. Ms.
Shields has eight years experience in the securities field and joined the
Investment Manager in 1989. She has been a portfolio manager since 1994, and
prior to that time, she served as a research analyst for the Investment Manager.
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 over ten 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. From
1982 to 1984, he was employed as a Bank Holding Company Examiner for the Federal
Reserve Bank of Kansas City - Denver Branch. Mr. Swank graduated from Miami
University in Ohio with a Bachelor of Science degree in finance in 1982. He
earned a Master of Business Administration degree from the University of
Colorado and is a Chartered Financial Analyst.
Jane Tedder, Vice President and Senior Economist of the Investment Manager,
has 20 years of experience in the investment field. Prior to joining the
Investment Manager in 1983, she served as Vice President and Trust Officer of
Douglas County Bank in Kansas. Ms. Tedder earned a bachelor's degree in
education from Oklahoma State University and advanced diplomas from National
Graduate Trust School, Northwestern University, and Stonier Graduate School of
Banking, Rutgers University. She is a Chartered Financial Analyst.
Alan Wapnick is a Senior Vice President of Lexington and is responsible for
portfolio management. He has 27 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.
Richard Saler is a Senior Vice President of Lexington and is responsible
for international investment analysis and portfolio management. He has eleven
years of investment experience. Mr. Saler has focused on international 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.
45
<PAGE>
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 Security Benefit Group, Inc., serves as the principal
underwriter for shares of Growth and Income Fund, Equity Fund, Global Fund,
Asset Allocation Fund, Social Awareness Fund and Ultra Fund pursuant to
Distribution Agreements with the Funds. The Distributor also acts as principal
underwriter for Security Income Fund and Security Tax-Exempt 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, 1996, 1995 and 1994, the
Distributor received gross underwriting commissions on the sale of Class A
shares of the Funds of: 1996 - $38,156, 1995 - $30,840 and 1994 - $80,457 for
Growth and Income Fund; 1996 - $869,310, 1995 - $610,460 and 1994 - $597,792 for
Equity Fund; 1996 - $42,335, 1995 - $86,682 and 1994 - $75,084 for Ultra Fund.
For these years, the Distributor retained net underwriting commissions as
follows: 1996 - $7,615, 1995 - $5,020 and 1994 - $12,674 for Growth and Income
Fund; 1996 - $107,976, 1995 - $96,169 and 1994 - $98,610 for Equity Fund; and
1996 - $9,163, 1995 - $14,803 and 1994 - $15,554 for Ultra Fund. For 1996, 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
$29,472, $25,278 and $93,332, respectively, for Global Fund and retained net
underwriting commissions of $,3,907, $4,002 and $14,560, respectively. For the
fiscal year ended September 30, 1996 and the period June 1, 1995 through
September 30, 1995, the Distributor received gross underwriting commissions on
the sale of Class A shares of $7,393 and $819, respectively, for Asset
Allocation Fund and retained net underwriting commissions of $911 and $198,
respectively. For the period November 4, 1996 (date of inception) to March 31,
1997, the Distributor received gross underwriting commissions on the sale of
Class A shares and contingent deferred sales charges on redemptions of Class B
shares of $30,799 for Social Awareness Fund and retained net underwriting
commissions of $1,572. For the period May 1, 1997 (date of inception) to August
31, 1997, the Distributor received gross underwriting commissions on the sale of
Class A and B shares and contingent deferred sales charges on redemptions of
Class B shares of $178,795 for Value Fund and retained net underwriting
commissions of $1,804. The Distributor also receives compensation from Lexington
Management Corporation ("Lexington") to defray expenses it incurs in the
distribution of certain mutual funds sub-advised by Lexington and variable
insurance products certain underlying funds of which are sub-advised by
Lexington and for the access which the Distributor permits Lexington to have to
its network of brokers and dealers. The Agreement is currently in effect with
respect to the Global Series of Security Equity Fund and Series D of SBL Fund,
the underlying investment vehicle for certain variable insurance products
distributed by the Distributor (collectively referred to as the "Sub-Advised
Portfolios"). Pursuant to the terms of the Agreement, Lexington pays the
Distributor a fee, ranging from 0% of the average daily net assets of the
Sub-Advised Portfolios below $50 million to .25% of the average daily net assets
of the Sub-Advised Portfolios of $400 million or more. The fee is calculated
daily and payable monthly.
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
46
<PAGE>
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
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, Security Benefit Life Insurance Company
("SBL"), may also hold some of the same securities as the Funds. When selecting
securities for purchase or sale for a Fund, the Investment Manager may at the
same time be purchasing or selling the same securities for one or more of such
other accounts, subject to the Investment Manager's obligation to seek best
execution, such purchases or sales may be executed simultaneously or "bunched."
It is the policy of the Investment Manager not to favor one account over the
other. Any purchase or sale orders executed simultaneously (which may also
include orders from SBL) are allocated at the average price and as nearly as
practicable on a pro rata basis (transaction costs will also 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
47
<PAGE>
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.
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
FUND BROKERAGE TO AND COMMISSIONS PAID TO
COMMISSIONS PAID BROKER-DEALERS WHO ALSO
CLASS A SHARES FUND TO SECURITY PERFORMED SERVICES
ANNUAL PORTFOLIO TOTAL BROKERAGE DISTRIBUTORS INC., BROKERAGE
YEAR TURNOVER RATE COMMISSIONS PAID THE UNDERWRITER TRANSACTIONS COMMISSIONS
- -------------------------------------------------------------------------------------------------------------------------------
Security Growth
and Income Fund
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 69% $ 98,516 0 $ 15,375,167 $ 22,566
1995 130% 257,300 0 33,932,170 57,450
1994 163% 448,925 0 21,666,518 53,256
- -------------------------------------------------------------------------------------------------------------------------------
Security Equity Fund
Equity Series
- -------------------------------------------------------------------------------------------------------------------------------
1996 64% $ 919,879 0 $181,146,205 $ 227,747
1995 95% 1,234,947 0 168,226,033 327,825
1994 79% 1,073,763 0 74,497,202 182,980
- -------------------------------------------------------------------------------------------------------------------------------
Security Equity Fund
Global Series
- -------------------------------------------------------------------------------------------------------------------------------
1996 142% $ 194,768 0 $ 11,476,297 $ 20,493
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
- -------------------------------------------------------------------------------------------------------------------------------
1996 75% $ 10,674 0 $ 259,602 $ 724
1995* 129% 3,904 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Security Equity Fund
Social Awareness
Series
- -------------------------------------------------------------------------------------------------------------------------------
1997** 22% $ 2,396 0 $ 501,208 $ 665
- -------------------------------------------------------------------------------------------------------------------------------
Security Ultra Fund
- -------------------------------------------------------------------------------------------------------------------------------
1996 161% $ 200,614 0 $ 45,866,810 $ 76,520
1995 180% 277,069 0 24,047,026 42,679
1994 111% 296,484 0 10,321,410 44,151
</TABLE>
- --------------------------------------------------------------------------------
*Asset Allocation Fund's figures are based on the period June 1, 1995 (date of
inception) to September 30, 1995.
**Social Awareness Fund's figures are based on the period November 4, 1996 (date
of inception) to March 31, 1997.
- --------------------------------------------------------------------------------
Class B shares' annual portfolio turnover rates for the fiscal years ended
September 30, 1996 and 1995 were the same as Class A shares. 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 129% for Asset Allocation
Fund. The annualized portfolio turnover rate for the period November 4, 1996
(date of inception) to March 31, 1997 was 22% for Social Awareness Fund. The
annualized portfolio turnover rate for the period May 1, 1997 (date of
inception) to August 31, 1997, was 25% for Value Fund. Portfolio turnover
information is not yet available for Small Company 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,
48
<PAGE>
except for the following dates when the exchange is closed in observance of
federal holidays: New Year's Day, Martin Luther King, Jr. 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.
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 last
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
49
<PAGE>
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 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 58.)
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. Telephone redemptions are not accepted for IRA and
403(b)(7) accounts. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of the account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and 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.
50
<PAGE>
During periods of severe market or economic conditions, telephone
redemptions may be difficult to implement and stockholders should make
redemptions by mail as described under "How to Redeem Shares," page 49.
HOW TO EXCHANGE SHARES
Pursuant to arrangements with the Distributor and with Security Cash Fund,
stockholders of the Funds may exchange their shares for shares of another of the
Funds, for shares of the other mutual funds distributed by the Distributor or
for shares of Security Cash Fund at net asset value. The other mutual funds
currently distributed by the Distributor currently include Security Corporate
Bond, Limited Mautrity Bond, U.S. Government, High Yield, Emerging Markets Total
Return, Global Asset Allocation, Global High Yield and Tax-Exempt Funds.
Exchanges may be made only in those states where shares of the fund into which
an exchange is to be made are qualified for sale.
Class A and Class B shares of the Funds may be exchanged for Class A and
Class B shares, respectively, of another Fund distributed by the Distributor or
for shares of 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 49.)
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.
51
<PAGE>
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 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. At March 31, 1997,
Social Awareness Fund had accumulated net realized losses on sales of
investments of $103,870.
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
52
<PAGE>
(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.
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
53
<PAGE>
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 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
54
<PAGE>
not entirely clear. The transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Because only a few regulations regarding the treatment of swap agreements,
and related caps, floors and collars, have been implemented, the tax
consequences of such transactions are not entirely clear. The Funds intend to
account for such transactions in a manner deemed by them to be appropriate, but
the Internal Revenue Service might not necessarily accept such treatment. If it
did not, the status of a Fund as a regulated investment company might be
affected.
The requirements applicable to a Fund's qualification as a regulated
investment company may limit the extent to which a Fund will be able to engage
in transactions in options, futures contracts, forward contracts, swap
agreements and other financial contracts.
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 a 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 an
indefinite number of shares of common stock in one or more classes or series.
Security Equity Fund has authorized capital stock of $.25 par value and
currently issues its shares in six series, Equity Fund, Global Fund, Asset
Allocation Fund, Social Awareness Fund, Value Fund and Small Company Fund. 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 $1.00 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
55
<PAGE>
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 51, 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, Asset Allocation Fund,
Social Awareness Fund, Value Fund and Small Company 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.
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 than $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,
Social Awareness Fund, Value Fund, Small Company 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, LLC acts as the Funds' transfer and dividend-paying
agent.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri, has been selected by 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
56
<PAGE>
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, 1996, respectively,
the average annual total return of Class A shares of Growth and Income Fund was
13.45%, 8.78% and 9.00%. For the 1-year period ended September 30, 1996, the
average annual total return of Class B shares of Growth and Income Fund was
14.01%. For the period October 19, 1993 (date of inception) to September 30,
1996, the average annual total return for Class B shares of Growth and Income
Fund was 8.55%.
For the 1-, 5- and 10-year periods ended September 30, 1996, respectively,
the average annual total return of Class A shares of Equity Fund was 17.71%,
15.70% and 15.24%. For the 1-year period ended September 30, 1996, the average
annual total return of Class B shares of Equity Fund was 18.57%. For the period
October 19, 1993 (date of inception) to September 30, 1996, the average annual
total return for Class B shares of Equity Fund was 15.58%.
For the 1-year period ended September 30, 1996, the average annual total
return of Class A shares of Global Fund was 10.94%. For the period October 5,
1993 (date of inception) to September 30, 1996, the average annual total return
of Class A shares of Global Fund was 7.33%. For the 1-year period ended
September 30, 1996, the average annual total return of Class B shares of Global
Fund was 11.57%. For the period October 19, 1993 (date of inception) to
September 30, 1996, the average annual total return of Class B shares of Global
Fund was 7.88%.
For the 1-, 5- and 10-year periods ended September 30, 1996, respectively,
the average annual total return of Class A shares of Ultra Fund was 8.73%,
10.61% and 6.70%. For the 1-year period ended September 30, 1996, the average
annual total return of Class B shares of Ultra Fund was 8.81%. For the period
October 19, 1993 (date of inception) to September 30, 1996, the average annual
total return for Class B shares of Ultra Fund was 8.56%.
For the 1-year period ended September 30, 1996 the average annual total
return of Class A and Class B shares of Asset Allocation Fund was 3.69% and
3.97%, respectively. For the period June 1, 1995 (date of inception) through
September 30, 1996, the average annual total return of Class A and Class B
shares of Asset Allocation Fund was 6.88% and 7.71%, respectively.
For the period November 4, 1996 (date of inception) to March 31, 1997, the
average annual total return of Class A and Class B shares of Social Awareness
Fund was -22.3% and -21.4%, respectively.
For the period May 1, 1997 (date of inception) to August 31, 1997, the
average annual total return of Class A and Class B shares of Value Fund was
53.56% and 60.56%, 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 aggregate 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 September 30, 1986 through September 30, 1996 was 136.82%,
313.00% and 91.27%, respectively. Aggregate total return on an investment made
in Class A shares of Global Fund calculated as described above for the period
October 1, 1993 through September 30, 1996 was 23.66%. Aggregate 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, 1996 was 27.40%, 53.31%, 25.07% and 27.42%, respectively.
Aggregate 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, 1996 was 9.29% and 10.42%, respectively. Aggregate
total return on an investment made in Class A and Class B shares of Social
Awareness Fund calculated as described above for the period November 4, 1996
(date of inception) to March 31, 1997 was -4.4% and -4.7%, respectively.
Aggregate total return on an investment made in Class A and Class B shares of
Value Fund calculated as described above for the period May 1, 1997 (date of
inception) to August 31, 1997, was 15.55% and 17.30%, respectively. These
57
<PAGE>
figures reflect deduction of the maximum sales load. Performance information is
not yet available for Small Cap Fund as it did not begin operations until
October of 1997.
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; the Wilshire
1750 and Wilshire 4500; and the Domini Social Index. 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 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, LLC is available to act as custodian for the
plans on a fee basis. For IRAs, SIMPLE IRAs, Section 403(b) Retirement Plans,
and Simplified Employee Pension Plans (SEPPs), service fees for such custodial
services currently are: (1) $10 for annual maintenance of the account and (2)
benefit distribution fee of $5 per distribution. Service fees for other types of
plans will vary. These fees will be deducted from the plan assets. Optional
supplemental services are available from Security Benefit Life Insurance Company
for additional charges.
Retirement investment programs involve commitments covering future years.
It is important that the investment 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. A
$10 annual fee is charged for maintaining the account.
58
<PAGE>
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. Spousal IRAs
allow an individual and his or her spouse to contribute up to $2,000 to their
respective IRAs so long as a joint tax return is filed and joint income is
$4,000 or more. The maximum amount the higher compensated spouse may contribute
for the year is the lesser of $2,000 or 100% of that spouse's compensation. The
maximum the lower compensated spouse may contribute is the lesser of (i) $2,000
or (ii) 100% of that spouse's compensation plus the amount by which the higher
compensated spouse's compensation exceeds the amount the higher compensated
spouse contributes to his or her IRA.
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.
SIMPLE IRAS
The Small Business Job Protection Act of 1996 created a new retirement
plan, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE
Plans). SIMPLE Plan participants must establish a SIMPLE IRA into which plan
contributions will be deposited.
The Investment Manager makes available SIMPLE IRAs to provide investment in
shares of the Funds. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. Contributions must be made in cash and
cannot exceed the maximum amount allowed under the Internal Revenue Code. On a
pre-tax basis, up to $6,000 of compensation (through salary deferrals) may be
contributed to a SIMPLE IRA. In addition, employers are required to make either
(1) a dollar-for-dollar matching contribution or (2) a nonelective contribution
to each participant's account each year. In general, matching contributions must
equal up to 3% of compensation, but under certain circumstances, employers may
make lower matching contributions. Instead of the match, employers may make a
nonelective contribution equal to 2% of compensation (compensation for purposes
of any nonelective contribution is limited to $160,000, as indexed).
Distributions from a SIMPLE IRA are (1) taxed as ordinary income; (2)
includable in gross income; and (3) subject to applicable state tax laws.
Distributions prior to age 59 1/2 may be subject to a 10% penalty tax which
increases to 25% for distributions made before a participant has participated in
the SIMPLE Plan for at least two years. An annual fee of $10 is charged for
maintaining the SIMPLE IRA.
PENSION AND PROFIT-SHARING PLANS
Prototype corporate pension or profit-sharing 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 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.
59
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements of the Funds (except Social Awareness Fund
and Value Fund), which are contained in the Funds' September 30, 1996 Annual
Report, the unaudited financial statements of the Funds which are contained in
the Funds' March 31, 1997 Semiannual Report, the unaudited financial statements
of Social Awareness Fund for the period November 4, 1996 (date of inception) to
March 31, 1997, and the unaudited financial statements of Value Fund for the
period May 1, 1997 (date of inception) to August 31, 1997, are incorporated
herein by reference. Copies of the Annual Report, Semiannual Report and
unaudited financial statements of Social Awareness Fund and Value Fund are
provided to every person requesting a Statement of Additional Information.
60
<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.
61
<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.
62
<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
63
<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.
64
<PAGE>
SECURITY FUNDS
ANNUAL REPORT
SEPTEMBER 30, 1996
* 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, 1996
SECURITY FUNDS
To Our Shareholders:
The fiscal year completed September 30 has been another very rewarding period
for equity investors. The Dow Jones Industrial Average increased 23.54% in the
past twelve months, the Standard & Poor's 500 gained 20.32%, and the Russell
2000 Index was up 12.83%. Your equity portfolios in the Security Funds family
all turned in excellent performances, with double-digit total returns.
ECONOMIC CONTRIBUTIONS TO EQUITY PERFORMANCE
The leading contributor to strong markets this fiscal year was moderate but
stable growth of the economy in an environment marked by the absence of
accelerating inflation. Moreover, the global inflation story was positive as
well, with declining rates of inflation in most of the world's major economies.
This was a powerful contributor to global economic growth and interest rate
stability throughout the year. Such a climate is extremely favorable for
corporate earnings.
A second factor encouraging equity growth was productivity improvement. As the
technological revolution has progressed, both workers and plant assets have been
employed more efficiently and costs have been reduced. This has generated
uninterrupted growth in corporate earnings and accordingly, equity market
growth.
A CORRECTION MAY BE IN THE CARDS
As the next fiscal year unfolds, we expect some changes to develop in the
economic picture. An economic slowdown, while not necessarily inevitable, may
take place in the second half of 1997 that might be sufficient to produce a
short-lived consumer recession. This would be accompanied by declining corporate
profits and the possibility of a correction in stock prices.
[PHOTO OF JOHN CLELAND]
JOHN CLELAND, PRESIDENT
We expect, however, that the correction would be short in time. In our view, the
globalization of the world's economy makes it unlikely that any one country's
economic contraction would last very long. Many companies in Europe and Asia are
early in their productivity improvement processes. Competitiveness, as well as
earnings which are global in nature, will keep companies worldwide working hard
at cost efficiency and earnings growth.
OUR VIEW OF THE LONG TERM
Volatility remains the constant companion of equity investors. Because of
ever-growing liquidity in the financial markets, traders can more rapidly
respond to reports of all kinds, moving markets oftentimes in wide swings.
However, long-term investors are able to step back and view the broader upward
trends in the market indexes without overreacting to daily changes.
We believe that the long-term bull market for financial assets remains intact.
The world in general is at peace with the United States, the only surviving
global superpower. This continues to provide a positive outlook for financial
markets as we approach the dawn of the twenty-first century.
As always, we are pleased that you have chosen us to manage your investments. We
invite your questions or comments at any time.
Sincerely,
JOHN CLELAND
John Cleland
President
- --------------------------------------------------------------------------------
1
<PAGE>
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY GROWTH AND INCOME FUND
To Our Shareholders:
At the close of the fiscal year completed September 30 we look back with
surprise at the strength of the market. A year ago we felt that corporate
earnings in 1996 would slow, in turn limiting the stock market to a modest
upside movement. Instead earnings remained strong even in the face of rising
interest rates, and the stock markets reached record highs. Your Growth and
Income Fund returned 20.31% for the year, topping last year's return and
paralleling the 20.32% gain for the Standard & Poor's 500 Index.*
CONTRIBUTORS TO STRONG PERFORMANCE
The greatest exposure in the portfolio was to companies with high quality,
consistently above-average earnings and low economic sensitivity. Our analytical
efforts paid off as we worked to identify good earnings prospects. Many, such as
Walgreens Company, a chain of retail drug stores, were in the consumer
nondurable goods sector and had low economic sensitivity.
Issues including Smithkline Beecham PLC ADR and Merck & Company, Inc. in the
health care industry generated solid earnings as they felt little impact from
rising interest rates. Albertson's, Inc., a food retailer, also was a strong
performer, showing very little sensitivity to a moderating economy.
Even though the technology sector was more volatile than many other areas, a
strong-performing stock in the portfolio was Microsoft Corporation, increasing
over 65% since purchase in early 1996. Another outstanding performer was U.S.
Industries, Inc., a manufacturing and distribution conglomerate, which posted a
75% gain in its stock price since we added it to our holdings.
THE FIXED INCOME PORTION OF THE PORTFOLIO
Consistently throughout the fiscal year about 20% of the fund's portfolio was
invested in high yield bonds. This portion contained both BB and B-rated issues,
Standard & Poor's two highest rating categories in the high yield area of the
fixed income market. Companies in these rating categories exhibit stronger
balance sheets than their lower-rated counterparts, and generally will hold
their value better in the event of an economic slowdown.
Corporate buyouts played a substantial part in the total return contribution of
the bond holdings. Cable television operator Continental Cablevision was
purchased by U.S. West, Inc., a telecommunications service provider. Because
U.S. West was rated higher, our Continental Cablevision bonds benefitted from an
upgrade after the purchase. A similar situation in the finance industry involved
Keystone Group, a mutual fund company, and its acquiror, a bank holding company
called First Union Corporation. The perception that Keystone will soon be
upgraded to First Union's ranking drove the price upward.
[PHOTO OF THE SECURITY MANAGEMENT GROWTH-INCOME TEAM]
THE SECURITY MANAGEMENT GROWTH-INCOME TEAM:
(L-R) CHUCK LAUBER, TERRY MILBERGER, TOM SWANK,
JIM SCHIER AND (SEATED) JOHN CLELAND
LOOKING AHEAD
We expect the long-awaited economic slowdown to unfold sometime in 1997. The
path we pursued in 1996-focusing on stable growth companies-should continue to
serve us well in that event. When economic strength resumes after this period of
moderation, it is likely that we will increase our exposure to stocks of a more
cyclical nature such as chemicals, paper producers, capital goods-related
industries and the housing industry.
Terry Milberger
Senior Portfolio Manager
Tom Swank
Portfolio Manager
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
2
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY GROWTH AND INCOME FUND
PERFORMANCE -------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND VS. S&P 500
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
BLENDED INDEX
OF 80% S&P 500
AND 20% LEHMAN
BROTHERS LONG BB
SECURITY GROWTH HIGH YIELD
AND INCOME FUND S&P 500 BOND INDEX
----------------------------------------------------------------
12/31/86 9,647.52 10,558.65 10,539
3/31/87 11,073.61 12,811.51 12,471
6/30/87 11,466.66 13,452.05 12,960
9/30/87 11,765.21 14,340.79 13,608
12/31/87 9,732.90 11,108.76 11,213
3/31/88 10,287.69 11,639.74 11,898
6/30/88 10,629.71 12,411.48 12,607
9/30/88 10,482.14 12,450.80 12,732
12/31/88 10,776.56 12,830.71 13,152
3/31/89 11,437.43 13,738.04 13,920
6/30/89 12,146.18 14,948.76 15,054
9/30/89 12,714.35 16,546.27 16,427
12/31/89 12,978.10 16,882.45 16,783
3/31/90 12,493.36 16,371.56 16,418
6/30/90 12,572.14 17,396.25 17,347
9/30/90 11,978.80 15,017.92 15,365
12/31/90 12,589.17 16,355.85 16,483
3/31/91 13,681.07 18,723.54 18,691
6/30/91 13,895.14 18,684.26 19,449
9/30/91 14,645.95 19,683.96 19,743
12/31/91 15,341.48 21,321.71 21,257
3/31/92 15,050.76 20,786.06 20,991
6/30/92 14,903.63 21,182.53 21,434
9/30/92 15,329.00 21,683.89 22,092
12/31/92 16,079.63 22,770.27 23,126
3/31/93 16,803.06 23,758.75 24,163
6/30/93 16,955.43 23,873.65 24,497
9/30/93 17,721.93 24,488.58 25,191
12/31/93 17,394.03 25,053.11 25,820
3/31/94 16,974.35 24,111.23 24,852
6/30/94 15,908.79 24,217.77 24,838
9/30/94 16,368.88 25,402.86 25,888
12/31/94 16,027.39 25,397.70 25,924
3/31/95 16,967.16 27,864.59 28,376
6/30/95 18,571.77 30,516.98 31,107
9/30/95 19,683.37 32,938.57 33,285
12/31/95 20,475.35 34,917.17 35,236
3/31/96 21,867.19 36,787.15 36,693
6/30/96 22,730.29 38,433.91 38,018
9/30/96 23,681.51 39,610.93 39,196
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Growth and Income
Fund on September 30, 1986, and reflects deduction of the 5.75% sales load. On
September 30, 1996, the value of your investment in Class A shares of the fund
(with dividends reinvested) would have grown to $23,682. By comparison, the same
$10,000 investment would have grown to $39,611 based on the S&P's performance.
Comparison is also made to a blend of market indexes which reflect the asset
classes in which the Fund invests. The blended index consists of 80% S&P 500 and
20% Lehman Brothers Long BB High Yield Index. The same $10,000 investment in the
blended index would have grown to $39,005.
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
----------
Monsanto Company 1.7%
Oracle Corporation 1.7%
American Home Products Corporation 1.7%
Chase Manhattan Corporation 1.6%
Eastman Kodak Company 1.6%
**At September 30, 1996
AVERAGE ANNUAL RETURNS
As of September 30, 1996
1 year 5 years 10 years
----------------------------
A Shares 20.31% 10.09% 9.65%
A Shares with sales charge 13.45% 8.78% 9.00%
B Shares 19.01% 9.41% N/A
(10-19-93)
B Shares with CDSC 14.01% 8.55% N/A
(10-19-93)
ONE YEAR RETURN PARALLELS INDEX
A SHARES - 20.31% S&P 500 - 20.32%
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, 1996
SECURITY EQUITY FUND - EQUITY SERIES
To Our Shareholders:
The stock markets during the fiscal year completed September 30 surprised us
with their strength. Your Equity Series showed outstanding growth, returning
24.90% for the year compared with the Standard & Poor's 500 Index return of
20.32%.* A year ago at this time we anticipated that corporate earnings would
slow in 1996, limiting the stock market to a modest rise at best. Instead
earnings remained strong despite slightly higher interest rates, and the equity
markets reached record high levels.
GROWTH ORIENTATION PRODUCES EXCELLENT RETURNS
Throughout the year we have maintained a preference for growth companies. The
basic portfolio mix has been heavily weighted toward firms exhibiting high
quality, above-average earnings growth. For example, one of our best performers
has been Safeway, Inc. a grocery retailing chain which has been restructuring to
improve their expense structure. This realignment has produced increasing profit
margins, resulting in a stock price that more than doubled in the past twelve
months.
We have kept a large exposure to the healthcare industry, a sector which is now
reaping the benefits of cost cutting and many promising new products. The stock
of American Home Products Corporation has exhibited steady growth since the
company purchased American Cyanamid. Investors perceive that the merger will
bring cost efficiencies to the combined company which will lead to higher value.
Another company in this sector, Shering-Plough Corporation, has an excellent
outlook because of its new product flow.
In the highly volatile technology sector we held Microsoft Corporation stock
which appreciated over 65% since we purchased it. We also maintained an
overweighted position in the aerospace/defense area, including such names as
Lockheed Martin Corporation and McDonnell Douglas Corporation. On the negative
side, we held a lower weighting than the S&P 500 Index in banking and in the
energy sector. Banks were surprisingly strong performers despite rising interest
rates, and oil prices have increased much more than anticipated.
[PHOTO OF THE SECURITY MANAGEMENT LARGE CAP TEAM]
THE SECURITY MANAGEMENT LARGE CAP TEAM
JOHN CLELAND, TERRY MILBERGER, CHUCK LAUBER
PLANS FOR THE COMING YEAR
We think our blend of growth issues and selected value stocks is unique among
growth funds. We believe that over time, this combination lowers the fund's
volatility while increasing the potential for strong returns. We expect to
continue our same strategy over the coming months, given our outlook for a
moderating economy in 1997.
We plan to maintain an emphasis on companies with above-average earnings growth,
including those with exposure to foreign earnings. We think that many foreign
economies have the potential to show better growth in the months ahead than the
U.S. economy will generate.
Terry Milberger
Portfolio Manager
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
4
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY EQUITY FUND - EQUITY SERIES
PERFORMANCE -------------------------------------------------------------------
SECURITY EQUITY SERIES VS. S&P 500
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
Equity Series S&P 500
------------------------------------------------------
12/31/86 9,821.47 10,558.65
3/31/87 11,736.94 12,811.51
6/30/87 12,233.07 13,452.05
9/30/87 13,181.37 14,340.79
12/31/87 10,238.37 11,108.76
3/31/88 10,934.18 11,639.74
6/30/88 11,331.79 12,411.48
9/30/88 11,754.25 12,450.80
12/31/88 12,200.27 12,830.71
3/31/89 13,219.09 13,738.04
6/30/89 14,543.55 14,948.76
9/30/89 16,632.11 16,546.27
12/31/89 15,953.97 16,882.45
3/31/90 15,518.86 16,371.56
6/30/90 16,505.10 17,396.25
9/30/90 13,981.48 15,017.92
12/31/90 15,215.92 16,355.85
3/31/91 17,827.12 18,723.54
6/30/91 17,859.35 18,684.26
9/30/91 18,762.00 19,683.96
12/31/91 20,576.87 21,321.71
3/31/92 20,823.93 20,786.06
6/30/92 20,541.58 21,182.53
9/30/92 20,682.76 21,683.89
12/31/92 22,781.62 22,770.27
3/31/93 24,177.18 23,758.75
6/30/93 23,988.59 23,873.65
9/30/93 25,384.15 24,488.58
12/31/93 26,113.40 25,053.11
3/31/94 25,179.11 24,111.23
6/30/94 24,758.69 24,217.77
9/30/94 25,879.83 25,402.86
12/31/94 25,444.24 25,397.70
3/31/95 27,917.98 27,864.59
6/30/95 30,694.64 30,516.98
9/30/95 33,067.42 32,938.57
12/31/95 35,220.14 34,917.17
3/31/96 38,068.41 36,787.15
6/30/96 39,711.67 38,433.91
9/30/96 41,300.13 39,610.93
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1986, and reflects deduction of the 5.75% sales load. On September
30, 1996, the value of your investment in Class A shares of the Series (with
dividends reinvested) would have grown to $41,300. By comparison, the same
$10,000 investment would have grown to $39,611 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
----------
AlliedSignal, Inc. 1.7%
American Home Products Corporation 1.7%
U.S. Industries, Inc. 1.6%
Bristol-Myers Squibb Company 1.6%
Chase Manhattan Corporation 1.6%
**At September 30, 1996
AVERAGE ANNUAL RETURNS
As of September 30, 1996
1 year 5 years 10 years
----------------------------
A Shares 24.90% 17.09% 15.92%
A Shares with sales charge 17.71% 15.70% 15.24%
B Shares 23.57% 16.34% N/A
(10-19-93)
B Shares with CDSC 18.57% 15.58% 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, 1996
SECURITY EQUITY FUND - GLOBAL SERIES
[LEXINGTON LOGO]
SUBADVISOR - LEXINGTON MANAGEMENT CORPORATION
To Our Shareholders:
The Global Series of Security Equity Fund had an outstanding year in the fiscal
year completed September 30, posting a 17.73% gain.* This compares favorably
with both the 13.01% average return of its peer group and the 12.98% advance of
its benchmark, the Morgan Stanley Capital International World Index.**
WORLD EQUITY MARKET PERFORMANCE
Stock markets in both Europe and North America performed well the past year
while many Far Eastern markets suffered. Japan and Thailand, for example, both
declined over the most recent quarter. Hong Kong, conversely, continued to post
strong gains due to an improving outlook for interest rates and property prices
there.
The Global Series portfolio benefitted from its overweighting in Europe.
Interest sensitive stocks did well as weak economies and rising expectations for
monetary union pushed interest rates lower. Our holdings in Greece and Poland
also added to overall gains. The portfolio's underweighting in the United States
dampened performance, however, as that market turned in strong results.
THE GLOBAL ECONOMIC PICTURE
The outlook for the global economy remains mixed. The U.S. economy is doing well
with growth in the 2% to 3% range and inflation remaining subdued. Global equity
markets should continue to enjoy a positive environment unless U.S. growth and
inflation accelerate, forcing global bond yields higher. The U.S. stock market
looks less appealing than those overseas due to an anemic profit outlook
combined with high prices for stocks.
[PHOTO OF RICHARD SALER] [PHOTO OF ALAN WAPNICK]
RICHARD SALER ALAN WAPNICK
PORTFOLIO MANAGER PORTFOLIO MANAGER
European communities are struggling to maintain any growth at all. Governments
are attempting to reduce budget deficits in order to qualify for European
Monetary Union membership. This fiscal drag, along with double digit
unemployment rates, is keeping growth to a minimum. Equity investors are
benefitting from several factors. Because inflation remains low and deficits are
being cut, interest rates continue to fall, propelling stock prices to record
highs in many European markets. The European profit outlook is excellent as
companies are aggressively cutting costs to improve competitiveness.
The Japanese economy has finally emerged from recession, but with government
fiscal stimulus slowing and a planned 2% increase in consumption taxes, the
outlook going forward is muted. Most Japanese companies continue to be managed
for the worker rather than the shareholder, reducing their long-term
attractiveness.
LOOKING FORWARD INTO 1997
We believe European stocks will continue to look attractive because interest
rates should remain low for some time. Profits should continue to expand rapidly
in many companies undergoing restructuring, as cost cutting will provide several
years of margin expansion. The outlook for European monetary union has improved,
and several sectors and countries will benefit from this.
Japanese stocks are less exciting. Because of a subdued long-term profit
outlook, their future remains cloudy. We believe that profits will surprise
positively only if the yen continues to decline. In the emerging markets, Poland
provides favorable opportunities. Greece is attractive also because of low
equity valuations and the potential for falling interest rates if the newly
elected government succeeds in bringing down the budget deficit. We feel that
U.S. equities may underperform given their high valuations currently and the
potential for profit disappointments.
Richard Saler and Alan Wapnick
Portfolio Managers
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
**Peer group performance information based on data provided by Lipper Analytical
Services, Inc.
- --------------------------------------------------------------------------------
6
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY EQUITY FUND - GLOBAL SERIES
PERFORMANCE -------------------------------------------------------------------
SECURITY GLOBAL SERIES VS. MORGAN STANLEY
CAPITAL INTERNATIONAL WORLD INDEX
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
Global Series MSCI
------------------------------------------
12/93 9,745.28 9,899.23
3/94 9,773.58 9,971.48
6/94 10,009.43 10,282.89
9/94 10,226.42 10,515.81
12/94 9,869.12 10,451.79
3/95 9,744.20 10,954.69
6/95 9,955.61 11,436.49
9/95 10,512.97 12,089.93
12/95 10,892.47 12,679.75
3/96 11,590.07 13,210.98
6/96 12,217.90 13,609.02
9/96 12,377.35 14,189.26
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, 1996, the value of your investment in Class A shares of the Series (with
dividends reinvested) would have grown to $12,377. By comparison, the same
$10,000 investment would have grown to $14,189 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.
PORTFOLIO BREAKDOWN BY COUNTRY (TOP 5)**
% OF
NET ASSETS
----------
United States 17.9%
Japan 12.8%
United Kingdom 8.1%
Germany 6.1%
France 6.0%
**At September 30, 1996
AVERAGE ANNUAL RETURNS
As of September 30, 1996
1 year Since Inception
------ ---------------
A Shares 17.73% 9.47%
(10-1-93)
A Shares with sales charge 10.94% 7.33%
(10-1-93)
B Shares 16.57% 8.75%
(10-19-93)
B Shares with CDSC 11.57% 7.88%
(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.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
- --------------------------------------------------------------------------------
7
<PAGE>
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
[TEMPLETON LOGO]
[MERIDIAN INVESTMENT MANAGEMENT LOGO]
[SECURITY MANAGEMENT COMPANY, LLC LOGO]
MANAGED BY SECURITY MANAGEMENT COMPANY, LLC
RESEARCH PROVIDED BY MERIDIAN INVESTMENT MANAGEMENT CORPORATION AND
TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC. TEMPLETON/FRANKLIN'S
RESEARCH IS DERIVED FROM RESEARCH PROVIDED BY A THIRD PARTY WHICH IS
ANALYZED AND MONITORED BY TEMPLETON/FRANKLIN.
To Our Shareholders:
The newest member of the Security Equity Fund family, the Asset Allocation
Series, returned a respectable 10.01% to its shareholders in the fiscal year
ended September 30.* It is difficult in years when one asset category far
outperforms the others, as the U.S. stock market has done the past twelve
months, to compare an allocation funds results with those of other types of
portfolios. Over the longer term, however, we believe the theories of reduced
risk and favorable return that spawned the asset allocation concept will reward
its investors.
PERFORMANCE IN FISCAL YEAR 1996
The portfolio for the Asset Allocation Series can be divided among seven asset
categories: U.S. stocks, foreign stocks, U.S. bonds, foreign bonds, real estate
(through Real Estate Investment Trusts), gold stocks, and cash.** For most of
the past year we have used all of these categories except gold stocks and cash.
The sector allocations recommended by our outside provider of research, Meridian
Investment Management Corporation, have been timely. Country recommendations in
the foreign equity sector have been strong. However, certain industry choices
within the U.S. equity sector have been disappointing. It appears that some of
these shifts were too early. Meridian remains positive in their outlook for the
industries now held in the portfolio.
ALLOCATION CHANGES SINCE MID-YEAR
Since the semiannual report was written, Meridian has recommended four
allocation changes. The first, in early May, was to sell completely our position
in the United Kingdom, and to sell the chemical stock portion of the U.S. equity
portfolio. Proceeds from these sales were invested in Italy, raising exposure
there to 5.4% of the total portfolio.
[PHOTO OF JANE TEDDER]
JANE TEDDER
PORTFOLIO MANAGER
In mid-June Meridian suggested that the Fund's entire cash position (2.65% of
the total portfolio) be moved into the real estate sector. They believed that
yields were very attractive relative both to the sector's long-term averages and
to interest rates in general. This move was followed in July by sales of
holdings in the shoe and housing industries in the U.S. equity sector,
reinvesting a month later in restaurant and broadcast stocks.
THOUGHTS ABOUT NEXT YEAR
Going forward, we are considering the value of increasing exposure to bonds,
both in the U.S. and foreign sectors. The money would be taken from the U.S.
equity sector, which may be nearing a correction as economic growth slows. The
research we have been receiving from Meridian indicates that foreign equities
will likely outperform U.S. stocks in coming months, especially in Italy and
Germany.
From an economic standpoint, we believe the potential for rising inflation is
slim. Therefore a position in gold stocks, a traditional inflation hedge, is not
expected to be added.
Jane Tedder
Portfolio Manager
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
**Investing in foreign countries may involve risks, such as currency
fluctuations and political instability, not associated with investing
exclusively in the U.S.
- --------------------------------------------------------------------------------
8
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
PERFORMANCE -------------------------------------------------------------------
SECURITY ASSET ALLOCATION SERIES VS. S&P 500
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
ASSET MERIDIAN
ALLOCATION SERIES S&P 500 BLENDED INDEX
-----------------------------------------------------------------
6/30/95 9,500.47 10,277.96 10,083
7/31/95 9,820.92 10,604.75 10,391
8/31/95 9,811.50 10,601.17 10,348
9/30/95 9,934.02 11,090.91 10,607
10/31/95 10,056.55 11,035.31 10,520
11/30/95 10,056.55 11,488.30 10,829
12/31/95 10,158.02 11,756.45 11,109
1/31/96 10,424.82 12,139.91 11,320
2/29/96 10,464.34 12,224.09 11,348
3/31/96 10,563.16 12,385.41 11,445
4/30/96 10,770.67 12,551.95 11,599
5/31/96 10,899.12 12,838.99 11,694
6/30/96 10,790.43 12,941.36 11,784
7/31/96 10,405.06 12,349.31 11,479
8/31/96 10,592.80 12,581.65 11,640
9/30/96 10,928.77 13,339.23 12,052
This chart assumes a $10,000 investment in Class A shares of Asset Allocation
Series on June 1, 1995, and reflects deduction of the 5.75% sales load. On
September 30, 1996, the value of your investment in Class A shares of the Series
(with dividends reinvested) would have grown to $10,929. By comparison, the same
$10,000 investment would have grown to $13,339, based on the S&P's performance.
Comparison is also made to a blend of market indexes which reflect the asset
classes in which the Series has invested over the past fiscal year. The blended
index consists of 40% S&P 500, 5% U.S. 30-day Treasury, 20% Lehman Brothers
Aggregate Bond, 25% Financial Times World Index (excluding U.S.), 10% Wilshire
Real Estate Securities. The same $10,000 investment in the blended index would
have grown to $12,052.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares 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.
ASSET MIX**
% OF
NET ASSETS
----------
International Equities & Equivalents 32.9%
U. S. Equities 34.5%
U. S. Bonds 15.9%
Real Estate 14.8%
Cash & Equivalents 1.9%
**At September 30, 1996
AVERAGE ANNUAL RETURNS
As of September 30, 1996
1 year Since Inception
------ ---------------
A Shares 10.01% 11.73%
(6-1-95)
A Shares with sales charge 3.69% 6.88%
(6-1-95)
B Shares 8.97% 10.63%
(6-1-95)
B Shares with CDSC 3.97% 7.71%
(6-1-95)
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. In addition, the investment manager is waiving a portion of the
management fee for the Series. Performance figures would be lower if the maximum
sales charge and advisory fee were deducted.
- --------------------------------------------------------------------------------
9
<PAGE>
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY ULTRA FUND
To Our Shareholders:
The strength of the stock markets in the fiscal year completed September 30 has
surprised us all. Small-cap and mid-cap stocks have turned in a fine performance
over the year. Your Ultra Fund shares generated a 15.36% total return, strongly
outperforming the 12.32% return of the fund's benchmark, the Standard & Poor's
400 Midcap Growth Stock Index.*
CONTRIBUTORS TO A SUCCESSFUL YEAR
Our nearly 30% weighting in technology for most of the year has proven to be a
wise decision. We reduced the position prior to the summer months when the
market experienced a period of correction, and reinvested in late summer as the
upward movement resumed. Many of our holdings in this sector generated very
strong returns.
A software manufacturer called Viasoft, Inc. gained over 280% since we purchased
the stock in January. The company has developed software which helps correct the
"millenium" issue in mainframe computers. Many applications which still run on
the COBOL language (the Department of Motor Vehicles, for example, still uses
this system) will read the two-digit "00" as the year 1900 instead of 2000. The
Viasoft program determines how much of the code must be changed and where in the
program it appears.
Another issue which we purchased in February, Cascade Communications
Corporation, rose over 130% during the balance of the year. Cascade specializes
in the networking area, manufacturing switches which are used in wide-area
networks. These systems allow companies to communicate more rapidly with remote
sites by speeding up the flow of data through the telephone lines.
OTHER STRONG PERFORMING SECTORS
The health care area has helped portfolio performance this year also. Dura
Pharmaceuticals, Inc. has capitalized on the mergers of major pharmaceutical
manufacturers by buying smaller market-share drugs from them. These products
usually receive little attention from the major companies in terms of sales
efforts. Dura is purchasing these drugs after they have already received FDA
approval, and can concentrate their sales efforts to increase market
penetration. Another holding in the health care sector is Guidant Corporation, a
manufacturer of cardiac defibrillators which can be implanted in pectoral
muscles to regulate heartbeats.
[PHOTO OF THE SECURITY MANAGEMENT SMALL CAP TEAM]
THE SECURITY MANAGEMENT SMALL CAP TEAM
LARRY VALENCIA, FRANK WHITSELL, CINDY SHIELDS, JOHN CLELAND
In the business services arena, an outstanding performer is Cambridge Technology
Partners (Massachusetts), Inc. The company performs information technology
consulting and software development. They assist companies in projects such as
moving from their old mainframe computer systems to newer client/server
environments. Protecting their clients from cost overruns, Cambridge performs
these services for a guaranteed fixed cost and within a guaranteed time period.
A LOOK FORWARD TO THE NEXT YEAR
We think the U.S. economy will be slowing and inflation will remain under
control. We expect small- and mid-cap stocks to outperform the large-cap issues
in the months ahead. Large companies have been achieving earnings growth through
cutting costs, while small companies have been expanding earnings through sales
growth. In our opinion, investors may be willing to pay more for companies
showing revenue gains from sales increases than through cost reductions.
Overall, we believe the fiscal year ahead will be another favorable one for
equity investors.
Cindy Shields
Portfolio Manager
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
10
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
NOVEMBER 15, 1996
SECURITY ULTRA FUND
PERFORMANCE -------------------------------------------------------------------
SECURITY ULTRA FUND VS. S&P MIDCAP 400
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
Security Ultra Fund S&P Midcap 400
----------------------------------------------------------------
Dec-86 9,349.19 10,231.21
Mar-87 11,076.90 12,371.30
Jun-87 11,076.90 12,266.45
Sep-87 11,480.96 12,816.07
Dec-87 7,654.05 10,023.15
Mar-88 8,687.99 11,328.66
Jun-88 9,492.16 11,951.35
Sep-88 9,075.72 11,794.81
Dec-88 9,414.11 12,114.83
Mar-89 9,774.53 13,271.13
Jun-89 10,178.20 14,599.23
Sep-89 11,374.78 16,192.45
Dec-89 10,538.74 16,420.52
Mar-90 10,492.52 15,908.44
Jun-90 11,678.90 16,852.55
Sep-90 6,871.76 13,856.38
Dec-90 7,647.54 15,580.30
Mar-91 10,450.55 19,156.41
Jun-91 9,948.29 19,015.77
Sep-91 10,888.02 20,826.68
Dec-91 12,215.99 23,385.48
Mar-92 12,332.17 23,267.27
Jun-92 10,606.01 22,543.45
Sep-92 11,054.15 23,419.84
Dec-92 13,157.80 26,171.07
Mar-93 13,261.27 27,028.62
Jun-93 13,209.53 27,659.14
Sep-93 14,020.03 29,051.46
Dec-93 14,464.52 29,825.72
Mar-94 13,671.95 28,694.22
Jun-94 12,443.46 27,648.94
Sep-94 13,513.43 29,521.48
Dec-94 13,506.57 28,759.69
Mar-95 13,971.61 31,112.96
Jun-95 14,901.70 33,826.76
Sep-95 16,579.92 37,128.28
Dec-95 16,112.61 37,658.64
Mar-96 17,248.61 39,976.91
Jun-96 18,662.81 41,128.06
Sep-96 19,126.48 42,325.44
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Ultra Fund on
September 30, 1986, and reflects deduction of the 5.75% sales load. On September
30, 1996, the value of your investment in Class A shares of the fund (with
dividends reinvested) would have grown to $19,126. In comparison, the same
$10,000 investment would have grown to $42,325 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
----------
Franklin Resources, Inc. 1.9%
Viasoft, Inc. 1.8%
Dura Pharmaceuticals, Inc. 1.7%
Cognos, Inc. (Cl. F) 1.7%
HFS, Inc. 1.6%
**At September 30, 1996
AVERAGE ANNUAL RETURNS
As of September 30, 1996
1 year 5 years 10 years
----------------------------
A Shares 15.36% 11.93% 7.34%
A Shares with sales charge 8.73% 10.61% 6.70%
B Shares 13.81% 9.42% N/A
(10-19-93)
B Shares with CDSC 8.81% 8.56% N/A
(10-19-93)
ONE YEAR RETURN BEATS INDEX
A SHARES - 15.36% S&P MIDCAP 400 - 12.32%
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.
- --------------------------------------------------------------------------------
11
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY GROWTH AND INCOME FUND
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------
AUTOMOTIVE - 0.4%
$300,000 Exide Corporation,
10.75% - 2002 ...................................... $313,500
BUILDING MATERIALS - 0.4%
250,000 Knoll, Inc.,
10.875% - 2006 ..................................... 265,000
CHEMICALS - 0.4%
250,000 Environdyne Industries, Inc.,
12% - 2000 ......................................... 267,813
COMMUNICATIONS - 2.9%
250,000 Allbritton Communication Company,
11.5% - 2004 ....................................... 265,625
750,000 Century Communications Corporation,
9.5% - 2005 ........................................ 753,750
500,000 Comcast Corporation,
9.125% - 2006 ...................................... 496,250
250,000 Heritage Media Corporation,
8.75% - 2006 ....................................... 237,500
500,000 Rogers Cablesystems, Ltd.,
9.625% - 2002 ...................................... 503,750
__________
2,256,875
CONGLOMERATE - 1.0%
250,000 Jordan Industries, Inc.,
10.375% - 2003 ..................................... 245,625
500,000 Sequa Corporation,
9.375% - 2003 ...................................... 503,750
__________
749,375
CONSUMER GOODS & SERVICES - 0.6%
800,000 Semi-Tech Corporation,
0% - 2003(1) ....................................... 482,000
ELECTRIC & GAS COMPANIES - 0.8%
250,000 AES Corporation,
10.25% - 2006 ...................................... 265,000
300,000 CalEnergy Company, Inc.,
9.5% - 2006(2) ..................................... 304,500
__________
569,500
ENTERTAINMENT - 1.0%
250,000 AMF Group, Inc.,
10.875% - 2006 ..................................... 256,875
500,000 Harrah's Operating Company, Inc.,
8.75% - 2000 ....................................... 508,125
__________
765,000
FINANCE - 1.0%
1,000,000 Home Holdings,
7.75% - 1998 ....................................... 765,000
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
FOOD & BEVERAGES - 1.4%
$500,000 Cott Corporation,
9.375% - 2005 ...................................... $500,000
500,000 TLC Beatrice International Holdings,
11.5% - 2005 ....................................... 524,375
__________
1,024,375
GROCERY STORES - 0.6%
500,000 Penn Traffic Company,
10.65% - 2004 ...................................... 443,750
INDUSTRIAL PRODUCT - 0.4%
300,000 Shop Vac Corporation,
10.625% - 2003(2) .................................. 308,250
MEDICAL & HEALTH SERVICES - 1.0%
500,000 Regency Health Services,
9.875% - 2002 ...................................... 503,750
250,000 Tenet Healthcare Corporation,
10.125% - 2005 ..................................... 271,250
__________
775,000
OIL & GAS COMPANIES - 0.7%
500,000 Seagull Energy Corporation,
8.625% - 2005 ...................................... 503,750
PUBLISHING & PRINTING - 1.3%
250,000 Golden Books Publishing,
7.65% - 2002 ....................................... 224,375
1,000,000 Marvel Holdings,
0% - 1998 .......................................... 790,000
__________
1,014,375
REFINERY - 0.7%
500,000 Crown Central Petroleum,
10.875% - 2005 ..................................... 508,125
RESTAURANTS - 0.7%
500,000 Carrols Corporation,
11.5% - 2003 ....................................... 525,000
TEXTILE - 0.7%
500,000 Westpoint Stevens Inc.,
9.375% - 2005 ...................................... 501,250
TOBACCO PRODUCTS - 0.3%
250,000 Dimon, Inc.,
8.875% - 2006 ...................................... 251,250
__________
Total corporate bonds -
(cost $12,254,780) - 16.3% ......................... 12,289,188
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
12
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY GROWTH AND INCOME FUND (CONTINUED)
NUMBER OF MARKET
SHARES PREFERRED STOCKS VALUE
- --------------------------------------------------------------------------------
BANKING & CREDIT - 1.2%
8,250 First Nationwide Bank ................................ $932,250
ENTERTAINMENT - 0.7%
524 Time Warner, Inc.,(2) ................................ 552,883
PUBLISHING & PRINTING - 0.6%
5,000 K-III Communications Corporation ..................... 467,500
RADIO & TELEVISION - 0.7%
5,139 Cablevision Systems Corporation ...................... 498,483
__________
Total preferred stocks
(cost $2,344,749) - 3.2% ........................... 2,451,116
COMMON STOCKS
-------------
ADVERTISING - 1.5%
25,000 Omnicom Group, Inc. .................................. 1,168,750
AEROSPACE & DEFENSE - 4.8%
10,000 Lockheed Martin Corporation .......................... 901,250
20,000 McDonnell Douglas Corporation ........................ 1,050,000
15,000 Raytheon Company ..................................... 834,375
15,000 Rockwell International Corporation ................... 845,625
__________
3,631,250
BANKING & FINANCE - 1.6%
15,000 Chase Manhattan Corporation .......................... 1,201,875
CHEMICALS - BASIC - 3.6%
15,000 Hercules, Inc. ....................................... 821,250
35,000 Monsanto Company ..................................... 1,277,500
8,000 Olin Corporation ..................................... 672,000
__________
2,770,750
CHEMICALS - SPECIALTY - 2.5%
20,000 Morton International, Inc. ........................... 795,000
25,000 Praxair, Inc. ........................................ 1,075,000
__________
1,870,000
COMMUNICATION EQUIPMENT - 0.9%
10,000 U.S. Robotics Corporation* ........................... 646,250
COMPUTER SERVICES - 3.5%
20,000 Ceridian Corporation* ................................ 1,000,000
10,000 Computer Sciences Corporation* ....................... 768,750
15,000 Electronic Data Systems Corporation .................. 920,625
__________
2,689,375
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE - 3.1%
8,000 Microsoft Corporation* ............................... $1,055,000
30,000 Oracle Corporation* .................................. 1,276,875
__________
2,331,875
CONGLOMERATE - 6.5%
15,000 AlliedSignal, Inc. ................................... 988,125
40,000 Canadian Pacific, Ltd. ............................... 925,000
20,000 Cooper Industries, Inc. .............................. 865,000
10,000 Tenneco, Inc. ........................................ 501,250
40,000 U.S. Industries, Inc.* ............................... 1,050,000
30,000 Westinghouse Electric Corporation .................... 558,750
__________
4,888,125
CONSUMER SERVICES - 0.8%
30,000 ADT Ltd.* ............................................ 573,750
ELECTRICAL MACHINERY & ELECTRONIC COMPONENTS - 1.4%
12,000 General Electric Company ............................. 1,092,000
ENTERTAINMENT - 2.1%
30,000 Carnival Corporation (Cl. A) ......................... 930,000
10,000 The Walt Disney Company .............................. 633,750
__________
1,563,750
FERTILIZER - 1.0%
10,000 Potash Corporation of Saskatchewan, Inc. ............. 731,250
FINANCIAL - 1.1%
24,000 Federal National Mortgage Association ................ 837,000
FOOD & BEVERAGES - 6.3%
30,000 Anheuser-Busch Companies, Inc. ....................... 1,128,750
15,000 CPC International, Inc. .............................. 1,123,125
20,000 ConAgra, Inc. ........................................ 985,000
30,000 PepsiCo, Inc. ........................................ 847,500
20,000 Sara Lee Corporation ................................. 715,000
__________
4,799,375
HOSPITAL MANAGEMENT & SERVICES - 1.1%
15,000 Columbia/HCA Healthcare Corporation .................. 853,125
HOUSEHOLD FURNISHINGS - 1.6%
40,000 Leggett & Platt, Inc. ................................ 1,175,000
HOUSEHOLD PRODUCTS - 1.3%
10,000 Procter & Gamble Company ............................. 975,000
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
13
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY GROWTH AND INCOME FUND (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
INSURANCE - 2.6%
15,000 Allstate Corporation ................................. $738,750
20,000 Equitable Companies, Inc. ............................ 515,000
13,000 Jefferson-Pilot Corporation .......................... 672,750
__________
1,926,500
MACHINERY - 1.4%
25,000 Deere & Company ...................................... 1,050,000
MANUFACTURING - 1.1%
30,000 Pall Corporation ..................................... 847,500
MEDICAL INSTRUMENTS & SUPPLIES - 2.1%
20,000 Baxter International, Inc. ........................... 935,000
10,000 Medtronic, Inc. ...................................... 641,250
__________
1,576,250
NATURAL GAS - 2.8%
25,000 Coastal Corporation .................................. 1,031,250
25,000 El Paso Natural Gas Company .......................... 1,100,000
__________
2,131,250
OIL & GAS PIPELINES - 0.8%
10,000 MAPCO, Inc. .......................................... 596,250
PHARMACEUTICALS - 8.3%
15,000 Allergan, Inc. ....................................... 571,875
20,000 American Home Products Corporation ................... 1,275,000
10,000 Bristol-Myers Squibb Company ......................... 963,750
20,000 Elan Corporation PLC ADR* ............................ 597,500
13,000 Merck & Company, Inc. ................................ 914,875
25,000 Pharmacia & Upjohn, Inc. ............................. 1,031,250
15,000 SmithKline Beecham PLC ADR ........................... 913,125
__________
6,267,375
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.6%
15,000 Eastman Kodak Company ................................ 1,177,500
PUBLISHING & PRINTING - 0.7%
13,000 McGraw-Hill Companies, Inc. .......................... 554,125
RESTAURANTS & FOOD SERVICE - 2.4%
20,000 McDonald's Corporation ............................... 947,500
40,000 Wendy's International, Inc. .......................... 860,000
__________
1,807,500
RETAIL TRADE - 5.0%
20,000 Albertson's, Inc. .................................... 842,500
30,000 Federated Department Stores, Inc.* ................... 1,005,000
15,000 Kroger Company ....................................... 671,250
20,000 Walgreens Company .................................... 740,000
20,000 Wal-Mart Stores, Inc. ................................ 527,500
__________
3,786,250
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 1.2%
35,000 Frontier Corporation ................................. $931,875
TRANSPORTATION - 2.1%
10,000 Burlington Northern Santa Fe ......................... 843,750
10,000 Union Pacific Corporation ............................ 732,500
___________
1,576,250
___________
Total common stocks -
(cost $42,945,898) - 76.8% ......................... 58,027,125
___________
Total investments -
(cost $57,545,427) - 96.3% ......................... 72,767,429
Cash and other assets,
less liabilities - 3.7% ............................ 2,752,865
___________
Total net assets - 100.0% ............................ $75,520,294
===========
SECURITY EQUITY FUND - EQUITY SERIES
COMMON STOCKS
-------------
ADVERTISING - 1.5%
200,000 Omnicom Group, Inc. .................................. $9,350,000
AEROSPACE & DEFENSE - 5.1%
100,000 Lockheed Martin Corporation .......................... 9,012,500
160,000 McDonnell Douglas Corporation ........................ 8,400,000
100,000 Raytheon Company ..................................... 5,562,500
150,000 Rockwell International Corporation ................... 8,456,250
___________
31,431,250
BANKING & FINANCE - 3.5%
120,000 Chase Manhattan Corporation .......................... 9,615,000
60,000 Northern Trust Corporation ........................... 3,945,000
30,000 Wells Fargo & Company ................................ 7,800,000
___________
21,360,000
CHEMICALS - BASIC - 3.4%
120,000 Hercules, Inc. ....................................... 6,570,000
250,000 Monsanto Company ..................................... 9,125,000
60,000 Olin Corporation ..................................... 5,040,000
___________
20,735,000
CHEMICALS - SPECIALTY - 2.5%
170,000 Morton International, Inc. ........................... 6,757,500
200,000 Praxair, Inc. ........................................ 8,600,000
___________
15,357,500
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
14
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT - 0.8%
75,000 U.S. Robotics Corporation* ........................... $4,846,875
COMPUTER SERVICES - 4.0%
150,000 Ceridian Corporation* ................................ 7,500,000
100,000 Computer Sciences Corporation* ....................... 7,687,500
150,000 Electronic Data Systems Corporation .................. 9,206,250
___________
24,393,750
COMPUTER SOFTWARE - 2.2%
65,000 Microsoft Corporation* ............................... 8,571,875
112,500 Oracle Corporation* .................................. 4,788,281
___________
13,360,156
CONGLOMERATE - 6.9%
160,000 AlliedSignal, Inc. ................................... 10,540,000
400,000 Canadian Pacific, Ltd. ............................... 9,250,000
170,000 Cooper Industries, Inc. .............................. 7,352,500
380,000 U.S. Industries, Inc.* ............................... 9,975,000
300,000 Westinghouse Electric Corporation .................... 5,587,500
___________
42,705,000
CONSUMER SERVICES - 0.9%
300,000 ADT, Ltd.* ........................................... 5,737,500
ELECTRICAL MACHINERY & ELECTRONIC COMPONENTS - 1.5%
100,000 General Electric Company ............................. 9,100,000
ENTERTAINMENT - 3.2%
240,000 Carnival Corporation (Cl. A) ......................... 7,440,000
337,900 International Game Technology ........................ 6,926,950
80,000 The Walt Disney Company .............................. 5,070,000
___________
19,436,950
FERTILIZER - 1.0%
82,800 Potash Corporation of Saskatchewan, Inc. ............. 6,054,750
FINANCE - 1.3%
230,000 Federal National Mortgage Association ................ 8,021,250
FOOD & BEVERAGES - 6.3%
200,000 Anheuser-Busch Companies, Inc. ....................... 7,525,000
120,000 CPC International, Inc. .............................. 8,985,000
160,000 ConAgra, Inc. ........................................ 7,880,000
260,000 PepsiCo, Inc. ........................................ 7,345,000
200,000 Sara Lee Corporation ................................. 7,150,000
___________
38,885,000
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
HOSPITAL MANAGEMENT - 1.2%
125,000 Columbia/HCA Healthcare Corporation .................. $7,109,375
HOUSEHOLD PRODUCTS - 3.4%
75,000 Colgate-Palmolive Company ............................ 6,515,625
100,000 Gillette Company ..................................... 7,212,500
75,000 Procter & Gamble Company ............................. 7,312,500
___________
21,040,625
INSURANCE - 6.2%
175,000 Allstate Corporation ................................. 8,618,750
80,000 American International Group, Inc. ................... 8,060,000
270,000 Equitable Companies, Inc. ............................ 6,952,500
55,000 ITT Hartford Group, Inc. ............................. 3,245,000
111,400 Jefferson-Pilot Corporation .......................... 5,764,950
150,000 Provident Companies, Inc. ............................ 5,625,000
___________
38,266,200
MACHINERY - 1.4%
210,000 Deere & Company ...................................... 8,820,000
MANUFACTURING - 1.0%
217,500 Pall Corporation ..................................... 6,144,375
MEDICAL INSTRUMENTS - 2.8%
200,000 Baxter International, Inc. ........................... 9,350,000
120,000 Medtronic, Inc. ...................................... 7,695,000
___________
17,045,000
NATURAL GAS - 1.1%
170,000 Coastal Corporation .................................. 7,012,500
OIL & GAS COMPANIES - 0.7%
100,000 Noble Affiliates, Inc. ............................... 4,225,000
OIL & GAS PIPELINES - 1.2%
120,000 MAPCO, Inc. .......................................... 7,155,000
PAINT & ALLIED PRODUCTS - 1.3%
175,000 Sherwin-Williams Company ............................. 8,115,625
PERSONNEL SERVICES - 0.5%
100,000 Manpower, Inc. ....................................... 3,325,000
PETROLEUM REFINING - 2.6%
70,000 Mobil Corporation .................................... 8,102,500
50,000 Royal Dutch Petroleum Company ADR .................... 7,806,250
___________
15,908,750
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
15
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 9.9%
200,000 Allergan, Inc. ....................................... $7,625,000
160,000 American Home Products Corporation ................... 10,200,000
100,000 Bristol-Myers Squibb Company ......................... 9,637,500
140,000 Elan Corporation PLC ADR* ............................ 4,182,500
115,000 Merck & Company, Inc. ................................ 8,093,125
200,000 Pharmacia & Upjohn, Inc. ............................. 8,250,000
110,000 Schering-Plough Corporation .......................... 6,765,000
100,000 SmithKline Beecham PLC ADR ........................... 6,087,500
___________
60,840,625
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.8%
100,000 Eastman Kodak Company ................................ 7,850,000
60,000 Xerox Corporation .................................... 3,217,500
___________
11,067,500
PUBLISHING & PRINTING - 1.3%
30,000 Gannett Company, Inc. ................................ 2,111,250
145,000 McGraw-Hill Companies, Inc. .......................... 6,180,625
___________
8,291,875
RESTAURANTS & FOOD SERVICE - 2.4%
170,000 McDonald's Corporation ............................... 8,053,750
305,000 Wendy's International, Inc. .......................... 6,557,500
___________
14,611,250
RETAIL TRADE - 7.1%
200,000 Albertson's, Inc. .................................... 8,425,000
235,000 Federated Department Stores, Inc.* ................... 7,872,500
100,000 Kroger Company* ...................................... 4,475,000
170,000 Safeway, Inc.* ....................................... 7,246,250
90,000 TJX Companies, Inc. .................................. 3,228,750
180,000 Wal-Mart Stores, Inc. ................................ 4,747,500
200,000 Walgreens Company .................................... 7,400,000
___________
43,395,000
SEMICONDUCTORS - 1.0%
85,000 Linear Technology Corporation ........................ 3,134,375
85,000 Xilinx, Inc.* ........................................ 2,890,000
___________
6,024,375
TELECOMMUNICATIONS - 1.3%
300,000 Frontier Corporation ................................. 7,987,500
TOYS & SPORTING GOODS - 0.7%
162,500 Mattel, Inc. ......................................... 4,204,688
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION - 2.4%
85,000 Burlington Northern Santa Fe ......................... $7,171,875
100,000 Union Pacific Corporation ............................ 7,325,000
____________
14,496,875
____________
Total common stocks
(cost $413,186,524) - 95.4% ........................ 585,862,119
COMMERCIAL PAPER
----------------
$700,000 Philip Morris Companies, Inc.
5.255%, 10-15-96 ................................... 698,569
____________
Total commercial paper
(cost $698,569) - 0.1% ............................. 698,569
____________
Total investments -
(cost $413,885,093) - 95.5% ........................ 586,560,688
Cash and other assets,
less liabilities - 4.5% ............................ 27,941,988
____________
Total net assets - 100.0% ............................$614,502,676
============
SECURITY EQUITY FUND - GLOBAL SERIES
PREFERRED STOCKS
----------------
GERMANY - 2.5%
2,260 SAP AG ............................................... $380,099
618 Sto AG ............................................... 305,940
__________
Total preferred stocks -
(cost $642,693) - 2.5% ............................. 686,039
COMMON STOCKS
-------------
AUSTRALIA - 1.1%
55,625 QBE Insurance Group, Ltd. ............................ 299,271
AUSTRIA - 2.8%
3,700 Bank Austria AG ...................................... 144,517
3,300 Creditanstalt-Bankverein ............................. 203,029
2,200 Wienerberger Baustoff ................................ 403,188
__________
750,734
BRAZIL - 0.8%
26,700 Aracruz Cellulose S.A. ADR ........................... 233,625
CANADA - 1.3%
9,600 Jetform Corporation .................................. 183,600
28,200 Noranda Forest, Inc. ................................. 177,039
__________
360,639
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
16
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
CHILE - 2.1%
22,800 Antofagasta Holdings PLC ............................. $128,438
18,800 Banco Santander ADR .................................. 251,450
7,500 Santa Isabel S.A. ADR ................................ 192,188
__________
572,076
FRANCE - 6.0%
3,570 Alcatel Alsthom ...................................... 301,084
8,600 Lafarge .............................................. 507,126
5,500 SGS-Thomson Microelectronics N.V. .................... 262,975
3,320 Sidel S.A. ........................................... 199,311
1,540 Societe Generale de Surveillance Holding S.A. "B" .... 170,289
2,000 Synthelabo ........................................... 170,649
__________
1,611,434
GERMANY - 3.6%
10,800 Continental AG ....................................... 197,645
5,600 Daimler-Benz AG ...................................... 308,072
4,500 Duetsche Bank AG ..................................... 212,150
1,160 G.M. Pfaff AG ........................................ 22,819
6,100 Hoechst AG ........................................... 222,705
__________
963,391
GREECE - 1.6%
3,900 Ergo Bank S.A. ....................................... 225,059
12,300 Hellenic Tellecommunications ......................... 207,068
__________
432,127
HONG KONG - 0.6%
188,000 National Mutual Asia, Ltd. ........................... 165,321
HUNGARY - 0.4%
2,600 Pick Szeged Rt. ...................................... 120,129
INDONESIA - 0.5%
51,000 PT Semen Cibinong .................................... 131,794
IRELAND - 2.6%
38,000 Allied Irish Banks PLC ............................... 223,484
172,500 Jefferson Smurfit .................................... 469,933
__________
693,417
ITALY - 0.6%
8,400 Bulgari SPA .......................................... 156,362
JAPAN - 12.8%
19,000 Amada Company, Ltd. .................................. 175,625
6,248 Amway Japan, Ltd. .................................... 271,385
4,000 CSK Corporation ...................................... 124,563
3,000 H.I.S. Company, Ltd. ................................. 176,883
28,000 Hino Motors, Ltd. .................................... 273,894
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
JAPAN (CONTINUED)
1,700 Kokusai Denshin Denwa Company ........................ $161,715
32,000 Komatsu Forklift Company, Ltd. ....................... 211,362
2,260 Maruco Company ....................................... 148,058
16,000 Marsushita Electric Industrial Company, Ltd. ......... 268,509
17,000 Matsushita Refrigeration Company, Ltd. ............... 122,049
38,000 Mazda Motor Corporation .............................. 185,175
80 NTT Data Communications Systems Corporation .......... 248,408
9,000 National House Industrial Corporation ................ 139,729
29,000 Nippon Chemi-Con Corporation ......................... 188,684
10,000 Nitto Denko Corporation .............................. 153,459
1,500 Ryohin Keikaku Company, Ltd. ......................... 127,075
4,700 Sony Corporation ..................................... 296,517
16,000 Yamato Kogyo Company, Ltd. ........................... 166,561
__________
3,439,651
MALAYSIA - 0.9%
44,000 Malaysian Assurance .................................. 242,279
MEXICO - 1.1%
26,300 Tubos De Acero De Mexico S.A. ADR .................... 286,013
NETHERLANDS - 1.3%
9,350 Philips Electronics N.V. ............................. 337,912
NEW ZEALAND - 2.8%
215,100 Brierley Investments, Ltd. ........................... 207,489
85,500 Carter Holt Harvey, Ltd. ............................. 188,259
43,200 Fisher & Paykel Industries, Ltd. ..................... 147,964
91,900 Fletcher Challenge Building, Ltd. .................... 204,277
__________
747,989
NORWAY - 2.5%
51,400 Fokus Banken AS ...................................... 287,208
23,500 Saga Petroleum AS .................................... 379,826
__________
667,034
PHILIPPINES - 1.3%
277,100 C & P Homes, Inc. .................................... 187,729
462,750 Filinvest Land, Inc. ................................. 167,791
__________
355,520
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
17
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
POLAND - 2.7%
8,700 Debica S.A. .......................................... $185,996
21,100 Elektrim S.A. ........................................ 206,753
4,403 Wedel S.A. ........................................... 235,328
1,520 Zaklady Piwowarski w Zywcu S.A. ...................... 90,447
__________
718,524
PORTUGAL - 1.1%
11,500 Portugal Telecom S.A. ................................ 295,841
RUSSIA - 0.4%
3,600 Lukoil Oil Company ADR ............................... 131,688
SINGAPORE - 1.1%
31,000 Inchcape ............................................. 103,972
21,000 United Overseas Bank ................................. 204,434
__________
308,406
SOUTH AFRICA - 0.6%
2,900 Rustenburg Platinum Holdings, Ltd. ................... 45,702
6,819 Rustenburg Platinum Holdings, Ltd. ADR ............... 107,476
__________
153,178
SPAIN - 0.7%
5,500 Repsol S.A. .......................................... 180,805
SWEDEN - 0.4%
2,660 Astra AB ............................................. 112,524
SWITZERLAND - 2.9%
283 Nestle S.A. .......................................... 315,322
42 Roche Holdings AG .................................... 309,133
140 Union Bank of Switzerland ............................ 134,677
__________
759,132
THAILAND - 2.4%
10,000 Avanced Info ......................................... 129,814
44,000 Krung Thai Bank Public Company, Ltd. ................. 188,663
9,000 Property Perfect Public Company ...................... 26,199
4,400 Securities One Public Company ........................ 31,415
16,200 Shinawatra Computer Company .......................... 278,084
__________
654,175
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
UNITED KINGDOM - 8.1%
157,500 Aegis Group PLC ...................................... $160,813
9,700 Bluebird Toys PLC .................................... 21,326
57,900 British Telecommunication PLC ........................ 322,996
25,200 D.F.S. Furniture Company PLC ......................... 214,120
82,000 Grand Metropolitan PLC ............................... 611,415
10,700 RTZ Corporation PLC .................................. 163,833
3,300 SmithKline Beecham PLC ADR ........................... 200,888
110,900 Tomkins PLC .......................................... 480,695
__________
2,176,086
UNITED STATES - 17.9%
1,000 AMR Corporation ...................................... 79,625
1,900 Abbott Laboratories .................................. 93,575
1,600 AlliedSignal, Inc. ................................... 105,400
1,000 American International Group ......................... 100,750
2,200 American Re Corporation .............................. 139,700
2,000 B.J. Services Company* ............................... 72,500
1,600 BMC Software, Inc.* .................................. 127,400
2,400 Becton Dickenson Company ............................. 106,200
1,200 Boeing Company ....................................... 113,400
2,800 Borders Group, Inc.* ................................. 104,300
2,000 Boston Scientific Corporation* ....................... 115,000
1,200 CPC International, Inc. .............................. 89,850
2,000 Cisco Systems, Inc. .................................. 124,125
1,200 Citicorp ............................................. 108,750
1,300 Colgate-Palmolive Company ............................ 112,939
1,950 Computer Associates International, Inc. .............. 116,514
2,800 Conseco, Inc. ........................................ 137,900
3,100 Crown Cork & Seal Company, Inc. ...................... 142,988
2,100 Diamond Offshore Drilling, Inc. ...................... 115,500
2,200 Dover Corporation .................................... 105,050
3,100 Ecolab, Inc. ......................................... 104,626
2,700 Federal National Mortgage Association ................ 94,164
3,300 Gap, Inc. ............................................ 95,288
2,800 Hershey Foods Corporation ............................ 140,700
1,900 Honeywell, Inc. ...................................... 119,938
2,200 Johnson & Johnson .................................... 112,750
1,300 Lockheed Martin Corporation .......................... 117,165
900 Mobil Corporation .................................... 104,175
4,200 Monsanto Company ..................................... 153,300
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
18
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
UNITED STATES (CONTINUED)
2,500 NAC Re Corporation ................................... $90,000
1,200 NationsBank Corporation .............................. 104,250
1,300 Nike, Inc. (Cl. B) ................................... 157,950
3,200 PepsiCo, Inc. ........................................ 90,400
1,000 Procter & Gamble Company ............................. 97,500
1,500 Ralston-Purina Group ................................. 102,750
3,200 Safeway, Inc.* ....................................... 136,400
1,200 Schlumberger, Ltd. ................................... 101,400
4,200 Service Corporation International .................... 127,050
2,000 Union Pacific Corporation ............................ 146,500
2,700 WMX Technologies, Inc. ............................... 88,763
1,800 Warner-Lambert Company ............................... 118,800
1,400 Willamette Industries, Inc. .......................... 91,350
2,200 Williams Companies, Inc. ............................. 112,200
___________
4,818,885
___________
Total common stocks -
(cost $20,969,213) - 85.0% ......................... 22,875,962
___________
Total investments -
(cost $21,611,906) - 87.5% ......................... 23,562,001
Cash and other assets,
less liabilities - 12.5% ........................... 3,366,511
___________
Total net assets - 100.0% ............................ $26,928,512
===========
INVESTMENT CONCENTRATION
- -------------------------
At September 30, 1996, Global Series' investment concentration, by industry, was
as follows:
Banking .......................................................... 8.7%
Capital Equipment ................................................ 6.2%
Chemicals ........................................................ 0.6%
Construction and Housing ......................................... 1.2%
Consumer Durables ................................................ 8.2%
Consumer Nondurables ............................................. 9.1%
Electrical and Electronics ....................................... 6.0%
Energy Sources ................................................... 4.1%
Financial Services ............................................... 6.3%
Healthcare ....................................................... 5.0%
Materials ........................................................ 13.1%
Merchandising .................................................... 3.2%
Metals and Mining ................................................ 0.2%
Multi-Industry ................................................... 3.8%
Real Estate ...................................................... 0.7%
Services ......................................................... 5.8%
Telecommunications ............................................... 3.7%
Trade ............................................................ 0.8%
Transportation ................................................... 0.8%
Cash and other assets, less liabilities .......................... 12.5%
_________
100.0%
=========
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
SHARES CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------
BROKERAGE - 1.0%
$50,000 Merrill Lynch & Company, Inc.,
8.0% - 2007 ........................................ $52,188
FINANCIAL SERVICES 0.5%
$25,000 MCN Investment Corporation,
6.32% - 2003 ....................................... 24,031
__________
Total corporate bonds
(cost $78,785) - 1.5% .............................. 76,219
COMMON STOCKS
-------------
AUTO PARTS & SUPPLIES - 2.6%
600 Arvin Industries, Inc. ............................... 14,775
1,400 Dana Corporation ..................................... 42,350
400 Eaton Corporation .................................... 24,150
800 Modine Manufacturing Company ......................... 21,000
1,500 Simpson Industries ................................... 15,187
1,000 Walbro Corporation ................................... 19,000
__________
136,462
BUILDING MATERIALS - 3.6%
900 Ameron International Corporation ..................... 34,650
700 Crane Company ........................................ 31,062
1,500 Jacobs Engineering Group* ............................ 33,750
600 Owens Corning Corporation ............................ 22,125
3,500 Schuller Corporation ................................. 33,688
300 TJ International, Inc. ............................... 5,475
1,400 Thomas Industries, Inc. .............................. 27,125
__________
187,875
BROADCAST MEDIA - 2.7%
1,000 A.H. Belo Corporation - Series A ..................... 34,500
2,400 Tele-Communications, Inc.* ........................... 35,850
1,000 Time Warner, Inc. .................................... 38,625
2,000 U.S. West Media Group* ............................... 33,750
__________
142,725
COMPUTER SYSTEMS - 4.5%
600 Compaq Computer Corporation* ......................... 38,475
400 Dell Computer Corporation* ........................... 31,100
600 Hewlett-Packard Company .............................. 29,250
400 International Business Machines Corporation .......... 49,800
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
19
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED)
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
COMPUTER SYSTEMS (CONTINUED)
1,000 Quantum Corporation* ................................. $17,562
600 SCI Systems, Inc.* ................................... 33,750
600 Sun Microsystems, Inc.* .............................. 37,275
__________
237,212
ELECTRONICS - 3.9%
900 Arrow Electronics, Inc.* ............................. 40,050
800 Avnet, Inc. .......................................... 38,800
1,000 Core Industries, Inc. ................................ 13,625
900 Fluke (John) Manufacturing Company ................... 33,187
400 Harris Corporation ................................... 26,050
1,100 Pioneer Standard Electronics, Inc. ................... 12,375
600 Varian Associates, Inc. .............................. 28,800
400 Wyle Electronics ..................................... 12,850
__________
205,737
HOUSING - HOME BUILDING - 0.2%
300 Centex Corporation ................................... 9,788
MACHINERY - 3.9%
900 Bearings, Inc. ....................................... 25,425
300 Briggs & Stratton Corporation ........................ 13,312
700 Dover Corporation .................................... 33,425
500 Duriron Company, Inc. ................................ 13,250
700 GATX Corporation ..................................... 32,725
1,300 Graco, Inc. .......................................... 24,375
200 Lindsay Manufacturing Company ........................ 8,300
600 Parker-Hannifin Corporation .......................... 25,200
900 Trinova Corporation .................................. 28,350
__________
204,362
MINING & METALS - 2.3%
200 Aluminum Company of America .......................... 11,800
600 Asarco, Inc. ......................................... 15,975
1,400 Ashland Coal, Inc. ................................... 34,825
700 Phelps Dodge Corporation ............................. 44,888
300 Reynolds Metals Company .............................. 15,337
__________
122,825
RECREATION - 4.0%
2,200 Brunswick Corporation ................................ 52,800
2,000 CPI Corporation ...................................... 37,500
400 Harcourt General, Inc. ............................... 22,100
1,100 Harley-Davidson, Inc. ................................ 47,300
1,300 King World Productions, Inc.* ........................ 47,938
__________
207,638
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
RESTAURANTS - 2.4%
600 Applebees International, Inc. ........................ $15,900
500 CKE Restaurants, Inc. ................................ 15,375
1,000 International Dairy Queen, Inc. (Cl. A)* ............. 20,500
1,000 Luby's Cafeterias, Inc. .............................. 24,000
1,500 Ruby Tuesday, Inc. ................................... 28,500
1,000 Wendy's International, Inc. .......................... 21,500
__________
125,775
STEEL - 2.2%
400 Carpenter Technology ................................. 14,000
400 Cleveland Cliffs, Inc. ............................... 16,000
900 Commercial Metals Company ............................ 29,475
100 Nucor Corporation .................................... 5,075
900 Oregon Steel Mills, Inc. ............................. 13,838
800 Quanex Corporation ................................... 21,500
1,000 Steel Technologies, Inc. ............................. 12,500
__________
112,388
TELECOMMUNICATIONS - 2.2%
400 Ameritech Corporation ................................ 21,050
500 Bell Atlantic Corporation ............................ 29,938
200 Bellsouth Corporation ................................ 7,400
500 GTE Corporation ...................................... 19,250
400 Nynex Corporation .................................... 17,400
300 Southern New England Telecommunications .............. 11,062
200 Sprint Corporation ................................... 7,775
__________
113,875
__________
Total common stocks -
(cost $1,749,717) - 34.5% .......................... 1,806,662
U.S. GOVERNMENT & AGENCIES
--------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.7%
$150,000 5.27% - 10/15/96 ..................................... 149,692
$100,000 7.0% - 2020 .......................................... 98,562
$50,000 7.0% - 2021 .......................................... 48,177
__________
296,431
FINANCING CORPORATION - 0.5%
$75,000 0% - 2010 ............................................ 26,441
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
20
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED)
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
SHARES U.S. GOVERNMENT & AGENCIES (CONTINUED) VALUE
- --------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.9%
$48,043 6.5% - 2018 .......................................... $45,191
$50,000 6.5% - 2018 .......................................... 47,955
$130,000 6.95% - 2020 ......................................... 125,042
$40,000 7.5% - 2020 .......................................... 39,392
$100,000 8.8% - 2025 .......................................... 102,875
__________
360,455
U.S. TREASURY BONDS - 0.8%
$50,000 6.00% - 2026 ......................................... 43,936
U.S. TREASURY NOTES - 0.5%
$25,000 6.38% - 2002 ......................................... 24,819
__________
Total U.S. government & agencies
(cost $759,730) - 14.4% ............................ 752,082
REAL ESTATE INVESTMENT TRUSTS
-----------------------------
2,200 Bre Properties, Inc. ................................. 44,000
3,400 Cambridge Shopping Centres, Ltd. ..................... 22,837
2,500 Federal Realty Investment Trust ...................... 58,750
4,000 First Union Real Estate Investment Trust ............. 26,000
1,700 HRE Properties ....................................... 25,925
2,500 MGI Properties, Inc. ................................. 46,875
5,500 New Plan Realty Trust ................................ 118,250
1,400 Pennsylvania Real Estate Investment Trust ............ 29,750
2,000 Santa Anita Realty Enterprises, Inc. ................. 36,500
6,800 Security Capital Pacific Trust ....................... 143,650
5,300 United Dominion Realty Trust ......................... 74,200
3,350 Washington Real Estate Investment Trust .............. 53,600
2,400 Weingarten Realty Investors .......................... 93,000
__________
Total real estate investment trusts
(costs $747,996) - 14.8% ........................... 773,337
NUMBER OF MARKET
SHARES FOREIGN STOCKS VALUE
- --------------------------------------------------------------------------------
BELGIUM - 4.8%
500 Cementbedrijven Cimenteries .......................... $36,955
500 Delhaize - Le Lion ................................... 27,716
100 Electrabel ........................................... 22,332
200 Fortis AG ............................................ 28,162
250 Gevaert Photo Productions ............................ 16,486
100 Petrofina SA ......................................... 30,965
150 Royale Belgium ....................................... 29,818
100 Solvay SA ............................................ 60,210
__________
252,644
GERMANY - 8.0%
36 Allianz AG Holdings .................................. 63,561
1,081 BASF AG .............................................. 33,736
735 Bayer AG ............................................. 26,851
202 Continental AG ....................................... 3,696
850 Daimler-Benz AG* ..................................... 46,672
14 Degussa AG ........................................... 5,101
692 Deutsche Bank AG ..................................... 32,552
1,211 Dresdner Bank AG ..................................... 31,957
7 Friedrich Grohe AG - Vorzugsak ....................... 1,923
79 Heidelberger Zement AG ............................... 5,490
180 Hochtief AG .......................................... 8,497
14 Linde AG ............................................. 8,931
187 Merck KGAA ........................................... 6,737
7 Muenchener Rueckversicherungs-Gesellschaft AG ........ 15,865
72 Preussag AG .......................................... 18,056
122 SAP AG ............................................... 20,149
1,038 Siemens AG ........................................... 54,627
634 Veba AG .............................................. 33,220
__________
417,621
HONG KONG - 5.1%
3,600 Bank of East Asia .................................... 13,245
5,000 Cathay Pacific Airways ............................... 8,115
4,000 China Light and Power Company ........................ 18,622
8,000 Chinese Estates ...................................... 7,242
1,600 Dicksons Concept International ....................... 5,193
4,000 Hong Kong and Shanghai Hotels ........................ 7,216
18,410 Hong Kong Telecommunications ......................... 33,330
8,000 Hutchinson Whampoa Limited ........................... 53,795
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
21
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED)
NUMBER OF MARKET
SHARES FOREIGN STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
HONG KONG (CONTINUED)
2,000 Kumagai Gumi ......................................... $1,862
2,000 Lai-Sun Garment International ........................ 2,741
3,000 Oriental Press Group ................................. 1,455
2,000 Peregrine Investments Holdings ....................... 3,168
8,000 Sun Hung Kai Properties .............................. 85,090
12,000 Tai Cheung Holdings .................................. 9,543
2,400 Wing Lung Bank ....................................... 14,121
__________
264,738
ITALY - 5.4%
2,475 Assicurazioni Generali ............................... 52,685
11,000 Banco Commerciale Italiane ........................... 21,970
4,000 Edison Spa ........................................... 24,940
7,000 Fiat Spa ............................................. 19,684
16,638 Ina-Instituto Naz Assicuraz .......................... 24,104
3,208 Instituto Mobiliare Italiano ......................... 27,273
3,500 Mediobanca* .......................................... 20,236
29,600 Montedison Spa* ...................................... 19,136
18,821 Telecom Italia Mobile Spa ............................ 41,796
15,000 Telecom Italia-Spa ................................... 33,360
__________
285,184
JAPAN - 9.6%
2,000 The Bank of Tokyo-Mitsubishi ......................... 43,636
1 East Japan Railway Company ........................... 4,831
1,000 Hitachi, Ltd. (Hit. Seisakusho) ...................... 9,697
1,000 Itoham Foods ......................................... 7,138
1,000 Japan Energy Corporation ............................. 3,529
3,000 Kawasaki Heavy Industries ............................ 14,465
1,000 Marui Company, Ltd. .................................. 19,304
1,000 Matsushita Electric Industrial Company, Ltd. ......... 16,790
2,000 Mitsubishi Corporation ............................... 25,499
2,000 Mitsubishi Heavy Industrial, Ltd. .................... 16,287
3,000 Mitsubishi Materials Corporation ..................... 14,384
1,000 Nippon Comsys Corporation ............................ 13,468
1,000 Nippon Shokubai K.K. Company ......................... 8,817
2,000 NSK Limited .......................................... 13,702
200 Oyo Corporation ...................................... 10,325
100 Sega Enterprises ..................................... 4,355
2,000 Sekisui House, Ltd. .................................. 21,908
3,000 Shimizu Corporation .................................. 29,630
1,000 Shin-Etsu Chemical Company ........................... 17,957
2,000 Sumitomo Bank ........................................ 36,992
NUMBER OF MARKET
SHARES FOREIGN STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
JAPAN (CONTINUED)
4,000 Sumitomo Chemical Company ............................ $18,532
1,000 Sumitomo Marine and Fire ............................. 7,883
1,000 Tokyo Dome Corporation ............................... 20,651
1,800 Tokyo Electric Power ................................. 43,636
3,000 Tokyu Corporation .................................... 21,118
1,000 Toyoda Auto Loom Works ............................... 19,035
1,000 Toyota Motor Corporation ............................. 25,589
2,000 Yamaichi Securities .................................. 12,301
__________
501,459
__________
Total foreign stocks
(cost $1,667,743) - 32.9% .......................... 1,721,646
FOREIGN WARRANTS
----------------
HONG KONG - 0.0%
400 Kumagai Gumi - Warrants 6/30/98 77
200 Peregrine Investments Holdings - Warrants 5/15/98 37
__________
114
__________
Total foreign warrants
(cost $0) - 0.0% ................................... 114
TEMPORARY CASH INVESTMENTS
83,000 Chase Master Note .................................... 83,000
Total temporary cash investments
(cost $83,000) - 1.6% .............................. 83,000
__________
Total investments -
(cost $5,086,971) - 99.7% .......................... 5,213,060
Cash and other assets,
liabilities - 0.3% ................................. 17,112
__________
Total net assets - 100.0% $5,230,172
==========
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
22
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY ULTRA FUND
NUMBER OF MARKET
SHARES COMMON STOCKS VALUE
- --------------------------------------------------------------------------------
ADVERTISING - 0.8%
13,500 Omnicom Group, Inc. .................................. $631,125
BANKS & TRUSTS - 1.3%
18,000 State Street Boston Corporation ...................... 1,032,750
BIOTECHNOLOGY - 1.0%
12,500 Amgen, Inc.* ......................................... 789,063
BROKERAGE - 1.4%
47,000 Schwab (Charles) Corporation ......................... 1,086,875
BUSINESS SERVICES - 9.7%
14,500 APAC Teleservices, Inc.* ............................. 743,125
11,000 Cintas Corporation ................................... 616,000
21,000 Concord EFS, Inc.* ................................... 540,750
12,750 Corestaff, Inc.* ..................................... 341,062
22,000 Corrections Corporation of America* .................. 687,500
31,500 Equifax, Inc. ........................................ 830,813
11,530 First Data Corporation ............................... 941,136
14,000 Ha-Lo Industries, Inc.* .............................. 406,000
35,250 PMT Services, Inc.* .................................. 713,813
16,500 Paychex, Inc. ........................................ 957,000
20,250 Snap-On, Inc. ........................................ 650,531
___________
7,427,730
CHEMICALS - SPECIALTY - 2.5%
16,000 IMC Global, Inc. ..................................... 626,000
16,000 Praxair, Inc. ........................................ 688,000
11,000 Sigma-Aldrich ........................................ 627,000
___________
1,941,000
COMMUNICATIONS - EQUIPMENT - 6.4%
11,000 Ascend Communications, Inc.* ......................... 727,375
15,500 Aspect Telecommunications* ........................... 964,875
12,500 Cascade Communications Corporation* .................. 1,018,750
14,500 Tellabs, Inc.* ....................................... 1,024,062
18,400 U.S. Robotics Corporation* ........................... 1,189,100
___________
4,924,162
COMPUTER SOFTWARE - 19.7%
7,500 BMC Software* ........................................ 596,250
8,000 CBT Group PLC ADR* ................................... 376,000
20,250 Cadence Design Systems, Inc.* ........................ 723,937
33,500 Cambridge Technology Partners (Massachusetts), Inc.* . 1,013,375
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE (CONTINUED)
8,000 Clarify, Inc.* ....................................... $496,000
39,000 Cognos, Inc. (Cl. F)* ................................ 1,272,375
9,000 Electronics For Imaging, Inc.* ....................... 645,750
15,500 HBO & Company ........................................ 1,034,625
11,000 HCIA, Inc.* .......................................... 660,000
8,000 HNC Software, Inc.* .................................. 320,000
14,500 Informix Corporation* ................................ 404,188
9,500 INSO Corporation* .................................... 515,375
10,000 McAfee Associates* ................................... 690,000
13,000 Medic Computer Systems* .............................. 472,875
10,000 Pairgain Technologies, Inc.* ......................... 781,250
25,000 Parametric Technology Corporation* ................... 1,234,375
10,500 Peoplesoft, Inc.* .................................... 874,125
14,500 Project Software & Development* ...................... 612,625
15,446 Pure Atria Corporation* .............................. 583,086
6,500 Veritas Software Corporation* ........................ 459,875
33,500 Viasoft, Inc.* ....................................... 1,407,000
___________
15,173,086
COMPUTER SYSTEMS - 2.9%
14,500 Dell Computer Corporation* ........................... 1,127,375
14,000 SCI Systems, Inc.* ................................... 787,500
7,000 Verifone, Inc.* ...................................... 313,250
___________
2,228,125
CONSUMER SERVICES - 1.3%
15,000 Apollo Group, Inc.* .................................. 401,250
17,500 Stewart Enterprises, Inc. (Cl. A) .................... 590,625
___________
991,875
ELECTRONICS - 1.2%
22,500 Thermo Electron Corporation* ......................... 911,250
FINANCIAL SERVICES - 1.9%
22,000 Franklin Resources, Inc. ............................. 1,460,250
HEALTH CARE - 4.9%
13,500 Cardinal Health, Inc. ................................ 1,115,437
16,500 OccuSystems, Inc.* ................................... 495,000
24,000 Omnicare, Inc. ....................................... 732,000
20,250 PhyCor, Inc.* ........................................ 770,765
8,500 Quintiles Transnational Corporation* ................. 622,625
___________
3,735,827
HEALTH CARE - HMO - 0.5%
7,700 Oxford Health Plans* ................................. 383,075
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
23
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
SECURITY ULTRA FUND
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
HOSPITAL SUPPLIES/MANAGEMENT - 1.4%
28,500 HEALTHSOUTH Corporation* ............................. $1,093,687
HOTEL/MOTEL - 2.5%
18,500 HFS, Inc.* ........................................... 1,237,188
33,750 La Quinta Inns, Inc. ................................. 658,125
___________
1,895,313
INSURANCE - 2.7%
27,500 AFLAC, Inc. .......................................... 976,250
32,000 SunAmerica, Inc. ..................................... 1,104,000
___________
2,080,250
MANUFACTURING - 1.0%
10,500 Illinois Tool Works .................................. 757,313
MEDICAL PRODUCTS - 3.0%
15,500 Guidant Corporation .................................. 856,375
19,500 Hologic, Inc.* ....................................... 546,000
25,000 Rexall Sundown, Inc.* ................................ 912,500
___________
2,314,875
OFFICE EQUIPMENT & SUPPLIES - 2.5%
15,500 Corporate Express, Inc.* ............................. 602,563
11,000 Diebold, Inc. ........................................ 642,125
23,000 Viking Office Products, Inc.* ........................ 690,000
___________
1,934,688
OIL & GAS DRILLING - 1.6%
25,000 Global Marine, Inc.* ................................. 393,750
20,000 Noble Affiliates, Inc. ............................... 845,000
___________
1,238,750
OIL & GAS EXPLORATION - 0.9%
16,500 Sonat, Inc. .......................................... 730,125
PACKAGING & CONTAINERS - 0.4%
9,000 Sealed Air Corporation* .............................. 335,250
PHARMACEUTICALS - 2.9%
36,000 Dura Pharmaceuticals, Inc.* .......................... 1,327,500
19,000 Jones Medical Industries, Inc. ....................... 921,500
___________
2,249,000
POLLUTION CONTROL - 2.1%
19,500 Superior Services, Inc.* ............................. 312,000
16,500 United States Filter Corporation* .................... 563,063
21,000 United Waste Systems, Inc.* .......................... 729,750
___________
1,604,813
RESTAURANTS - 2.0%
29,500 Landry's Seafood Restaurants* ........................ 737,500
14,750 Papa John's International, Inc.* ..................... 774,375
___________
1,511,875
NUMBER OF MARKET
SHARES COMMON STOCKS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
RETAIL - 9.5%
16,000 Bed Bath & Beyond, Inc.* ............................. $438,000
9,500 CDW Computer Centers, Inc.* .......................... 648,375
18,750 Claire's Stores* ..................................... 400,781
20,000 Dollar General Corporation ........................... 622,500
5,500 Fila Holdings SPA ADR ................................ 528,687
18,000 Gadzooks* ............................................ 625,500
6,500 Jones Apparel Group, Inc. ............................ 414,375
10,000 Just For Feet, Inc.* ................................. 501,250
20,000 Kohl's Corporation* .................................. 720,000
12,000 Nine West Group, Inc.* ............................... 651,000
46,375 Staples, Inc.* ....................................... 1,028,945
8,000 Tiffany & Company .................................... 320,000
11,000 West Marine, Inc.* ................................... 363,000
___________
7,262,413
SEMICONDUCTORS - 3.4%
11,000 Altera Corporation* .................................. 556,875
27,500 Analog Devices, Inc.* ................................ 745,937
11,000 Atmel Corporation* ................................... 339,625
10,000 Linear Technology Corporation ........................ 368,750
18,000 Xilinx, Inc.* ........................................ 612,000
___________
2,623,187
TEXTILES - APPAREL - 0.9%
11,500 Tommy Hilfiger Corporation* .......................... 681,375
TRANSPORTATION - 0.6%
13,500 Illinois Central Corporation ......................... 426,939
___________
Total common stocks
(cost $54,337,203) - 92.9% ......................... 71,456,046
___________
Total investments
(cost $54,337,203) - 92.9% ......................... 71,456,046
Cash and other assets,
less liabilities - 7.1% ............................ 5,472,389
___________
Total net assets - 100.0% ............................ $76,928,435
===========
The identified cost of investments owned at September 30, 1996, was the same for
federal income tax and financial statement purposes, except for Ultra Fund for
which the identified cost of investments for federal income tax purposes was
$54,391,123.
*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) Restricted Security (a portfolio security that may be sold privately, but
that is required to be registered with the SEC or to be exempted from such
registration before it may be sold in public distribution). The total value of
restricted securities in Security Growth and Income Fund is 1.2% of total net
assets.
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
24
<PAGE>
BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
<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
$57,545,427, $413,186,524,
$21,611,906, $5,086,971 and
$54,337,203, respectively) .................. $72,767,429 $585,862,119 $23,562,001 $5,213,060 $71,456,046
Commercial paper, at amortized cost
which approximates market value ............. -- 698,569 -- -- --
Cash ........................................... 2,626,784 30,227,821 3,300,894 986 5,576,094
Receivables:
Fund shares sold ............................ 7,170 698,756 185,812 28,025 65,839
Securities sold ............................. 762,411 4,204,469 35,311 -- 54,911
Foreign forward exchange contracts .......... -- -- 73,725 -- --
Dividends ................................... 326,455 799,590 54,783 7,516 15,076
Interest .................................... 4,424 130,532 11,246 5,908 15,996
Foreign taxes recoverable ................... -- -- 27,074 927 --
Prepaid expenses ............................... -- -- -- 6,532 --
___________ ____________ ___________ ____________ ___________
Total assets ......................... $76,494,673 $622,621,856 $27,250,846 $5,262,954 $77,183,962
=========== ============ =========== ============ ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Fund shares redeemed ...................... $92,842 $300,369 $64,517 $634 $34,798
Securities purchased ...................... 800,000 7,259,213 212,697 -- 137,437
Other Liabilities:
Management fees ........................... 79,730 524,858 40,330 6,326 80,777
Custodian fees ............................ -- -- -- 361 --
Transfer and administration fees .......... -- -- -- 4,400 --
12b-1 distribution plan fees .............. 1,807 30,977 4,790 2,279 2,515
Miscellaneous fees ........................ -- 3,763 -- 18,782 --
___________ ____________ ___________ ____________ ___________
Total liabilities ....................... 974,379 8,119,180 322,334 32,782 255,527
Net Assets:
Paid in capital ............................. 54,388,672 392,830,437 22,674,750 4,863,583 55,074,630
Undistributed net investment income ......... 182,698 2,728,863 671,849 112,622 --
Accumulated undistributed net realized
gain on sale of investments, futures
and foreign currency transactions ......... 5,726,922 46,267,781 1,558,961 127,889 4,734,962
Net unrealized appreciation in value
of investments, futures and
translation of assets and liabilities
in foreign currencies ..................... 15,222,002 172,675,595 2,022,952 126,078 17,118,843
___________ ____________ ___________ ____________ ___________
Net assets .............................. 75,520,294 614,502,676 26,928,512 5,230,172 76,928,435
___________ ____________ ___________ ____________ ___________
Total liabilities and net assets ...... $76,494,673 $622,621,856 $27,250,846 $5,262,954 $77,183,962
=========== ============ =========== ============ ===========
CLASS "A" SHARES
Capital shares outstanding .................. 8,099,424 76,389,986 1,582,223 221,414 8,994,692
Net assets .................................. $73,273,461 $575,680,473 $19,643,985 $2,449,515 $74,230,177
Net asset value per share (net
assets divided by shares outstanding) ..... $9.05 $7.54 $12.42 $11.06 $ 8.25
Add: Selling commission (5.75% of the
offering price) ........................... 0.55 0.46 0.76 0.67 0.50
___________ ____________ ___________ ____________ ___________
Offering price per share (net asset
value divided by 94.25%) .................. $9.60 $8.00 $13.18 $11.73 $8.75
=========== ============ =========== ============ ===========
CLASS "B" SHARES
Capital shares outstanding .................. 251,446 5,275,526 598,242 253,411 336,000
Net assets .................................. $2,246,833 $38,822,203 $7,284,527 $2,780,657 $2,698,258
Net asset value per share
(net assets divided by shares outstanding). $8.94 $7.36 $12.18 $10.97 $8.03
=========== ============ =========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
25
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<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> <C>
INVESTMENT INCOME:
Interest .................................... $1,348,538 $1,238,261 $80,041 $108,168 $198,794
Dividends ................................... 1,068,605 8,213,370 455,115 86,911 260,084
___________ ____________ ___________ ____________ ___________
2,417,143 9,451,631 535,156 195,079 458,878
Less foreign tax expense .................. -- -- (47,577) (1,779) --
___________ ____________ ___________ ____________ ___________
Total investment income ................. 2,417,143 9,451,631 487,579 193,300 458,878
EXPENSES:
Management fees ............................. 919,674 5,528,818 470,077 39,560 862,190
Custodian fees .............................. -- -- -- 3,674 --
Transfer/maintenance fees ................... -- -- -- 5,571 --
Administration fees ......................... -- -- -- 36,957 --
Directors' fees ............................. -- -- -- 72 --
Professional fees ........................... -- -- -- 11,284 --
Reports to shareholders ..................... -- -- -- 974 --
Registration fees ........................... -- -- -- 25,949 --
Other expenses .............................. -- -- -- 6,286 --
12b-1 distribution plan fees (Class B) ...... 16,080 279,934 59,852 22,229 36,559
Interest .................................... -- -- -- 193 --
Reimbursement of expenses ................... -- -- -- (43,856) --
___________ ____________ ___________ ____________ ___________
Total expenses ............................ 935,754 5,808,752 529,929 108,893 898,749
___________ ____________ ___________ ____________ ___________
Net investment income (loss) ............ 1,481,389 3,642,879 (42,350) 84,407 (439,871)
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on:
Investments ............................... 6,097,347 54,909,397 2,087,000 198,823 7,783,798
Foreign currency transactions ............. -- -- 580,735 (5,918) --
Futures contracts ......................... -- -- -- 59,868 81,216
___________ ____________ ___________ ____________ ___________
Net realized gains ...................... 6,097,347 54,909,397 2,667,735 252,773 7,865,014
Net change in unrealized appreciation
(depreciation) during the year on:
Investments ............................... 5,572,992 59,008,440 1,018,925 36,071 2,292,201
Translation of assets and liabilities
in foreign currencies ................... -- -- 72,857 (11) --
Futures contracts ......................... -- -- -- 13,545 --
___________ ____________ ___________ ____________ ___________
Net unrealized appreciation ............. 5,572,992 59,008,440 1,091,782 49,605 2,292,201
___________ ____________ ___________ ____________ ___________
Net gain .............................. 11,670,339 113,917,837 3,759,517 302,378 10,157,215
___________ ____________ ___________ ____________ ___________
Net increase in net assets
resulting from operations ......... $13,151,728 $117,560,716 $3,717,167 $386,785 $9,717,344
=========== ============ =========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
26
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<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 (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ................ $1,481,389 $3,642,879 $(42,350) $84,407 $(439,871)
Net realized gain ........................... 6,097,347 54,909,397 2,667,735 252,773 7,865,014
Unrealized appreciation during the year ..... 5,572,992 59,008,440 1,091,782 49,605 2,292,201
___________ ____________ ___________ ____________ ___________
Net increase in net assets
resulting from operations ............... 13,151,728 117,560,716 3,717,167 386,785 9,717,344
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ................................... (1,303,374) (4,154,225) (357,503) (59,841) --
Class B ................................... (16,567) (64,778) (72,239) (50,821) --
Net realized gain
Class A ................................... (2,290,075) (33,371,334) (224,880) (30,468) (7,109,009)
Class B ................................... (44,993) (1,836,652) (77,719) (31,088) (500,515)
___________ ____________ ___________ ____________ ___________
Total distributions to shareholders ....... (3,655,009) (39,426,989) (732,341) (172,218) (7,609,524)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ................................... 3,975,290 299,520,899 5,778,490 682,087 27,602,365
Class B ................................... 1,200,271 93,534,094 2,179,465 1,119,612 3,050,423
Dividends reinvested
Class A ................................... 3,265,411 34,973,081 570,969 89,987 6,772,088
Class B ................................... 60,327 1,882,247 149,212 81,908 500,487
Shares redeemed
Class A ................................... (10,667,756) (273,412,317) (5,192,505) (337,484) (28,420,959)
Class B ................................... (369,561) (79,755,552) (1,236,321) (55,397) (6,164,145)
___________ ____________ ___________ ____________ ___________
Net increase (decrease) from
capital share transactions .............. (2,536,018) 76,742,452 2,249,310 1,580,713 3,340,259
___________ ____________ ___________ ____________ ___________
Total increase in net assets .......... 6,960,701 154,876,179 5,234,136 1,795,280 5,448,079
NET ASSETS:
Beginning of year ........................... 68,559,593 459,626,497 21,694,376 3,434,892 71,480,356
___________ ____________ ___________ ____________ ___________
End of year ................................. $75,520,294 $614,502,676 $26,928,512 $5,230,172 $76,928,435
=========== ============ =========== ============ ===========
Undistributed net investment income
at end of year .............................. $182,698 $2,728,863 $671,849 $112,622 $--
=========== ============ =========== ============ ===========
(a) Shares issued and redeemed
Shares sold
Class A ............................... 474,232 43,657,565 491,586 63,688 3,632,551
Class B ............................... 143,440 13,771,902 186,645 104,927 412,321
Dividends reinvested
Class A ............................... 404,486 5,483,525 52,399 8,801 996,776
Class B ............................... 7,601 300,151 13,842 8,014 75,103
Shares redeemed
Class A ............................... (1,281,262) (39,986,054) (447,772) (31,916) (3,688,397)
Class B ............................... (43,575) (11,797,000) (107,952) (5,145) (820,769)
___________ ____________ ___________ ____________ ___________
Net increase (decrease) ............. (295,078) 11,430,089 188,748 148,369 (607,585)
=========== ============ =========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
27
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<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 (DECREASE) 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
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)
=========== ============ =========== ============ ===========
*Period June 1, 1995 (inception) through September 30, 1995.
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
28
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
AVERAGE
NET RATIO COMMIS-
GAINS OR DIVI- RATIO OF NET SION
NET LOSSES TOTAL DENDS NET OF EX- INCOME PAID
FISCAL ASSET NET ON SEC- FROM (FROM DISTRI- NET ASSETS PENSES (LOSS) PORT- PER
YEAR VALUE INVEST- URITIES INVEST- NET BUTIONS ASSET END OF TO TO AVE- FOLIO INVEST-
ENDED BEGIN- MENT (REALIZED MENT INVEST- (FROM TOTAL VALUE TOTAL PERIOD AVERAGE RAGE TURN- MENT
SEPTEM- NING OF INCOME & UNREAL- OPERA- MENT REALIZED DISTRI- END OF RETURN (THOU- NET NET OVER SECURITY
BER 30 PERIOD (LOSS) IZED) TIONS INCOME) GAINS) BUTIONS PERIOD (A) SANDS) ASSETS ASSETS RATE TRADED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITY GROWTH AND INCOME FUND (CLASS A)(b)
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(c) 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(g) 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% ---
1996(g) 7.93 0.18 1.373 1.553 (0.158) (0.275) (0.433) 9.05 20.31% 73,273 1.29% 2.09% 69% 0.0625
SECURITY GROWTH AND INCOME FUND (CLASS B)
1994(c) $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(g) 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% ---
1996(g) 7.85 0.09 1.353 1.443 (0.078) (0.275) (0.353) 8.94 19.01% 2,247 2.29% 1.09% 69% 0.0625
SECURITY EQUITY SERIES (CLASS A)
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(c) 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(g) 5.54 0.04 1.377 1.417 --- (0.407) (0.407) 6.55 27.77% 440,339 1.05% 0.87% 95% ---
1996(g) 6.55 0.05 1.482 1.532 (0.060) (0.482) (0.542) 7.54 24.90% 575,680 1.04% 0.75% 64% 0.0609
SECURITY EQUITY SERIES (CLASS B)
1994(c) $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(g) 5.49 (0.01) 1.357 1.347 --- (0.407) (0.407) 6.43 26.69% 19,288 2.05% (0.13%) 95% ---
1996(g) 6.43 (0.02) 1.449 1.429 (0.017) (0.482) (0.499) 7.36 23.57% 38,822 2.04% (0.25%) 64% 0.0609
SECURITY GLOBAL SERIES (CLASS A)
1994 $10.00 $(0.03) $0.87 $0.84 $--- $--- $--- $10.84 8.40% $20,128 2.00% (0.01%) 73% $---
(c)(d)
1995(g) 10.84 (0.02) 0.31 0.29 --- (0.19) (0.19) 10.94 2.80% 16,261 2.00% (0.17%) 141% ---
1996(g) 10.94 0.01 1.874 1.884 (0.248) (0.156) (0.404) 12.42 17.73% 19,644 2.00% 0.07% 142% 0.0338
SECURITY GLOBAL SERIES (CLASS B)
1994 $9.96 $(0.12) $0.91 $0.79 $--- $--- $--- $10.75 7.90% $3,960 3.00% (0.01%) 73% $---
(c)(d)
1995(g) 10.75 (0.12) 0.30 0.18 --- (0.19) (0.19) 10.74 1.79% 5,433 3.00% (1.17%) 141% ---
1996(g) 10.74 (0.10) 1.841 1.741 (0.145) (0.156) (0.301) 12.18 16.57% 7,285 3.00% (0.93%) 142% 0.0338
SECURITY ASSET ALLOCATION SERIES (CLASS A)
1995 $10.00 $0.04 $0.50 $0.54 $--- $--- $--- $10.54 5.40% $1,906 2.00% 1.33% 129% $---
(e)(f)(g)
1996(g) 10.54 0.25 0.765 1.015 (0.328) (0.167) (0.495) 11.06 10.01% 2,449 2.00% 2.32% 75% 0.0247
SECURITY ASSET ALLOCATION SERIES (CLASS B)
1995 $10.00 $0.01 $0.490 $0.500 $--- $--- $--- $10.50 5.00% $1,529 3.00% 0.31% 129% $---
(e)(f)(g)
1996(g) 10.50 0.14 0.77 0.91 (0.273) (0.167) (0.44) 10.97 8.97% 2,781 3.00% 1.32% 75% 0.0247
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
29
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
AVERAGE
NET RATIO COMMIS-
GAINS OR DIVI- RATIO OF NET SION
NET LOSSES TOTAL DENDS NET OF EX- INCOME PAID
FISCAL ASSET NET ON SEC- FROM (FROM DISTRI- NET ASSETS PENSES (LOSS) PORT- PER
YEAR VALUE INVEST- URITIES INVEST- NET BUTIONS ASSET END OF TO TO AVE- FOLIO INVEST-
ENDED BEGIN- MENT (REALIZED MENT INVEST- (FROM TOTAL VALUE TOTAL PERIOD AVERAGE RAGE TURN- MENT
SEPTEM- NING OF INCOME & UNREAL- OPERA- MENT REALIZED DISTRI- END OF RETURN (THOU- NET NET OVER SECURITY
BER 30 PERIOD (LOSS) IZED) TIONS INCOME) GAINS) BUTIONS PERIOD (A) SANDS) ASSETS ASSETS RATE TRADED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITY ULTRA FUND (CLASS A)
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(c) 8.13 (0.056) (0.188) (0.244) --- (1.066) (1.066) 6.82 (3.60%) 60,695 1.33% (0.80%) 111% ---
1995(g) 6.82 (0.02) 1.535 1.515 --- (0.135) (0.135) 8.20 22.69% 66,052 1.32% (0.31%) 180% ---
1996(g) 8.20 (0.05) 1.096 1.046 --- (0.996) (0.996) 8.25 15.36% 74,230 1.31% (0.61%) 161% 0.0606
SECURITY ULTRA FUND (CLASS B)
1994(c) $8.30 $(0.103) $(0.321) $(0.424) $--- $(1.066) $(1.066) $6.81 (5.70%) $1,254 2.36% (1.76%) 110% $---
1995(g) 6.81 (0.09) 1.525 1.435 --- (0.135) (0.135) 8.11 21.53% 5,428 2.32% (1.32%) 180% ---
1996(g) 8.11 (0.13) 1.046 0.916 --- (0.996) (0.996) 8.03 13.81% 2,698 2.31% (1.61%) 161% 0.0606
</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 from 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.
(c) 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.
(d) Security Global Series was initially capitalized on October 1, 1993, with a
net asset value of $10 per share. Percentage amounts for the period, except
for total return, have been annualized.
(e) 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. Per share data has been
calculated using average month-end shares outstanding.
(f) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows:
1995 1996
---- ----
Asset Allocation Series Class A 3.6% 3.1%
Class B 4.7% 3.9%
(g) Net investment income (loss) was computed using average shares outstanding
throughout the period.
See accompanying notes.
- --------------------------------------------------------------------------------
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
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 last 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 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
those securities purchased with 60 days or less to maturity are valued on the
basis of 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 and Ultra Fund utilize 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 and Ultra Fund 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 and Ultra Fund may pay departing shareholders from its cash
balances and reduce their futures positions accordingly. Returns may be enhanced
by purchasing futures contracts instead of the underlying securities 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 Funds are 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 Funds. The Funds
realize a gain or loss when the contract is closed or expires. There were no
futures contracts held by the Funds at September 30, 1996.
- --------------------------------------------------------------------------------
31
<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) plus foreign taxes recoverable (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 relating to the expiration of net
operating losses and the 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 assets 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) $45,000 in
the year ending June 1, 1997; and (ii) $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/Franklin Investment Services, Inc. for
research provided to the Asset Allocation Series, an annual fee equal to .30% of
the first $50 million 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 million. 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.
For the Asset Allocation Series, SMC and Meridian Management Corporation
have agreed to waive their portions of the management fees to December 31, 1996.
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. (SDI), 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 $7,615 $107,976 $3,907 $911 $9,163
Broker/Dealer $30,541 $761,334 $25,565 $6,482 $33,172
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, 1996, were as follows:
ASSET
GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA
INCOME FUND SERIES SERIES SERIES FUND
-------------------------------------------------------------
Gross unrealized
appreciation $15,608,749 $173,772,495 $2,757,579 $266,330 $17,462,661
Gross unrealized
depreciation (386,747) (1,096,900) (734,627) (140,252) (397,738)
-------------------------------------------------------------
Net unrealized
appreciation $15,222,002 $172,675,595 $2,022,952 $126,078 $17,064,923
=============================================================
The Growth and Income Fund, Equity Series, Global Series and Ultra Fund hereby
respectively designate $959,581, $25,710,137, $19,397, and $6,430,082 as capital
gain dividends paid during the fiscal year ended September 30, 1996, for the
purpose of the dividends paid deduction on each Fund's federal income tax
return.
- --------------------------------------------------------------------------------
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended September 30, 1996, (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 $47,200,987 $353,045,127 $30,917,967 $5,247,673 $100,294,618
Proceeds
from sales
$47,075,606 $320,288,296 $31,561,347 $2,947,521 $105,246,179
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At September 30, 1996, Global Series had the following open forward foreign
exchange contracts to sell currency (excluding foreign currency contracts used
for purchase and sale settlements):
UNREALIZED
SETTLEMENT CONTRACT CONTRACT CURRENT GAIN
CURRENCY DATE AMOUNT RATE RATE (LOSS)
- --------------------------------------------------------------------------------
French Franc 3-5-97 3,717,779 5.0379 5.11460 $11,067
Japanese Yen 10-11-97 93,628,967 105.6950 111.36000 45,064
Japanese Yen 1-6-97 9,067,305 106.4600 109.92000 2,681
Japanese Yen 1-6-97 81,674,489 107.7200 109.92000 15,175
Japanese Yen 1-6-97 1,204,051 107.4950 109.92000 247
New Zealand Dollar 4-1-97 771,335 0.6859 0.68656 (509)
-------
$73,725
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, 1996, that qualified for the dividends received deductions for
corporate shareholders was 22%, 31%, 3%, 19% and 22% 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.
- --------------------------------------------------------------------------------
33
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD 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, 1996, the related statements of operations for the
year then ended and statements of 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
statements of changes in net assets for the year then ended and for the period
June 1, 1995 (commencement of operations) to September 30, 1995 of Security
Equity Asset Allocation Series and financial highlights for each of the five
years in the period ended September 30, 1996. 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, 1996, by correspondence with the custodian. As to securities
relating to uncompleted transactions, we performed other audit 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, 1996, 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
November 1, 1996
- --------------------------------------------------------------------------------
34
<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
* High Yield 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
Hugh L. Thompson, Ph.D.
OFFICERS
- --------
John D. Cleland, PRESIDENT
James R. Schmank, VICE PRESIDENT AND TREASURER
Mark E. Young, VICE PRESIDENT
Terry A. Milberger, VICE PRESIDENT, EQUITY FUND
Jane A. Tedder, VICE PRESIDENT
Greg A. Hamilton, ASSISTANT VICE PRESIDENT
Cindy L. Shields, ASSISTANT VICE PRESIDENT
Thomas A. Swank, ASSISTANT VICE PRESIDENT
Amy J. Lee, SECRETARY
Christopher D. Swickard, ASSISTANT SECRETARY
Brenda M. Luthi, ASSISTANT TREASURER AND ASSISTANT SECRETARY
BULK RATE
U.S. POSTAGE PAID
[SDI LOGO] TOPEKA, KS
PERMIT NO. 385
700 SW HARRISON ST.
TOPEKA, KS 66636-0001
(913) 295-3127
(800) 888-2461
<PAGE>
SECURITY FUNDS
SEMIANNUAL REPORT
MARCH 31, 1997
* Security Growth and Income Fund
* Security Equity Fund
- Equity Series
- Global Series
- Asset Allocation Series
- Social Awareness Series
* Security Ultra Fund
[SDI LOGO]
Security Distributors, Inc.
A Member of The Security Benefit
Group of Companies
<PAGE>
PRESIDENT'S COMMENTARY
SECURITY FUNDS
- --------------------------------------------------------------------------------
MAY 15, 1997
[PHOTO OF JOHN CLELAND]
JOHN CLELAND, PRESIDENT
To Our Shareholders:
We have experienced quite a roller coaster ride in the first quarter of 1997,
following a very strong fourth quarter in 1996. This year began on an equally
optimistic note, only to have a dose of reality injected into investors'
consciousness in the form of fears of an interest rate increase by the Federal
Reserve. These fears, followed by the actual occurrence of that event, reversed
in one month most of the gains in the market as measured by the large-cap
averages. The damage was much worse in the small-cap and mid-cap markets, with
many stocks losing 20% to 30% over the space of the first quarter.
THE FOUNDATION FOR INVESTORS' CONCERNS
At the heart of investors' worries lies the great debate about the outlook for
economic growth over the remainder of 1997. The Federal Reserve remains
concerned that growth is likely to be strong enough to put upward pressure on
inflation. If the Gross Domestic Product (GDP) increases in excess of 3%, the
Fed will likely increase interest rates one or two more times. If, on the other
hand, economic growth slows, primarily as a result of a heavy consumer debt
load, the Fed's work should be over.
The conundrum, of course, lies in what a slower rate of economic growth can
produce in the way of corporate earnings gains. If earnings growth slows
dramatically, this would adversely affect equity markets which are currently
selling at what many consider to be high valuation levels.
A LOOK AT THE MONTHS AHEAD
Our view is that the actual outcome will see a mix of the above-described
events. We believe the economy will continue its strength, although at growth
rates significantly less than those experienced in the first quarter. This
growth will remain strong enough to cause the Fed to raise short-term interest
rates one or two more times. However, earnings gains led by continued
productivity improvement should be enough to cushion the market to some extent.
The ultimate outcome is likely to be a continued period of volatility for the
equity markets for at least one more quarter. We don't believe that the great
bull market is over by any means, and we expect 1997 to close with the markets,
as measured by the major indices, to reach new high ground. The gains will,
however, be more modest than those of the last two years. Investors'
expectations should be more in line with the historic averages as we move
through the last years of the twentieth century.
As always, we are pleased that you have chosen us to manage your investments. We
invite your questions or comments at any time.
Sincerely,
JOHN CLELAND
John Cleland,
President
- --------------------------------------------------------------------------------
1
<PAGE>
MANAGER'S COMMENTARY
SECURITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
MAY 15, 1997
[PHOTO OF CHUCK LAUBER, TERRY MILBERGER, TOM SWANK, JIM SCHIER JOHN CLELAND]
The Security Management Growth-Income Team:
(L-R) Chuck Lauber, Terry Milberger, Tom Swank,
Jim Schier and (seated) John Cleland
To Our Shareholders:
During the six months ended March 31, 1997, we have experienced wide price
swings in both the stock markets and the bond markets. At the beginning of the
period, interest rates on long government bonds stood at about 6.90%. By the end
of November they had declined to 6.35%, sparking a rally in stocks that lasted
until mid-February before investor sentiment changed. As signs of
stronger-than-expected growth emerged and raised fears once again of potential
inflation, interest rates rose and stock prices declined. During this period
Security Growth and Income Fund returned +2.89%, underperforming its Lipper peer
group average of +8.54%.*
AREAS OF STRENGTH IN A VOLATILE MARKET
The value orientation of many stocks in the portfolio has contributed positively
to performance in a volatile market atmosphere. One such company, U.S.
Industries, Inc., increased nearly 35% over the six-month period as it reaped
the benefits of its recent restructuring moves. Another, security systems
service company ADT, Ltd., climbed over 30% as it was viewed as a potential
buyout candidate in the mergers and acquisitions arena. Insurance company
Allstate Corporation rose over 20% as it progressed through its restructuring
process.
High quality growth issues also added to total return. In the last six months,
for example, Microsoft has gained nearly 40%. In late 1996, as investors became
concerned about economic weakness, they favored this type of stock because of
consistent earnings growth records.
PERFORMANCE IN THE BOND SECTOR
In the first two months of the fiscal year the high yield bond portion of the
portfolio underperformed primarily because of two holdings. The first of these,
Marvel Holdings, declined substantially in value after the company announced
poor earnings and liquidity problems. The second, Home Holdings, also lost
considerable value after the company became involved in litigation surrounding
the lease on its New York headquarters. Both issues have now been sold out of
the portfolio.
On the bright side, bonds of Heritage Media Corporation increased in value after
News Corporation announced an agreement to buy the company. Because of News
Corporation's investment-grade ratings, Heritage Media bonds were placed on
rating agencies' watch lists for a
- --------------------------------------------------------------------------------
2
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
possible upgrade. The bond portion of the portfolio is now approximately 60%
invested in issues rated BB with the remaining 40% in single-B bonds.
LOOKING TO THE NEXT SIX MONTHS
Because the Federal Reserve Open Market Committee remains vigilant in its
inflation-fighting efforts, we expect interest rates to moderate as we move
through the next six months. Stocks at the present time are very sensitive to
interest rates, so a rate decline will benefit the stock market as well as bond
prices. Although we don't expect to see the strong returns of the past two years
again in 1997, we do think that gains more in line with annual averages are in
order.
Terry Milberger & Tom Swank
Portfolio Managers
TOP 5 HOLDINGS**
% of
net assets
----------
Intel Corporation 3.7%
Computer Sciences Corporation 3.0%
Elan Corporation PLC ADR 2.2%
U.S. Industries, Inc. 1.9%
Leggett & Platt, Inc. 1.7%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
AS OF MARCH 31, 1997
1 year 5 years 10 years
A Shares 11.43% 10.11% 8.21%
A Shares with sales charge 5.08% 8.81% 7.56%
B Shares 10.28% 8.73% N/A
(10-19-93)
since inception
B Shares with CDSC 5.28% 8.01% N/A
(10-19-93)
since inception
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.
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
3
<PAGE>
MANAGER'S COMMENTARY
SECURITY EQUITY FUND-EQUITY SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
To Our Shareholders:
The stock market has been extremely volatile for the six months ended March 31,
1997. The Standard & Poor's 500 Stock Index began the period at just over 687
and rose unevenly until it peaked at 816 in mid-February. During this period
people felt the economy was moderating, and that inflation would be no problem.
Then signs of strength began to appear, and the index declined, to close on
March 31, 1997 at about 757. As the specter of inflation once again cast its
shadow on the bond markets, interest rates moved up over 7%. Stocks, which were
sensitive to interest rates during this period, weakened. We have in this very
short time period experienced both a bull and a bear market. Security Equity
Fund--Equity Series returned +5.34% over the time period, comparing favorably
with its Lipper peer group average of +3.86%.*
WEAK SECTORS OF THE MARKET
Computer services stocks, comprising about 6% of the portfolio, were a
weak-performing sector during the period. As computer service companies became
more price competitive one of our holdings, Electronic Data Systems, failed to
attract as much new business as analysts had expected. Its stock price declined
steadily as its profit margins narrowed. This price competition weighed down the
entire sector. As one company became more aggressive, others had to follow in
order to maintain market share. We have recently reduced our exposure in the
computer service sector to about 2%.
[PHOTO OF JOHN CLELAND, TERRY MILBERGER, CHUCK LAUBER]
The Security Management Large Cap Team
John Cleland, Terry Milberger, Chuck Lauber
A second underperforming sector was aerospace and defense. With federal
budget-balancing efforts continuing, investors became concerned about reductions
in defense spending. This sector performed well in 1996, but has been in a
downtrend since then. At the beginning of the year we owned such companies as
Lockheed, Martin Marietta, McDonnell Douglas Corporation, and Boeing Company. We
have since reduced our exposure in this sector and now of this group only own
McDonnell Douglas, which is being acquired by Boeing.
AREAS OF BETTER PERFORMANCE
Our continued focus on high quality growth names such as Microsoft Corporation,
Gillette Company, Colgate-Palmolive Company, and Procter & Gamble Company has
helped stabilize the portfolio over the six-month period. In the last
- --------------------------------------------------------------------------------
4
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY EQUITY FUND-EQUITY SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
six months, for example, Microsoft has gained nearly 40% while the other three
have increased around 20% apiece. In late 1996 as investors became concerned
about economic weakness, they moved to these high quality companies because of
their consistent earnings growth records.
We have added to our banking and finance sector which has outperformed other
market areas so far in 1997. We now own such banks as Bank of New York Company,
Inc., Northern Trust Corporation and Chase Manhattan Corporation, and Allstate
Corporation, General Re Corporation and Chubb Corporation among other insurance
companies.
PLANS FOR THE REST OF THE YEAR
We believe that our unique blend of growth issues and selected value stocks will
help lower the fund's volatility while increasing the potential for strong
returns. Because of steps taken by the Federal Reserve Open Market Committee to
raise interest rates, we expect the economy to moderate later in the year. In
the coming months we plan to continue our strategy of seeking out companies with
above-average earnings growth.
Terry Milberger
Portfolio Manager
TOP 5 HOLDINGS**
% of
net assets
----------
U.S. Industries, Inc. 1.8%
Microsoft Corporation 1.8%
AlliedSignal, Inc. 1.7%
Bristol-Myers Squibb Company 1.6%
Allstate Corporation 1.6%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
As of March 31, 1997
1 year 5 years 10 years
------ ------- --------
A Shares 14.28% 15.88% 14.00%
A Shares with sales charge 7.77% 14.51% 13.33%
B Shares 13.35% 15.46% N/A
(10-19-93)
(since inception)
B Shares with CDSC 8.35% 14.84% N/A
(10-19-93)
(since inception)
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.
* Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
- --------------------------------------------------------------------------------
5
<PAGE>
MANAGER'S COMMENTARY
SECURITY EQUITY FUND-GLOBAL SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
[LEXINGTON LOGO]
SUBADVISOR - LEXINGTON MANAGEMENT CORPORATION
To Our Shareholders:
The Global Series of Security Equity Fund returned 5.5% in the first half of the
fiscal year, comparing favorably with the average global fund return of 5.2% as
reported by Lipper Analytical Services, Inc.* The benchmark Morgan Stanley
Capital International World Index lagged the average global fund with a return
of 4.1%.
BEHAVIOR OF WORLD MARKETS
World markets advanced strongly in the six months ended March 31, 1997.
Especially impressive were European markets, fueled by restructuring and the
dollar rising 10% versus the German mark. Germany's stock market rose 17.1% in
dollar terms (up 28.1% in local currency), while France rose 15.0%. Increased
confidence in the European Monetary Union becoming reality, combined with bond
market rallies in non-core countries, sparked a buying spree in Spain and
Sweden, with equity market increases of 21.6% and 19.8% respectively in dollar
terms.
Far East markets performed well in the first three months of the period, and
then corrected somewhat, underperforming Europe by a substantial margin over the
fiscal first half. Hong Kong rose 2.3%, Malaysia was up 7.5%, and Singapore
declined 4.8%. The Series' overweighting in Asia hurt performance as Asian
markets reacted in sympathy with rising U.S. bond yields. The portfolio
benefited from continued underweighting of Japan, which declined 21.9% in the
Morgan Stanley Capital International Index. The prospect of a faltering economic
recovery after a large tax increase in Japan weighed heavily on those markets.
[PHOTO OF RICHARD SALER] [PHOTO OF ALAN WAPNICK]
RICHARD SALER ALAN WAPNICK
PORTFOLIO MANAGER PORTFOLIO MANAGER
Exposure to emerging markets boosted returns in the first half. Latin America
advanced strongly, with Brazil rising 31.4%, Argentina 21.2% and Mexico 10.1%.
Greece gained 25.5%. Eastern Europe also rose sharply, with the Russian market
up 77.8% over the past six months.
THE OUTLOOK FOR GLOBAL MARKETS
The global economic outlook continues mixed, with strengthening signs in core
European countries. Should U.S. economic strengthening continue, the Federal
Reserve's offsetting interest rate increases would significantly pressure U.S.
equities. The portfolio continues to be underweighted versus the benchmark index
in U.S. stocks as well as in Japanese equities.
European prospects are more favorable. Government spending is restrained as
countries strive to meet Maastricht criteria for entrance into the European
Monetary Union (EMU) while unemployment is high, so growth remains slow.
- --------------------------------------------------------------------------------
6
<PAGE>
MANAGER'S COMMENTARY
SECURITY EQUITY FUND-EQUITY SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
The past three months have seen a slight weakening of confidence in EMU, but it
is increasingly certain that EMU will be pushed forward. The weaker German mark
versus the dollar is helping spur export orders and industrial production in
that country. GDP growth in core European countries should be near 3% this year.
Restructuring is ongoing, with increasing numbers of companies speaking about
shareholder value enhancement.
In an environment of strengthening world growth and rising bond yields the
chances for sharp declines in global markets are real. Our focus remains on
quality European restructuring plays, where profit margins could expand for
several years. In all countries the overriding emphasis is on finding quality
corporate management teams, since we believe this to be a key factor
contributing to outperformance.
Richard Saler and Alan Wapnick
Portfolio Managers
PORTFOLIO BREAKDOWN BY COUNTRY (TOP 5)**
% of
net assets
----------
United States 16.7%
United Kingdom 9.8%
Japan 8.1%
France 5.5%
Switzerland 5.0%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
As of March 31, 1997
1 Year Since Inception
------ ---------------
A Shares 12.67% 9.74%
(10-1-93)
A Shares with sales charge 6.19% 7.90%
(10-1-93)
B Shares 11.56% 8.96%
(10-19-93)
B Shares with CDSC 6.56% 8.25%
(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.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
7
<PAGE>
MANAGER'S COMMENTARY
SECURITY EQUITY FUND-ASSET ALLOCATION SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
[TEMPLETON LOGO]
[MERIDIAN INVESTMENT MANAGEMENT LOGO]
[SMC LOGO]
SECURITY MANAGEMENT COMPANY, LLC
A Member of The Security Benefit
Group of Companies
MANAGED BY SECURITY MANAGEMENT COMPANY, LLC
RESEARCH PROVIDED BY MERIDIAN INVESTMENT MANAGEMENT CORPORATION AND
TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC. TEMPLETON/FRANKLIN'S RESEARCH IS
DERIVED FROM RESEARCH PROVIDED BY A THIRD PARTY WHICH IS ANALYZED AND
MONITORED BY TEMPLETON/FRANKLIN.
To Our Shareholders:
The Asset Allocation Series performed very well in the first half of the fiscal
year, returning 5.86% compared with a Lipper peer group average of 5.69%.* In
volatile market periods such as we have experienced over the past several
months, the diversification in an asset allocation portfolio provides the
opportunity to reduce risk while generating a favorable return.
PORTFOLIO PERFORMANCE IN THE FIRST HALF
The Asset Allocation Series may invest its assets in seven asset categories:
U.S. stocks, foreign stocks, U.S. bonds, foreign bonds, real estate (through
Real Estate Investment Trusts), gold stocks and cash. Through the first three
months of the fiscal year we invested in all of these categories except foreign
bonds and gold stocks. During that period the U.S. stock market was strong and
U.S. equities performed well. Foreign stocks, however, were hurt by the strength
in the U.S. dollar. Although markets in countries such as Germany, Belgium, and
Italy did well in terms of local currencies, the effect of currency conversion
weakened their performance. U.S. bonds had a strong quarter in late 1996, but
have since displayed weakness as inflation fears once again grip investors.
[PHOTO OF JANE TEDDER]
JANE TEDDER
PORTFOLIO MANAGER
CHANGES IN ASSET ALLOCATION
Our outside provider of research, Meridian Investment Management Corporation,
began suggesting moves into cash in late February. The first of their
recommendations was to sell all of the real estate investment trust positions in
the portfolio and to sell the remaining Hong Kong holdings, placing the proceeds
in cash equivalents. Since that time the benchmark Wilshire Real Estate
Securities Index has declined slightly and the Hang Seng Stock Index (the market
index for Hong Kong stocks) has lost 5.8% in value.
In early March Meridian recommended a second movement into cash. They suggested
selling one-half of our positions in the U.S. market sectors of Recreation and
Leisure, Machinery, Electronics, Computers and Building Materials. At the same
time they advised reducing the holdings of U.S. bonds from 21.75% of the total
portfolio to 15%. These moves, too, were timely in view of both markets' recent
declines.
PLANS FOR THE NEXT SIX MONTHS
The portfolio managers at Meridian have no near-term plans to recommend reducing
the cash position from its current weighting of
- --------------------------------------------------------------------------------
8
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY EQUITY FUND-ASSET ALLOCATION SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
approximately 30%. At some time in the future, though, they expect U.S. bonds to
become more attractive on a relative value basis, particularly if the Federal
Reserve considers it necessary to raise short-term interest rates at their
coming Open Market Committee meetings. Gold stocks, as well, have cheapened
considerably and could possibly become appealing in the not-too-distant future.
For the present, though, a relatively large position in cash is serving
shareholders well.
Jane Tedder
Portfolio Manager
ASSET MIX**
% of
net assets
----------
U.S. Equities 24.1%
Foreign Stocks 29.0%
Corporate Bonds 12.1%
U.S. Government and Agencies 5.3%
Cash 29.5%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
AS OF MARCH 31, 1997
1 Year Since Inception
------ ---------------
A Shares 9.52% 11.83%
(6-1-95)
A Shares with sales charge 3.22% 8.27%
(6-1-95)
B Shares 8.41% 10.73%
(6-1-95)
B Shares with CDSC 3.41% 8.71%
(6-1-95)
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 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. In addition, the investment manager is waiving a portion of the
management fee for the Series. Performance figures would be lower if the maximum
sales charge and advisory fee were deducted.
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
- --------------------------------------------------------------------------------
9
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY EQUITY FUND-SOCIAL AWARENESS SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
To Our Shareholders:
The Social Awareness Series began operations November 1, 1996. Throughout most
of the period during which the Series has been in operation, small-cap and
mid-cap stocks have underperformed their larger counterparts. Because a portion
of our portfolio is invested in stocks of these smaller firms, the Series'
performance has lagged, returning -4.40% for the period compared with the Lipper
average return of a group of similarly managed funds of +3.40%.* This market
weakness will, however, give us excellent opportunities to invest future cash
that comes into the Fund.
SOCIAL SCREENS APPLIED IN THE SELECTION PROCESS
The Social Awareness Series uses both positive and negative screens to search
for companies that might be appropriate investments. Selection of securities for
the portfolio is an ongoing process of weighing the positive things companies do
against potential negatives, and balancing these with fundamental analysis of
the companies' financial positions. The positive screens include community
support, strong employee relations, fair employee practices and family benefits,
and strong environmental programs. The negative screens--corporate practices to
avoid--include nuclear energy, weapons, environmental abuse, tobacco and
alcohol, and gambling. These screens are applied after a company's financial
performance and future earnings outlook have been carefully evaluated.
MARKET BEHAVIOR SINCE INCEPTION OF THE FUND
The price decline in smaller company stocks has been driven by two factors.
First, investors are reluctant to take the risks associated with less liquid
holdings when markets are volatile, and second, supply has exceeded demand as
the Initial Public Offering (IPO) market continued strong through early 1997.
Stocks in the technology, health care, and business services sectors turned in
poor performances in the past six months. Conversely, however, our holdings in
the consumer staples sector such as Coca-Cola Company, Procter & Gamble Company,
Colgate-Palmolive Company, and Walgreens Company did well, as did banks and
insurances companies including our positions in American International Group,
Inc. and Chubb Corporation.
PROXY VOTING SEASON IMPORTANT
As companies approach their annual meetings of shareholders, proxy voting
becomes very important for socially conscious investors. Our policy is to vote
proxies in accordance with our social screens, even if it requires a vote
against management. Proxy voting gives us an excellent opportunity to
communicate with management about our shareholders' beliefs.
Three primary issues are the focus for shareholders currently. They include the
CERES (Coalition for Environmentally Responsible Economies)
- --------------------------------------------------------------------------------
10
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY EQUITY FUND-SOCIAL AWARENESS SERIES
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
principles, tobacco, and workplace diversity. The most prominent of these is
tobacco, both its selling and its use. The American Medical Association is
calling on doctors to dispose of their holdings in mutual funds that own tobacco
stocks. We actively seek out companies such as Dayton Hudson Corporation, the
parent of Target Stores, the stores which recently made the difficult decision
to discontinue sales of tobacco products.
LOOKING AHEAD TO THE NEXT SIX MONTHS
As we move forward, we expect economic growth to moderate in light of the
Federal Reserve's determination to keep inflation under control. This should
allow interest rates to decline, which will give a boost to the stock market.
Because small-cap and mid-cap issues have underperformed their larger
counterparts over the past several months, we believe that they have a good
opportunity to outperform in the months to come. We will continue our search for
financially sound companies which operate in a manner consistent with our social
screens.
Cindy Shields
Portfolio Manager
TOP 5 HOLDINGS**
% of
net assets
----------
Coca-Cola Company 2.5%
Intel Corporation 2.5%
Procter & Gamble Company 2.4%
Guidant Corporation 2.4%
Merck & Company 2.3%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
AS OF MARCH 31, 1997
Since Inception
---------------
A Shares -4.40%
(11-1-96)
A Shares with sales charge -9.92%
(11-1-96)
B Shares -4.73%
(11-1-96)
B Shares with CDSC -9.50%
(11-1-96)
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 fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than 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. In addition, the investment manager is waiving all of the
management fees for the Series. Performance figures would be lower if the
maximum sales charge and advisory fee were deducted.
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
- --------------------------------------------------------------------------------
11
<PAGE>
MANAGER'S COMMENTARY
SECURITY ULTRA FUND
- --------------------------------------------------------------------------------
MAY 15, 1997
To Our Shareholders:
The correction in the small-cap and mid-cap stocks which began last June has
continued through the first quarter of 1997. This price decline has been driven
by two primary factors. First, investors have been reluctant in a period of
volatile market prices to take the risks inherent in less liquid stocks. Second,
the supply of small-cap and mid-cap stocks has exceeded the demand as the
Initial Public Offering (IPO) market continued strong through early 1997.
Security Ultra Fund, returned -8.40% for the six-month period ended March 31,
1997, compared with its Lipper peer group average of -0.76%.*
IS THE WORST BEHIND US?
We believe that the greatest part of the market decline is now behind us. The
Federal Reserve Open Market Committee is remaining vigilant in its fight to keep
inflation under control, and first quarter earnings estimates are looking
favorable. The second half of the year could be attractive for small and
midsized company stocks for several reasons.
Relative valuations of stocks in these sectors are approaching historical trough
levels, making the stocks very attractively priced. Portfolio managers have been
raising cash in recent months, with some managers now holding over 10% of their
assets in cash equivalents. The IPO and secondary offering calendars have slowed
because of the volatile markets. Also, as the dollar continues to strengthen,
multinational companies become less attractive because of their foreign earnings
exposure, making smaller companies more favorable investments.
[PHOTO OF LARRY VALENCIA, FRANK WHITSELL, CINDY SHIELDS, JOHN CLELAND]
THE SECURITY MANAGEMENT SMALL CAP TEAM
LARRY VALENCIA, FRANK WHITSELL, CINDY SHIELDS, JOHN CLELAND
PORTFOLIO HOLDINGS DURING THE PERIOD
Many stocks in emerging growth areas such as technology, health care, and
business services experienced double-digit declines over the past six months as
investors shied away from these types of issues. Although the fundamentals of
these companies remained strong, investors' concerns about lack of liquidity
overrode their inclination to buy.
Some bright spots remained in the technology sector. An overweighting in the
portfolio in semiconductors and personal computers helped performance.
Semiconductor equipment companies Altera Corporation and Novellus Systems, Inc.,
returned 18.2% and 27.2% respectively in the first quarter of 1997, and personal
computer manufacturer Dell Computer Corporation increased 27.3% in the same
period.
- --------------------------------------------------------------------------------
12
<PAGE>
MANAGER'S COMMENTARY (continued)
SECURITY ULTRA FUND
- --------------------------------------------------------------------------------
MAY 15, 1997
PERFORMANCE
LOOKING AHEAD
Because of the correction that has taken place over the past six months, stocks
in the small-cap and mid-cap sectors of the market appear undervalued. We
believe that there are many good buying opportunities awaiting us. Our equity
analysts continue searching for solid growing companies in order to build strong
performance potential for the coming months.
Cindy Shields
Portfolio Manager
TOP 5 HOLDINGS**
% of
net assets
----------
Coca-Cola Enterprises, Inc. 2.4%
Franklin Resources, Inc. 2.1%
Cardinal Health, Inc. 1.9%
Dura Pharmaceuticals, Inc. 1.9%
State Street Boston Corporation 1.8%
**At March 31, 1997
AVERAGE ANNUAL RETURNS
AS OF MARCH 31, 1997
1 year 5 years 10 years
------ ------- --------
A Shares 1.57% 6.46% 4.38%
A Shares with sales charge -4.22% 5.21% 3.75%
B Shares 0.63% 5.17% N/A
(10-19-93)
(since inception)
B Shares with CDSC -4.37% 4.39% N/A
(10-19-93)
(since inception)
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.
* Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
- --------------------------------------------------------------------------------
13
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- -------------------------------
SECURITY GROWTH AND INCOME FUND
- -------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
PREFERRED STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
BANKING & CREDIT - 1.6%
California Federal Bank .............................. 8,250 $932,250
Salomon Brothers, Inc. ............................... 10,000 257,500
----------
1,189,750
COMMUNICATION - 0.7%
Cablevision Systems .................................. 5,594 501,343
ENTERTAINMENT - 0.8%
Time Warner .......................................... 551 596,199
PUBLISHING & PRINTING - 0.5%
K-III Communications ................................. 4,000 396,000
----------
Total preferred stocks - 3.6% ........................ 2,683,292
CORPORATE BONDS
- ---------------
AIR TRANSPORTATION - 0.7%
Atlas Air, Inc., 12.25% - 2002 ....................... $500,000 551,875
AUTOMOTIVE - 0.4%
Exide Corporation, 10.75% - 2002 ..................... $300,000 308,625
BANKING & CREDIT - 0.3%
BF Saul Reit, 11.625% - 2002 ......................... $250,000 269,063
BUILDING MATERIALS - 0.4%
Knoll, Inc., 10.875% - 2006 .......................... $250,000 274,688
CHEMICALS - 0.4%
Envirodyne Industries, Inc., 12.00% - 2000 ........... $250,000 269,063
COMMUNICATIONS - 3.2%
Allbritton Communications Company, 11.50% - 2004 ..... $125,000 118,437
Century Communications Corporation, 9.50% - 2005 ..... $500,000 496,250
CF Cable Television, Inc., 11.625% - 2005 ............ $250,000 285,625
Comcast Corporation, 9.125% - 2006 ................... $500,000 507,500
Heritage Media Corporation, 8.75% - 2006 ............. $250,000 258,125
Rogers Cable System, 9.625% - 2002 ................... $250,000 258,438
Rogers Communications, Inc., 9.125% - 2006 ........... $250,000 246,875
Valassis Communications, Inc., 9.55% - 2003 .......... $250,000 265,000
----------
2,436,250
DIVERSIFIED - 0.8%
Jordan Industries, Inc., 10.375% - 2003 .............. $250,000 247,188
Sequa Corporation, 9.375% - 2003 ..................... $350,000 354,375
----------
601,563
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRIC & GAS COMPANIES - 0.8%
AES Corporation, 10.25% - 2006 ....................... $250,000 $ 272,500
California Energy, 9.50% - 2006 ...................... 300,000 310,500
----------
583,000
ENTERTAINMENT - 0.8%
Harrah's Entertainment, 10.875% - 2002 ............... 500,000 506,250
Stations Casino, 10.125% - 2006 ...................... 125,000 120,312
----------
626,562
FINANCE - 0.8%
Dollar Financial Group, Inc., 10.875% - 2006 ......... 300,000 305,250
Homeside, 11.25% - 2003 .............................. 250,000 284,688
----------
589,938
FOOD & BEVERAGE TRADE - 1.4%
Cott Corporation, 9.375% - 2005 ...................... 500,000 507,500
Delta Beverage, 9.75% - 2003 ......................... 250,000 260,000
TLC Beatrice, 11.50% - 2005 .......................... 250,000 267,500
----------
1,035,000
HOSPITAL MANAGEMENT - 1.0%
Regency Health Services, Inc., 9.875% - 2002 ......... 500,000 507,500
Tenet Healthcare, 10.125% - 2005 ..................... 250,000 271,875
----------
779,375
HOTEL & RECREATION - 0.3%
Four Seasons, 9.125% - 2000 .......................... 250,000 255,313
INDUSTRIAL PRODUCT - 0.5%
Shopvac, 10.625% - 2003 .............................. 350,000 367,937
MANUFACTURING - 0.5%
Agco Corporation, 10.00% - 2006 ...................... 250,000 254,062
Titan Wheel International, Inc., 8.75% - 2007 ........ 125,000 123,125
----------
377,187
OIL & GAS COMPANIES - 0.7%
Seagull Energy Corporation, 8.625% - 2005 ............ 500,000 515,000
PLASTIC PRODUCTS - 0.5%
Plastic Container, 10.00% - 2006 ..................... 350,000 357,875
PUBLISHING & PRINTING - 0.6%
Golden Books Publishing, Inc., 7.65% - 2002 .......... 250,000 231,250
Hollinger International, 10.625% - 2002 .............. 250,000 244,375
----------
475,625
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
14
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- -------------------------------------------
SECURITY GROWTH AND INCOME FUND (CONTINUED)
- -------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
CORPORATE BONDS SHARES VALUE
- --------------------------------------------------------------------------------
REFINERY - 0.3%
Crown Central Petroleum, 10.875% - 2005 .............. $250,000 $257,812
RESTAURANTS - 0.7%
Carrols Corporation, 11.50% - 2003 ................... $500,000 526,875
STEEL & METAL PRODUCTS - 0.2%
AK Steel, 9.125% - 2006 .............................. $150,000 149,437
TEXTILES - 1.0%
Pillowtex Corporation, 10.00% - 2006 ................. $250,000 258,125
Westpoint Stevens, Inc., 9.375% - 2005 ............... $500,000 506,250
----------
764,375
TOBACCO PRODUCTS - 0.3%
Dimon, Inc., 8.875% - 2006 ........................... $250,000 254,375
----------
Total corporate bonds - 16.6% ........................ 12,626,813
COMMON STOCKS
- -------------
ADVERTISING - 1.3%
Omnicom Group, Inc. .................................. 20,000 997,500
AEROSPACE & DEFENSE - 3.6%
Boeing Company ....................................... 8,630 851,134
McDonnell Douglas Corporation ........................ 15,000 915,000
Rockwell International Corporation ................... 15,000 973,125
----------
2,739,259
BANKING & FINANCE - 3.9%
Banc One Corporation ................................. 15,000 596,250
Bank of New York Company, Inc. ....................... 20,000 735,000
H.F. Ahmanson & Company .............................. 25,000 912,500
Northern Trust Corporation ........................... 20,000 750,000
----------
2,993,750
BUSINESS SERVICES - 0.8%
Cognizant Corporation ................................ 20,000 582,500
CHEMICALS--BASIC - 1.3%
Monsanto Company ..................................... 25,000 956,250
CHEMICALS--SPECIALTY - 3.6%
Airgas, Inc. ......................................... 47,000 793,125
Morton International, Inc. ........................... 20,000 845,000
Praxair, Inc. ........................................ 25,000 1,121,875
----------
2,760,000
COMPUTER SERVICES - 5.4%
Ceridian Corporation* ................................ 20,000 717,500
Computer Sciences Corporation* ....................... 38,000 2,346,500
DST Systems, Inc.* ................................... 35,000 997,500
----------
4,061,500
COMPUTER SOFTWARE - 0.9%
HBO & Company ........................................ 15,000 712,500
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
CONGLOMERATE - 4.5%
AlliedSignal, Inc. ................................... 15,000 $1,068,750
Canadian Pacific, Ltd. ............................... 40,000 960,000
U.S. Industries, Inc.* ............................... 40,000 1,410,000
----------
3,438,750
CONSUMER SERVICES - 1.0%
ADT, Ltd.* ........................................... 30,000 750,000
ENERGY SERVICES - 0.9%
Halliburton Company .................................. 10,000 677,500
ENTERTAINMENT - 1.5%
Carnival Corporation (Cl.A) .......................... 30,000 1,110,000
FERTILIZER - 1.0%
Potash Corporation of Saskatchewan, Inc. ............. 10,000 760,000
FINANCIAL SERVICES - 1.2%
Federal National Mortgage Association ................ 24,000 867,000
FOOD & BEVERAGES - 8.2%
Anheuser-Busch Companies, Inc. ....................... 20,000 842,500
Chiquita Brands International, Inc. .................. 80,000 1,250,000
ConAgra, Inc. ........................................ 20,000 1,085,000
CPC International, Inc. .............................. 15,000 1,230,000
PepsiCo, Inc. ........................................ 30,000 978,750
Sara Lee Corporation ................................. 20,000 810,000
----------
6,196,250
HOSPITAL MANAGEMENT - 1.0%
Columbia/HCA Healthcare Corporation .................. 22,500 756,562
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.7%
Leggett & Platt, Inc. ................................ 40,000 1,300,000
HOUSEHOLD PRODUCTS - 1.5%
Procter & Gamble Company ............................. 10,000 1,150,000
INSURANCE - 2.0%
Allstate Corporation ................................. 15,000 890,625
St. Paul Companies, Inc. ............................. 10,000 648,750
----------
1,539,375
MANUFACTURING - 0.8%
Perkin-Elmer Corporation ............................. 10,000 643,750
MEDICAL INSTRUMENTS - 3.7%
Allegiance Corporation ............................... 30,000 663,750
Baxter International, Inc. ........................... 20,000 862,500
Becton, Dickinson & Company .......................... 15,000 675,000
Medtronic, Inc. ...................................... 10,000 622,500
----------
2,823,750
MINING & METALS - 0.9%
Aluminum Company of America .......................... 10,000 680,000
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
15
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- -------------------------------------------
SECURITY GROWTH AND INCOME FUND (CONTINUED)
- -------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
MULTIMEDIA - 2.3%
E.W. Scripps Company ................................. 35,000 $1,141,875
Tribune Company ...................................... 15,000 607,500
----------
1,749,375
NATURAL GAS - 3.9%
Coastal Corporation .................................. 25,000 1,200,000
El Paso Natural Gas Company .......................... 20,000 1,132,500
Equitable Resources, Inc. ............................ 20,200 618,625
----------
2,951,125
OIL & GAS COMPANIES - 3.3%
Louisiana Land & Exploration Company ................. 15,000 710,625
Noble Affiliates, Inc. ............................... 20,000 755,000
Pennzoil Company ..................................... 10,000 517,500
Union Pacific Resources Group, Inc. .................. 20,000 535,000
----------
2,518,125
OIL & GAS EQUIPMENT - 1.1%
Input/Output, Inc.* .................................. 60,000 870,000
PHARMACEUTICALS - 6.2%
Bristol-Myers Squibb Company ......................... 20,000 1,180,000
Elan Corporation PLC ADR* ............................ 50,000 1,706,250
Mylan Laboratories ................................... 55,000 804,375
SmithKline Beecham PLC ADR ........................... 15,000 1,050,000
----------
4,740,625
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.5%
Eastman Kodak Company ................................ 15,000 1,138,125
PUBLISHING & PRINTING - 0.9%
McGraw-Hill Companies, Inc. .......................... 13,000 664,625
RESTAURANTS & FOOD SERVICE - 1.2%
Cheesecake Factory, The* ............................. 5,000 98,750
Wendy's International, Inc. .......................... 40,000 825,000
----------
923,750
RETAIL TRADE - 4.2%
Federated Department Stores, Inc.* ................... 30,000 986,250
TJX Companies, Inc. .................................. 15,000 641,250
Walgreens Company .................................... 20,000 837,500
Woolworth Corporation* ............................... 30,000 701,250
----------
3,166,250
SEMICONDUCTORS - 3.7%
Intel Corporation .................................... 20,000 2,782,500
TRANSPORTATION - 0.4%
Union Pacific Corporation ............................ 5,000 283,749
----------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
Total common stocks - 79.4% .......................... $60,284,445
----------
Total investments - 99.6% ............................ 75,594,550
Cash and other assets, less liabilities - 0.4% ....... 336,309
----------
Total net assets - 100.0% ............................ $75,930,859
==========
- -------------------------------------
SECURITY EQUITY FUND - EQUITY SERIES
- -------------------------------------
COMMON STOCKS
- -------------
ADVERTISING - 1.5%
Omnicom Group, Inc. .................................. 200,000 $9,975,000
AEROSPACE & DEFENSE - 3.9%
McDonnell Douglas Corporation ........................ 160,000 9,760,000
Rockwell International Corporation ................... 150,000 9,731,250
United Technologies Corporation ...................... 85,000 6,396,250
----------
25,887,500
BROADCAST MEDIA - 1.0%
Tribune Company ...................................... 155,000 6,277,500
BANKING & FINANCE - 6.8%
Banc One Corporation ................................. 150,000 5,962,500
Bank of New York Company, Inc. ....................... 175,000 6,431,250
Chase Manhattan Corporation .......................... 110,000 10,298,750
H.F. Ahmanson & Company .............................. 160,000 5,840,000
Northern Trust Corporation ........................... 200,000 7,500,000
Norwest Corporation .................................. 40,000 1,850,000
Wells Fargo & Company ................................ 25,000 7,103,125
----------
44,985,625
BUSINESS SERVICES - 0.9%
Cognizant Corporation ................................ 120,000 3,495,000
ITT Industries, Inc. ................................. 120,000 2,685,000
----------
6,180,000
CHEMICALS--BASIC - 2.6%
du Pont (E.I.) de Nemours & Company .................. 90,000 9,540,000
Monsanto Company ..................................... 200,000 7,650,000
----------
17,190,000
CHEMICALS--SPECIALTY - 3.5%
Morton International, Inc. ........................... 170,000 7,182,500
Nalco Chemical Company ............................... 175,000 6,540,625
Praxair, Inc. ........................................ 200,000 8,975,000
----------
22,698,125
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
16
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ------------------------------------------------
SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED)
- ------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
COMPUTER SERVICES - 1.8%
Ceridian Corporation* ................................ 150,000 $5,381,250
Computer Sciences Corporation* ....................... 100,000 6,175,000
----------
11,556,250
COMPUTER SOFTWARE - 2.8%
BMC Software, Inc.* .................................. 75,000 3,459,375
HBO & Company ........................................ 70,000 3,325,000
Microsoft Corporation* ............................... 130,000 11,919,375
----------
18,703,750
COMPUTER SYSTEMS - 0.9%
Compaq Computer Corporation* ......................... 80,000 6,130,000
CONGLOMERATE - 5.0%
AlliedSignal, Inc. ................................... 160,000 11,400,000
Canadian Pacific, Ltd. ............................... 400,000 9,600,000
U.S. Industries, Inc.* ............................... 340,000 11,985,000
----------
32,985,000
CONSUMER SERVICES - 1.5%
ADT, Ltd.* ........................................... 400,000 10,000,000
ELECTRICAL MACHINERY & ELECTRONIC COMPONENTS - 1.5%
General Electric Company ............................. 100,000 9,925,000
ELECTRONICS - 0.5%
Perkin-Elmer Corporation ............................. 50,000 3,218,750
ENERGY EXPLORATION--PRODUCTION - 1.1%
Louisiana Land & Exploration Company ................. 150,000 7,106,250
ENERGY SERVICES - 0.9%
Halliburton Company .................................. 85,000 5,758,750
ENTERTAINMENT - 1.4%
Carnival Corporation (Cl.A) .......................... 240,000 8,880,000
FINANCIAL SERVICES - 2.0%
Federal Home Loan Mortgage Corporation ............... 180,000 4,905,000
Federal National Mortgage Association ................ 230,000 8,308,750
----------
13,213,750
FOOD & BEVERAGES - 7.8%
Anheuser-Busch Companies, Inc. ....................... 170,000 7,161,250
ConAgra, Inc. ........................................ 160,000 8,680,000
CPC International, Inc. .............................. 120,000 9,840,000
PepsiCo, Inc. ........................................ 260,000 8,482,500
Sara Lee Corporation ................................. 200,000 8,100,000
Unilever NY ADR ...................................... 50,000 9,312,500
----------
51,576,250
HOSPITAL MANAGEMENT - 1.0%
Columbia/HCA Healthcare Corporation .................. 200,000 6,725,000
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 4.1%
Colgate-Palmolive Company ............................ 75,000 $7,471,875
Gillette Company ..................................... 100,000 7,262,500
Kimberly-Clark Corporation ........................... 35,000 3,478,125
Procter & Gamble Company ............................. 75,000 8,625,000
----------
26,837,500
INSURANCE - 10.6%
Aetna, Inc. .......................................... 100,000 8,587,500
Allstate Corporation ................................. 175,000 10,390,625
American International Group, Inc. ................... 80,000 9,390,000
Chubb Corporation .................................... 120,000 6,465,000
Cigna Corporation .................................... 50,000 7,306,250
General Re Corporation ............................... 35,000 5,530,000
ITT Hartford Group, Inc. ............................. 100,000 7,212,500
Provident Companies, Inc. ............................ 150,000 8,212,500
St. Paul Companies, Inc. ............................. 100,000 6,487,500
----------
69,581,875
MANUFACTURING - 1.3%
Corning, Inc. ........................................ 150,000 6,656,250
Millipore Corporation ................................ 50,000 2,118,750
----------
8,775,000
MEDICAL INSTRUMENTS - 3.4%
Baxter International, Inc. ........................... 200,000 8,625,000
Becton, Dickinson & Company .......................... 100,000 4,500,000
Medtronic, Inc. ...................................... 120,000 7,470,000
U.S. Surgical Corporation ............................ 50,000 1,525,000
----------
22,120,000
MINING & METALS - 0.6%
Aluminum Company of America .......................... 60,000 4,080,000
NATURAL GAS - 1.2%
Coastal Corporation .................................. 170,000 8,160,000
OIL & GAS COMPANIES - 1.6%
Noble Affiliates, Inc. ............................... 165,000 6,228,750
Union Pacific Resources Group, Inc. .................. 160,000 4,280,000
----------
10,508,750
OIL & GAS PIPELINES - 1.1%
MAPCO, Inc. .......................................... 240,000 7,440,000
PAINT & ALLIED PRODUCTS - 1.4%
Sherwin-Williams Company ............................. 350,000 9,450,000
PETROLEUM REFINING - 2.7%
Mobil Corporation .................................... 70,000 9,143,750
Royal Dutch Petroleum Company ADR .................... 50,000 8,750,000
----------
17,893,750
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
17
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ------------------------------------------------
SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED)
- ------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 6.4%
American Home Products Corporation ................... 115,000 $6,900,000
Bristol-Myers Squibb Company ......................... 180,000 10,620,000
Merck & Company, Inc. ................................ 115,000 9,688,750
Schering-Plough Corporation .......................... 110,000 8,002,500
SmithKline Beecham PLC ADR ........................... 100,000 7,000,000
----------
42,211,250
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.2%
Eastman Kodak Company ................................ 100,000 7,587,500
PUBLISHING & PRINTING - 2.3%
Gannett Company, Inc. ................................ 90,000 7,728,750
McGraw-Hill Companies, Inc. .......................... 145,000 7,413,125
----------
15,141,875
RESTAURANTS & FOOD SERVICE - 1.0%
Wendy's International, Inc. .......................... 305,000 6,290,625
RETAIL TRADE - 6.8%
Dayton Hudson Corporation ............................ 125,000 5,218,750
Federated Department Stores, Inc.* ................... 235,000 7,725,625
Payless Shoesource, Inc.* ............................ 50,000 2,093,750
Safeway, Inc.* ....................................... 170,000 7,883,750
TJX Companies, Inc. .................................. 150,000 6,412,500
Walgreens Company .................................... 200,000 8,375,000
Woolworth Corporation* ............................... 300,000 7,012,500
----------
44,721,875
SEMICONDUCTORS - 2.1%
Intel Corporation .................................... 45,000 6,260,625
Linear Technology Corporation ........................ 85,000 3,761,250
Xilinx, Inc.* ........................................ 85,000 4,143,750
----------
14,165,625
TRANSPORTATION - 0.9%
Union Pacific Corporation ............................ 100,000 5,675,000
-------------
Total common stocks - 97.1% .......................... 639,613,125
Cash and other assets, less liabilities - 2.9% ....... 19,264,671
-------------
Total net assets - 100.0% ............................ $658,877,796
=============
- ------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES
- ------------------------------------
PREFERRED STOCKS
- -----------------
GERMANY - 1.0%
Sto AG ............................................... 758 $304,401
- ------------------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES (continued)
- ------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
ARGENTINA - 0.7%
Transportadora de Gas del Sur, S.A. .................. 18,600 $239,475
AUSTRALIA - 1.9%
Foster's Brewing Group, Ltd. ......................... 120,000 248,322
QBE Insurance Group, Ltd. ............................ 66,425 342,079
----------
590,401
AUSTRIA - 2.2%
Bohler-Uddeholm AG ................................... 1,800 125,087
Wienerberger Baustoffindustrie AG .................... 3,100 586,616
----------
711,703
BELGIUM - 1.1%
Credit Communal Holding/Dexia* ....................... 3,100 343,840
BRAZIL - 1.1%
Aracruz Cellulose S.A. ADR ........................... 18,550 338,538
CANADA - 2.8%
Bombardier, Inc. `B' ................................. 20,000 362,669
Imax Corporation ..................................... 3,800 130,388
Jetform Corporation .................................. 9,600 151,800
Noranda Forest, Inc. ................................. 36,400 243,734
----------
888,591
CHILE - 1.9%
Antofagasta Holdings PLC ............................. 22,800 136,647
Banco Santander ADR .................................. 18,600 311,550
Maderas y Sinteticos Sociedad Anonima S.A. ADR ....... 10,500 166,031
----------
614,228
FINLAND - 1.0%
Valmet Corporation ................................... 17,000 305,484
FRANCE - 5.5%
Alcatel Alsthom ...................................... 3,270 393,899
Elf Aquitaine S.A. ADR ............................... 8,500 418,625
Lafarge .............................................. 5,700 394,752
Sidel S.A. ........................................... 2,520 196,997
Societe Generale de Surveillance Holding S.A. `B' .... 2,840 332,010
----------
1,736,283
GERMANY - 2.3%
Continental AG ....................................... 12,300 273,515
Deutsche Bank AG ..................................... 6,600 371,460
Hoechst AG ........................................... 2,500 101,220
----------
746,195
GREECE - 1.6%
Hellenic Tellecommunication Organization S.A. ........ 15,600 338,401
Michaniki S.A. ....................................... 15,900 166,756
----------
505,157
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
18
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ------------------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
- ------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
HONG KONG - 2.4%
China Light & Power Company, Ltd. .................... 46,000 $202,425
Guangdong Investments ................................ 21,000 18,021
JCG Holdings, Ltd. ................................... 57,000 44,870
National Mutual Asia, Ltd. ........................... 318,000 332,403
Peregrine Investment Holdings, Ltd. .................. 100,000 159,374
----------
757,093
INDONESIA - 1.2%
PT Semen Cibinong .................................... 51,000 153,998
PT Tambang Timah ..................................... 149,500 233,496
----------
387,494
IRELAND - 2.5%
Allied Irish Banks PLC ............................... 38,900 267,557
Jefferson Smurfit .................................... 194,500 515,958
----------
783,515
ITALY - 1.1%
Instituto Mobiliare Italiano S.p.a. .................. 22,800 200,823
Stet Societa Finanziaria Telefonica S.p.a. ........... 37,100 166,124
----------
366,947
JAPAN - 8.1%
Amway Japan, Ltd. .................................... 9,900 271,868
Bunka Shutter Company, Ltd. .......................... 23,000 118,149
Canon, Inc. .......................................... 3,000 64,211
Citizen Watch Company, Ltd. .......................... 25,000 171,836
Isuzu Motors, Ltd. ................................... 50,000 183,749
Kubota Corporation ................................... 28,000 116,469
Maruco Company, Ltd. ................................. 2,200 21,322
Matsushita Electric Industrial Company, Ltd. ......... 10,000 155,883
Mitsubishi Estate Company, Ltd. ...................... 51,000 543,736
Mitsukoshi, Ltd. ..................................... 34,000 184,266
Nippon Steel Company ................................. 93,000 255,391
Sony Corporation ..................................... 4,800 335,352
Yamato Kogyo Company, Ltd. ........................... 16,000 136,984
----------
2,559,216
MALAYSIA - 4.4%
Arab Malaysian Finance Bhd ........................... 64,000 193,604
Berjaya Sports Toto Bhd .............................. 3,000 15,367
Hong Leong Credit Bhd ................................ 31,000 202,558
Magnum Corporation Bhd ............................... 151,000 286,251
MBF Capital Bhd ...................................... 120,000 211,996
Sime Darby Bhd ....................................... 27,000 98,556
Sime Darby Bhd ....................................... 23,000 83,955
Tanjong PLC .......................................... 75,000 297,968
----------
1,390,255
MEXICO - 0.7%
Tubos De Acero De Mexico S.A. ADR* ................... 13,500 231,188
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
NETHERLANDS - 0.9%
Philips Electronics N.V. ............................. 6,050 $282,219
NEW ZEALAND - 2.4%
Brierly Investments, Ltd. ............................ 215,100 200,262
Carter Holt Harvey, Ltd. ............................. 110,600 234,374
Fletcher Challenge Building, Ltd. .................... 113,000 336,029
----------
770,665
NORWAY - 0.5%
Saga Petroleum AS .................................... 8,700 150,320
PHILIPPINES - 2.3%
C & P Homes, Inc. .................................... 471,450 223,520
Filinvest Land, Inc.* ................................ 305,750 97,413
Manila Electric Company `B' .......................... 51,000 406,219
----------
727,152
POLAND - 1.8%
Debica S.A.* ......................................... 5,600 148,445
Elektrim S.A. ........................................ 18,000 158,072
Wedel S.A. ........................................... 4,403 247,750
----------
554,267
SINGAPORE - 4.0%
City Developments, Ltd. .............................. 28,000 247,975
Clipsal Industries, Ltd. ............................. 59,700 223,875
DBS Land, Ltd. ....................................... 71,000 242,675
Inchcape, Bhd ........................................ 51,300 177,471
Jardine Strategic Holding, Ltd. ...................... 61,000 211,060
Want Want Holdings* .................................. 60,000 172,200
----------
1,275,256
SPAIN - 1.9%
Banco Popular Espanol S.A. ........................... 1,400 251,026
Repsol S.A. .......................................... 5,500 228,892
Tele Pizza S.A. ...................................... 2,700 117,126
----------
597,044
SWEDEN - 1.1%
Astra AB ............................................. 2,660 128,698
Skandinaviska Enskiilda Banken ....................... 18,900 209,479
----------
338,177
SWITZERLAND - 5.0%
ABB AG ............................................... 330 396,287
Nestle S.A. .......................................... 326 381,301
Novartis AG .......................................... 210 260,346
Saurer AG ............................................ 510 243,562
Winterthur Scheizerische Verischerungs-Gesellschaft .. 450 312,365
----------
1,593,861
THAILAND - 0.5%
BEC World Public Company, Ltd.* ...................... 14,000 133,667
Property Perfect Public Company ...................... 9,000 8,922
----------
142,589
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
19
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ------------------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
- ------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
UNITED KINGDOM - 9.8%
Aegis Group PLC* ..................................... 260,100 $266,928
British Telecommunication PLC ........................ 35,300 258,223
D.F.S. Furniture Company PLC ......................... 15,900 148,945
Grand Metropolitan PLC ............................... 88,200 711,088
Harvey Nichols PLC ................................... 22,800 125,042
Inchcape PLC ......................................... 116,700 502,048
RTZ Corporation PLC .................................. 13,800 218,325
SmithKline Beecham PLC ADR ........................... 1,600 112,000
Tomkins PLC .......................................... 115,900 518,589
Vodafone Group PLC ................................... 53,400 244,197
----------
3,105,385
UNITED STATES - 16.7%
Ace, Ltd. ............................................ 2,000 128,000
AlliedSignal, Inc. ................................... 1,600 114,000
Aon Corporation ...................................... 1,800 110,250
Avery-Dennison Corporation ........................... 3,000 115,500
Becton, Dickinson & Company .......................... 2,400 108,000
Boeing Company ....................................... 1,200 118,350
Border Group, Inc.* .................................. 6,000 113,250
Bristol-Myers Squibb Company ......................... 2,000 118,000
Calpine Corporation* ................................. 5,200 94,250
Chubb Corporation .................................... 2,000 107,750
Citicorp ............................................. 900 97,425
Conseco, Inc. ........................................ 3,200 114,000
Crown Cork & Seal Company, Inc. ...................... 2,000 103,250
Data General Corporation ............................. 6,900 117,300
Diamond Offshore Drilling, Inc. ...................... 2,100 143,850
Equity Residential Properties Trust .................. 2,600 115,375
Federal National Mortgage Association ................ 2,700 97,538
Fleet Financial Group, Inc. .......................... 2,000 114,500
Gap, Inc. ............................................ 3,300 110,550
Georgia Pacific Corporation .......................... 1,700 123,250
Hasbro, Inc. ......................................... 3,750 102,656
Honeywell, Inc. ...................................... 1,500 101,813
Ingersoll-Rand Company ............................... 2,500 109,063
Johnson & Johnson .................................... 2,200 116,325
Kimberly-Clark Corporation ........................... 1,100 109,313
Mobil Corporation .................................... 900 117,563
Monsanto Company ..................................... 3,400 130,050
NAC Re Corporation ................................... 3,000 106,875
NationsBank Corporation .............................. 1,900 105,213
Norwest Corporation .................................. 2,500 115,625
PacifiCare Health Systems, Inc.* ..................... 1,500 129,469
Perkin Elmer Corporation ............................. 1,500 96,563
Procter & Gamble Company ............................. 1,000 115,000
Raychem Corporation .................................. 1,400 115,325
Safeway, Inc.* ....................................... 2,400 111,300
Schlumberger, Ltd. ................................... 1,200 128,700
Service Corporation International .................... 4,200 124,950
Snap-On, Inc. ........................................ 3,100 120,125
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
UNITED STATES, CONTINUED
Structual Dynamics Research Corporation .............. 6,000 $123,750
Tosco Corporation .................................... 3,900 111,150
Tyco Corporation ..................................... 2,100 115,500
Union Pacific Corporation ............................ 2,000 113,500
Union Pacific Resources Group, Inc. .................. 3,693 98,788
United Healthcare Corporation ........................ 1,400 66,675
WMX Technologies, Inc. ............................... 2,700 82,688
Warner-Lambert Company ............................... 1,500 129,750
Williams Companies, Inc. ............................. 2,600 115,700
----------
5,277,817
----------
Total common stocks - 89.4% .......................... 28,310,355
FOREIGN GOVERNMENT AGENCY
Japanese Treasury Note, due 6/10/971 - 1.8% ..........70,000,000 565,198
----------
Total investments - 92.2% ............................ 29,179,954
Cash and other assets, less liabilities - 7.8% ....... 2,485,240
----------
Total net assets - 100.0% ............................ $31,665,194
===========
INVESTMENT CONCENTRATION
At March 31, 1997, Global Series' investment concentration, by industry, was as
follows:
Banking ............................................................... 7.9%
Capital Equipment ..................................................... 7.7%
Chemicals ............................................................. 0.4%
Construction and Housing .............................................. 1.6%
Consumer Durables ..................................................... 5.2%
Consumer Nondurables .................................................. 8.2%
Electrical and Electronics ............................................ 2.1%
Energy Sources ........................................................ 5.1%
Financial Services .................................................... 9.8%
Foreign Governments and Agencies ...................................... 1.8%
Healthcare ............................................................ 3.7%
Materials ............................................................. 14.2%
Merchandising ......................................................... 2.9%
Multi-Industry ........................................................ 6.1%
Real Estate ........................................................... 4.0%
Services .............................................................. 4.0%
Telecommunications .................................................... 3.2%
Trade ................................................................. 2.1%
Transportation ........................................................ 0.3%
Utilities ............................................................. 1.9%
Cash and other assets, less liabilities ............................... 7.8%
----------
Total net assets ...................................................... 100.0%
==========
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
20
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ----------------------------------------------
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
- ----------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
CORPORATE BONDS SHARES VALUE
- --------------------------------------------------------------------------------
BROKERAGE - 0.8%
Merrill Lynch & Company, Inc. 8.00% - 2007 ........... $50,000 $ 51,563
FINANCIAL SERVICES - 0.4%
MCN Investment Corporation, 6.32% - 2003 ............. $25,000 23,906
INDUSTRIAL SERVICES - 10.9%
Rite Aid Corporation, 6.70% -2001 .................... $125,000 122,187
Sun Company, Inc., 7.125% - 2004 ..................... $300,000 294,375
Xerox Corporation, 8.125% - 2002 ..................... $300,000 311,250
----------
727,812
----------
Total corporate bonds - 12.1% ........................ 803,281
COMMON STOCKS
- -------------
AUTO PARTS & SUPPLIES - 2.8%
Arvin Industries, Inc. ............................... 2,100 49,088
Dana Corporation ..................................... 1,400 46,025
Eaton Corporation .................................... 400 28,350
Modine Manufacturing Company ......................... 800 19,600
Simpson Industries, Inc. ............................. 2,500 24,687
Walbro Corporation ................................... 1,000 17,625
----------
185,375
BUILDING MATERIALS - 1.7%
Ameron International Corporation ..................... 500 24,937
Armstrong World Industries, Inc. ..................... 300 19,425
Crane Company ........................................ 1,050 32,944
Thomas Industries, Inc. .............................. 1,400 32,900
----------
110,206
BROADCAST MEDIA - 2.5%
A.H. Belo Corporation ................................ 1,000 37,000
Chris-Craft Industries, Inc.* ........................ 515 20,407
TCI Satellite Entertainment, Inc.* ................... 240 1,860
Tele-Communications, Inc.* ........................... 2,400 28,800
Time Warner, Inc. .................................... 1,000 43,250
U.S. West Media Group* ............................... 2,000 37,250
----------
168,567
COMPUTER SYSTEMS - 2.1%
Compaq Computer Corporation* ......................... 300 22,988
Hewlett-Packard Company .............................. 600 31,950
Quantum Corporation* ................................. 1,000 38,625
SCI Systems, Inc.* ................................... 600 30,375
Sun Microsystems, Inc.* .............................. 600 17,325
----------
141,263
NUMBER OF MARKET
COMMON STOCKS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONICS - 2.0%
Bell Industries, Inc.* ............................... 1,000 $ 18,000
CTS Corporation ...................................... 700 35,700
Fluke (John) Manufacturing Company ................... 700 31,063
Harris Corporation ................................... 400 30,750
Zero Corporation ..................................... 1,000 18,750
----------
134,263
MACHINERY - 1.9%
Dover Corporation .................................... 700 36,750
GATX Corporation ..................................... 400 19,550
Graco, Inc. .......................................... 800 23,000
Lindsay Manufacturing Company ........................ 100 3,275
Parker-Hannifin Corporation .......................... 600 25,650
Trinova Corporation .................................. 600 20,100
----------
128,325
MINING & METALS - 2.3%
Asarco, Inc. ......................................... 600 16,875
Brush Wellman, Inc. .................................. 3,700 67,063
Handy & Harman ....................................... 1,300 19,500
Phelps Dodge Corporation ............................. 700 51,187
----------
154,625
RECREATION - 2.0%
Brunswick Corporation ................................ 1,200 32,250
Callaway Golf Company ................................ 700 20,038
Handleman Company* ................................... 1,200 8,550
Harcourt General, Inc. ............................... 500 23,250
Huffy Corporation .................................... 1,700 23,375
King World Productions, Inc.* ........................ 600 21,900
----------
129,363
RESTAURANTS - 2.5%
Applebees International, Inc. ........................ 600 14,475
CKE Restaurants, Inc. ................................ 1,500 33,187
International Dairy Queen, Inc.* ..................... 1,000 22,000
Luby's Cafeterias, Inc. .............................. 1,000 18,625
Ruby Tuesday, Inc. ................................... 1,500 26,063
Ryan's Family Steak House, Inc.* ..................... 4,000 31,250
Wendy's International, Inc. .......................... 1,000 20,625
----------
166,225
STEEL - 2.1%
Carpenter Technology Corporation ..................... 400 15,300
Cleveland Cliffs, Inc. ............................... 1,300 54,925
Commerical Metals Company ............................ 1,100 31,487
Quanex Corporation ................................... 1,000 25,125
Steel Technologies, Inc. ............................. 1,000 11,250
----------
138,087
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
21
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ----------------------------------------------------------
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (continued)
- ----------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 2.2%
Ameritech Corporation ................................ 400 $24,600
Bell Atlantic Corporation ............................ 500 30,438
Bellsouth Corporation ................................ 500 21,125
GTE Corporation ...................................... 500 23,312
Nynex Corporation .................................... 400 18,250
Pacific Telesis Group ................................ 400 15,100
Southern New England Telecommunications .............. 300 10,762
----------
143,587
----------
Total common stocks - 24.1% .......................... 1,599,886
U.S. GOVERNMENT AGENCIES
- ------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.2%
7.00% - 2020 ................................ $100,000 96,658
7.00% - 2021 ................................ $50,000 48,063
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.1%
6.50% - 2018 ................................ $50,000 47,230
6.95% - 2020 ................................ $130,000 122,355
7.50% - 2020 ................................ $40,000 39,358
----------
Total U.S. government & government agencies - 5.3% ... 353,664
FOREIGN STOCKS
- --------------
BELGIUM - 6.8%
Cementbedrijven Cimenteries .......................... 800 79,802
Delhaize - Le Lion ................................... 800 44,540
Electrabel ........................................... 150 34,449
Fortis AG ............................................ 300 53,501
Gevaert Photo Productions ............................ 400 29,809
Petrofina SA ......................................... 150 52,196
Royale Belgium ....................................... 250 63,795
Solvay SA ............................................ 150 90,473
----------
448,565
GERMANY - 7.4%
Allianz AG Holdings .................................. 36 74,098
BASF AG .............................................. 1,081 41,403
Bayer AG ............................................. 735 30,926
Continental AG ....................................... 202 4,510
Daimler-Benz AG* ..................................... 850 68,575
Degussa AG ........................................... 14 5,975
Deutsche Bank AG ..................................... 692 39,196
Dresdner Bank AG ..................................... 1,211 43,079
Friedrich Grohe AG - Vorzugsak ....................... 7 2,232
Heidelberger Zement AG ............................... 79 6,960
Hochtief AG .......................................... 180 7,552
Linde AG ............................................. 14 9,843
Merck KGAA ........................................... 187 7,655
Muenchener Rueckversicherungs-Gesellschaft AG ........ 7 18,167
NUMBER OF MARKET
FOREIGN STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
GERMANY, CONTINUED
Preussag AG .......................................... 72 19,463
SAP AG ............................................... 122 20,767
Siemens AG ........................................... 1,038 55,870
Veba AG .............................................. 634 36,405
----------
492,676
HONG KONG - 0.0%
Bank of East Asia .................................... 720 2,444
ITALY - 4.4%
Assicurazioni Generali ............................... 2,475 43,321
Banco Commerciale Italiane ........................... 11,000 22,023
Edison SPA ........................................... 4,000 21,364
Fiat SPA ............................................. 7,000 22,239
Ina-Instituto Naz Assicuraz .......................... 16,638 22,340
Instituto Mobiliare Italiano ......................... 3,208 27,874
Mediobanca ........................................... 3,500 21,966
Montedison SPA* ...................................... 29,600 19,961
Telecom Italia Mobile SPA ............................ 18,821 54,153
Telcom Italia SPA .................................... 15,000 37,494
----------
292,735
JAPAN - 10.4%
Asahi Bank, Ltd. ..................................... 1,000 6,284
The Bank of Tokyo-Mitsubishi ......................... 4,000 62,353
Bank of Yokohama, Ltd. ............................... 1,000 4,604
East Japan Railway Company ........................... 1 4,079
Fuji Bank, Ltd. ...................................... 1,000 11,550
Fujitsu, Ltd. ........................................ 1,000 10,177
Hitachi, Ltd. (Hit. Seisakusho) ...................... 1,000 8,885
Industrial Bank of Japan ............................. 1,000 10,177
Itoham Foods ......................................... 1,000 5,024
Japan Energy Corporation ............................. 1,000 2,399
Kawasaki Heavy Industries ............................ 4,000 15,540
Marui Company, Ltd. .................................. 1,000 14,458
Matsushita Electric Industrial Company, Ltd. ......... 1,000 15,588
Mitsubishi Corporation ............................... 4,000 35,538
Mitsubishi Heavy Industrial, Ltd. .................... 4,000 26,007
Mitsubishi Materials Corporation ..................... 4,000 13,957
Mitsubishi Trust & Bank .............................. 1,000 9,934
Nippon Comsys Corporation ............................ 1,000 10,338
Nippon Shokubai K.K. Company ......................... 1,000 5,961
NSK Ltd. ............................................. 4,000 21,291
Nissan Motor Company, Ltd. ........................... 1,000 6,017
Nomura Securities Company, Ltd. ...................... 1,000 11,065
Oyo Corporation ...................................... 320 9,744
Sakura Bank, Ltd. .................................... 1,000 5,597
Sega Enterprises ..................................... 100 2,504
Sekisui House, Ltd. .................................. 4,000 39,092
Sharp Corporation .................................... 1,000 11,873
Shimizu Corporation .................................. 6,000 33,196
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
22
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ----------------------------------------------------------
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (continued)
- ----------------------------------------------------------
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
FOREIGN STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
JAPAN, CONTINUED
Shin-Etsu Chemical Company ........................... 1,000 $18,981
Sumitomo Bank ........................................ 4,000 47,492
Sumitomo Chemical Company ............................ 6,000 23,407
Sumitomo Marine & Fire ............................... 1,000 6,058
Tokyo Dome Corporation ............................... 1,000 12,600
Tokyo Electric Power ................................. 2,700 49,067
Tokyu Corporation .................................... 4,000 18,803
Toyoda Automatic Loom Works .......................... 1,000 16,558
Toyota Motor Corporation ............................. 3,000 75,842
Yamaichi Securities .................................. 3,000 9,353
----------
691,393
----------
Total foreign stocks - 29.0% ......................... 1,927,813
TEMPORARY CASH INVESTMENTS
- --------------------------
Chase Master Note Program - 2.6% ..................... 176,000 176,000
Federal Farm Credit Banks - 7.5%
5.15% - 4-7-97 .............................. $500,000 499,571
Federal Mortgage Corporation - 6.0%
5.21% - 4-25-97 ............................. $400,000 398,611
Federal National Mortgage Association - 13.5%
5.10% - 4-10-97 ............................. $500,000 499,362
5.09% - 4-24-97 ............................. $100,000 99,675
5.30% - 4-29-97 ............................. $300,000 298,763
----------
897,800
----------
Total temporary cash investments - 29.6% ............. 1,971,982
----------
Total investments - 100.1% ........................... 6,656,626
Liabilities, less cash and other assets - (0.1%) ..... (4,400)
----------
Total net assets - 100.0% ............................ $6,652,226
==========
- ----------------------------------------------
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
- ----------------------------------------------
COMMON STOCKS
- -------------
ADVERTISING - 1.2%
Omnicom Group, Inc. .................................. 800 $39,900
BANKING & FINANCE - 3.8%
Banc One Corporation ................................. 800 31,800
Bank of New York Company, Inc. ....................... 800 29,400
H.F. Ahmanson & Company .............................. 800 29,200
Northern Trust Corporation ........................... 900 33,750
----------
124,150
BEVERAGES - 3.5%
Coca-Cola Company .................................... 1,500 83,813
PepsiCo, Inc. ........................................ 1,000 32,625
----------
116,438
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
BIOTECHNOLOGY - 1.0%
Amgen, Inc.* ......................................... 600 $33,525
BUSINESS SERVICES - 1.6%
Automatic Data Processing, Inc. ...................... 900 37,688
Paychex, Inc. ........................................ 400 16,450
----------
54,138
CHEMICALS--SPECIALTY - 3.0%
Nalco Chemical Company ............................... 800 29,900
Praxxair, Inc. ....................................... 1,000 44,875
Sigma-Aldrich ........................................ 800 24,700
----------
99,475
COMPUTER SOFTWARE - 7.1%
BMC Software, Inc.* .................................. 1,200 55,350
Electronics for Imaging, Inc.* ....................... 800 31,900
HBO & Company ........................................ 600 28,500
Microsoft Corporation* ............................... 700 64,181
Parametric Technology Corporation* ................... 500 22,562
Peoplesoft, Inc.* .................................... 800 32,000
----------
234,493
COMPUTER SYSTEMS - 2.8%
Compaq Computer Corporation* ......................... 300 22,987
Hewlett-Packard Company .............................. 700 37,274
Sun Microsystems, Inc.* .............................. 1,100 31,763
----------
92,024
CONSUMER SERVICES - 2.5%
Apollo Group, Inc. (Cl.A)* ........................... 1,300 31,850
Service Corporation International .................... 1,100 32,725
Sylvan Learning Systems, Inc.* ....................... 750 18,563
----------
83,138
CONSUMER STAPLES - 0.9%
Rexall Sundown, Inc.* ................................ 1,200 30,750
ELECTRONIC--INSTRUMENTS - 1.7%
Perkin-Elmer Corporation ............................. 400 25,750
Solectron Corporation* ............................... 600 30,075
----------
55,825
FINANCIAL SERVICES - 3.2%
Federal Home Loan Mortgage Corporation ............... 1,300 35,425
Federal National Mortgage Association ................ 1,000 36,125
Finova Group, Inc. ................................... 500 33,813
----------
105,363
HEALTH CARE - 2.3%
Cardinal Health, Inc. ................................ 750 40,781
Omnicare, Inc. ....................................... 800 18,800
Quintiles Transnational Corporation* ................. 300 16,163
----------
75,744
HOUSEHOLD FURNISHING - 1.6%
Leggett & Platt, Inc. ................................ 1,600 52,000
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
23
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- ----------------------------------------------------------
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES (continued)
- ----------------------------------------------------------
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 5.6%
Clorox Company ....................................... 300 $33,638
Colgate-Palmolive Company ............................ 400 39,850
Kimberly-Clark Corporation ........................... 300 29,813
Procter & Gamble Company ............................. 700 80,500
----------
183,801
INSURANCE - 4.8%
Aetna, Inc. .......................................... 400 34,350
American International Group, Inc. ................... 500 58,687
Chubb Corporation .................................... 600 32,325
SunAmerica, Inc. ..................................... 800 30,100
----------
155,462
MACHINERY - 1.2%
Deere & Company ...................................... 900 39,150
MANUFACTURING - 1.6%
Illinois Tool Works, Inc. ............................ 600 48,975
MEDICAL INSTRUMENTS - 5.2%
Boston Scientific Corporation* ....................... 600 37,050
Guidant Corporation .................................. 1,300 79,950
Medtronics, Inc. ..................................... 250 15,563
St. Jude Medical, Inc.* .............................. 1,200 40,050
----------
172,613
OIL & GAS EXPLORATION - 2.6%
Anadarko Petroleum Corporation ....................... 500 28,063
Apache Corporation ................................... 600 20,100
Sonat, Inc. .......................................... 700 38,150
----------
86,313
PACKAGING & CONTAINERS - 0.8%
Sealed Air Corporation* .............................. 600 24,675
PHARMACEUTICALS - 6.7%
Dura Pharmaceuticals, Inc.* .......................... 700 25,025
Johnson & Johnson .................................... 1,300 68,738
Merck & Company, Inc. ................................ 900 75,825
Schering-Plough Corporation .......................... 700 50,925
----------
220,513
POLLUTION CONTROL - 1.1%
United States Filter Corporation* .................... 1,200 37,050
RESTAURANTS - 2.1%
Landry's Seafood Restaurants* ........................ 1,100 17,463
Papa John's International, Inc.* ..................... 750 19,781
Starbuck's Corporation* .............................. 1,100 32,587
----------
69,831
RETAIL TRADE - 7.9%
Dayton Hudson Corporation ............................ 1,100 45,925
Kohl's Corporation* .................................. 600 25,425
Nine West Group, Inc.* ............................... 400 17,900
Petsmart, Inc.* ...................................... 800 16,200
Staples, Inc.* ....................................... 1,200 24,150
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL TRADE, CONTINUED
TJX Companies, Inc. .................................. 700 $29,925
Tiffany & Company .................................... 600 22,800
Toys `R' Us, Inc.* ................................... 1,100 30,800
Walgreens Company .................................... 1,100 46,062
----------
259,187
SEMICONDUCTORS - 7.3%
Analog Devices, Inc.* ................................ 1,000 22,500
Applied Materials, Inc.* ............................. 700 32,462
Intel Corporation .................................... 600 83,475
KLA Instruments Corporation* ......................... 900 32,850
Novellus Systems, Inc.* .............................. 500 34,500
Xilinx, Inc.* ........................................ 700 34,125
----------
239,912
TELECOMMUNICATIONS - 0.9%
ADC Telecommunications, Inc.* ........................ 1,100 29,562
TEXTILES--APPAREL - 2.0%
Jones Apparel Group, Inc. ............................ 900 33,412
Tommy Hilfiger Corporation* .......................... 600 31,350
----------
64,762
TOOLS - 1.6%
Snap-On, Inc. ........................................ 1,400 54,250
TOYS & SPORTING GOODS - 0.6%
Mattel, Inc. ......................................... 800 19,200
TRANSPORTATION - 0.7%
Illinois Central Corporation ......................... 700 22,050
UTILITITES - 0.6%
Consolidated Natural Gas Company ..................... 400 20,150
----------
Total common stocks - 89.5% .......................... 2,944,419
Cash and other assets, less liabilities - 10.5% ...... 344,687
----------
Total net assets - 100.0% ............................ $3,289,106
==========
- -------------------
SECURITY ULTRA FUND
- -------------------
COMMON STOCKS
- -------------
ADVERTISING - 1.4%
Omincom Group, Inc. .................................. 19,000 $947,625
BANKS & TRUSTS - 3.2%
State Street Boston Corporation ...................... 18,000 1,248,750
Northern Trust Corporation ........................... 26,000 975,000
----------
2,223,750
BEVERAGES - 2.4%
Coca-Cola Enterprises, Inc. .......................... 28,600 1,640,925
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
24
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- -------------------------------
SECURITY ULTRA FUND (continued)
- -------------------------------
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
BIOTECHNOLOGY - 2.7%
Amgen, Inc.* ......................................... 12,500 $698,438
Biogen, Inc.* ........................................ 17,200 642,850
Centocor, Inc.* ...................................... 16,000 488,000
----------
1,829,288
BROKERAGE - 1.8%
Schwab (Charles) Corporation ......................... 39,000 1,243,125
BUSINESS SERVICES - 1.6%
Cambridge Technology Partners, Inc.* ................. 26,000 601,250
Paychex, Inc. ........................................ 12,500 514,063
----------
1,115,313
CHEMICALS--SPECIALTY - 2.4%
Praxxair, Inc. ....................................... 21,000 942,375
Sigma-Aldrich Corporation ............................ 22,000 679,250
----------
1,621,625
COMPUTER SOFTWARE - 8.3%
BMC Software, Inc.* .................................. 25,000 1,153,125
Cadence Design Systems, Inc.* ........................ 20,250 696,093
Electronics for Imaging, Inc.* ....................... 18,000 717,750
HBO & Company ........................................ 15,500 736,250
Parametric Technology Corporation* ................... 15,000 676,875
Peoplesoft, Inc.* .................................... 23,000 920,000
Project Software & Development* ...................... 14,500 464,000
Wind River Systems* .................................. 12,750 301,218
----------
5,665,311
COMPUTER SYSTEMS - 4.0%
Dell Computer Corporation* ........................... 11,500 777,687
Encad, Inc.* ......................................... 24,500 731,937
SCI Systems, Inc.* ................................... 17,500 885,938
Sanmina Corporation* ................................. 7,000 313,250
----------
2,708,812
CONSUMER SERVICES - 1.5%
Apollo Group, Inc.* .................................. 15,000 367,500
Stewart Enterprises, Inc. (Cl.A) ..................... 17,500 638,750
----------
1,006,250
CONSUMER STAPLES - 0.9%
Rexall Sundown, Inc.* ................................ 25,000 640,625
ELECTRONIC--INSTRUMENTS - 0.5%
Perkin-Elmer Corporation ............................. 5,300 341,187
ENTERTAINMENT - 2.3%
Circus Circus Enterprises, Inc.* ..................... 25,000 650,000
Mirage Resorts, Inc.* ................................ 45,000 956,250
----------
1,606,250
FINANCIAL SERVICES - 2.1%
Franklin Resources, Inc. ............................. 28,000 1,428,000
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE - 3.3%
Cardinal Health, Inc. ................................ 24,000 $1,305,000
Parexel International Corporation* ................... 16,000 368,000
Quintiles Transnational Corporation* ................. 11,100 598,012
----------
2,271,012
HEALTH CARE--HMO - 1.5%
Oxford Health Plans, Inc.* ........................... 17,100 1,002,487
HOTEL/MOTEL - 0.5%
Promus Hotel Corporation* ............................ 11,000 365,750
HOUSEHOLD PRODUCTS - 0.5%
Dial Corporation ..................................... 22,000 354,750
INSURANCE - 3.3%
Aflac, Inc. .......................................... 27,500 1,031,250
SunAmerica, Inc. ..................................... 32,000 1,204,000
----------
2,235,250
INVESTMENT MANAGEMENT - 0.7%
T. Rowe Price Associates ............................. 13,700 508,613
MANUFACTURING - 1.3%
Illinois Tool Works, Inc. ............................ 10,500 857,063
MEDICAL INSTRUMENTS - 1.4%
Guidant Corporation .................................. 15,500 953,250
MEDICAL PRODUCTS - 0.7%
Hologic, Inc.* ....................................... 19,500 475,313
OFFICE EQUIPMENT & SUPPLIES - 2.0%
Checkpoint Systems, Inc. ............................. 16,500 282,563
Diebold, Inc. ........................................ 16,500 620,812
Viking Office Products, Inc.* ........................ 23,000 445,625
----------
1,349,000
OIL & GAS DRILLING - 2.4%
Ensco International, Inc.* ........................... 17,500 861,875
Noble Affiliates, Inc. ............................... 20,000 755,000
----------
1,616,875
OIL & GAS EQUIPMENT & SERVICES - 3.9%
BJ Services Company* ................................. 9,000 430,875
Global Marine, Inc.* ................................. 42,000 903,000
Smith International, Inc.* ........................... 10,000 456,250
Tidewater, Inc. ...................................... 15,000 690,000
Varco International, Inc.* ........................... 8,000 200,000
----------
2,680,125
OIL & GAS EXPLORATION - 2.2%
Anadarko Petroleum Corporation ....................... 11,400 639,825
Sonat, Inc. .......................................... 16,500 899,250
----------
1,539,075
PACKAGING & CONTAINERS - 0.6%
Sealed Air Corporation* .............................. 10,500 431,813
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
25
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
- -------------------------------
SECURITY ULTRA FUND (continued)
- -------------------------------
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 2.8%
Dura Pharmaceuticals, Inc.* .......................... 36,000 $1,287,000
Jones Medical Industries, Inc. ....................... 12,500 300,000
Medicis Pharmaceuticals Corporation .................. 10,500 312,375
----------
1,899,375
POLLUTION CONTROL - 1.9%
United States Filter Corporation* .................... 16,500 509,438
United Waste Systems, Inc.* .......................... 21,000 782,250
----------
1,291,688
RESTAURANTS - 1.5%
Landry's Seafood Restaurants, Inc.* .................. 29,500 468,313
Papa John's International, Inc.* ..................... 22,125 583,546
----------
1,051,859
RETAIL - 6.4%
Bed Bath & Beyond, Inc.* ............................. 16,000 387,000
Consolidated Stores Corporation ...................... 16,000 564,000
Dollar General Corporation ........................... 25,000 781,250
Kohl's Corporation* .................................. 20,000 847,500
Nine West Group, Inc.* ............................... 12,000 537,000
Staples, Inc* ........................................ 46,375 933,297
Tiffany & Company .................................... 8,000 304,000
----------
4,354,047
SEMICONDUCTORS - 8.0%
Altera Corporation* .................................. 22,000 946,000
Analog Devices, Inc.* ................................ 36,666 824,985
Cymer, Inc.* ......................................... 8,500 304,938
KLA Instruments Corporation* ......................... 22,000 803,000
Linear Technology Corporation* ....................... 18,000 796,500
Novellus Systems, Inc.* .............................. 13,000 897,000
Xilinx, Inc* ......................................... 18,000 877,500
----------
5,449,923
NUMBER OF MARKET
COMMON STOCKS (continued) SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.4%
ADC Telecommunications, Inc.* ........................ 11,000 $295,625
TEXTILES--APPAREL - 1.6%
Tommy Hilfiger Corporation* .......................... 11,500 600,875
Jones Apparel Group, Inc. ............................ 13,000 482,625
----------
1,083,500
TOOLS - 1.1%
Snap-On, Inc. ........................................ 20,250 784,687
TRANSPORTATION - 0.7%
Illinois Central Corporation ......................... 15,000 472,500
----------
Total common stocks - 83.8% .......................... 57,341,666
Cash and other assets, less liabilities - 16.2% ...... 11,080,139
----------
Total net assets - 100.0% ............................ $68,421,805
==========
The identified cost of investments owned at March 31, 1997, was the same for
federal income tax and financial statement purposes.
*Securities on which no cash dividend was paid during the preceding twelve
months.
ADR - (American Depositary Receipt)
(1) Principal amount on foreign bond is reflected in local currency (e.g.,
Japanese yen) while market value is reflected in U.S. dollars.
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
26
<PAGE>
BALANCE SHEETS
- --------------------------------------------------------------------------------
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------------------------
SECURITY ASSET SOCIAL SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION AWARENESS ULTRA
INCOME FUND SERIES SERIES SERIES SERIES FUND
---------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investments, at value (identified
cost $65,104,785, $471,902,761,
$26,898,645, $6,621,740, $3,027,893
and $49,626,171, respectively) .......... $75,594,550 $639,613,125 $29,179,954 $6,656,626 $2,944,419 $57,341,666
Cash ...................................... 453,382 20,281,124 2,207,120 349 560,146 11,503,954
Receivables:
Fund shares sold ........................ 35,894 995,319 90,158 25,673 43,693 30,238
Securities sold ......................... 2,435,329 -- 954,715 -- 32,709 825,042
Forward foreign exchange contracts ...... -- -- 5,033 -- -- --
Interest ................................ 84,070 88,351 7,078 19,280 2,263 27,748
Dividends ............................... 301,894 790,067 85,140 4,502 1,772 23,903
Miscellaneous ........................... -- -- -- 9,968 15,738 --
Foreign taxes recoverable ............... -- -- 22,511 1,253 -- --
------------ ------------ ------------ ------------ ------------ ------------
Total assets ................... $78,905,119 $661,767,986 $32,551,709 $6,717,651 $3,600,740 $69,752,551
============ ============ ============ ============ ============ ============
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased .................... $2,829,446 $615,832 $816,232 $39,251 $307,556 $726,659
Fund shares redeemed .................... 57,178 1,616,462 5,669 --- --- 410,582
Forward exchange contracts .............. -- -- 7,019 -- -- --
Other Liabilities:
Management fees ......................... 84,397 605,356 49,942 13,484 -- 80,204
Custodian fees .......................... -- -- -- -- 214 --
Transfer and administration fees ........ -- -- -- 4,601 590 --
Professional fees ....................... -- -- -- 3,536 -- --
12b-1 distribution plan fees ............ 3,239 52,540 7,653 2,898 1,567 3,801
Variation margin payable ................ -- -- -- -- -- 109,500
Miscellaneous fees ...................... -- -- -- 1,655 1,707 --
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities ..................... 2,974,260 2,890,190 886,515 65,425 311,634 1,330,746
Net Assets:
Paid in capital ......................... 59,101,750 461,328,036 28,499,178 6,227,177 3,481,296 58,487,214
Undistributed net investment income (loss) 272,396 1,036,678 (224,909) 24,303 (4,846) (247,345)
Accumulated undistributed net realized
gain (loss) on sale of investments,
futures and foreigncurrency transactions 6,066,948 28,802,718 1,120,576 365,932 (103,870) 2,752,004
Net unrealized appreciation (depreciation)
in value of investments, futures and
translation of assets and liabilities
in foreign currency ................... 10,489,765 167,710,364 2,270,349 34,814 (83,474) 7,429,932
------------ ------------ ------------ ------------ ------------ ------------
Net assets .......................... 75,930,859 658,877,796 31,665,194 6,652,226 3,289,106 68,421,805
------------ ------------ ------------ ------------ ------------ ------------
Total liabilities and net assets .. $78,905,119 $661,767,986 $32,551,709 $6,717,651 $3,600,740 $69,752,551
============ ============ ============ ============ ============ ============
CLASS "A" SHARES
Capital shares outstanding .............. 8,453,267 82,720,343 1,850,681 289,192 99,799 9,123,631
Net assets .............................. $72,149,981 $600,067,470 $22,017,841 $3,234,990 $1,430,821 $64,007,175
Net asset value per share (net assets
divided by shares outstanding) ........ $8.54 $7.25 $11.90 $11.19 $14.34 $7.02
Add: Selling commission (5.75% of the
offering price) ....................... $0.52 $0.44 $0.73 $0.68 $0.87 $0.43
------------ ------------ ------------ ------------ ------------ ------------
Offering price per share (net asset value
divided by 94.25%) .................... $9.06 $7.69 $12.63 $11.87 $15.21 $7.45
============ ============ ============ ============ ============ ============
CLASS "B" SHARES
Capital shares outstanding .............. 449,200 8,312,485 827,488 307,412 130,076 649,744
Net assets .............................. $3,780,878 $58,810,326 $9,647,353 $3,417,236 $1,858,285 $4,414,630
Net asset value per share
(net assets divided
by shares outstanding) ................ $8.42 $7.08 $11.66 $11.12 $14.29 $6.79
============ ============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
27
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------------------------
SECURITY ASSET SOCIAL SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION AWARENESS ULTRA
INCOME FUND SERIES SERIES SERIES SERIES* FUND
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends ............................... $691,035 $4,556,233 $214,269 $42,018 $8,158 $105,238
Interest ................................ 507,250 575,729 40,963 49,809 6,749 154,140
------------ ------------ ------------ ------------ ------------ ------------
1,198,285 5,131,962 255,232 91,827 14,907 259,378
Less foreign tax expense .............. -- -- (23,862) (1,124) -- --
------------ ------------ ------------ ------------ ------------ ------------
Total investment income ............... 1,198,285 5,131,962 231,370 90,703 14,907 259,378
Expenses:
Management fees ......................... 488,268 3,407,298 289,193 28,710 10,785 486,111
Custodian fees .......................... -- -- -- 2,421 1,143 --
Transfer/maintenance fees ............... -- -- -- 3,521 860 --
Administration fees ..................... -- -- -- 23,877 972 --
Directors' fees ......................... -- -- -- 308 114 --
Professional fees ....................... -- -- -- 3,161 1,080 --
Reports to shareholders ................. -- -- -- 295 19 --
Registration fees ....................... -- -- -- 5,243 9,157 --
Other expenses .......................... -- -- -- 632 509 --
12b-1 distribution plan fees (Class B) .. 15,298 261,527 41,936 16,503 5,899 20,612
Reimbursement of expenses ............... -- -- -- (21,552) (10,785) --
------------ ------------ ------------ ------------ ------------ ------------
Total expenses ........................ 503,566 3,668,825 331,129 63,119 19,753 506,723
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) ........ 694,719 1,463,137 (99,759) 27,584 (4,846) (247,345)
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ............................. 6,220,879 36,868,278 1,230,114 372,660 (103,870) 3,523,977
Foreign currency transactions ........... -- -- 89,839 (64) -- --
------------ ------------ ------------ ------------ ------------ ------------
Net realized gain (loss) .............. 6,220,879 36,868,278 1,319,953 372,596 (103,870) 3,523,977
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ............................. (4,732,237) (4,965,231) 258,357 (91,203) (83,474) (9,974,473)
Translation of assets and liabilities in
foreign currencies .................... -- -- (10,960) (61) -- --
Futures contracts ....................... -- -- -- -- -- 285,562
------------ ------------ ------------ ------------ ------------ ------------
Net unrealized appreciation
(depreciation) ........................ (4,732,237) (4,965,231) 247,397 (91,264) (83,474) (9,688,911)
------------ ------------ ------------ ------------ ------------ ------------
Net gain (loss) .................... 1,488,642 31,903,047 1,567,350 281,332 (187,344) (6,164,934)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from operations $2,183,361 $33,366,184 $1,467,591 $308,916 $(192,190) $(6,412,279)
============ ============ ============ ============ ============ ============
*Period November 1, 1996 (inception) through March 31, 1997.
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
28
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------------------------
SECURITY ASSET SOCIAL SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION AWARENESS ULTRA
INCOME FUND SERIES SERIES SERIES SERIES* FUND
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) .............. $694,719 $1,463,137 $(99,759) $27,584 $(4,846) $(247,345)
Net realized gain (loss) .................. 6,220,879 36,868,278 1,319,953 372,596 (103,870) 3,523,977
Unrealized appreciation
(depreciation)
during the period ......................... (4,732,237) (4,965,231) 247,397 (91,264) (83,474) (9,688,911)
------------ ------------- ------------ ----------- ----------- ------------
Net increase (decrease) in net
assets resulting from operations ...... 2,183,361 33,366,184 1,467,591 308,916 (192,190) (6,412,279)
Distributions to shareholders from:
Net investment income
Class A ................................. (592,251) (3,155,322) (524,784) (63,009) -- --
Class B ................................. (12,770) -- (272,215) (52,830) -- --
Net realized gain
Class A ................................. (5,648,304) (49,869,439) (1,243,269) (61,070) -- (5,180,780)
Class B ................................. (232,549) (4,463,902) (515,069) (73,554) -- (326,155)
------------ ------------- ------------ ----------- ----------- ------------
Total distributions to shareholders ..... (6,485,874) (57,488,663) (2,555,337) (250,463) -- (5,506,935)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ................................. 2,880,625 131,937,085 2,978,950 851,931 1,560,330 15,997,022
Class B ................................. 1,652,118 61,661,540 2,720,268 758,871 1,974,207 3,220,779
Dividends reinvested
Class A ................................. 5,739,367 49,656,221 1,808,604 122,613 -- 4,973,700
Class B ................................. 237,811 4,431,044 714,502 124,004 -- 326,142
Shares redeemed
Class A ................................. (5,652,383) (135,701,733) (1,653,670) (211,586) (53,241) (19,986,314)
Class B ................................. (144,460) (43,486,558) (744,226) (282,232) -- (1,118,745)
------------ ------------- ------------ ----------- ----------- ------------
Net increase from capital share
transactions ........................ 4,713,078 68,497,599 5,824,428 1,363,601 3,481,296 3,412,584
------------ ------------- ------------ ----------- ----------- ------------
Total increase (decrease)
in net assets ..................... 410,565 44,375,120 4,736,682 1,422,054 3,289,106 (8,506,630)
NET ASSETS:
Beginning of period ....................... 75,520,294 614,502,676 26,928,512 5,230,172 -- 76,928,435
------------ ------------- ------------ ----------- ----------- ------------
End of period ............................. $75,930,859 $658,877,796 $31,665,194 $6,652,226 $3,289,106 $68,421,805
============ ============ ============ ============ ============ ============
Undistributed net investment
income (loss) at end
of period ................................. $272,396 $1,036,678 $(224,909) $24,303 $(4,846) $(247,345)
============ ============ ============ ============ ============ ============
(a) Shares issued and redeemed
Shares sold
Class A .............................. 318,537 17,293,489 245,047 75,384 103,213 2,074,954
Class B .............................. 27,800 8,279,799 228,272 67,858 130,076 417,009
Dividends reinvested
Class A .............................. 662,038 6,886,179 157,805 11,078 -- 656,941
Class B .............................. 186,083 628,339 63,438 11,246 -- 44,428
Shares redeemed
Class A .............................. (626,732) (17,849,311) (134,394) (18,684) (3,414) (2,602,956)
Class B .............................. (16,129) (5,871,179) (62,464) (25,103) -- (147,693)
------------ ------------- ------------ ----------- ----------- ------------
Net increase (decrease) ................ 551,597 9,367,316 497,704 121,779 229,875 442,683
============ ============ ============ ============ ============ ============
</TABLE>
*Period November 1, 1996 (inception) through March 31, 1997
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
29
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<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 (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ................. $1,481,389 $3,642,879 $(42,350) $84,407 $(439,871)
Net realized gain ............................ 6,097,347 54,909,397 2,667,735 252,773 7,865,014
Unrealized appreciation during the year ...... 5,572,992 59,008,440 1,091,782 49,605 2,292,201
------------ ------------- ------------ ----------- -----------
Net increase in net assets resulting
from operations .......................... 13,151,728 117,560,716 3,717,167 386,785 9,717,344
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A .................................... (1,303,374) (4,154,225) (357,503) (59,841) --
Class B .................................... (16,567) (64,778) (72,239) (50,821) --
Net realized gain
Class A .................................... (2,290,075) (33,371,334) (224,880) (30,468) (7,109,009)
Class B .................................... (44,993) (1,836,652) (77,719) (31,088) (500,515)
------------ ------------- ------------ ----------- -----------
Total distributions to shareholders ...... (3,655,009) (39,426,989) (732,341) (172,218) (7,609,524)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A .................................... 3,975,290 299,520,899 5,778,490 682,087 27,602,365
Class B .................................... 1,200,271 93,534,094 2,179,465 1,119,612 3,050,423
Dividends reinvested
Class A .................................... 3,265,411 34,973,081 570,969 89,987 6,772,088
Class B .................................... 60,327 1,882,247 149,212 81,908 500,487
Shares redeemed
Class A ....................................(10,667,756) (273,412,317) (5,192,505) (337,484) (28,420,959)
Class B .................................... (369,561) (79,755,552) (1,236,321) (55,397) (6,164,145)
------------ ------------- ------------ ----------- -----------
Net increase (decrease)
from capital share
transactions ........................... (2,536,018) 76,742,452 2,249,310 1,580,713 3,340,259
------------ ------------- ------------ ----------- -----------
Total increase in net assets .......... 6,960,701 154,876,179 5,234,136 1,795,280 5,448,079
NET ASSETS:
Beginning of year .......................... 68,559,593 459,626,497 21,694,376 3,434,892 71,480,356
------------ ------------- ------------ ----------- -----------
End of year ................................$75,520,294 $614,502,676 $26,928,512 $5,230,172 $76,928,435
Undistributed net investment income
at end of year ............................. $182,698 $2,728,863 $671,849 $112,622 $--
============ ============ ============ ============ ============
(a) Shares issued and redeemed
Shares sold
Class A .............................. 474,232 43,657,565 491,586 63,688 3,632,551
Class B .............................. 143,440 13,771,902 186,645 104,927 412,321
Dividends reinvested
Class A .............................. 404,486 5,483,525 52,399 8,801 996,776
Class B .............................. 7,601 300,151 13,842 8,014 75,103
Shares redeemed
Class A .............................. (1,281,262) (39,986,054) (447,772) (31,916) (3,688,397)
Class B .............................. (43,575) (11,797,000) (107,952) (5,145) (820,769)
------------ ------------- ------------ ----------- -----------
Net increase (decrease) ............ (295,078) 11,430,089 188,748 148,369 607,585
============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
30
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY GROWTH AND INCOME FUND (CLASS A)(b)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c) 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value Beginning of Period ....... $9.05 $7.93 $6.96 $7.84 $7.13 $7.31
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.082 0.18 0.16 0.13 0.21 0.35
Net Gain (Loss) on Securities
(realized & unrealized) ................. 0.188 1.373 1.183 (0.713) 0.876 (0.016)
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations .......... 0.270 1.553 1.343 (0.583) 1.086 0.334
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .... (0.072) (0.158) (0.158) (0.128) (0.218) (0.343)
Distributions (from Capital Gains) ........ (0.708) (0.275) (0.215) (0.169) (0.158) (0.171)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ..................... (0.780) (0.433) (0.373) (0.297) (0.376) (0.514)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............. $8.54 $9.05 $7.93 $6.96 $7.84 $7.13
========== ========== ========== ========== ========== ==========
TOTAL RETURN (a) .......................... 2.89% 20.31% 20.25% (7.6%) 15.6% 4.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $72,150 $73,273 $67,430 $65,328 $81,982 $75,436
Ratio of Expenses to Average Net Assets ... 1.26% 1.29% 1.31% 1.28% 1.26% 1.27%
Ratio of Net Income (Loss) to Average
Net Assets .............................. 1.83% 2.09% 2.21% 1.70% 2.80% 4.79%
Portfolio Turnover Rate ................... 99% 69% 130% 163% 135% 74%
Average Commission Paid Per
Equity Shares Traded .................... $0.0580 $0.0625 -- -- -- --
</TABLE>
SECURITY GROWTH AND INCOME FUND (CLASS B)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
----------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c)
---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ....... $8.94 $7.85 $6.90 $7.83
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.032 0.09 0.08 0.05
Net Gain (Loss) on Securities
(realized & unrealized) ................... 0.188 1.353 1.179 (0.694)
---------- ---------- ---------- ----------
Total from Investment Operations ........ 0.220 1.443 1.259 (0.644)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .... (0.032) (0.078) (0.094) (0.117)
Distributions (from Capital Gains) ........ (0.708) (0.275) (0.215) (0.169)
---------- ---------- ---------- ----------
Total Distributions ..................... (0.740) (0.353) (0.309) (0.286)
---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............. $8.42 $8.94 $7.85 $6.90
========== ========== ========== ==========
TOTAL RETURN (a) .......................... 2.35% 19.01% 19.07% (8.0%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $3,781 $2,247 $1,130 $668
Ratio of Expenses to Average Net Assets ... 2.26% 2.29% 2.31% 2.27%
Ratio of Net Income (Loss) to Average
Net Assets .............................. 0.85% 1.09% 1.21% 1.03%
Portfolio Turnover Rate ................... 99% 69% 130% 178%
Average Commission Paid Per Equity
Shares Traded ........................... $0.0580 $0.0625 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
31
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY EQUITY SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c) 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ...... $7.54 $6.55 $5.54 $6.73 $5.86 $5.82
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................... 0.02 0.05 0.04 0.05 0.12 0.09
Net Gain (Loss) on Securities
(realized & unrealized) ................ 0.379 1.482 1.377 0.085 1.165 0.475
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations ......... 0.399 1.532 1.417 0.135 1.285 0.565
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ... (0.041) (0.060) -- (0.120) (0.053) (0.132)
Distributions (from Capital Gains) ....... (0.648) (0.482) (0.407) (1.205) (.362) (0.393)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions .................... (0.689) (0.542) (0.407) (1.325) (0.415) (0.525)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............ $7.25 $7.54 $6.55 $5.54 $6.73 $5.86
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (a) ......................... 5.34% 24.90% 27.77% 1.95% 22.70% 10.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ..... $600,067 $575,680 $440,339 $358,237 $375,565 $313,582
Ratio of Expenses to Average Net Assets .. 1.03% 1.04% 1.05% 1.06% 1.06% 1.06%
Ratio of Net Income (Loss) to Average
Net Assets ............................. 0.52% 0.75% 0.87% 0.86% 1.95% 1.48%
Portfolio Turnover Rate .................. 72% 64% 95% 79% 95% 83%
Average Commission Paid Per Equity
Shares Traded .......................... $0.0600 $0.0609 -- -- -- --
</TABLE>
SECURITY EQUITY SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
----------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c)
---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ...... $7.36 $6.43 $5.49 $6.81
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............. (.02) (0.02) (0.01) 0.01
Net Gain (Loss) on Securities
(realized & unrealized) ................ 0.388 1.449 1.357 (0.005)
---------- ---------- ---------- ----------
Total from Investment Operations ......... 0.368 1.429 1.347 0.005
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ... -- (0.017) -- (0.12)
Distributions (from Capital Gains) ....... (0.648) (0.482) (0.407) (1.205)
---------- ---------- ---------- ----------
Total Distributions .................... (0.648) (0.499) (0.407) (1.325)
NET ASSET VALUE END OF PERIOD ............ $7.08 $7.36 $6.43 $5.49
========== ========== ========== ==========
TOTAL RETURN(a) .......................... 5.03% 23.57% 26.69% (0.15%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ..... $58,810 $38,822 $19,288 $7,452
Ratio of Expenses to Average Net Assets .. 2.04% 2.04% 2.05% 2.07%
Ratio of Net Income (Loss) to Average
Net Assets ............................. (0.47%) (0.13%) (0.01%)
Portfolio Turnover Rate .................. 72% 64% 95% 80%
Average Commission Paid Per Equity
Shares Traded .......................... $0.0600 $0.0609 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
32
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY GLOBAL SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
----------------------------------------------------
1997(i) 1996(g) 1995(g) 1994(c)
---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ...... $12.42 $10.94 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............. (0.03) 0.01 (0.02) (0.03)
Net Gain (Loss) on Securities
(realized & unrealized) ................ 0.669 1.874 0.31 0.87
---------- ---------- ---------- ----------
Total from Investment Operations ......... 0.639 1.884 0.29 0.84
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ... (0.376) (0.248) -- --
Distributions (from Capital Gains) ....... (0.783) (0.156) (0.19) --
---------- ---------- ---------- ----------
Total Distributions .................... (1.159) (0.404) (0.19) --
---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............ $11.90 $12.42 $10.94 $10.84
========== ========== ========== ==========
TOTAL RETURN (a) ......................... 5.50% 17.73% 2.80% 8.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ..... $22,018 $19,644 $16,261 $20,128
Ratio of Expenses to Average Net Assets .. 2.00% 2.00% 2.00% 2.00%
Ratio of Net Income (Loss) to Average
Net Assets ............................. (0.21%) 0.07% (0.17%) (0.01%)
Portfolio Turnover Rate .................. 138% 142% 141% 73%
Average Commission Paid Per Equity
Shares Traded .......................... $0.0116 $0.0338 -- --
SECURITY GLOBAL SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
----------------------------------------------------
1997(i) 1996(g) 1995(g) 1994(c)
---------- ---------- ---------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ...... $12.18 $10.74 $10.75 $9.96
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............. (0.07) (0.10) (0.12) (0.12)
Net Gain (Loss) on Securities
(realized & unrealized) ................ 0.637 1.841 0.30 0.91
---------- ---------- ---------- ----------
Total from Investment Operations ......... 0.567 1.741 0.18 0.79
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ... (0.304) (0.145) -- --
Distributions (from Capital Gains) ....... (0.783) (0.156) (0.19) --
---------- ---------- ---------- ----------
Total Distributions ...................... (1.087) (0.301) (0.19) --
---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............ $11.66 $12.18 $10.74 $10.75
========== ========== ========== ==========
TOTAL RETURN (a) ......................... 4.97% 16.57% 1.79% 7.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ..... $9,647 $7,285 $5,433 $3,960
Ratio of Expenses to Average Net Assets .. 3.00% 3.00% 3.00% 3.00%
Ratio of Net Income (Loss) to Average
Net Assets ............................. (0.56%) (0.93%) (1.17%) (0.01%)
Portfolio Turnover Rate .................. 138% 142% 141% 73%
Average Commission Paid Per Equity
Shares Traded .......................... $0.0116 $0.0338 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
33
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY ASSET ALLOCATION SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------
1995
1997(g)(i) 1996(g) (e)(f)(g)
---------- ---------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ..... $11.06 $10.54 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............ 0.08 0.25 0.04
Net Gain (Loss) on Securities
(realized & unrealized) ............... 0.562 0.765 0.50
---------- ---------- ----------
Total from Investment Operations ........ 0.642 1.015 0.54
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .. (0.26) (0.328) --
Distributions (from Capital Gains) ...... (0.252) (0.167) --
---------- ---------- ----------
Total Distributions ................... (0.512) (0.495) --
---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ........... $11.19 $11.06 $10.54
========== ========== ==========
TOTAL RETURN (a) ........................ 5.86% 10.01% 5.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) .... $3,235 $2,449 $1,906
Ratio of Expenses to Average Net Assets . 1.38% 2.00% 2.00%
Ratio of Net Income (Loss) to Average
Net Assets ............................ 1.22% 2.32% 1.33%
Portfolio Turnover Rate ................. 45% 75% 129%
Average Commission Paid Per Equity
Shares Traded ......................... $0.0346 $0.0247 --
SECURITY ASSET ALLOCATION SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------
1995
1997(g)(i) 1996(g) (e)(f)(g)
---------- ---------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ..... $10.97 $10.50 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............ 0.03 0.14 0.01
Net Gain (Loss) on Securities
(realized & unrealized) ............... 0.553 0.77 0.49
---------- ---------- ----------
Total from Investment Operations ........ 0.583 0.91 0.50
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .. (0.181) (0.273) --
Distributions (from Capital Gains) ...... (0.252) (0.167) --
---------- ---------- ----------
Total Distributions ................... (0.433) (0.440) --
NET ASSET VALUE END OF PERIOD ........... $11.12 $10.97 $10.50
========== ========== ==========
TOTAL RETURN (a) ........................ 5.35% 8.97% 5.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) .... $3,417 $2,781 $1,529
Ratio of Expenses to Average Net Assets . 2.18% 3.00% 3.00%
Ratio of Net Income (Loss) to Average
Net Assets ............................ 0.43% 1.32% 0.31%
Portfolio Turnover Rate ................. 45% 75% 129%
Average Commission Paid Per Equity
Shares Traded ......................... $0.0346 $0.0247 --
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
34
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY SOCIAL AWARENESS SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1997(g)(h)(i)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .......... $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ................. (0.002)
Net Gain (Loss) on Securities
(realized & unrealized) .................... (0.658)
----------
Total from Investment Operations ............. (0.660)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....... --
Distributions (from Capital Gains) ........... --
----------
Total Distributions ........................ --
NET ASSET VALUE END OF PERIOD ................ $14.34
==========
TOTAL RETURN (a) ............................. (4.40%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......... $1,431
Ratio of Expenses to Average Net Assets ...... 1.42%
Ratio of Net Income (Loss) to Average
Net Assets ................................. (0.04%)
Portfolio Turnover Rate ...................... 22%
Average Commission Paid Per Equity
Shares Traded .............................. $0.0600
SECURITY SOCIAL AWARENESS SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1997(g)(h)(i)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .......... $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ................. (0.046)
Net Gain (Loss) on Securities
(realized & unrealized) .................... (0.664)
----------
Total from Investment Operations ............. (0.710)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....... --
Distributions (from Capital Gains) ........... --
----------
Total Distributions ........................ --
NET ASSET VALUE END OF PERIOD ................ $14.29
==========
TOTAL RETURN (a) ............................. (4.73%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......... $1,858
Ratio of Expenses to Average Net Assets ...... 2.17%
Ratio of Net Income (Loss) to Average
Net Assets ................................. (0.79%)
Portfolio Turnover Rate ...................... 22%
Average Commission Paid Per Equity
Shares Traded .............................. $0.0600
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
35
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY ULTRA FUND (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c) 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD .......... $8.25 $8.20 $6.82 $8.13 $6.66 $6.72
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ................. (0.05) (0.05) (0.02) (0.056) (0.028) (0.09)
Net Gain (Loss) on Securities
(realized & unrealized) .................... (0.601) 1.096 1.535 (0.188) 1.791 0.202
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations ............. (0.651) 1.046 1.515 (0.244) 1.763 0.112
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....... -- -- -- -- -- --
Distributions (from Capital Gains) ........... (0.579) (0.996) (0.135) (1.066) (0.293) (0.172)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ........................ (0.579) (0.996) (0.135) (1.066) (0.293) (0.172)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ................ $7.02 $8.25 $8.20 $6.82 $8.13 $6.66
========== ========== ========== ========== ========== ==========
TOTAL RETURN (a) ............................. (8.40%) 15.36% 22.69% (3.6%) 26.80% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......... $64,007 $74,230 $66,052 $60,695 $71,056 $57,128
Ratio of Expenses to Average Net Assets ...... 1.26% 1.31% 1.32% 1.33% 1.30% 1.32%
Ratio of Net Income (Loss) to Average
Net Assets ................................. (.59%) (.61%) (.31%) (.80%) (.50%) (.46%)
Portfolio Turnover Rate ...................... 75% 161% 180% 111% 101% 142%
Average Commission Paid Per Equity
Shares Traded .............................. $0.0600 $0.0606 -- -- -- --
</TABLE>
SECURITY ULTRA FUND (CLASS B)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED SEPTEMBER 30
----------------------------------------------------
1997(g)(i) 1996(g) 1995(g) 1994(c)
---------- ---------- ---------- ----------
PER SHARE DATA
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ...... $8.03 $8.11 $6.81 $8.30
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) ............. (0.12) (0.13) (0.09) (0.103)
Net Gain (Loss) on Securities
(realized & unrealized) ................ (0.541) 1.046 1.525 (0.321)
---------- ---------- ---------- ----------
Total from Investment Operations ......... (0.661) 0.916 1.435 (0.424)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ... -- -- -- --
Distributions (from Capital Gains) ....... (0.579) (0.996) (0.135) (1.066)
---------- ---------- ---------- ----------
Total Distributions .................... (0.579) (0.996) (0.135) (1.066)
---------- ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............ $6.79 $8.03 $8.11 $6.81
========== ========== ========== ==========
TOTAL RETURN (a) ......................... (8.77%) 13.81% 21.53% (5.70%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ..... $4,415 $2,698 $5,428 $1,254
Ratio of Expenses to Average Net Assets .. (2.25%) 2.31% 2.32% 2.36%
Ratio of Net Income (Loss) to Average
Net Assets ............................. (1.56%) (1.61%) (1.32%) (1.76%)
Portfolio Turnover Rate .................. 75% 161% 180% 110%
Average Commission Paid Per Equity
Shares Traded .......................... $0.0600 $0.0606 -- --
</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 from 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.
(c) 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.
(d) Security Global Series was initially capitalized on October 1, 1993, with a
net asset value of $10 per share. Percentage amounts for the period, except
for total return, have been annualized.
(e) 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. Per share data has been
calculated using average month-end shares outstanding.
(f) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows:
1995 1996 1997
---- ---- ----
Asset Allocation Series Class A 3.6% 3.1% 2.0%
Class B 4.7% 3.9% 2.8%
(g) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(h) Security Social Awareness Series was initially capitalized on November 1,
1996, with a net asset value of $15 per share. Percentage amounts for the
period, except for total return, have been annualized.
(i) Unaudited figures for the six months ended March 31, 1997. Percentage
amounts for the period, except total return, have been annualized.
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1997
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 four Series, the Equity Series, the Global Series, the Asset
Allocation Series and the Social Awareness 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
pricing services approved by the Board of Directors. Securities listed or traded
on a national securities exchange are valued on the basis of the last sales
price. If there are no sales on a particular day, then the securities are valued
at the last bid price. 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 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
those securities purchased with 60 days or less to maturity which are valued on
the basis of 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 and Ultra Fund utilize 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 and Ultra Fund 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 and Ultra Fund may pay departing shareholders from its cash
balances and reduce their futures positions accordingly. Returns may be enhanced
by purchasing futures contracts instead of the underlying securities 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
- --------------------------------------------------------------------------------
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
prices. Upon entering into a futures contract, the Funds are required to deposit
either cash or securities, representing the initial margin, equal to 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 Funds. The Funds realize a gain or loss when
the contract is closed or expires. There were no futures contracts held by the
Funds at March 31, 1997.
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) plus foreign taxes recoverable (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 relating to the expiration of net
operating losses and the 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, LLC (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 and Social Awareness 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 assets 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, extraordinary items and Class B distribution fees. SMC
also serves as Investment Advisor to the Asset Allocation and Social Awareness
Series, and accordingly receives a fee equal to 1% of the average net assets of
each Series.
SMC also acts as the administrative agent and transfer agent for the Asset
Allocation and the Social Awareness Series, and as such performs administrative
functions, transfer agency and dividend disbursing services, and the
bookkeeping, accounting and pricing functions for each Series. For these
services, the Investment Manager receives an administrative fee equal to .045%
of the average daily net assets of each Series plus, for Asset Allocation
Series, the greater of .10% of its average net assets or (i) $45,000 in the year
ending June 1, 1997; and (ii) $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/Franklin Investment Services, Inc. for
research provided to the Asset Allocation Series, an annual fee equal to .30% of
the first $50 million 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 million. 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 and Social Awareness Series to 2% of the
average net assets, excluding 12b-1 fees.
SMC has agreed to waive their portion of management fees for the Asset
Allocation Series and the Social Awareness Series until December 31, 1997. For
the Asset Allocation Series, Meridian Management Corporation has also agreed to
waive their portion of the management fees until December 31, 1997.
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 on
sales of Class A shares and contingent deferred sales charges on redemptions
occurring within 5 years of the date of purchase of Class B shares after
allowances to brokers and dealers in the amounts presented in the following
table:
SDI BROKER/ BROKER/
UNDERWRITING CDSC DEALER DEALER
(CLASS A) (CLASS B) (CLASS A) (CLASS B)
------------ --------- --------- ---------
Growth & Income Fund $2,708 $220 $35,682 $57,184
Equity Series 21,344 31,015 778,593 1,211,263
Global Series 918 6,351 14,668 25,244
Asset Allocation Series 954 38 11,701 33,584
Social Awareness Series 1,572 0 15,230 0
Ultra Fund 3,014 12,153 18,346 19,368
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.
- --------------------------------------------------------------------------------
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
3. FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) at March 31, 1997, were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
Growth & Income Fund $12,013,181 $(1,523,417) $10,489,765
Equity Series 175,934,764 (8,224,400) 167,710,364
Global Series 3,048,536 (778,187) 2,270,349
Asset Allocation Series 305,787 (270,973) 34,814
Social Awareness Series 61,278 (144,752) (83,474)
Ultra Fund 10,420,907 (2,990,975) 7,429,932
4. INVESTMENT TRANSACTIONS
Investment transactions for the six months ended March 31, 1997, (excluding
overnight investments and short-term commercial paper) are as follows:
PROCEEDS
PURCHASES FROM SALES
------------ ------------
Growth & Income Fund $37,808,470 $36,489,287
Equity Series 247,865,999 226,018,040
Global Series 23,135,579 18,673,086
Asset Allocation Series 2,419,092 2,997,769
Social Awareness Series 3,657,053 525,290
Ultra Fund 25,677,940 33,883,430
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At March 31, 1997, 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
CURRENCY DATE AMOUNT RATE RATE LOSS
-------- ---------- -------- -------- ------- ----------
New Zealand
Dollar 4-1-97 771,335 0.6859 0.6950 $(7,109)
- --------------------------------------------------------------------------------
39
<PAGE>
THE SECURITY GROUP OF MUTUAL FUNDS
SECURITY GROWTH AND INCOME FUND
SECURITY EQUITY FUND
* EQUITY SERIES
* GLOBAL SERIES
* ASSET ALLOCATION SERIES
* SOCIAL AWARENESS SERIES
SECURITY ULTRA FUND
SECURITY INCOME FUND
* CORPORATE BOND SERIES
* U.S. GOVERNMENT SERIES
* LIMITED MATURITY BOND SERIES
* GLOBAL AGGRESSIVE BOND SERIES
* HIGH YIELD 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
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Hugh L. Thompson, Ph.D.
OFFICERS
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Mark E. Young, Vice President
Terry A. Milberger, Vice President, Equity Fund
Jane A. Tedder, Vice President
Greg A. Hamilton, Assistant Vice President
Cindy L. Shields, Assistant Vice President
Thomas A. Swank, Assistant Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Assistant Treasurer and Assistant Secretary
[SDI LOGO]
SECURITY DISTRIBUTORS, INC. BULK RATE
700 SW HARRISON ST. U.S. POSTAGE PAID
TOPEKA, KS 66636-0001 TOPEKA, KS
(913) 295-3127 PERMIT NO. 385
(800) 888-2461
<PAGE>
SECURITY SOCIAL AWARENESS FUND
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD NOVEMBER 4, 1996 THROUGH MARCH 31, 1997
CONTENTS
Statement of Net Assets.................................................. 59
Balance Sheet............................................................ 63
Statement of Operations.................................................. 64
Statement of Changes in Net Assets....................................... 65
Financial Highlights..................................................... 66
Notes to Financial Statements............................................ 67
58
<PAGE>
SECURITY SOCIAL AWARENESS FUND
STATEMENT OF NET ASSETS
MARCH 31, 1997
(UNAUDITED)
NUMBER OF MARKET
SHARES COMMON STOCKS VALUE
- --------------------------------------------------------------------------------
ADVERTISING - 1.2%
800 Omnicom Group, Inc............................ $ 39,900
BANKING & FINANCE - 3.8%
800 Banc One Corporation.......................... 31,800
800 Bank of New York Company, Inc................. 29,400
800 H. F. Ahmanson & Company...................... 29,200
900 Northern Trust Corporation.................... 33,750
---------------
124,150
BEVERAGES - 3.5%
1,500 Coca-Cola Company............................. 83,813
1,000 PepsiCo, Inc.................................. 32,625
---------------
116,438
BIOTECHNOLOGY - 1.0%
600 Amgen, Inc.*.................................. 33,525
BUSINESS SERVICES - 1.6%
900 Automatic Data Processing, Inc................ 37,688
400 Paychex, Inc.................................. 16,450
---------------
54,138
CHEMICALS - SPECIALTY - 3.0%
800 Nalco Chemical Company........................ 29,900
1,000 Praxair, Inc.................................. 44,875
800 Sigma-Aldrich................................. 24,700
---------------
99,475
COMPUTER SOFTWARE - 7.1%
1,200 BMC Software, Inc.*........................... 55,350
800 Electronics for Imaging, Inc.*................ 31,900
600 HBO & Company................................. 28,500
700 Microsoft Corporation*........................ 64,181
500 Parametric Technology Corporation*............ 22,562
800 PeopleSoft, Inc.*............................. 32,000
---------------
234,493
COMPUTER SYSTEMS - 2.8%
300 Compaq Computer Corporation*.................. 22,987
700 Hewlett Packard Company....................... 37,275
1,100 Sun Microsystems, Inc.*....................... 31,762
---------------
92,024
CONSUMER SERVICES - 2.5%
1,300 Apollo Group, Inc. (Cl A)*.................... 31,850
1,100 Service Corporation International............. 32,725
750 Sylvan Learning Systems, Inc.*................ 18,563
---------------
83,138
See accompanying notes
59
<PAGE>
SECURITY SOCIAL AWARENESS FUND
STATEMENT OF NET ASSETS
MARCH 31, 1997
(UNAUDITED)
NUMBER OF MARKET
SHARES COMMON STOCKS VALUE
- --------------------------------------------------------------------------------
CONSUMER STAPLES - 0.9%
1,200 Rexall Sundown, Inc.*......................... 30,750
ELECTRONIC - INSTRUMENTS - 1.7%
400 Perkin-Elmer Corporation...................... 25,750
600 Solectron Corporation*........................ 30,075
---------------
55,825
FINANCIAL SERVICES - 3.2%
1,000 Fannie Mae.................................... 36,125
1,300 Federal Home Loan Mortgage Corporation........ 35,425
500 Finova Group, Inc............................. 33,813
---------------
105,363
HEALTH CARE - 2.3%
750 Cardinal Health, Inc.......................... 40,781
800 Omnicare, Inc................................. 18,800
300 Quintiles Transnational Corporation*.......... 16,163
---------------
75,744
HOUSEHOLD FURNISHING - 1.6%
1,600 Leggett & Platt, Inc.......................... 52,000
HOUSEHOLD PRODUCTS - 4.7%
300 Clorox Company................................. 33,638
400 Colgate Palmolive Company...................... 39,850
700 Proctor & Gamble Company....................... 80,500
---------------
153,988
INSURANCE - 4.8%
400 Aetna, Inc.................................... 34,350
500 American International Group, Inc............. 58,687
600 Chubb Corporation............................. 32,325
800 SunAmerica, Inc............................... 30,100
---------------
155,462
MACHINERY - 1.2%
900 Deere & Company............................... 39,150
MANUFACTURING - 1.6%
600 Illinois Tool Works........................... 48,975
MEDICAL PRODUCTS - 2.4%
1,300 Guidant Corporation........................... 79,950
MEDICAL INSTRUMENTS - 2.8%
600 Boston Scientific Corporation*................ 37,050
250 Medtronics, Inc............................... 15,563
1,200 St. Jude Medical Inc.*........................ 40,050
---------------
92,663
See accompanying notes.
60
<PAGE>
SECURITY SOCIAL AWARENESS FUND
STATEMENT OF NET ASSETS
MARCH 31, 1997
(UNAUDITED)
NUMBER OF MARKET
SHARES COMMON STOCKS VALUE
- --------------------------------------------------------------------------------
OIL & GAS EXPLORATION - 2.6%
500 Anadarko Petroleum Corporation................ 28,063
600 Apache Corporation............................ 20,100
700 Sonat, Inc.................................... 38,150
---------------
86,313
PACKAGING & CONTAINERS - 0.8%
600 Sealed Air Corporation*....................... 24,675
PAPER & FOREST PRODUCTS - 0.9%
300 Kimberly-Clark Corporation.................... 29,813
PHARMACEUTICALS - 6.7%
700 Dura Pharmaceuticals, Inc.*................... 25,025
1,300 Johnson & Johnson............................. 68,738
900 Merck & Company, Inc.......................... 75,825
700 Schering-Plough Corporation................... 50,925
---------------
220,513
POLLUTION CONTROL - 1.1%
1,200 United States Filter Corporation*............. 37,050
RESTAURANTS - 2.1%
1,100 Landry's Seafood Restaurants*................. 17,462
750 Papa John's International, Inc.*.............. 19,781
1,100 Starbucks Corporation*........................ 32,588
---------------
69,831
RETAIL - 7.5%
1,100 Dayton Hudson Corporation..................... 45,925
900 Jones Apparel Group, Inc...................... 33,412
600 Kohl's Corporation*........................... 25,425
400 Nine West Group, Inc.*........................ 17,900
800 Petsmart, Inc.*............................... 16,200
1,200 Staples, Inc.*................................ 24,150
700 TJX Companies, Inc............................ 29,925
600 Tiffany & Company............................. 22,800
1,100 Toys "R" Us, Inc.*............................ 30,800
---------------
246,537
RETAIL TRADE - 1.4%
1,100 Walgreens Company............................. 46,062
SEMI-CONDUCTORS - 7.3%
1,000 Analog Devices, Inc.*......................... 22,500
700 Applied Materials, Inc.*...................... 32,462
600 Intel Corporation............................. 83,475
900 KLA Instruments Corporation*.................. 32,850
500 Novellus Systems, Inc.*....................... 34,500
700 Xilinx, Inc.*................................. 34,125
---------------
239,912
See accompanying notes.
61
<PAGE>
SECURITY SOCIAL AWARENESS FUND
STATEMENT OF NET ASSETS
MARCH 31, 1997
(UNAUDITED)
NUMBER OF MARKET
SHARES COMMON STOCKS VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.9%
1,100 ADC Telecommunications, Inc.*................. 29,562
TEXTILES - APPAREL - 1.0%
600 Tommy Hilfiger Corporation*................... 31,350
TOOLS - 1.6%
1,400 Snap-On, Inc.................................. 54,250
TOYS & SPORTING GOODS - 0.6%
800 Mattel Incorporated........................... 19,200
TRANSPORTATION - 0.7%
700 Illinois Central Corporation.................. 22,050
UTILITIES - 0.6%
400 Consolidated Natural Gas...................... 20,150
---------------
Total Common Stocks - 89.5%................... 2,944,419
---------------
Total Investments - 89.5%..................... 2,944,419
Cash and Other Assets,
Less Liabilities - 10.5%...................... 344,687
===============
Total Net Assets - 100.0%..................... $3,289,106
===============
See accompanying notes.
62
<PAGE>
BALANCE SHEET
MARCH 31, 1997
(Unaudited)
SECURITY SOCIAL
AWARENESS FUND
------------------
ASSETS
Investments, at value (identified cost $3,027,893)............ $2,944,419
Cash 560,146
Receivables:
Fund shares sold......................................... 43,693
Securities sold.......................................... 32,709
Interest................................................. 2,263
Dividends................................................ 1,772
Miscellaneous............................................ 15,738
==================
Total assets.......................................... $3,600,740
==================
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased..................................... $307,556
Other Liabilities:
Custodian fees........................................... 214
Transfer and administration fees......................... 590
12b-1distribution plan fees.............................. 1,567
Miscellaneous fees....................................... 1,707
------------------
Total liabilities..................................... 311,634
Net Assets:
Paid in capital............................................... 3,481,296
Undistributed net investment loss............................. (4,846)
Accumulated undistributed net realized loss
on sale of investments........................................ (103,870)
Net unrealized depreciation in value of investments........... (83,474)
------------------
Net assets............................................ 3,289,106
==================
Total liabilities and net assets................... $3,600,740
==================
CLASS "A" SHARES
Capital shares outstanding.................................... 99,799
Net assets $1,430,821
Net asset value per share
(net assets divided by shares outstanding).................... $14.34
Add: Selling commission (5.75% of the offering price)........ $ 0.87
------------------
Offering price per share (net asset value divided by 94.25%).. $15.21
==================
CLASS "B" SHARES
Capital shares outstanding.................................... 130,076
Net assets $1,858,285
Net asset value per share
(net assets divided by shares outstanding).................... 14.29
==================
See accompanying notes.
63
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD NOVEMBER 4, 1996 THROUGH MARCH 31, 1997
(Unaudited)
SECURITY SOCIAL
AWARENESS FUND
------------------
INVESTMENT INCOME:
Dividends................................................ $ 8,158
Interest................................................. 6,749
------------------
Total investment income............................... 14,907
Expenses:
Management fees.......................................... 10,785
Custodian fees........................................... 1,143
Transfer/maintenance fees................................ 860
Administration fee....................................... 972
Directors' fees.......................................... 114
Professional fees........................................ 1,080
Reports to shareholders.................................. 19
Registration fees........................................ 9,157
Other expenses........................................... 509
12b-1 distribution plan fees (Class B)................... 5,899
------------------
30,538
Less management fees waived.............................. (10,785)
------------------
Total expenses........................................ 19,753
------------------
Net investment loss................................ (4,846)
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss during the period on:
Investments.............................................. (103,870)
Net change in unrealized depreciation during the period on:
Investments.............................................. (83,474)
------------------
Net loss.............................................. (187,344)
------------------
Net decrease in net assets resulting from operations. $(192,190)
==================
See accompanying notes.
64
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD NOVEMBER 4, 1996 THROUGH MARCH 31, 1997
(Unaudited)
SECURITY SOCIAL
AWARENESS FUND
------------------
DECREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss...................................... $ (4,846)
Net realized loss........................................ (103,870)
Unrealized depreciation during the period................ (83,474)
------------------
Net decrease in net assets resulting from operations.. (192,190)
CAPITAL SHARE TRANSACTION (A):
Proceeds from sale of shares
Class A............................................... 1,560,330
Class B............................................... 1,974,207
Shares redeemed
Class A............................................... (53,241)
------------------
Net increase from capital share transactions.......... 3,481,296
------------------
Total increase in net assets....................... 3,289,106
NET ASSETS:
Beginning of period...................................... --
------------------
End of period............................................ $3,289,106
==================
Undistributed net investment loss at end of period....... $ (4,846)
==================
(a) Shares issued and redeemed
Shares sold
Class A............................................... 103,213
Class B............................................... 130,076
Shares redeemed
Class A............................................... (3,414)
------------------
Net increase.......................................... 229,875
==================
See accompanying notes.
65
<PAGE>
FINANCIAL HIGHLIGHTS
FOR THE PERIOD NOVEMBER 4, 1996 THROUGH MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
AVERAGE
RATIO OF RATIO COMMISSION
NET NET NET NET EXPENSES OF NET PAID PER
PERIOD ASSET NET LOSS ON ASSET ASSETS TO LOSS TO PORTFOLIO INVEST-
ENDED VALUE INVEST- SECURITIES TOTAL FROM VALUE TOTAL END OF AVERAGE AVERAGE TURN MENT
MARCH BEGINNING MENT (REALIZED & INVESTMENT END OF RETURN PERIOD NET NET OVER SECURITY
31 OF PERIOD LOSS UNREALIZED OPERATIONS PERIOD (A) (THOUSANDS) ASSETS ASSETS RATE TRADE
- -----------------------------------------------------------------------------------------------------------------------------
SECURITY SOCIAL AWARENESS FUND (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $15.00 $(0.002) $(0.658) $(0.660) $14.34 (4.4)% $1,431 1.42% (0.04)% 22% 0.0600
(b)(c)
(d) SECURITY SOCIAL AWARENESS FUND (CLASS B)
1997 $15.00 $(0.046) $(0.664) $(0.710) $14.29 (4.7)% $1,858 2.17% (0.79)% 22% 0.0600
(b)(c)
(d)
</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 Social Awareness Fund was initially capitalized on November 4,
1996, with a net asset value of $15 per share. Percentage amounts for the
period, except for total return, have been annualized.
(c) Fund expenses were reduced by the Investment Manager during the period
and expense ratios absent such reimbursement would have been as follows:
Class A 2.42%
Class B 3.17%
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
See accompanying notes.
66
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Social Awareness Fund is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment
company. The Class B 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 Fund in the preparation of its financial statements. These policies
are in conformity with generally accepted accounting principles.
A. Security Valuation - Valuations of the Fund 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 last 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 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
Fund 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 Fund generally will value short-term debt
securities at prices based on market quotations for securities of
similar type, yield, quality and duration, except those securities
purchased with 60 days or less to maturity are valued on the basis of
amortized cost which approximates market value.
B. Security Transactions and Investment Income - Security transactions
are accounted for on the date the securities are purchased or sold.
Realized gains or losses are reported on an identified cost basis.
Dividend income less foreign taxes withheld (if any) plus foreign
taxes recoverable (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.
C. 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 the ultimate characterization for federal income tax
purposes. These differences are primarily due to differing treatments
relating to the expiration of net operating losses and the
recharacterization of foreign currency gains and losses.
D. Taxes - The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distribute all of its taxable net income and net realized gains
sufficient to relieve it 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
Management fees are payable to Security Management Company, LLC (SMC)
under an investment advisory contract at an annual rate of 1% of the
average net assets of the fund. SMC has agreed to waive all the management
fees until September 30, 1997.
SMC 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 these services, the Investment Manager
receives an administrative fee equal to .09% of the average daily net
assets of the Fund. 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.
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
The Fund has adopted a Distribution Plan related to the offering of Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The Plan provides for payment at an annual rate of 1.0% of the average net
assets of the Fund's Class B shares.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is national
distributor for the Fund. SDI received net underwriting commissions on
sales of Class A shares and contingent deferred sales charges on
redemptions occurring within 5 years of the date of purchase of Class B
shares, after allowances to brokers and dealers for the period November 4,
1996 to March 31, 1997, in the amounts presented below:
SDI underwriting.......................... $ 1,572
Broker/Dealer............................. $29,227
Certain officers and directors of the Fund 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 March 31, 1997 were as follows:
Gross unrealized appreciation............. $ 61,278
Gross unrealized depreciation............. (144,751)
=================
Net unrealized depreciation............... $ (83,474)
=================
4. INVESTMENT TRANSACTIONS
Investment transactions for the period November 4, 1996 to March 31, 1997,
(excluding overnight investments and short-term commercial paper) are as
follows:
Purchases................................. $3,657,053
Proceeds from sales....................... $ 525,290
68
<PAGE>
SECURITY EQUITY FUND - VALUE SERIES
STATEMENT OF NET ASSETS
AUGUST 31, 1997
(UNAUDITED)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
AIR FREIGHT - 2.4%
Old Dominion Freight Line*.................... 8,500 $ 140,250
ALUMINUM - 0.6%
Reynolds Metals Company....................... 500 35,344
BANKS - MAJOR REGIONAL - 3.2%
Banc One Corporation.......................... 1,200 64,350
Bank Of New York Company, Inc................. 900 40,163
Northern Trust Corporation.................... 1,600 85,000
---------
189,513
BEVERAGES - ALCOHOLIC - 1.3%
Canandaigua Wine Company - (Cl. A)*........... 1,900 77,425
CHEMICALS (SPECIALTY) - 7.5%
Dexter Corporation............................ 2,400 91,200
M.A. Hanna Company............................ 4,000 103,500
Material Sciences Corporation*................ 9,000 144,000
Minerals Technologies, Inc.................... 1,400 55,650
Potash Corporation Of
Saskatchewan, Inc. - (Cl. F)................ 600 44,362
---------
438,712
COMMUNICATION EQUIPMENT - 4.6%
Antec Corporation*............................ 7,200 97,200
Harris Corporation............................ 2,000 174,250
---------
271,450
COMPUTER SOFTWARE/SERVICES - 5.0%
Computer Sciences Corporation*................ 2,600 193,375
DST Systems, Inc.*............................ 2,700 97,706
---------
291,081
COMPUTER SYSTEMS - SERVICES - 1.5%
Tandem Computers, Inc.*....................... 2,500 85,000
DRUGS - 6.3%
Mylan Laboratories, Inc....................... 12,200 259,250
R.P. Scherer Corporation*..................... 2,000 112,625
---------
371,875
ELECTRIC COMPANIES - 7.9%
Aquarion Company.............................. 2,000 52,125
Equitable Resources, Inc...................... 6,600 201,712
Scana Corporation............................. 3,400 82,025
Wisconsin Energy Corporation.................. 5,000 127,812
---------
463,674
See accompanying notes.
<PAGE>
SECURITY EQUITY FUND - VALUE SERIES
STATEMENT OF NET ASSETS
AUGUST 31, 1997
(UNAUDITED)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.3%
Raychem Corporation........................... 800 $ 74,450
ELECTRONICS - SEMI-CONDUCTORS - 1.0%
Atmel Corporation*............................ 1,600 56,600
ELECTRONICS - INSTRUMENTATION - 2.0%
E G & G, Inc.................................. 1,400 29,750
Perkins-Elmer Corporation..................... 1,200 88,800
---------
118,550
FINANCIAL (DIVERSE) - 0.8%
American Express Company...................... 600 46,650
FOODS - 3.2%
Chiquita Brands International, Inc............ 8,000 114,000
Hormel Foods Corporation...................... 2,400 71,400
---------
185,400
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.0%
Leggett & Platt, Inc.......................... 1,400 60,200
HOUSEHOLD PRODUCTS - 2.9%
Dial Corporation.............................. 4,500 75,937
Kimberly-Clark Corporation.................... 2,000 94,875
---------
170,812
INSURANCE - LIFE/HEALTH - 2.0%
Aflac, Inc.................................... 2,100 115,631
INSURANCE - MULTILINE - 0.9%
Leucadia National Corporation................. 1,600 51,000
INSURANCE - PROPERTY - 1.3%
W.R. Berkley Corporation...................... 1,400 77,438
LEISURE TIME PRODUCTS - 3.0%
Hasbro, Inc................................... 4,000 107,500
Mattel, Inc................................... 2,000 66,875
---------
174,375
MANUFACTURING-DIVERSIFIED - 3.0%
Textron, Inc.................................. 400 24,925
U. S. Industries, Inc.*....................... 4,000 152,000
---------
176,925
See accompanying notes.
<PAGE>
SECURITY EQUITY FUND - VALUE SERIES
STATEMENT OF NET ASSETS
AUGUST 31, 1997
(UNAUDITED)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES - 2.0%
ATL Ultrasound, Inc.*......................... 1,000 $ 40,625
Sunrise Medical, Inc.*........................ 5,300 78,506
---------
119,131
METALS & MINING - 0.6%
Cyprus Amax Minerals Company.................. 1,500 37,875
NATURAL GAS - 5.3%
Coastal Corporation........................... 700 40,425
Eastern Enterprises........................... 4,500 160,594
Peoples Energy Corporation.................... 3,000 113,063
---------
314,082
OFFICE EQUIPMENT & SUPPLIES - 2.3%
Corporate Express, Inc.*...................... 8,000 136,500
OIL & GAS - EXPLORATION & PRODUCTION - 6.7%
Apache Corporation............................ 2,000 79,375
Forcenergy, Inc.*............................. 4,800 174,000
Lousiana Land & Exploration Company........... 900 68,905
Noble Affiliates, Inc......................... 1,600 74,200
---------
396,480
PUBLISHING - 0.6%
McGraw-Hill Companies, Inc.................... 600 36,788
PUBLISHING - NEWSPAPER - 2.5%
E.W. Scripps Company.......................... 3,800 149,388
REAL ESTATE INVESTMENT TRUSTS - 0.1%
CCA Prison Realty Trust*...................... 200 6,625
RESTAURANTS - 3.5%
The Cheesecake Factory*....................... 7,500 207,188
RETAIL - SPECIALTY - 4.2%
Autozone, Inc.*............................... 3,000 84,750
Payless ShoeSource, Inc.*..................... 800 51,300
Toys "R" Us, Inc.*............................ 1,100 38,019
Woolworth Corporation*........................ 3,300 73,837
---------
247,906
SERVICES - ADVERTISING / MARKETING - 1.0%
Acxiom Corporation*........................... 3,300 58,575
See accompanying notes.
<PAGE>
SECURITY EQUITY FUND - VALUE SERIES
STATEMENT OF NET ASSETS
AUGUST 31, 1997
(UNAUDITED)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
SERVICES - COMMERCIAL & CONSUMER - 2.7%
Angelica Corporation.......................... 9,000 $ 161,438
STEEL - 1.8%
Cleveland Cliffs, Inc......................... 2,600 108,388
TRUCKING - 1.0%
US Freightways Corporation.................... 2,000 60,000
---------
TOTAL COMMON STOCKS - 97.0%................... 5,712,719
CASH AND OTHER ASSETS, LESS LIABILITIES 3.0%.. 175,466
---------
TOTAL NET ASSETS - 100.0%..................... $ 5,888,185
=========
*Securities on which no cash dividend was paid during the preceding twelve
months
See accompanying notes.
<PAGE>
BALANCE SHEET
AUGUST 31, 1997
(Unaudited)
SECURITY
EQUITY FUND
VALUE SERIES
------------
ASSETS
Investments, at value (identified cost $5,179,324)............ $ 5,712,719
Cash 137,171
Receivables:
Fund shares sold.......................................... 69,943
Securities sold........................................... 84,433
Interest.................................................. 1,123
Dividends................................................. 8,895
Prepaid expenses.............................................. 15,923
---------
Total assets........................................... $ 6,030,207
=========
LIABILITIES AND NET ASSETS
Liabilities
Payables:
Securities purchased...................................... $ 136,648
Other Liabilities:
Custodian fees............................................ 843
Transfer & administration fees............................ 29
12b-1 distribution plan fees.............................. 175
Miscellaneous fees........................................ 1,158
Other payables............................................ 3,169
---------
Total liabilities...................................... 142,022
Net Assets:
Paid in capital............................................... 5,286,756
Undistributed net investment income........................... 4,745
Accumulated undistributed net realized gain on
sale of investments......................................... 63,289
Net unrealized appreciation in value of investments........... 533,395
---------
Net assets............................................. 5,888,185
---------
Total liabilities and net assets.................... 6,030,207
=========
CLASS "A" SHARES
Capital shares outstanding.................................... 220,274
Net assets.................................................... $ 2,700,929
Net asset value per share (net assets divided by
shares outstanding)......................................... $ 12.26
Add: selling commission (5.75% of the offering price)......... 0.75
---------
Offering price per share (net asset value divided by 94.25%).. $ 13.01
=========
CLASS "B" SHARES
Capital shares outstanding.................................... 260,544
Net assets.................................................... $ 3,187,256
Net asset value per share (net assets divided by
shares outstanding)......................................... $ 12.23
=========
See accompanying notes.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 1, 1997 THROUGH AUGUST 31, 1997
(Unaudited)
SECURITY
EQUITY FUND
VALUE SERIES
------------
INVESTMENT INCOME:
Dividends.................................................. $ 15,305
Interest................................................... 6,278
---------
Total investment income................................. 21,583
EXPENSES:
Management fees............................................ 11,162
Custodian fees............................................. 843
Transfer & maintenance fees................................ 920
Administration fees........................................ 1,005
Directors' fees............................................ 22
Professional fees.......................................... 797
Reports to shareholders.................................... 18
Registration fees.......................................... 6,904
12b-1 distribution plan fees (Class B)..................... 5,959
Other expenses............................................. 370
---------
28,000
Less management fees waived................................ (11,162)
---------
Total expenses.......................................... 16,838
---------
Net investment income................................ 4,745
NET REALIZED AND UNREALIZED GAIN
Net realized gain during the period on:
Investments................................................ 63,289
Net change in unrealized appreciation during the period on:
Investments................................................ 533,395
---------
Net gain................................................ 596,684
---------
Net increase in net assets resulting from operations. $ 601,429
=========
See accompanying notes.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 1, 1997 THROUGH AUGUST 31,1997
(Unaudited)
SECURITY
EQUITY FUND
VALUE SERIES
------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income...................................... $ 4,745
Net realized gain.......................................... 63,289
Unrealized appreciation during the period.................. 533,395
---------
Net increase in net assets resulting from operations.... 601,429
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares:
Class A................................................. 2,426,467
Class B................................................. 2,883,121
Shares redeemed:
Class A................................................. (9,573)
Class B................................................. (13,259)
---------
Net increase from capital share transactions......... 5,286,756
---------
Total increase in net assets......................... $ 5,888,185
=========
NET ASSETS:
Beginning of period........................................ ---
End of period.............................................. $ 5,888,185
=========
Undistributed net investment income at end of period....... $ 4,745
=========
(a) Shares issued and redeemed
Shares sold
Class A................................................ 221,107
Class B................................................ 261,735
Shares redeemed
Class A................................................ (833)
Class B................................................ (1,191)
---------
Net increase........................................... 480,818
=========
See accompanying notes.
<PAGE>
FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 1, 1997 THROUGH AUGUST 31, 1997
(Unaudited)
SECURITY EQUITY FUND - VALUE SERIES
FISCAL PERIOD ENDED AUGUST 31,1997
---------------------------------------
CLASS A (A)(B)(C) CLASS B (A)(B)(C)
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD...... $10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS........
Net Investment Income.................... 0.030 0.000
Net Gain On Securities
(realized and unrealized)............... 2.230 2.230
------ -----
Total from investment operations......... 2.260 2.230
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)... 0.00 0.00
Distributions (from Capital Gains)....... 0.00 0.00
------ ----
Total Distributions.................. 0.00 0.00
------ ----
NET ASSET VALUE END OF PERIOD............ $12.26 $ 12.23
===== =====
TOTAL RETURN (A)......................... 2.60% 22.30%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)..... $2,701 $ 3,187
Ratio of Expenses to Average Net Assets.. 1.09% 1.96%
Ratio of Net Income to Average
Net Assets............................. 0.90% 0.03%
Portfolio Turnover Rate.................. 25% 25%
Average Commission Paid Per Equity
Share Traded............................ $0.0600 $0.0600
(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 Value Fund was initially capitalized on May 1, 1997, with a net
asset value of $10 per share. Percentage amounts for the period have been
annualized, except for total return.
(c) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows.
Class A 2.09%
Class B 2.96%
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
See accompanying notes.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Equity Fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management company of the
series type. The Value Series (the Fund) is a series of the Security Equity
Fund. The Class B 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 Fund in the preparation of its financial statements. These policies are
in conformity with generally accepted accounting principles.
A. Valuations of the Fund's 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 last 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 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 Fund's 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 Fund generally will value short-term debt securities at
prices based on market quotations for securities of similar type,
yield, quality and duration, except those securities purchased with 60
days or less to maturity are valued on the basis of amortized cost
which approximates market value.
B. Security Transactions and Investment Income - Security transactions
are accounted for on the date the securities are purchased or sold.
Realized gains or losses are reported on an identified cost basis.
Dividend income less foreign taxes withheld (if any) plus foreign
taxes recoverable (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.
C. 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 the ultimate characterization for federal income tax
purposes. These differences are primarily due to differing treatments
relating to the expiration of net operating losses.
D. Taxes - The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distribute all of its taxable net income and net realized gains
sufficient to relieve it 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
Management fees are payable to Security Management Company, LLC (SMC) under
an investment advisory contract at an annual rate of 1% of the average
daily net assets of the fund. SMC has agreed to waive all the management
fees until April 30, 1998.
SMC 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 these services, the Investment Manager receives an
administrative fee equal to .09% of the average daily net assets of the
Fund. For
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
transfer agent services, SMC is paid an annual fixed charge per account as
well as a transaction fee for all shareholder and dividend payments.
The Fund has adopted a Distribution Plan related to the offering Class B
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plan provides for payment at an annual rate of 1.0% of the average net
assets of the Fund's Class B shares.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary SMC, is
national distributor for the Fund. SDI received net underwriting
commissions on sales of Class A shares and contingent deferred sales
charges on redemptions occurring within 5 years of the date of purchase of
Class B shares, after allowances to brokers and dealers for the period May
1, 1997 to August 31, 1997, in the amounts presented below
SDI underwriting Class A.............. $ 1,802
CDSC (Class B)........................ $ 2
Broker/Dealer (Class A)............... $ 71,190
Broker/Dealer (Class B)............... $ 105,801
Certain officers and directors of the Fund 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 August 31, 1997, were as follows:
Gross unrealized appreciation......... $ 592,431
Gross unrealized depreciation......... $(59,036)
---------
Net unrealized appreciation........... $ 533,395
========
4. INVESTMENT TRANSACTIONS
Investment transactions for the period May 1, 1997 to August 31, 1997,
(excluding overnight investments and short-term commercial paper) are as
follows:
Purchases............................. $5,424,163
Proceeds from sales................... $ 308,128
<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 for the fiscal year end
September 30, 1996, the unaudited Semiannual Report of Security
Equity Fund for the period ended March 31, 1997, the unaudited
financial statements of Social Awareness Series for the period
November 4, 1996 (date of inception) to March 31, 1997, and the
unaudited financial statements of Value Series for the period May
1, 1997 (date of inception) to August 31, 1997, are incorporated
by reference in Part B of this Registration Statement.
b. Exhibits:
(1) Articles of Incorporation.
(2) Corporate Bylaws of Registrant.(b)
(3) Not applicable.
(4) Specimen copy of share certificates for Registrant's shares
of capital stock.(d)
(5) (a) Investment Management and Services Agreement.
(b) Sub-Advisory Contract - Lexington.(b)
(c) Sub-Advisory Contract - Meridian.(d)
(d) Sub-Advisory Contract - Strong.
(6) (a) Distribution Agreement.
(b) Class B Distribution Agreement.
(7) Form of Non-Qualified Deferred Compensation Plan.(b)
(8) (a) Custodian Agreement - UMB Bank.
(b) Custodian Agreement - Chase Manhattan Bank (Global).(c)
(c) Custodian Agreement - Chase Manhattan Bank
(Asset Allocation).(c)
(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) (a) Class B Distribution Plan.(b)
(b) Class A Distribution Plan.
(16) Schedule of Computation of Performance.
(17) Financial Data Schedules.
(18) Multiple Class Plan.(c)
(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).
(c) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 73 to Registration Statement
2-19458 (December 1, 1995).
(d) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 79 to Registration Statement 2-19458 (October
15, 1997).
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF SEPTEMBER 30, 1997.
(1) (2)
NUMBER OF RECORD
TITLE OF CLASS SHAREHOLDERS
Shares of Common Stock 32,215 Class A - Equity Series
6,451 Class B - Equity Series
2,787 Class A - Global Series
1,664 Class B - Global Series
467 Class A - Asset Allocation Series
200 Class B - Asset Allocation Series
302 Class A - Social Awareness Series
197 Class B - Social Awareness Series
223 Class A - Value Series
134 Class B - Value Series
ITEM 27. INDEMNIFICATION.
A policy of insurance covering Security Management Company, LLC, its
affiliate Security Distributors, Inc., and all of the registered
investment companies advised by Security Management Company, LLC
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
<PAGE>
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 costs and expenses (including
attorneys' fees) which would reasonably have been incurred if
such action, suit or proceeding had been 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 proceeding 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 (s)he 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 person
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 (s)he 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, LLC also acts as investment manager to
Corporate Bond, Limited Maturity Bond, U.S. Government and High Yield
Series of Security Income Fund, SBL Fund, Security Cash Fund, Security
Growth and Income Fund, Security Tax-Exempt Fund, and Security Ultra
Fund.
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
---------------------- ------------------------------------------
Jeffrey B. Pantages President and Chief Investment Officer
(until October 1997)
Security Management Company, LLC
Director (until October 1997)
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 (until October 1997)
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Director
Mulvane Art Center
Mulvane Art Museum
Washburn University
17th & Jewell
Topeka, Kansas
United Way of Greater Topeka
P.O. Box 4188
Topeka, Kansas
James R. Schmank Senior Vice President, Treasurer, Chief
Fiscal Officer and Managing Member
Representative
Security Management Company, LLC
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
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
John D. Cleland Senior Vice President and Managing Member
Representative
Security Management Company, LLC
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
4700 SW 17th
Topeka, Kansas
Trustee and Investment Committee Chairman
Topeka Community Foundation
5100 SW 10th
Topeka, Kansas
James W. Lammers Senior Vice President and Director
(until October 1997)
Security Management Company, LLC
Security Distributors, Inc.
Director (until November 1996)
Security Management Company
Donald E. Caum Director (until November 1996)
Security Management Company
Senior Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
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 (until July 1997)
Security Management Company, LLC
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Mark E. Young 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 Management Company, LLC,
Security Distributors, Inc.
Assistant Vice President
Security Benefit Life Insurance Company,
First Security Benefit Life Insurance
and Annuity Company of New York,
Security Benefit Group, Inc.
Trustee
Topeka Zoological Foundation,
Topeka, Kansas
Terry A. Milberger Senior Portfolio Manager and Senior Vice
President
Security Management Company, LLC
Vice President
Security Equity Fund, SBL Fund
Jane A. Tedder Vice President and Senior Economist
Security Management Company, LLC
Vice President
Security Income Fund, SBL Fund,
Security Equity Fund
Amy J. Lee Vice President and Associate General
Counsel
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Secretary
Security Management Company, LLC,
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
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Brenda M. Harwood Assistant Vice President, Assistant
Treasurer and Assistant Secretary
Security Management Company, LLC
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.
Steven M. Bowser Second Vice President and Portfolio
Manager
Security Management Company, LLC
Second Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Thomas A. Swank Vice President and Portfolio Manager
Security Management Company, LLC
Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Barbara J. Davison Assistant Vice President and Portfolio
Manager
Security Management Company, LLC
Assistant Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Vice-Chairman
Topeka Chapter American Red Cross
Topeka, Kansas
Cindy L. Shields Assistant Vice President and Portfolio
Manager
Security Management Company, LLC
Assistant Vice President
Security Ultra Fund, SBL Fund,
Security Equity Fund
Larry L. Valencia Assistant Vice President and Senior
Research Analyst
Security Management Company, LLC
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
James P. Schier Assistant Vice President and Portfolio
Manager
Security Management Company, LLC
Assistant Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
David Eshnaur Assistant Vice President and Portfolio
Manager
Security Management Company, LLC
Assistant Vice President
SBL Fund, Security Income Fund
Martha L. Sutherland Second Vice President
Security Management Company, LLC
Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
*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 21 investment
companies other than Registrant.
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Robert M. DeMichele President and Director
Lexington Global Asset Managers, Inc.
Chairman and Chief Executive Officer
Lexington Management Corporation,
Lexington Funds Distributor, Inc.
Director
Chartwell Re Corporation,
The Navigator's Insurance Group, Inc.,
Unione Italiana Reinsurance,
Vanguard Cellular Systems, Inc.
Chairman of the Board
Lexington Group of Investment Companies,
Market Systems Research, Inc.,
Market Systems Research Advisors, Inc.
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Richard M. Hisey Executive Vice President and Chief
Financial Officer
Lexington Global Asset Managers, Inc.
Chief Financial Officer, Managing Director
and Director
Lexington Management Corporation
Chief Financial Officer, Vice President
and Director
Lexington Funds Distributor, Inc.
Vice President and Treasurer
Market Systems Research Advisors, Inc.
Chief Financial Officer and Vice President
Lexington Group of Investment Companies
Lawrence Kantor Executive Vice President and General
Manager-Mutual Funds
Lexington Global Asset Managers, Inc.
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 Investment Companies
Stuart S. Richardson Chairman of the Board
Lexington Global Asset Managers, Inc.
Director
Lexington Management Corporation
*Located at P.O. Box 1515, Saddle Brook, New Jersey 07663.
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
Meridian Investment Management Corporation, sub-adviser to Asset
Allocation Series, serves as an investment adviser, sub-adviser and
provider of investment research to mutual funds and private accounts
representing assets over $650 million.
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
--------------------- ----------------------------------------
Michael J. Hart President and Director
Meridian Investment Management
Corporation
President
Meridian Management and Research
Corporation, Meridian Clearing
Corporation
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Craig T. Callahan Chief Investment Advisor, Secretary-
Treasurer, and Director
Meridian Investment Management
Corporation
Chief Investment Officer
Meridian Management and Research
Corporation
Vice President
Meridian Clearing Corporation
Deborah Z. Urtz Compliance Officer
Meridian Investment Management
Corporation
Erik L. Jonson Chief Financial Officer
Meridian Investment Management
Corporation, Meridian Management and
Research Corporation
*Located at 12835 E. Arapahoe Rd., Tower II, 7th Fl., Englewood,
Colorado 80112
STRONG CAPITAL MANAGEMENT, INC.
Strong Capital Management, Inc., sub-adviser to Small Company Series,
serves as investment adviser to the Strong Funds and provides
investment management services for mutual funds and other investment
portfolios representing assets over $27 billion.
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Richard S. Strong Director, Chairman, Chief Investment
Officer and Portfolio Manager
Strong Capital Management, Inc.
Richard T. Weiss Director and Portfolio Manager
Strong Capital Management, Inc.
John Dragisic President and Director
Strong Capital Management, Inc.
Joseph R. DeMartine Senior Vice President and Chief Marketing
Officer
Strong Capital Management, Inc.
Thomas P. Lemke Acting Chief Operating Officer, Senior
Vice President, General Counsel,
Secretary and Chief Compliance Officer
Strong Capital Management, Inc.
<PAGE>
Business* and Other Connections of the
Executive Officers and Directors of
Name Registrant's Adviser
------------------ ----------------------------------------
Lawrence A. Totsky Senior Vice President - Mutual Fund
Administration
Strong Capital Management, Inc.
Rochelle Lamm Wallach Senior Vice President
Strong Capital Management, Inc.
Stephen J. Shenkenberg Vice President, Assistant Secretary, and
Deputy General Counsel
Strong Capital Management, Inc.
Michael E. Fisher Senior Vice President
Strong Capital Management, Inc.
Managing Director
International Business Group
Kenneth M. Landis Senior Vice President and Chief
Information Officer
Strong Capital Management, Inc.
*Located at 100 Heritage Reserve, Menomonee Falls, WI 53051
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Security Ultra Fund
Security Income Fund
Security Growth & Income Fund
Security Tax-Exempt Fund
Variflex Variable Annuity Account
Varilife Variable Annuity Account
Security Varilife Separate Account
Variable Annuity Account VIII (Variflex LS)
Variable Annuity Account VIII (Variflex Signature)
(b)
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Registrant
------------------ -------------------- --------------------
Richard K Ryan President and None
Director
John D. Cleland Vice President and President and
Director Director
James R. Schmank Vice President and Vice President and
Director Treasurer
Mark E. Young Vice President Vice President
<PAGE>
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Registrant
------------------ -------------------- --------------------
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer Assistant Secretary
and Assistant
Treasurer
Daniel J. McNichol Vice President None
Jennifer A. Zaat Regional Vice President None
Kent N. Spillman Regional Vice President None
Carla D. Griffin Regional Vice President None
Anthony Hammock Regional Vice President None
William G. Mancuso Regional Vice President None
Clark A. Anderson Regional Vice President None
Paul A. Richardson Regional Vice President None
Marek E. Lakotko Regional Vice President None
Eric M. Aanes Regional Vice President None
Susan L. Tully Regional Vice President None
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
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, LLC, 700 Harrison,
Topeka, Kansas 66636-0001; Lexington Management Corporation, Park 80
West, Plaza Two, Saddle Brook, New Jersey 07663; Meridian Investment
Management Corporation, 12835 East Arapahoe Road, Tower II, 7th Floor,
Englewood, Colorado, 80112; Strong Capital Management, Inc., 100
Heritage Reserve, Menomonee Falls, Wisconsin, 53051; and
Templeton/Franklin Investment Services, Inc., 777 Mariners Island
Boulevard, San Mateo, California 94404. 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, 4
Chase MetroTech Center, Brooklyn, New York 11245.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
<PAGE>
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 8th day of
October, 1997.
SECURITY EQUITY FUND
(The Registrant)
By: JOHN D. CLELAND
---------------------------
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: October 8, 1997
-------------------------
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
HUGH L. THOMPSON Director
- -------------------------------
Hugh L. Thompson
<PAGE>
EXHIBIT INDEX
(1) Articles of Incorporation
(2) None
(3) None
(4) None
(5) (a) Investment Management and Services Agreement
(b) None
(c) None
(d) Sub-Advisory Contract - Strong
(6) (a) Distribution Agreement
(b) Class B Distribution Agreement
(7) None
(8) (a) Custodian Agreement - UMB Bank
(b) None
(c) None
(9) None
(10) None
(11) Consent of Independent Auditors
(12) None
(13) None
(14) None
(15) (a) None
(b) Class A Distribution Plan
(16) Schedule of Computation of Performance
(17) Financial Data Schedules
(18) None
<PAGE>
ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
We, the undersigned incorporators, hereby associate ourselves together
to form and establish a corporation for profit under the laws of the State of
Kansas.
FIRST: The name of the corporation (hereinafter called the
Corporation) is SECURITY EQUITY FUND, INC.
SECOND: The location of its registered office in Kansas is Security
Benefit Life Building, 700 Harrison Street, Topeka, Kansas.
THIRD: The name and address of its registered agent in Kansas is Dean
L. Smith, Security Benefit Life Building, 700 Harrison Street, Topeka, Kansas.
FOURTH: The purposes for which the corporation is formed are as
follows:
(1) To engage in the business of an investment company and to hold,
invest and reinvest its funds, and in connection therewith to hold part or
all of its funds in cash, and to purchase or otherwise acquire, hold for
investment or otherwise, sell, assign, negotiate, transfer, exchange or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall for the purposes of this Article, without
limitation of the generality thereof, be deemed to include any stocks,
shares, bonds, debentures, notes, mortgages or other obligations, 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, or in any property or
assets) created or issued by any persons, firms, associations,
corporations, syndicates, combinations, organizations, governments or
subdivisions thereof; and to exercise, as owner or holder of any
securities, all rights, powers and privileges in respect thereof; and to do
any and all acts and things for the preservation, protection, improvement
and enhancement in value of any and all such securities; provided, however,
that the Corporation shall not:
(a) purchase any securities on margin except such short-term
credits as are necessary for the clearance of transactions;
(b) effect any short sales of securities;
(c) purchase the securities of any person, firm, association,
corporation, syndicate, combination or organization for the purpose of
gaining or exercising control or management of such person, firm,
association, corporation, syndicate, combination or organization;
(d) purchase the securities of any person, firm, association,
corporation, syndicate, combination, organization, government (other than
the United States of America) or any subdivision thereof, if, immediately
after and as a result of such purchase, more than five percent of its total
assets, determined in such manner as may be approved by the Board of
Directors of the Corporation and applied on a consistent basis, would
consist of the securities of such person, firm, association, corporation,
syndicate, combination, organization, government or subdivision;
<PAGE>
(e) lend any of its funds or other assets other than through the
purchase of publicly distributed bonds, debentures, notes and other
evidences of indebtedness as herein authorized;
(f) purchase the securities of any person, firm, association,
corporation, syndicate, combination, organization, government or any
subdivision thereof, if, upon such purchase, the Corporation would own more
than ten percent of any class of the outstanding securities of such person,
firm, association, corporation, syndicate, combination, organization,
government or subdivision. For the purposes of this restriction, all kinds
of securities of a company representing debt shall be deemed to constitute
a single class, regardless of relative priorities, maturities, conversion
rights and other differences, and all kinds of stock of a company preferred
over the common stock as to dividends or in liquidation shall be deemed to
constitute a single class regardless of relative priorities, series
designations, conversion rights and other differences;
(g) purchase the securities of any investment company or
investment trust (as such terms may reasonably be understood by the
Corporation), other than the Corporation;
(h) underwrite the sale of, or participate in any underwriting or
selling group in connection with the public distribution of, any securities
(other than the capital stock of the Corporation), provided, however, that
this provision shall not be construed to prevent or limit in any manner the
right of the Corporation to purchase securities for investment purposes;
(i) purchase or sell any real estate or any commodities or
commodity contracts; or
(j) enter into any loan transaction as borrower unless such
borrowing is undertaken only as a temporary measure for extraordinary and
emergency purposes and then only if, immediately after and as a result of
such transaction, the total loans outstanding against the Corporation shall
be not more than ten percent of its total assets, determined in such manner
as may be approved by the Board of Directors of the Corporation and applied
on a consistent basis.
(2) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including, without limitation thereof, securities)
now or hereafter permitted by the laws of Kansas, by these Articles of
Incorporation and the Bylaws of the Corporation, as its Board of Directors
may determine.
(3) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, or reissue (all without any vote or consent of stockholders of
the Corporation) shares of its capital stock, in any manner and to the
extent now or hereafter permitted by the laws of the State of Kansas, by
these Articles of Incorporation and by the Bylaws of the Corporation.
(4) To conduct its business in all its branches at one or more offices
in Kansas and elsewhere in any part of the world, without restriction or
limit as to extent.
(5) To carry out all or any of the foregoing purposes as principal or
agent, and alone or with associates or, to the extent now or hereafter
permitted by the laws of Kansas, as a member of, or as the owner or holder
of any stock of, or shares of interest in, any firm, association,
corporation, trust or syndicate; and in connection therewith to make or
enter into such deeds or contracts with any persons, firms, associations,
corporations, syndicates, governments or
<PAGE>
subdivisions thereof, and to do such acts and things and to exercise such
powers, as a natural person could lawfully make, enter into, do or
exercise.
(6) To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes.
It is the intention that each of the purposes, specified in each of the
paragraphs of this Article FOURTH, shall be in no wise limited or restricted by
reference to or inference from the terms of any other paragraph, but that the
purposes specified in each of the paragraphs of this Article FOURTH shall be
regarded as independent objects, purposes and powers. The enumeration of the
specific purposes of this Article FOURTH shall not be construed to restrict in
any manner the general objects, purposes and powers of this corporation, nor
shall the expression of one thing be deemed to exclude another, although it be
of like nature. The enumeration of purposes herein shall not be deemed to
exclude or in any way limit by inference any objects, purposes or powers which
this corporation has power to exercise, whether expressly or by force of the
laws of the State of Kansas, now or hereafter in effect, or impliedly by any
reasonable construction of such laws.
FIFTH: The aggregate number of shares which the Corporation shall have
authority to issue shall be 1,000,000 shares of capital stock of the par value
of $1.00 per share.
The following provisions are hereby adopted for the purpose of setting
forth the powers, rights, qualifications, limitations or restrictions of the
capital stock of the Corporation:
(1) At all meetings of stockholders each stockholder of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
such meeting for each share of stock standing in his name on the books of the
Corporation on the date, fixed in accordance with the Bylaws, for determination
of stockholders entitled to vote at such meeting. At all elections of directors
each stockholder shall be entitled to as many votes as shall equal the number of
shares of stock multiplied by the number of directors to be elected, and
stockholders may cast all of such votes for a single director or may distribute
them among the number to be voted for, or any two or more of them as they may
see fit.
(2) (a) Each holder of capital stock of the corporation, upon
request to the Corporation accompanied by surrender of the appropriate stock
certificate or certificates in proper form for transfer, shall be entitled to
require the Corporation to repurchase all or any part of the shares of capital
stock standing in the name of such holder on the books of the Corporation, at
the net asset value of such shares, less a charge, not to exceed one percent of
such net asset value, if and as fixed by resolution of the Board of Directors of
the Corporation from time to time. The method of computing such net asset value,
the time as of which such net asset value shall be computed and the time within
which the Corporation shall make payment therefor shall be determined as
hereinafter provided in Article TENTH of these Articles of Incorporation.
Notwithstanding the foregoing, the Board of Directors of the Corporation may
suspend the right of the holders of the capital stock of the Corporation to
require the Corporation to redeem shares of such capital stock:
(i) for any period (A) during which the New York Stock
Exchange is closed other than customary weekend and holiday closings,
or (B) during which trading on the New York Stock Exchange is
restricted;
(ii) for any period during which an emergency, as defined by
rules of the Securities and Exchange Commission or any successor
thereto, exists as a result of which (A) disposal by the Corporation
of securities owned by it is not reasonably practicable or (B) it is
not reasonably
<PAGE>
practicable for the Corporation fairly to determine the value of its
net assets; or
(iii) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of security holders of the Corporation.
(b) From and after the close of business on the day when the
shares are properly tendered for repurchase the owner shall, with respect of
said shares, cease to be a stockholder of the Corporation and shall have only
the right to receive the repurchase price in accordance with the provisions
hereof. The shares so repurchased may, as the Board of Directors determines, be
held in the treasury of the Corporation and may be resold, or, if the laws of
Kansas shall permit, may be retired. Repurchase of shares is conditional upon
the Corporation having funds or property legally available therefor.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation of any class or series which it may issue or sell (whether out of
the number of shares authorized by these Articles of Incorporation, or out of
any shares of the capital stock of the Corporation acquired by it after the
issue thereof, or otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
(4) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
SIXTH: The minimum amount of capital with which the Corporation will
commence business is One Thousand Dollars.
SEVENTH: The names and places of residence of each of the
incorporators are as follows:
NAMES PLACES OF RESIDENCE
Herbert F. Laing 915 Buchanan
Topeka, Kansas
Dean L. Smith 1800 W. 26th
Topeka, Kansas
Robert E. Jacoby 5026 W. 23rd Terrace
Topeka, Kansas
EIGHTH: The duration of corporate existence of the Corporation is one
hundred years.
NINTH: The number of Directors of the Corporation shall be seven.
Unless otherwise provided by the Bylaws of the Corporation, the Directors of the
Corporation need not be stockholders therein.
<PAGE>
TENTH: (1) Except as may be otherwise specifically provided by (i)
statute, (ii) the Articles of Incorporation of the corporation as from time to
time amended or (iii) bylaw provisions adopted from time to time by the
stockholders or directors of the corporation, all powers of management,
direction and control of the corporation shall be, and hereby are, vested in the
board of directors.
(2) If the bylaws so provide, the board of directors, by
resolution adopted by a majority of the whole board, may designate two or more
directors to constitute an executive committee, which committee, to the extent
provided in said resolution or in the bylaws of the corporation, shall have and
exercise all of the authority of the board of directors in the management of the
corporation.
(3) Shares of stock in other corporations shall be voted by
the President or a Vice President, or such officer or officers of the
Corporation as the Board of Directors shall from time to time designate for the
purpose, or by a proxy or proxies thereunto duly authorized by the Board of
Directors, except as otherwise ordered by vote of the holders of a majority of
the shares of the capital stock of the Corporation outstanding and entitled to
vote in respect thereto.
(4) Subject only to the provisions of the federal Investment
Company Act of 1940, any Director, officer or employee individually, or any
partnership of which any Director, officer or employee may be a member, or any
corporation or association of which any Director, officer or employee may be an
officer, director, trustee, employee or stockholder, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or transaction of the
Corporation, and in the absence of fraud no contract or other transaction shall
be thereby affected or invalidated; provided that in case a Director, or a
partnership, corporation or association of which a Director is a member,
officer, director, trustee, employee or stockholder is so interested, such fact
shall be disclosed or shall have been known to the Board of Directors or a
majority thereof; and any Director of the Corporation who is so interested, or
who is also a director, officer, trustee, employee or stockholder of such other
corporation or association or a member of such partnership which is so
interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which shall authorize any
such contract or transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he were not such
director, officer, trustee, employee or stockholder of such other corporation or
association or not so interested or a member of a partnership so interested.
(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 the settlement of any such action, suit or
proceeding, not exceed the costs and expenses (including attorney's fees) which
would reasonably have been incurred if such action, suit or proceeding had been
litigated to a final conclusion. Such a determination by independent counsel and
the
<PAGE>
payment of amounts by the Corporation on the basis thereof shall not prevent a
stockholder from challenging such indemnification by appropriate legal
proceeding 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
indemnifications shall not be exclusive of any other right to which the officers
and Directors may be entitled according to law.
(6) The Board of Directors is hereby empowered to authorize
the issuance and sale, from time to time, of shares of the capital stock of the
Corporation, whether for cash at not less than the par value thereof or for such
other consideration including securities as the Board of Directors may deem
advisable, in the manner and to the extent now or hereafter permitted by the
Bylaws of the Corporation and by the laws of Kansas; provided, however, that the
consideration per share to be received by the Corporation upon the sale of any
shares of its capital stock shall not be less than the net asset value per share
of such capital stock outstanding at the time as of which the computation of
such net asset value shall be made. For purposes of the computation of net asset
value, as in these Articles of Incorporation referred to, the following rules
shall apply:
(a) The net asset value of each share of capital stock of the
Corporation surrendered to the Corporation for repurchase
pursuant to the provisions of paragraph (2)(a) of Article FIFTH
of these Articles of Incorporation shall be determined as of the
close of business on the last full business day on which the New
York Stock Exchange is open next succeeding the date on which
such capital stock is so surrendered.
(b) the net asset value of each share of capital stock of the
Corporation for the purpose of issue of such capital stock shall
be determined either as of the close of business on the last
business day on which the New York Stock Exchange was open next
preceding the date on which a subscription to such stock was
accepted, or in accordance with any provision of the Investment
Company Act of 1940, or any rule or regulation thereunder, or any
rule or regulation made or adopted by any securities association
registered under the Securities Exchange Act of 1934.
(c) The net asset value of each share of capital stock of the
Corporation, as of the close of business on any day, shall be the
quotient obtained by dividing the value, as at such close, of the
net assets of the Corporation (i.e., the value of the assets of
the Corporation less its liabilities exclusive of capital stock
and surplus) by the total number of shares of capital stock
outstanding at such close. The assets and liabilities of the
Corporation shall be determined in accordance with generally
accepted accounting principles; provided, however, that in
determining the value of the assets of the Corporation for the
purpose of obtaining the net asset value, each security listed on
the New York Stock Exchange shall be valued on the basis of the
closing sale thereof on the New York Stock Exchange on the
business day as of which such value is being determined. If there
be no such sale on such day, then the security shall be valued on
the basis of the mean between the closing and asked prices upon
such day. If no bid and asked prices are quoted for such day,
then the security shall be valued by such method as the Board of
Directors shall deem to reflect its fair market value. Securities
not listed on the New York Stock Exchange shall be valued in like
manner
<PAGE>
on the basis of quotations on any other stock exchange which the
Board of Directors may from time to time approve for that
purpose, or by such other method as the Board of Directors shall
deem to reflect their fair market value, and all other assets of
the Corporation shall be valued by such method as they shall deem
to reflect their fair market value.
For the purposes hereof
(A) Capital stock subscribed for shall be deemed to be
outstanding as of the time of acceptance of any subscription and
the entry thereof in the books of the Corporation and the net
price thereof shall be deemed to be an asset of the Corporation;
and
(B) Capital stock surrendered for repurchase by the Corporation
pursuant to the provisions of paragraph (2)(a) of Article FIFTH
of these Articles of Incorporation shall be deemed to be
outstanding until the close of business on the date as of which
such value is being determined as provided in paragraph 6(a) of
this Article TENTH and thereupon and until paid the price thereof
shall be deemed to be a liability of the Corporation.
(d) The net asset value of each share of the capital stock of
the Corporation, as of any time other than the close of
business on any day, may be determined by applying to the
net asset value as of the close of business on the
preceding business day, computed as provided in paragraph
6(c) of this Article TENTH, such adjustments as are
authorized by or pursuant to the directions of the Board
of Directors and designed reasonably to reflect any
material changes in the market value of securities and
other assets held and any other material changes in the
assets or liabilities of the Corporation and in the
number of its outstanding shares which shall have taken
place since the close of business on such preceding
business day.
(e) In addition to the foregoing, the Board of Directors is
empowered, in its absolute discretion, to establish other
bases or times, or both, for determining the net asset
value of each share of capital stock of the Corporation.
(f) Payment of the net asset value of capital stock of the
Corporation surrendered to it for repurchase pursuant to
the provisions of paragraph 2(a) of Article FIFTH of the
Articles of Incorporation shall be made by the
Corporation within seven days after surrender of such
stock to the Corporation for such purposes, to the extent
permitted by law. Any such payment may be made in
portfolio securities of the Corporation or in cash, or in
both portfolio securities and cash, as the Board of
Directors, shall deem advisable, and no stockholder shall
have a right, other than as determined by the Board of
Directors to have his shares repurchased in kind. For the
purpose of determining the amount of any payment to be
made, pursuant to paragraph 2(a) of Article FIFTH, in
portfolio securities,
<PAGE>
such securities shall be valued as provided in
subdivision (c) of paragraph 6 of this Article TENTH.
ELEVENTH: The private property of the stockholders shall not be
subject to the payment of the debts of the Corporation.
TWELFTH: The Board of Directors shall have power to make, and from
time to time alter, amend and repeal the Bylaws of the Corporation; provided,
however, that the paramount power to make, alter, amend and repeal the Bylaws,
or any provision thereof, or to adopt new Bylaws, shall always be vested in the
stockholders, which power may be exercised by the affirmative vote of the
holders of a majority of the outstanding shares of stock of the Corporation
entitled to vote, at any annual or special meeting of the stockholders;
provided, further, that thereafter the directors shall have the power to
suspend, repeal, amend or otherwise alter the Bylaws or any portion thereof so
enacted by the stockholders, unless the stockholders in enacting such Bylaws or
portion thereof shall otherwise provide.
THIRTEENTH: In so far as permitted under the laws of Kansas, the
stockholders and directors shall have power to hold their meetings, if the
bylaws so provide, and to keep the books and records of the corporation outside
of the State of Kansas, and to have one or more offices, within or without the
State of Kansas, at such places as may be from time to time designated in the
bylaws or by resolution of the stockholders or directors.
FOURTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them, secured or unsecured,
or between this Corporation and its stockholders, or any class of them, any
court, state or federal, of competent jurisdiction within the State of Kansas
may on the application in a summary way of this corporation, or of any creditor,
secured or unsecured, or stockholders thereof, or on the application of trustees
in dissolution, or on the application of any receiver or receivers appointed for
this corporation by any court, state or federal of competent jurisdiction, order
a meeting of the creditors or class of creditors secured or unsecured or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors, or
of the stockholders, or class of stockholders of this corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
FIFTEENTH: This corporation reserves the right to alter, amend or
repeal any provision contained in these Articles of Incorporation in the manner
now or hereafter prescribed by the statutes of Kansas, and all rights and powers
conferred herein are granted subject to this reservation; and, in particular,
the corporation reserves the right and privilege to amend its Articles of
Incorporation from time to time so as to authorize other or additional classes
of shares of stock, to increase or decrease the number of shares of stock of any
class now or hereafter authorized and to vary the preferences, qualifications,
limitations, restrictions and the special or
<PAGE>
relative rights or other characteristics in respect of the shares of each class,
in the manner and upon such minimum vote of the stockholders entitled to vote
thereon as may at the time be prescribed or be permitted by the laws of Kansas,
or such larger vote as may then be required by the Articles of Incorporation of
the corporation.
IN WITNESS WHEREOF, we have hereunto subscribed our names this 27th
day of November, 1961.
Herbert F. Laing
------------------------------
Herbert F. Lang
Dean L. Smith
------------------------------
Dean L. Smith
Robert E. Jacoby
------------------------------
Robert E. Jacoby
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Personally appeared before me, a notary public in and for Shawnee County,
Kansas, the above named HERBERT F. LAING, DEAN L. SMITH and ROBERT E. JACOBY,
who are personally known to me to be the same persons who executed the foregoing
instrument of writing, and such persons duly acknowledged the execution of the
same.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal this 27th day of November, 1961.
Geraldine Skinner
------------------------------
Notary Public
(Notarial Seal)
My commission expires: December 31, 1961.
<PAGE>
Topeka, Kansas November 27, 1961
------------------------------
Date
OFFICE OF SECRETARY OF STATE
RECEIVED OF SECURITY EQUITY FUND, INC.
and deposited in the State Treasury, fees on these Articles of Incorporation as
follows:
Application Fee $25.00
Filing and Recording Fee $2.50
Capitalization Fee $550.00
Paul R. Shanahan
------------------------------
Secretary of State
By: James L. Galbe
------------------------------
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND, INC.
We, DEAN L. SMITH, President, and WILLIAM J. MILLER, JR., Secretary,
of Security Equity Fund, Inc., a corporation organized and existing under the
laws of the State of Kansas, ( hereinafter sometimes for convenience called the
"Company"), with its principal office in the City of Topeka, Shawnee County,
Kansas, do hereby certify as follows:
FIRST: That the board of directors of the Company at a meeting held on
October 16, 1962, duly adopted the following amendment to the Articles of
Incorporation of the Company, and declared the advisability of said amendment,
said resolution reading as follows:
RESOLVED, that the Articles of Incorporation of Security Equity Fund,
Inc. be amended by deleting the present Article NINTH of said Articles of
Incorporation and inserting in lieu thereof the following Article NINTH:
NINTH: Directors of the corporation shall be nine. Unless otherwise
provided by the Bylaws of the corporation, the directors of the corporation need
not be stockholders therein.
SECOND: That the board of directors of the Company also duly adopted
the following amendment to the Articles of Incorporation of the Company and
declared the advisability of said amendment, said resolution reading as follows:
RESOLVED that the Articles of Incorporation of Security Equity Fund,
Inc. be amended by deleting the present subdivision (a) of paragraph (6) of
Article TENTH of said Articles of Incorporation and inserting in lieu thereof
the following subdivision (a) of paragraph (6) of Article TENTH:
(a) The net asset value of each share of capital stock of the
corporation surrendered to the corporation for repurchase pursuant to the
provisions of paragraph (2)(a) of Article FIFTH of these Articles of
Incorporation shall be determined as of the close of business on the first
full business day on which the New York Stock Exchange is open next
succeeding the date on which such capital stock is so surrendered.
THIRD: That thereafter on the 4th day of December, 1962, upon notice
duly given as provided by law and the bylaws of the Company to each holder of
shares of Capital Stock of the Company entitled to vote on the proposed
amendments of the Articles of Incorporation, the annual meeting of said
stockholders was held and there were present at such meeting in person or by
proxy the holders of more than a majority of the voting stock of the Company.
FOURTH: That at said annual meeting of the stockholders of the
Company, the aforesaid resolutions, set forth in Division FIRST and Division
SECOND hereof, amending the Articles of Incorporation of the Company, were
presented for consideration and a vote of the stockholders present at said
meeting in person and by proxy was taken by ballot for and against each of the
proposed resolutions, which vote was conducted by two Judges, appointed for that
purpose by the officer presiding at such meeting; that the said Judges decided
upon the qualifications of the voters and accepted their votes and when the
voting was completed said Judges counted and ascertained the number of shares
voted respectively for and against each of the proposed amendments to the
Articles of Incorporation and declared
<PAGE>
that the persons holding a majority of the Capital Stock of the Company had
voted for each of the proposed amendments; and the said Judges made out a
certificate accordingly that the number of shares of Capital Stock issued and
outstanding and entitled to vote on said resolutions was 23,732 shares of
Capital Stock, that 23,533 shares of said stock were voted for and 100 shares of
said stock were voted against the proposed amendment set forth in Division FIRST
hereof, that 23,633 shares of said stock were voted for and 0 shares of said
stock were voted against the proposed amendment set forth in Division SECOND
hereof, and the said Judges subscribed and delivered the said certificate to the
Secretary of the Company.
FIFTH: That a certificate of said Judges having been made, subscribed
and delivered as aforesaid and it appearing by said certificate of the Judges
that the holders of more than a majority of the Capital Stock of the Company
entitled to vote thereon had voted in favor of each of the amendments to the
Articles of Incorporation set forth in Division FIRST and Division SECOND
hereof, the said amendments were declared duly adopted.
SIXTH: That, accordingly, the amendments to Articles NINTH and TENTH
of the Articles of Incorporation of Security Equity Fund, Inc., as heretofore
set forth in Division FIRST and Division SECOND of this certificate, have been
duly adopted in accordance with Article 42 of the General Corporation Code of
Kansas.
SEVENTH: That the capital of the Company will not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF we, Dean L. Smith, President, and William J. Miller,
Jr., Secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 4th day of December, 1962.
Dean L. Smith
---------------------------------
Dean L. Smith, President
William J. Miller, Jr.
---------------------------------
William J. Miller, Jr., Secretary
[Corporate Seal]
<PAGE>
STATE OF KANSAS )
) SS.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 4th day of December, 1962, before me, a
Notary Public in and for the county and state aforesaid, came Dean L. Smith, and
William J. Miller, Jr., President and Secretary respectively, of Security Equity
Fund, Inc., a Kansas corporation, who are personally known to me to be the
President and Secretary, respectively, of said corporation and the same persons
who executed the foregoing instrument and they duly acknowledged the execution
of the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial
seal on the day and year last above written.
Florence McKinsey
------------------------------
Notary Public
My commission expires: November 21, 1965.
OFFICE OF SECRETARY OF STATE
Topeka, Kansas December 4, 1962
RECEIVED OF SECURITY EQUITY FUND, INC.
Two and fifty/100-------------------------------------------------------Dollars,
fee for filing the within Certificate of Amendment.
Paul R. Shanahan
------------------------------
Secretary of State
By: Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND, INC.
We, DEAN L. SMITH, President, and WILL J. MILLER, JR., Secretary, of
Security Equity Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, [hereinafter sometimes for convenience called the
"Company"], with its principal office in the City of Topeka, Shawnee County,
Kansas, do hereby certify as follows:
FIRST: That the board of directors of the Company at a meeting held on
December 2, 1963, duly adopted the following amendment to the Articles of
Incorporation of the Company, and declared the advisability of said amendment,
said resolution to read as follows:
FURTHER RESOLVED, That the Articles of Incorporation of the Fund be
amended by deleting the present subdivision (a) of paragraph (6) of Article
TENTH of said Articles of Incorporation and inserting in lieu thereof the
following subdivision (a) of paragraph (6) of Article TENTH:
(a) The net asset value of each share of capital stock of the
Corporation tendered to the Corporation for repurchase pursuant to the
provisions of paragraph (2)(a) of Article FIFTH of these Articles of
Incorporation shall be determined as of the close of business on the
date to which such capital stock is so tendered.
SECOND: That the board of directors of the Company also duly adopted
the following amendment to the Articles of Incorporation of the Company, and
declared the advisability of said amendment, said resolution reading as follows:
FURTHER RESOLVED, That the Articles of Incorporation of Security
Equity Fund, Inc., be amended by deleting the first paragraph only of the
present subdivision (c) of paragraph (6) of Article TENTH of said Articles
of Incorporation and inserting in lieu thereof the following first
paragraph of subdivision (c) of paragraph (6) of Article TENTH:
(c) The net asset value of each share of capital stock of the
Corporation, as of the close of business on any day, shall be the
quotient obtained by dividing the value, as at such close, of the net
assets of the Corporation (i.e., the value of the assets of the
Corporation less its liabilities exclusive of capital stock and
surplus) by the total number of shares of capital stock outstanding at
such close. The assets and liabilities of the Corporation shall be
determined in accordance with generally accepted accounting
principles; provided, however, that in determining the value of the
assets of the Corporation for the purpose of obtaining the net asset
value, each security listed on the New York Stock Exchange shall be
valued on the basis of the closing sale thereof on the New York Stock
Exchange on the business day as of which such value is being
determined. If there be no such sale on such day, then the security
shall be valued on the basis of the closing bid price upon such day.
If no bid price is quoted for such day, then the security shall be
valued by such method as the Board of Directors shall deem to reflect
its fair market value. Securities not listed on the New York Stock
Exchange shall be valued in like manner on the basis of quotations on
any other stock exchange which the Board of Directors may from time to
time approve for that purpose, or by such other method as the Board of
Directors shall deem to reflect their fair market value, and all other
<PAGE>
assets of the Corporation shall be valued by such method as they shall
deem to reflect their fair market value.
THIRD: That thereafter on the 20th day of December, 1963, upon notice
duly given as provided by law and the bylaws of the Company to each holder of
shares of Capital Stock of the Company entitled to vote on the proposed
amendments of the Articles of Incorporation, the deferred annual meeting of said
stockholders was held and there were present at such meeting in person or by
proxy the holders of more than a majority of the voting stock of the Company.
FOURTH: That at said deferred annual meeting of the stockholders of
the Company, the aforesaid resolutions, set forth in Division FIRST and Division
SECOND hereof, amending the Articles of Incorporation of the Company, were
presented for consideration and a vote of the stockholders present at said
meeting in person and by proxy was taken by ballot for and against each of the
proposed resolutions, which vote was conducted by two Judges appointed for that
purpose by the officer presiding at such meeting; that the said Judges decided
upon the qualifications of the voters and accepted their votes and when the
voting was completed said Judges counted and ascertained the number of shares
voted respectively for and against each of the proposed amendments to the
Articles of Incorporation and declared that the persons holding a majority of
the Capital Stock of the Company had voted for each of the proposed amendments;
and the said Judges made out a certificate accordingly that the number of shares
of Capital Stock issued and outstanding and entitled to vote on said resolutions
was 41,213 shares of Capital Stock, that 30,185 shares of said stock were voted
for and 0 shares of said stock were voted against the proposed amendments set
forth in Division FIRST hereof, that 30,185 shares of said stock were voted for
and 30,18 shares of said stock were voted against the proposed amendment set
forth in DIVISION SECOND hereof, and the said Judges subscribed and delivered
the said certificate to the Secretary of the Company.
FIFTH: That a certificate of said Judges having been made, subscribed
and delivered as aforesaid and it appearing by said certificate of the Judges
that the holders of more than a majority of the Capital Stock of the Company
entitled to vote thereon had voted in favor of each of the amendments to the
Articles of Incorporation set forth in Division FIRST and Division SECOND
hereof, the said amendments were declared adopted.
SIXTH: That, accordingly, the amendments to Article TENTH of the
Articles of Incorporation of Security Equity Fund, Inc., as heretofore set forth
in Division FIRST and Division SECOND of this certificate, have been duly
adopted in accordance with Article 42 of the General Corporation Code of Kansas.
SEVENTH: That the capital of the Company will not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, we, Dean L. Smith, President, and Will J. Miller,
Jr., Secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 20th day of December, 1963.
[Corporate Seal]
Dean L. Smith
------------------------------
Dean L. Smith, President
Will J. Miller, Jr.
------------------------------
Will J. Miller, Jr., Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 20th day of December, 1963, before me,
a Notary Public in and for the county and state aforesaid, came Dean L. Smith,
and Will J. Miller, Jr., President and Secretary, respectively, of Security
Equity Fund, Inc. a Kansas corporation, who are personally known to me to be the
President and Secretary, respectively, of said corporation, and the same persons
who executed the foregoing instrument and they duly acknowledged the execution
of the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
notarial seal on the day and year last above written.
Amelia F. Letuks
------------------------------
Notary Public
My commission expires: June 4, 1967
OFFICE OF SECRETARY OF STATE
Topeka, Kansas December 20, 1963
RECEIVED OF SECURITY EQUITY FUND, INC.
Two and fifty/100-------------------------------------------------------Dollars,
fee for filing the within Certificate of Amendment.
Paul R. Shanahan
------------------------------
SECRETARY OF STATE
By: William R. Sturs
------------------------------
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND, INC.
We, DEAN L. SMITH, President, and WILL J. MILLER, JR., Secretary, of
Security Equity Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, (hereinafter sometimes for convenience called the
"Company"), with its principal office in the City of Topeka, Shawnee County,
Kansas, do hereby certify as follows:
FIRST: That the board of directors of the Company at a meeting held on
April 7, 1966, duly adopted the following amendment to the Articles of
Incorporation of the Company, and declared the advisability of said amendment,
said resolution reading as follows:
"RESOLVED, That the Articles of Incorporation of Security Equity Fund,
Inc., as heretofore amended, be further amended by deleting the first
paragraph of the Article Fifth and by inserting in lieu thereof the
following paragraph:
"The aggregate number of shares which the Corporation shall have
authority to issue shall be 5,000,000 shares of capital stock of
the par value of $1.00 per share.""
SECOND: That thereafter on the 9th day of June, 1966, upon notice duly
given as provided by law and the bylaws of the Company to each holder of shares
of Capital Stock of the Company entitled to vote on the proposed amendment of
the Articles of Incorporation, the special meeting of said stockholders was held
and there were present at such meeting in person or by proxy the holders of more
than a majority of the voting stock of the Company.
THIRD: That at the special meeting of the stockholders of the Company,
the aforesaid resolution, set forth in division FIRST hereof, amending the
Articles of Incorporation of the Company, was presented for consideration and a
vote of the stockholders present at said meeting in person and by proxy was
taken by ballot for and against each of the proposed resolution, which vote was
conducted by two Judges appointed for that purpose by the officer presiding at
such meeting; that the said Judges decided upon the qualifications of the voters
and accepted their votes and when the voting was completed said Judges counted
and ascertained the number of shares votes respectively for and against the
proposed amendment to the Articles of Incorporation and declared that the
persons holding a majority of the Capital Stock of the Company had voted for the
proposed amendment; and the said Judges made out a certificate accordingly that
the number of shares of Capital Stock issued and outstanding and entitled to
vote on said resolution was 578,333 shares of Capital Stock, that 335,865 shares
of stock were voted for and 4,199 shares of stock were voted against the
proposed amendment set forth in Division FIRST hereof, and the said Judges
subscribed and delivered the said certificate to the Secretary of the Company.
FOURTH: That a certificate of said Judges having been made, subscribed
and delivered as aforesaid and it appearing by said certificate of the Judges
that the holders of more than a majority of the Capital Stock of the Company
entitled to vote thereon had voted in favor of the amendment to the Articles of
Incorporation set forth in Division FIFTH hereof, the said amendment was
declared duly adopted.
FIFTH: That, accordingly, the amendment to Article FIFTH of the
Articles of Incorporation of Security Equity Fund, Inc., as heretofore set forth
in Division FIRST of this certificate, have been duly adopted in accordance with
Article 42 of the General Corporation Code of Kansas.
<PAGE>
SIXTH: That the capital of the Company will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, we, Dean L. Smith, President, and Will J. Miller
Jr., Secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 9th day of June, 1966.
Dean L. Smith
------------------------------
Dean L. Smith, President
Will J. Miller, Jr.
------------------------------
Secretary
(Corporate Seal)
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 9th day of June, 1966, before me, a Notary
Public in and for the County and State aforesaid, came Dean L. Smith and Will J.
Miller, Jr., President and Secretary, respectively of Security Equity Fund,
Inc., a Kansas corporation, who are personally known to me to be the President
and Secretary, respectively, of said corporation, and the same persons who
executed the foregoing instrument and they duly acknowledged the execution of
the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial
seal on the day and year last above written.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires January 8, 1968.
OFFICE OF SECRETARY OF STATE
Topeka, Kansas June 13, 1966
RECEIVED OF SECURITY EQUITY FUND, INC.
Two Thousand Fifty Two and fifty/100-----------------------------------Dollars,
fee for filing the within Certificate of Amendment.
Elwill M. Shanahan
------------------------------
Secretary of State
By: William A. Stewart
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND, INC.
We, DEAN L. SMITH, President, and WILL J. MILLER, JR., Secretary, of
Security Equity Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, (hereinafter sometimes for convenience called the
"Company"), with its principal office in the City of Topeka, Shawnee County,
Kansas, do hereby certify as follows:
FIRST: That the board of directors of the Company at a meeting held on
July 6, 1967, duly adopted the following amendment to the Articles of
Incorporation of the Company, and declared the advisability of said amendment,
said resolution reading as follows:
"RESOLVED, That the Articles of Incorporation of Security Equity Fund,
Inc., as heretofore amended, be further amended by deleting the first
paragraph of the Article Fifth and by inserting in lieu thereof the
following paragraph:
"The aggregate number of shares which the Corporation shall have
authority to issue shall be 15,000,000 shares of capital stock of
the par value of $1.00 per share.""
SECOND: That thereafter on the 30th day of August, 1967, upon notice
duly given as provided by law and the bylaws of the Company to each holder of
shares of Capital Stock of the Company entitled to vote on the proposed
amendment of the Articles of Incorporation, the special meeting of said
stockholders was held and there were present at such meeting in person or by
proxy the holders of more than a majority of the voting stock of the Company.
THIRD: That at the special meeting of the stockholders of the Company,
the aforesaid resolution, set forth in division FIRST hereof, amending the
Articles of Incorporation of the Company, was presented for consideration and a
vote of the stockholders present at said meeting in person and by proxy was
taken by ballot for and against the proposed resolution, which vote was
conducted by two Judges appointed for that purpose by the officer presiding at
such meeting; that the said Judges decided upon the qualifications of the voters
and accepted their votes and when the voting was completed said Judges counted
and ascertained the number of shares votes respectively for and against the
proposed amendment to the Articles of Incorporation and declared that the
persons holding a majority of the Capital Stock of the Company had voted for the
proposed amendment; and the said Judges made out a certificate accordingly that
the number of shares of Capital Stock issued and outstanding and entitled to
vote on said resolution was 3,118,651 shares of Capital Stock, that 1,613,533
shares of stock were voted for and 45,071 shares of stock were voted against the
proposed amendment set forth in division FIRST hereof, and the said Judges
subscribed and delivered the said certificate to the Secretary of the Company.
FOURTH: That a certificate of said Judges having been made, subscribed
and delivered as aforesaid and it appearing by said certificate of the Judges
that the holders of more than a majority of the Capital Stock of the Company
entitled to vote thereon had voted in favor of the amendment to the Articles of
Incorporation set forth in division FIRST hereof, the said amendment was
declared duly adopted.
FIFTH: That, accordingly, the amendment to Article Fifth of the
Articles of Incorporation of Security Equity Fund, Inc., as heretofore set forth
in Division FIRST of this certificate, have been duly adopted in accordance with
Article 42 of the General Corporation Code of Kansas.
<PAGE>
SIXTH: That the capital of the Company will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, we, Dean L. Smith, President, and Will J. Miller
Jr., Secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 30th day of August, 1967.
Dean L. Smith
------------------------------
Dean L. Smith, President
Will J. Miller, Jr.
------------------------------
Secretary
(Corporate Seal)
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 30th day of August, 1967, before me, a
Notary Public in and for the County and State aforesaid, came Dean L. Smith, and
Will J. Miller, Jr., President and Secretary, respectively, of Security Equity
Fund, Inc., a Kansas corporation, who are personally known to me to be the
President and Secretary, respectively, of said corporation, and the same persons
who executed the foregoing instrument and they duly acknowledged the execution
of the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial
seal on the day and year last above written.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires: January 8, 1968
OFFICE OF SECRETARY OF STATE
Topeka, Kansas August 30, 1967
RECEIVED OF SECURITY EQUITY FUND, INC.
Five Thousand Fifty Two and fifty/100----------------------------------Dollars,
Fee for filing the within Amendment.
Elwill M. Shanahan
------------------------------
Secretary of State
By: William A. Stewart
------------------------------
Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
We, DEAN L. SMITH, President, and WILL J. MILLER, JR., Secretary, of
Security Equity Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, (hereinafter sometimes for convenience called the
"Company"), with its principal office in the City of Topeka, Shawnee County,
Kansas, do hereby certify as follows:
FIRST: That the board of directors of the Company at a meeting held on
October 10, 1968, duly adopted the following amendment to the Articles of
Incorporation of the Company, and declared the advisability of said amendment,
said resolution reading as follows:
"RESOLVED, That the Articles of Incorporation of Security Equity
Fund, Inc., as heretofore amended, be further amended deleting the
first paragraph of the Article FIFTH and by inserting in lieu thereof
the following paragraph:
"The aggregate number of shares which the Corporation shall
have the authority to issue shall be 100,000,000 shares of
capital stock of the par value of $0.25 (twenty-five cents)
per share. Upon the effectiveness of this amendment:
(a) Each share of capital stock, par value $1.00 per share,
heretofore issued by the Corporation and presently
outstanding shall, without further act or deed, be deemed to
be changed and converted into four shares of capital stock
of the par value of $0.25 each; and
(b) Each stock certificate for shares of capital stock of
the par value of $1.00 per share issued and outstanding
immediately prior to this amendment evidencing shares or
capital stock, par value $1.00 per share, shall be deemed to
evidence an identical number of shares of capital stock of
the par value of $0.25 each."
SECOND: That thereafter on the 12th day of December, 1968 upon notice
duly given as provided by the law and the bylaws of the Company to each holder
of shares of Capital Stock of the Company entitled to vote on the proposed
amendment of the Articles of Incorporation, the annual meeting of said
stockholders was held and there were present at such meeting in person or by
proxy the holders of more than a majority of the voting stock of the Company.
THIRD: That at said annual meeting of the stockholders of the Company,
the foresaid resolution, set forth in division FIRST hereof, amending the
Articles of Incorporation of the Company, was presented for consideration and a
vote of the stockholders present at said meeting in person and by proxy was
taken by ballot for and against the proposed resolution, which vote was
conducted by two Judges appointed for that purpose by the officer presiding at
such meeting; that the said Judges decided upon the qualifications of the voters
and accepted their votes and when the voting was completed said Judges counted
and ascertained the number of shares votes respectively for and against the
proposed amendment to the Articles of Incorporation and declared that the
persons holding a majority of the Capital Stock of the
<PAGE>
Company had voted for the proposed amendment; and the said Judges made out a
certificate accordingly that the number of shares of Capital Stock issued and
outstanding and entitled to vote on said resolution was 7,683,768 shares of
Capital Stock, that 4,391,182 shares of stock were voted for, and 214,740 shares
of stock were voted against the proposed amendment set forth in division FIRST
hereof, and the said Judges subscribed and delivered the said certificate to the
Secretary of the Company.
FOURTH: That a certificate of said Judges having been made, subscribed
and delivered as aforesaid and it appearing by said certificate of the Judges
that the holders of more than a majority of the Capital Stock of the Company
entitled to vote thereon had voted in favor of the amendment to the Articles of
Incorporation set forth in division FIRST hereof, the said amendment was
declared duly adopted.
FIFTH: That, accordingly, the amendment to Article Fifth of the
Articles of Incorporation of Security Equity Fund, Inc., as heretofore set forth
in Division FIRST of this certificate, have been duly adopted in accordance with
Article 42 of the General Corporation Code of Kansas.
SIXTH: That the capital of the Company will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, we, Dean L. Smith, President, and Will J. Miller
Jr., Secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 31st day of December, 1968.
Dean L. Smith
------------------------------
Dean L. Smith, President
Will J. Miller, Jr.
------------------------------
Secretary
(Corporate Seal)
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 31st day of December, 1968, before me,
a Notary Public in and for the County and State aforesaid, came Dean L. Smith,
and Will J. Miller, Jr., President and Secretary, respectively, of Security
Equity Fund, Inc., a Kansas corporation, who are personally known to me to be
the President and Secretary, respectively, of said corporation, and the same
persons who executed the foregoing instrument and they duly acknowledged the
execution of the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
notarial seal on the day and year last above written.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires: January 8, 1972
<PAGE>
OFFICE OF SECRETARY OF STATE
Topeka, Kansas December 31, 1968
RECEIVED OF SECURITY EQUITY FUND, INC.
Five Thousand fifty-two and 50/100------------------------------------Dollars,
fee for filing the within Amendment.
Elwill M. Shanahan
------------------------------
Secretary of State
By: Hart Workman
------------------------------------------
Hart Workman, Assistant Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
We, Dean L. Smith, president, and Will J. Miller, Jr., secretary of
Security Equity Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, (hereinafter called the "Corporation"), do hereby
certify as follows:
FIRST: That on October 30, 1969, the board of directors of the
Corporation duly adopted the following resolution setting forth the following
proposed amendment to the Articles of Incorporation of the Corporation, and
declared the advisability of said amendment, said resolution reading as follows:
"RESOLVED, that the Articles of Incorporation of Security Equity
Fund, Inc., a Kansas corporation, be amended by deleting the present
first sentence of subparagraph (a) of paragraph (2) of Article FIFTH
thereof in its entirety and substituting in lieu thereof the following
new first sentence of subparagraph (a) of paragraph (2) of Article
FIFTH:
(2)(a) Each holder of capital stock of the Corporation, upon
request to the Corporation accompanied by surrender of the
appropriate stock certificate or certificates in proper form for
transfer, shall be entitled to require the Corporation to
repurchase all or any part of the shares of capital stock
standing in the name of such holder on the books of the
Corporation, at the net asset value of such shares.
SECOND: That on October 30, 1969, the board of directors of the
Corporation also duly adopted the following resolution setting forth the
following proposed amendment to the Articles of Incorporation of the
Corporation, and declared the advisability of said amendment, said resolution
reading as follows:
RESOLVED, that the Articles of Incorporation of Security Equity
Fund, Inc., a Kansas corporation, be amended by deleting the present
first paragraph and subparagraphs (a) and (b) of paragraph (6) of
Article TENTH thereof in their entirety and substituting in lieu
thereof the following new first paragraph and new subparagraphs (a)
and (b) of paragraph (6) of Article TENTH:
(6) The Board of Directors is hereby empowered to authorize
the issuance and sale, from time to time, of shares of the capital
stock of the Corporation, whether for cash at not less than the par
value thereof or for such other consideration including securities as
the Board of Directors may deem advisable, in the manner and to the
extent now or hereafter permitted by the Bylaws of the Corporation and
by the laws of Kansas; provided, however, that the consideration per
share to be received by the Corporation upon the sale of any shares of
its capital stock shall not be less than the net asset value per share
of such capital stock outstanding at the time as of which the
computation of such net asset value shall be made. For the purposes of
the computation of net asset value, as in these Articles of
Incorporation referred to, such computation shall be computed as
provided in the Investment Company Act of 1940 or in any other statute
administered by the Securities and Exchange Commission or any
successor thereto, or in any rule, regulation or order issued under
any such statute and, except as so provided, shall be computed in
accordance with the following rules:
<PAGE>
(a) the net asset value of each share of capital stock of
the Corporation surrendered to the Corporation for repurchase pursuant
to the provisions of paragraph (2)(a) of Article FIFTH of these
Articles of Incorporation shall be the net asset value next computed
after the time such share is tendered for redemption.
(b) the net asset value of each share of capital stock of
the Corporation for the purpose of issue of such capital stock shall
be determined at the close of business on the New York Stock Exchange
(the "Exchange") on each day on which the Exchange is open with
respect to all orders accepted prior to such close of business of the
Exchange on that day. Orders accepted after the close of business of
the Exchange will be filled on the basis of the offering price
determined as of the close of business on the Exchange on the next day
on which the Exchange is open.
THIRD: That on December 30, 1969, at the annual meeting of the
stockholders of the Corporation, notice of which annual meeting was duly given
as provided by law and the bylaws of the Corporation to each holder of shares of
capital stock of the Corporation entitled to vote on the proposed amendments of
the Articles of Incorporation, the aforesaid resolutions set forth in Division
FIRST and Division SECOND, amending the Articles of Incorporation of the
Corporation, were presented for consideration, and a vote of the stockholders
present at said meeting in person and by proxy was taken by ballot for and
against each of the proposed resolutions, which votes were conducted by two
judges appointed for that purpose by the officer presiding at such meeting; that
the said judges decided upon the qualifications of the voters and accepted their
votes and when the voting was completed said Judges counted and ascertained the
number of shares votes respectively for and against each of the proposed
amendments to the Articles of Incorporation and declared that the persons
holding a majority of the capital stock of the Corporation had voted for each of
the proposed amendments; and the said judges made out a certificate accordingly
that the number of shares of capital stock issued and outstanding and entitled
to vote on said resolution was 21,222,857 shares of capital stock, that
20,919,065 shares of stock were voted for and 281,869 shares of stock were voted
against the proposed amendment set forth in Division FIRST hereof, that
20,976,162 shares of said stock were voted for and 224,772 shares of said stock
were voted against the proposed amendment set forth in Division SECOND hereof,
and the said judges subscribed and delivered the said certificate to the
secretary of the Corporation.
FOURTH: That the certificate of said judges having been made,
subscribed and delivered as aforesaid, and it appearing by said certificate of
the judges that the holders of more than a majority of the capital stock of the
Corporation entitled to vote thereon had voted in favor of the amendments to the
Articles of Incorporation set forth in Division FIRST and Division SECOND
thereof, the said amendments were declared duly adopted.
FIFTH: That, accordingly, the amendments of the Articles of
Incorporation of the Corporation, as heretofore set forth in Division FIRST and
Division SECOND of this certificate, have been duly adopted in accordance with
Article 42 of the General Corporation Code of Kansas.
SIXTH: That the capital of the Company will not be reduced under or by
reason of said amendments.
<PAGE>
IN WITNESS WHEREOF, we, Dean L. Smith, president, and Will J. Miller
Jr., secretary, have hereunto severally set our hands and caused the corporate
seal of the Company to be hereto affixed this 30th day of December, 1969.
Dean L. Smith
------------------------------
Dean L. Smith, President
Will J. Miller, Jr.
------------------------------
Secretary
(Corporate Seal)
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that on this 30th day of December, 1969, before me,
a notary public in and for the County and State aforesaid, came DEAN L. SMITH,
President, and WILL J. MILLER, JR., Secretary, of Security Equity Fund, Inc., a
Kansas corporation, who are personally known to me to be the President and
Secretary, respectively, of said Corporation, and the same persons who executed
the foregoing instrument and they duly acknowledged the execution of the same.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
notarial seal on the day and year last above written.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires: January 8, 1972
<PAGE>
OFFICE OF SECRETARY OF STATE
Topeka, Kansas DECEMBER 30, 1969
Received of SECURITY EQUITY FUND, INC.
Two and 50/100----------------------------------------------------------Dollars,
fee for filing the within Amendment.
Elwill M. Shanahan
------------------------------
Secretary of State
By: Hart Workman
------------------------------
Assistant Secretary of State
<PAGE>
CHANGE OF LOCATION OF REGISTERED OFFICE
AND/OR
CHANGE OF RESIDENT AGENT
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Dean L. Smith, President and Larry D. Armel, Secretary of Security
Equity Fund, Inc., a corporation organized and existing under and by virtue of
the laws of the State of Kansas, do hereby certify that a regular meeting of the
Board of Directors of said corporation held on the 9th day of July, 1975, the
following resolution was duly adopted.
Be it further resolved that the RESIDENT AGENT of said corporation in the
State of Kansas be changed from Dean L. Smith, Security Benefit Life Bldg., 700
Harrison Street, Topeka, Shawnee, Kansas the same being of record in the office
of Secretary of State of Kansas to Security Management Company, Inc., Security
Benefit Life Bldg., 700 Harrison Street, Topeka, Shawnee, Kansas 66636. The
President and Secretary are hereby authorized to file and record the same in the
manner as required by law:
Dean L. Smith
------------------------------
Dean L. Smith, President
Larry D. Armel
------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered that before me Lois J. Hedrick a Notary Public in and for
the County and State aforesaid, came Dean L. Smith President, and Larry D.
Armel, Secretary, of Security Equity Fund, Inc. a corporation, personally known
to me to be the persons who executed the foregoing instrument of writing as
president and secretary respectively, and duly acknowledged the execution of the
same this 9th day of July, 1975.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires January 8, 1976
NOTE: This form must be filed in duplicate.
Address of Resident Agent and Registered Office, as set forth above,
must be the same.
The statutory fee for filing is $20.00 and must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
STATE OF KANSAS )
) ss.
COUNTY OF Shawnee)
We, Everett S. Gille, President , and Larry D. Armel, Secretary of Security
Equity Fund, Inc., a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is Security Benefit Life Bldg., 700
Harrison Street, Topeka, Shawnee, Kansas do hereby certify that at the regular
meeting of the Board of Directors of said corporation, held on the 13th day of
October, 1976, said board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability, to
wit:
RESOLVED, that the Articles of Incorporation of Security Equity Fund, Inc.,
a Kansas corporation, be amended by adding the following new subparagraph
(2)(c) to Article FIFTH thereof, such new subparagraph (2)(c) to be
inserted immediately following subparagraph (2)(b) and immediately before
paragraph (3) thereof:
(c) The Corporation, pursuant to a resolution by the Board of
Directors and without the vote or consent of stockholders of the
Corporation, shall have the right to redeem at net asset value
all shares of capital stock of the Corporation in any stockholder
account in which there has been no investment (other than the
reinvestment of income dividends or capital gains distributions)
for at least six months and in which there are fewer than 25
shares or such fewer shares as shall be specified in such
resolution. Such resolution shall set forth that redemption of
shares in such accounts has been determined to be in the economic
best interests of the Corporation or necessary to reduce
disproportionally burdensome expenses in servicing stockholder
accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such
redemption of shares, and that the stockholder will have six
months (or such longer period as specified in the resolution)
from the date of the notice to avoid such redemption by
increasing his account to at least 25 shares, or such fewer
shares as is specified in the resolution.
That thereafter, pursuant to said resolution and in accordance with the
by-laws and the laws of the State of Kansas, said directors called a meeting of
stockholders for the consideration of said amendment, and thereafter, pursuant
to said notice and in accordance with the statutes of the State of Kansas, on
the 9th day of December, 1976, said stockholders met and convened and considered
said proposed amendment.
That at said meeting the stockholders entitled to vote did vote upon said
amendment, and the majority of voting stockholders of the corporation had voted
for the proposed amendment certifying that the votes were 16,855,355 (common)
shares in favor of the proposed amendment and 442,958 (common) shares against
the amendment.
That said amendment was duly adopted in accordance with the provisions of
K.S.A. 17-6602.
<PAGE>
That the capital of said corporation will not be reduced under or by reason
of said amendment.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of
said corporation this 23rd day of December, 1976.
Everett S. Gille
------------------------------
Everett S. Gille, President
Larry D. Armel
------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF Shawnee)
Be it remembered, that before me, Lois J. Hedrick a Notary Public in and
for the County and State, aforesaid, came Everett S. Gille, President, and Larry
D. Armel, Secretary, of Security Equity Fund, Inc. a corporation, personally
known to me to be the persons who executed the foregoing instrument of writing
as president and secretary respectively, and duly acknowledged the execution of
the same this 23rd day of December, 1976.
Lois J. Hedrick
------------------------------
Notary Public
My Commission Expires: January 8, 1980
Submit to this office in duplicate.
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
- --------------------------------------------------------------------------------
STATE OF KANSAS )
) ss
COUNTY OF Shawnee)
We, Everett S. Gille, President, and Larry D. Armel Secretary of Security
Equity Fund, Inc., a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is Security Benefit Life Building,
700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that at
the regular meeting of the Board of Directors of said corporation held on the
12th day of October, 1979, said board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declared its
advisability, to wit:
RESOLVED, that whereas the board of directors deems it advisable and in the
best interests of the corporation to increase the authorized capitalization
of the corporation, that the articles of incorporation of Security Equity
Fund, Inc. be amended by deleting the first paragraph [including
sub-paragraphs (a) and (b)] of Article FIFTH in its entirety, and by
inserting, in lieu thereof, the following new first paragraph of Article
FIFTH:
The total number of shares which the Corporation shall have authority
to issue shall be 150,000,000 shares of capital stock, each of the par
value of $0.25 (twenty-five cents)."
FURTHER RESOLVED, that the foregoing proposed amendment to the articles of
incorporation of the Fund be presented to the stockholders of the Fund for
consideration at the annual meeting of stockholders to be held on December
13, 1979.
That thereafter, pursuant to said resolution and in accordance with the by-laws
and the laws of the State of Kansas, said directors called a meeting of
stockholders for the consideration of said amendment, and thereafter, pursuant
to said notice and in accordance with the statutes of the State of Kansas, on
the 13th day of December, 1979, said stockholders met and convened and
considered said proposed amendment.
That at said meeting the stockholders entitled to vote did vote upon said
amendment, and the majority of voting stockholders of the corporation had voted
for the proposed amendment certifying that the votes were 11,600,855 (common)
shares in favor of the proposed amendment and 691,585 (common) shares against
the amendment.
That said amendment was duly adopted in accordance with the provisions of K.S.A.
17-6602, as amended.
That the capital of said corporation will not be reduced under or by reason of
said amendment.
<PAGE>
IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of
said corporation this 18th day of December, 1979.
Everett S. Gille
------------------------------
Everett S. Gille, President
Larry D. Armel
------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss
COUNTY OF Shawnee)
Be it remembered, that before me, Lois J. Hedrick a Notary Public in and for the
County and State aforesaid, came Everett S. Gille, President and Larry D. Armel,
Secretary of Security Equity Fund, Inc. a corporation, personally known to me to
be the persons who executed the foregoing instrument of writing as president and
assistant secretary respectively, and duly acknowledged the execution of the
same this 18th day of December, 1979.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires: January 8, 1980.
Submit to this office in duplicate.
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND, INC.
- --------------------------------------------------------------------------------
STATE OF KANSAS )
) ss
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Larry D. Armel, Secretary of Security
Equity Fund, Inc., a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is Security Benefit Life Building,
700 Harrison Street, Topeka, Kansas, 66636, do hereby certify that at the
regular meeting of the Board of Directors of said corporation held on the 9th
day of October, 1981, said board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declared its
advisability, to wit:
RESOLVED, that the Articles of Incorporation of Security Equity Fund, Inc.
as heretofore amended, be further amended by deleting Article FIRST in its
entirety and by inserting, in lieu thereof, the following new Article FIRST:
"FIRST: the name of the corporation (hereinafter called the
"Corporation") is SECURITY EQUITY FUND".
FURTHER RESOLVED, that the board of directors of this corporation hereby
declares the advisability of the foregoing amendment to the articles of
incorporation of this corporation and hereby recommends that the stockholders of
this corporation adopt amendment.
FURTHER RESOLVED, that at the annual meeting of the stockholders of this
corporation to be held at the offices of the corporation in Topeka, Kansas, on
December 10, 1981, beginning at 10:00 A.M. on that day, the matter of the
aforesaid proposed amendment to the articles of incorporation of this
corporation shall be submitted to the stockholders entitled to vote thereon.
FURTHER RESOLVED, that in the event the stockholders of this corporation shall
approve and adopt the proposed amendment to the articles of incorporation of
this corporation as heretofore adopted and recommended by this board of
directors, the appropriate officers of this corporation be, and they hereby are
authorized and directed, for and in behalf of this corporation, to make,
execute, verify, acknowledge and file or record in any and all appropriate
governmental offices any and all certificates and other instruments, and to take
any and all other action as may be necessary to effectuate the said proposed
amendment to the articles of incorporation of this corporation".
That thereafter, pursuant to said resolution and in accordance with the by-laws
of the State of Kansas, said directors called a meeting of stockholders for the
consideration of said amendment, and thereafter, pursuant to said notice and in
accordance with the statutes of the State of Kansas, on the 10th day of
December, 1981, said stockholders met and convened and considered said proposed
amendment.
That at said meeting the stockholders entitled to vote did vote upon said
amendment, and the majority of voting stockholders of the corporation had voted
for the proposed amendment
<PAGE>
certifying that the votes were 15,967,961 (Common Stock) shares in favor of the
proposed amendment and 842,670 (Common Stock) shares against the amendment.
That said amendment was duly adopted in accordance with the provisions of K.S.A.
17-6602, as amended.
That the capital of said corporation will not be reduced under or by reason of
said amendment.
IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of said
corporation this 14th day of December, 1981.
Everett S. Gille
------------------------------
Everett S. Gille, President
Larry D. Armel
------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss
COUNTY OF SHAWNEE)
Be it remembered, that before me, Lois J. Hedrick a Notary Public in and for the
County and State aforesaid, came Everett S. Gille, President, and Larry D. Armel
Secretary, of Security Equity Fund, Inc. a corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as president
and secretary respectively, and duly acknowledged the execution of the same this
14th day of December, 1981.
Lois J. Hedrick
------------------------------
Notary Public
My commission expires January 8, 1984.
Submit to this office in duplicate.
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND
- --------------------------------------------------------------------------------
We, Michael J. Provines, President, and Amy J. Lee, Secretary of the above named
corporation organized and existing under the laws of the State of Kansas, do
hereby certify that at a meeting of the Board of Directors of said corporation,
the board adopted a resolution setting forth the following amendment to the
Articles of Incorporation and declaring its advisability:
RESOLVED, that whereas the Corporation's board of directors deems it
advisable and in the best interest of the corporation to increase the
authorized capitalization of the corporation, that the articles of
incorporation of Security Equity Fund be amended by deleting the first
paragraph of Article FIFTH in its entirety, and by inserting in lieu
thereof, the following new first paragraph of Article FIFTH:
"The total number of shares which the Corporation shall have authority
to issue shall be 300,000,000 shares of capital stock, each of the par
value of $0.25 (twenty-five cents) per share."
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at the meeting a majority of the stockholders
entitled to vote voted in favor of the proposed amendment.
We further certify that said amendment was duly adopted in accordance with
the provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of
said corporation this 15th day of July, 1987.
Michael J. Provines
------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
<PAGE>
State of Kansas )
) ss
County of Shawnee)
Be it remembered, that before me, a Notary Public in and for the county and
state personally appeared Michael J. Provines, President and Amy J. Lee,
Secretary of the corporation named in this document, who are known to me to be
the persons who executed the foregoing certificate, and duly acknowledged the
execution of the same this 15th day of July, 1987.
Glenda J. Overstreet
------------------------------
Notary Public
My commission expires: February 1, 1990.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-2236
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND
We, Michael J. Provines, President , and Amy J. Lee, Secretary, of the
above named corporation, a corporation organized and existing under the laws of
the State of Kansas, do hereby certify that at a meeting of the Board of
Directors of said corporation, the board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declaring its
advisability;
RESOLVED, that whereas the Corporation's board of directors deems it
advisable and in the best interest of the corporation that the Articles of
Incorporation be amended by adopting the following Article Sixteenth:
"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."
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at the meeting a majority of the stockholders entitled
to vote voted in favor of the proposed amendment. We further certify that the
amendment was duly adopted in accordance with the provisions of K.S.A. 17-6602,
as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
<PAGE>
In Witness Whereof, we have hereunto set out hands and affixed the seal of said
corporation this 11th day of December, 1987.
Michael J. Provines
------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
State of Kansas )
) ss.
County of Shawnee)
Be it remembered, that before me, a Notary Public in and for the aforesaid
county and state, personally appeared Michael J. Provines, President, and Amy J.
Lee, Secretary, of the corporation named in this document, who are known to me
to be the same persons who executed the foregoing certificate, and duly
acknowledged the execution of the same this 11th day of December, 1987.
Glenda J. Overstreet
------------------------------
Notary Public
My Commission Expires: February 1, 1990.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20.00 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-2236
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND
We, Michael J. Provines, President , and Amy J. Lee, Secretary, of the above
named corporation, corporation organized and existing under the laws of the
State of Kansas, do hereby certify that at a meeting of the Board of Directors
of said corporation, the board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability:
See attached amendment
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the
corporation this 27th day of July, 1993.
Michael J. Provines
------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF Kansas )
) ss.
COUNTY OF Shawnee)
Be it remembered that before me, a Notary Public in and for the aforesaid
county and state, personally appeared Michael J. Provines, President, and Amy J.
Lee, Secretary, of the corporation named in this document, who are known to me
to be the same persons who executed the foregoing certificate, and duly
acknowledged the execution of the same this 27th day of July, 1993.
Peggy S. Avey
------------------------------
Peggy S. Avey Notary Public
(NOTARIAL SEAL)
My appointment or commission expires: November 21, 1996.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
SECURITY EQUITY FUND
The Board of Directors of Security Equity Fund recommends that the Articles of
Incorporation be amended by deleting Article Fifth in its entirety and by
inserting, in lieu therefor, the following new Article:
FIFTH: The total number of shares of stock which the corporation shall have
authority to issue shall be 300,000,000 shares of capital stock, each of the par
value of $0.25 (twenty-five cents). The board of directors of the Corporation is
expressly authorized to cause shares of capital stock of the Corporation
authorized herein to be issued in one or more classes or series as may be
established from time to time by setting or changing in one or more respects the
voting powers, rights, qualifications, limitations or restrictions of such
shares of stock and to increase or decrease the number of shares so authorized
to be issued in any such class or series.
The following provisions are hereby adopted for the purpose of setting forth the
powers, rights, qualifications, limitations or restrictions of the capital stock
of the Corporation (unless provided otherwise by the board of directors with
respect to any such additional class or series at the time of establishing and
designating such additional class or series):
(1) At all meetings of stockholders each stockholder of the Corporation of any
class or series shall be entitled to one vote on each matter submitted to a
vote at such meeting for each share of stock standing in his name on the
books of the Corporation on the date, fixed in accordance with the Bylaws,
for determination of stockholders entitled to vote at such meeting. At all
elections of directors each stockholder of any class or series shall be
entitled to as many votes as shall equal the number of shares of stock
multiplied by the number of directors to be elected, and stockholders may
cast all of such votes for a single director or may distribute them among
the number to be voted for, or any two or more of them as they may see fit.
(2) (a) Each holder of capital stock of the Corporation, of any class or
series, upon request to the Corporation accompanied by surrender of
the appropriate stock certificate or certificates in proper form for
transfer, shall be entitled to require the Corporation to repurchase
all or any part of the shares of capital stock standing in the name of
such holder on the books of the Corporation, at the net asset value of
such shares. The method of computing such net asset value, the time as
of which such net asset value shall be computed and the time within
which the Corporation shall make payment therefor shall be determined
as hereinafter provided in Article TENTH of these Articles of
Incorporation. Notwithstanding the foregoing, the Board of Directors
of the Corporation may suspend the right of the holders of the capital
stock of the Corporation to require the Corporation to redeem shares
of such capital stock:
(i) for any period (A) during which the New York Exchange is
closed other than customary weekend and holiday closings,
or (B) during which trading on the New York Stock Exchange
is restricted:
(ii) for any period during which an emergency, as defined by
rules of the Securities and Exchange Commission or any
successor thereto, exists as a result of which (A)
disposal by the Corporation of securities owned by it is
not reasonably practicable or (B) it is not reasonably
practicable for the Corporation fairly to determine the
value of its net assets; or
<PAGE>
(iii) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit
for the protection of security holders of the Corporation.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the Corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions thereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the Corporation having funds
or property legally available therefor.
(c) The Corporation, pursuant to a resolution by the Board of Directors
and without the vote or consent of stockholders of the Corporation,
shall have the right to redeem at net asset value all shares of
capital stock of the Corporation in any stockholder account in which
there has been no investment (other than reinvestment of income
dividends or capital gains distributions) for at least six months and
in which there are fewer than 25 shares or such fewer shares as shall
be specified in such resolution. Such resolution shall set forth that
redemption of shares in such accounts has been determined to be in the
economic best interests of the Corporation or necessary to reduce
disproportionately burdensome expenses in that prior notice of at
least six months shall be given to a stockholder before such
redemption of shares, and that the stockholder will have six months
(or such longer period as specified in the resolution) from the date
of the notice to avoid such redemption by increasing his account to at
least 25 shares, or such fewer shares as is specified in the
resolution
(3) No holder of stock of the Corporation of any class or series shall, as such
holder, have any rights to purchase or subscribe for any shares of the
capital stock of the Corporation of any class or series which it may issue
or sell (whether out of the number of shares authorized by these Articles
of Incorporation, or out of any shares of the capital stock of the
Corporation, acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(4) All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of these Articles of Incorporation.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Michael J. Provines, President, and Amy J. Lee, Secretary, of Security
Equity Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that pursuant to
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 23rd day of July, 1993,
adopted resolutions setting forth the preferences, rights, privileges and
restrictions of the separate series of stock of Security Equity Fund, which
resolutions are provided in their entirety as follows:
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
Security Equity Fund by its Articles of Incorporation, the officers of the Fund
are hereby directed and authorized to establish four separate series of common
stock of the corporation, effective October 5, 1993. The first such series shall
be known as the Equity Series A and shall consist of that series of stock
currently being issued by the Fund. The other series shall be new series and
shall be known as Equity Series B, Global Series A and Global Series B. The
officers of the Fund are hereby directed and authorized to establish such series
of common stock allocating 265,000,000 $0.25 par value shares of the
corporation's authorized capital stock of 300,000,000 shares to the Equity
Series A; 20,000,000 $0.25 par value shares to the Equity Series B; 7,500,000
$0.25 par value shares to the Global Series A; and the remaining 7,500,000 $0.25
par value shares to the Global Series B.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Equity Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled
to as many votes as shall equal the number of shares of stock multiplied by
the number of directors to
<PAGE>
be elected, and he or she may cast all of such votes for a single director
or may distribute them among the number to be voted for, or any two or more
of them as he or she may see fit. Notwithstanding the foregoing, (i) if any
matter is submitted to the stockholders which does not affect the interests
of all series, then only stockholders of the affected series shall be
entitled to vote and (ii) in the event the Investment Company Act of 1940,
as amended, or the rules and regulations promulgated thereunder shall
require a greater or different vote than would otherwise be required herein
or by the Articles of Incorporation of the corporation, such greater or
different voting requirement shall also be satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. The corporation, pursuant to a resolution by the Board of Directors and
without the vote or consent of stockholders of the corporation, shall have
the right to redeem at net asset value all shares of capital stock of the
corporation in any stockholder account in which there has been no
investment (other than the reinvestment of income dividend or capital gains
distributions) for at least six months and in which there are fewer than 25
shares or such few shares as shall be specified in such resolution. Such
resolution shall set forth that redemption of shares in such accounts has
been determined to be in the economic best interests of the corporation or
necessary to reduce disproportionately burdensome expenses in servicing
stockholder accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such redemption of
shares, and that the stockholder shall have six months (or such longer
period as specified in the resolution) from the date of the notice to avoid
such redemption by increasing his or her account to at least 25 shares, or
such fewer shares as is specified in the resolution.
5. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
<PAGE>
6. (a) Outstanding shares of Equity Series A and B shall represent a
stockholder interest in a particular fund of assets held by the corporation
which fund shall be invested and reinvested in accordance with policies and
objectives established by the Board of Directors for these series.
Outstanding shares of Global Series A and B shall represent a stockholder
interest in a particular fund of assets held by the corporation which fund
shall be invested and reinvested in accordance with policies and objectives
established by the Board of Directors for these series.
(b) All cash and other property received by the corporation from the sale
of shares of Equity Series A and B and Global Series A and B, respectively,
all securities and other property held as a result of the investment and
reinvestment of such cash and other property, all revenues and income
received or receivable with respect to such cash, other property,
investments and reinvestments, and all proceeds derived from the sale,
exchange, liquidation or other disposition of any of the foregoing, shall
be allocated to the Equity Series A and B or Global Series A and B to which
they relate and held for the benefit of the stockholders owning shares of
such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged to
the series to which such loss, liability or expense relates. Where any
loss, liability or expense relates to more than one series, the Board of
Directors shall allocate the same between or among such series pro rata
based on the respective net asset values of such series or on such other
basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
7. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
8. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Equity Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
will be paid at the same dividend rate except that expenses attributable to
Equity Series A or B and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Equity
Series. Stockholders of the Equity Series shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Global Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the same time, on the same day, and shall be
paid at the same dividend rate, except that expenses attributable to a
particular series and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan
<PAGE>
shall be borne exclusively by the affected Global Series. Stockholders of
the Global Series shall share in dividends declared and paid with respect
to such series pro rata based on their ownership of shares of such series.
Whenever dividends are declared and paid with respect to the Equity Series
A and B or the Global Series A and B, the holders of shares of the other
series shall have no rights in or to such dividends.
9. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
10. On the eighth anniversary of the purchase of shares of the Equity Series B,
or the Global Series B, those shares (except those purchased through the
reinvestment of dividends and other distributions), shall automatically
convert to Equity Series A or Global Series A shares respectively, at the
relative net asset values of each of the series without the imposition of
any sales load, fee or other charge. All shares in a stockholder's account
that were purchased through the reinvestment of dividends and other
distributions paid with respect to Series B shares will be considered to be
held in a separate sub-account. Each time Series B shares are converted to
Series A shares, a pro rata portion of the Series B shares held in the
sub-account will also convert to Series A shares.
IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of October 1993.
Michael J. Provines
------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
[SEAL]
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me Judith M. Ralston a Notary Public in and for
the County and State aforesaid, came Michael J. Provines, President, and Amy J.
Lee, Secretary, of Security Equity Fund, a Kansas corporation, personally known
to me to be the persons who executed the foregoing instrument of writing as
President and Secretary, respectively, and duly acknowledged the execution of
the same this 5th day of October, 1993.
Judith M. Ralston
------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 1, 1995.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SECURITY EQUITY FUND
We, John D. Cleland, President , and Amy J. Lee, Secretary, of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a meeting of the Board of Directors of said
corporation, the board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability:
See attached amendment
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote, voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the
corporation this 21st day of December, 1994.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that before me, a Notary Public in and for the aforesaid
county and state, personally appeared John D. Cleland, President, and Amy J.
Lee, Secretary, of Security Equity Fund, who are known to me to be the same
persons who executed the foregoing certificate, and duly acknowledged the
execution, of the same this 21st day of December, 1994
Judith M. Ralston
------------------------------
Judith M. Ralston, Notary
(NOTARIAL SEAL)
My commission expires: January 1, 1995.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
SECURITY EQUITY FUND
The Board of Directors of Security Equity Fund recommends that the Articles of
Incorporation be amended by deleting the first paragraph of Article Fifth and by
inserting, in lieu thereof, the following new Article:
FIFTH: The total number of shares which this Corporation shall have authority to
issue shall be (5,000,000,000) shares of capital stock, each of the par value of
$0.25 (twenty-five cents). The board of directors of the Corporation is
expressly authorized to cause shares of capital stock in the Corporation
authorized herein to be issued in one or more classes or series as may be
established from time to time by setting or changing in one or more respects the
voting powers, rights, qualifications, limitations or restrictions of such
shares of stock and to increase or decrease the number of shares so authorized
to be issued in any such class or series.
<PAGE>
CERTIFICATE OF
CHANGE OF DESIGNATION
OF COMMON STOCK OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security
Equity Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to the authority expressly vested in the Board of Directors by the provisions of
the corporation's Articles of Incorporation, the Board of Directors of said
corporation at its regular meeting duly convened and held on the 22nd day of
July, 1994, adopted resolutions reallocating the number of existing shares
authorized to be issued in the four separate series of common stock of the
corporation. Resolutions were also adopted which reaffirmed the preferences,
rights, privileges and restrictions of the separate series of stock of Security
Equity Fund, which resolutions are provided in their entirety as follows:
WHEREAS Security Equity Fund issues its common stock in four separate
series designated as Equity Series A, Equity Series B, Global Series A and
Global Series B.
WHEREAS, the Board of Directors wishes to reallocate the 300,000,000,
shares of authorized capital stock among the series.
NOW, THEREFORE, BE IT RESOLVED, that the officers of the corporation are
hereby directed and authorized to allocate the Fund's existing authorized
capital stock of 300,000,000 shares as follows: 290,000,000 $0.25 par value
shares to Equity Series A, 5,000,000 $0.25 par value shares to the Equity
Series B; 3,000,000 $0.25 par value shares to the Global Series A; and the
remaining 2,000,000 $0.25 par value shares to the Global Series B.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the corporation's series of common
stock, as set forth in the minutes of the July 23, 1993, meeting of this
Board of Directors, are hereby reaffirmed and incorporated by reference
into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and
they hereby are, authorized and directed to take such action as may be
necessary under the laws of the State of Kansas or as they deem appropriate
to cause the foregoing resolutions to become effective.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 22nd day of July, 1994.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Judith M. Ralston, a Notary Public in and
for the County and State aforesaid, came JOHN D CLELAND, President, and AMY J.
LEE, Secretary, of Security Equity Fund, a Kansas corporation, personally known
to me to be the persons who executed the foregoing instrument of writing as
President and Secretary, respectively, and duly acknowledged the execution of
the same this 22nd day of July, 1994.
Judith M. Ralston
--------------------------------
Judith M. Ralston, Notary Public
(NOTARIAL SEAL)
My commission expires: January 1, 1995.
<PAGE>
CERTIFICATE OF CHANGE OF
DESIGNATION OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that pursuant to
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 3rd day of April 1995,
adopted resolutions (i) establishing two new series of common stock in addition
to those four series of common stock currently being issued by the corporation,
and (ii) allocating the corporation's authorized capital stock among the six
series of common stock of the corporation. Resolutions were also adopted which
reaffirmed the preferences, rights, privileges and restrictions of the separate
series of stock of Security Equity Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two new
series of common stock of Security Equity Fund in addition to the four
separate series of common stock presently issued by the fund designated as
Equity Series A, Equity Series B, Global Series A and Global Series B;
WHEREAS, the Board of Directors wishes to reallocate the 5,000,000,000
shares of authorized capital stock among the series.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are
hereby directed and authorized to establish two new series of the Security
Equity Fund designated as Asset Allocation Series A and Asset Allocation
Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed
and authorized to allocate the corporation's authorized capital stock of
5,000,000,000 shares as follows: 1,500,000,000 $0.25 par value shares of
the corporation's authorized capital stock to the Equity Series A;
500,000,000 $0.25 par value shares to the Equity Series B; 750,000,000
$0.25 par value shares to each of the Global Series A and Asset Allocation
Series A; 250,000,000 $0.25 par value shares to each of the Global Series B
and Asset Allocation Series B; and 1,000,000,00 shares shall remain
unallocated.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the series of Security Equity Fund
shall be as follows.
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
<PAGE>
2. At all meetings of stockholders, each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled
to as many votes as shall equal the number of shares of stock multiplied by
the number of directors to be elected, and he or she may cast all of such
votes for a single director or may distribute them among the number to be
voted for, or any two or more of them as he or she may see fit.
Notwithstanding the foregoing, (i) if any matter is submitted to the
stockholders which does not affect the interests of all series, then only
stockholders of the affected series shall be entitled to vote and (ii) in
the event the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder shall require a greater or different
vote than would otherwise be required herein or by the Articles of
Incorporation of the corporation, such greater or different voting
requirement shall also be satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. The corporation, pursuant to a resolution by the Board of Directors and
without the vote or consent of stockholders of the corporation, shall have
the right to redeem at net asset value all shares of capital stock of the
corporation in any stockholder account in which there has been no
investment (other than the reinvestment of income dividend or capital gains
distributions) for at least six months and in which there are fewer than 25
shares or such few shares as shall be specified in such resolution. Such
resolution shall set forth that redemption of shares in such accounts has
been determined to be in the economic best interests of the corporation or
necessary to reduce disproportionately burdensome expenses in servicing
stockholder accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such redemption of
shares, and that the stockholder will have six months (or such longer
period as specified in the resolution) from the date of the notice to avoid
such redemption by increasing his or her account to at least 25 shares, or
such fewer shares as is specified in the resolution.
5. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
<PAGE>
6. (a) Outstanding shares of Equity Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these series. Outstanding shares of Global Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors for these series. Outstanding shares of Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested
and reinvested in accordance with policies and objectives established
by the Board of Directors for these series.
(b) All cash and other property received by the corporation from the sale
of shares of the Equity Series A and B, Global Series A and B, and
Asset Allocation Series A and B, respectively, all securities and
other property held as a result of the investment and reinvestment of
such cash and other property, all revenues and income received or
receivable with respect to such cash, other property, investments and
reinvestments, and all proceeds derived from the sale, exchange,
liquidation or other disposition of any of the foregoing, shall be
allocated to the Equity Series A and B, Global Series A and B, or
Asset Allocation Series A and B, to which they relate and held for the
benefit of the stockholders owning shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the Board of Directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the Board of Directors deems
appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
7. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
8. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Global Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
will be paid at the same dividend rate except that expenses attributable to
Equity Series A or B and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Equity
Series. Stockholders of the Equity Series shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Global Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the same time, on the same day, and shall be
paid at the same dividend rate, except that expenses attributable to a
particular series and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Global Series.
Stockholders of the Global
<PAGE>
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares
of Asset Allocation Series A and B represent a stockholder interest in a
particular fund of assets held by the corporation and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and shall be paid at the same
dividend rate, except that expenses attributable to a particular series and
payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall
be borne exclusively by the affected Asset Allocation Series. Stockholders
of the Asset Allocation Series shall share in dividends declared and paid
with respect to such series pro rata based on their ownership of shares of
such series. Whenever dividends are declared and paid with respect to the
Equity Series A and B, the Global Series A and B, or the Asset Allocation
Series A and B, the holders of shares of the other series shall have no
rights in or to such dividends.
9. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
10. On the eighth anniversary of the purchase of shares of the Equity Series B,
the Global Series B, or Asset Allocation Series B, those shares (except
those purchased through the reinvestment of dividends and other
distributions) shall automatically convert to Equity Series A, Global
Series A, or Asset Allocation Series A shares, respectively, at the
relative net asset values of each of the series without the imposition of
any sales load, fee or other charge. All shares in a stockholder's account
that were purchased through the reinvestment of dividends and other
distributions paid with respect to Series B shares will be considered to be
held in a separate sub-account. Each time Series B shares are converted to
Series A shares, a pro rata portion of the Series B shares held in the
sub-account will also convert to Series A shares.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 3rd day of April, 1995.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me Connie Brungardt, a Notary Public in and for
the County and State aforesaid, came John D. Cleland, President, and Amy J. Lee,
Secretary, of Security Equity Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 3rd day of April, 1995.
Connie Brungardt
------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 30, 1998.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SECURITY EQUITY FUND
We, John D. Cleland, President , and Amy J. Lee, Secretary of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a regular meeting of the Board of Directors of
said corporation, held on the 2nd day of February, 1996, the board adopted a
resolution setting forth the following amendment to the Articles of
Incorporation and declaring its advisability:
RESOLVED
The Board of Directors of Security Equity Fund recommends that the Articles of
Incorporation be amended by deleting the first paragraph of Article Fifth in its
entirety and by inserting, in lieu thereof, the following new Article:
FIFTH: The corporation shall have authority to issue an indefinite number of
shares of common stock, of the par value of twenty-five cents ($0.25) per share.
The board of directors of the Corporation is expressly authorized to cause
shares of capital stock of the Corporation authorized herein to be issued in one
or more series as may be established from time to time by setting or changing in
one or more respects the voting powers, rights, qualifications, limitations or
restrictions of such shares of stock and to increase or decrease the number of
shares so authorized to be issued in any such series.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said
corporation this 2nd day of February, 1996.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
[SEAL]
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that before me, L. Charmaine Lucas, a Notary Public in and for
the aforesaid county and state, personally appeared John D. Cleland, President,
and Amy J. Lee, Secretary, of Security Equity Fund, who are known to me to be
the same persons who executed the foregoing certificate and duly acknowledged
the execution of the same this 2nd day of February, 1996.
L. Charmaine Lucas
------------------------------
L. Charmaine Lucas, Notary
(NOTARIAL SEAL)
My commission expires: April 1, 1998
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 2nd day of February,
1996, adopted resolutions authorizing the corporation to issue an indefinite
number of shares of capital stock of each of the six series of common stock of
the corporation. Resolutions were also adopted which reaffirmed the preferences,
rights, privileges and restrictions of separate series of stock of Security
Equity Fund, which resolutions are provided in their entirety as follows:
WHEREAS, K.S.A. 17-6602 has been amended to allow the board of directors of
a corporation that is registered as an open-end investment company under
the Investment Company Act of 1940 (the "1940 Act") to approve, by
resolution, an amendment of the corporation's Articles of Incorporation, to
allow the issuance of an indefinite number of shares of the capital stock
of the corporation;
WHEREAS, the corporation is registered as an open-end investment company
under the 1940 Act; and
WHEREAS, the Board of Directors desire to authorize the issuance of an
indefinite number of shares of capital stock of each of the six series of
common stock of the corporation;
NOW THEREFORE BE IT RESOLVED, that, the officers of the corporation are
hereby directed and authorized to issue an indefinite number of $0.25 par
value shares of capital stock of each series of the corporation, which
consist of Equity Series A; Equity Series B; Global Series A; Global Series
B; Asset Allocation Series A; and Asset Allocation Series B.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the corporation's series of common
stock, as set forth in the minutes of the April 3, 1995, meeting of this
Board of Directors, are hereby reaffirmed and incorporated by reference
into the minutes of this meeting; and
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and
they hereby are, authorized and directed to take such action as may be
necessary under the laws of the State of Kansas or as they deem appropriate
to cause the foregoing resolutions to become effective.
<PAGE>
The undersigned do hereby certify that the foregoing amendment to the
corporation's Articles of Incorporation has been duly adopted in accordance with
the provisions of K.S.A. 17-6602.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 2nd day of February, 1996.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
[SEAL]
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for
the aforesaid County and State aforesaid, came John D. Cleland, President, and
Amy J. Lee, Secretary, of Security Equity Fund, a Kansas corporation, personally
known to me to be the same persons who executed the foregoing instrument of
writing as President and Secretary, respectively, and duly acknowledged the
execution of the same this 2nd day of February, 1996.
L. Charmaine Lucas
---------------------------------
L. Charmaine Lucas, Notary Public
(NOTARIAL SEAL)
My commission expires: April 1, 1998
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 26th day of July, 1996,
adopted resolutions (i) establishing two new series of common stock in addition
to those six series of common stock currently being issued by the corporation,
and (ii) allocating the corporation's authorized capital stock among the eight
series of common stock of the corporation. Resolutions were also adopted which
reaffirmed the preferences, rights, privileges and restrictions of the separate
series of stock of Security Equity Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two new
series of common stock of Security Equity Fund in addition to the six
separate series of common stock presently issued by the fund designated as
Equity Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A and Asset Allocation Series B;
WHEREAS, the Board of Directors desire to authorize the issuance of an
indefinite number of shares of capital stock of each of the eight series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are
hereby directed and authorized to establish two new series of the Security
Equity Fund designated as Social Awareness Series A and Social Awareness
Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed
and authorized to issue an indefinite number of $0.25 par value shares of
capital stock of each series of the corporation, which consist of Equity
Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A, Asset Allocation Series B, Social Awareness Series A
and Social Awareness Series B.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the series of Security Equity Fund
shall be as follows.
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
2. At all meetings of stockholders, each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common
<PAGE>
stock standing in his or her name on the books of the corporation on the
date, fixed in accordance with the bylaws, for determination of
stockholders entitled to vote at such meeting. At all elections of
directors each stockholder shall be entitled to as many votes as shall
equal the number of shares of stock multiplied by the number of directors
to be elected, and he or she may cast all of such votes for a single
director or may distribute them among the number to be voted for, or any
two or more of them as he or she may see fit. Notwithstanding the
foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. The corporation, pursuant to a resolution by the Board of Directors and
without the vote or consent of stockholders of the corporation, shall have
the right to redeem at net asset value all shares of capital stock of the
corporation in any stockholder account in which there has been no
investment (other than the reinvestment of income dividend or capital gains
distributions) for at least six months and in which there are fewer than 25
shares or such few shares as shall be specified in such resolution. Such
resolution shall set forth that redemption of shares in such accounts has
been determined to be in the economic best interests of the corporation or
necessary to reduce disproportionately burdensome expenses in servicing
stockholder accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such redemption of
shares, and that the stockholder will have six months (or such longer
period as specified in the resolution) from the date of the notice to avoid
such redemption by increasing his or her account to at least 25 shares, or
such fewer shares as is specified in the resolution.
5. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
<PAGE>
6. (a) Outstanding shares of Equity Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these series. Outstanding shares of Global Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors for these series. Outstanding shares of Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested
and reinvested in accordance with policies and objectives established
by the Board of Directors for these series. Outstanding shares of
Social Awareness Series A and B shall represent a stockholder interest
in a particular fund of assets held by the corporation which fund
shall be invested and reinvested in accordance with policies and
objectives established by the Board of Directors for these Series.
(b) All cash and other property received by the corporation from the sale
of shares of the Equity Series A and B, Global Series A and B, Asset
Allocation Series A and B, and Social Awareness Series A and B,
respectively, all securities and other property held as a result of
the investment and reinvestment of such cash and other property, all
revenues and income received or receivable with respect to such cash,
other property, investments and reinvestments, and all proceeds
derived from the sale, exchange, liquidation or other disposition of
any of the foregoing, shall be allocated to the Equity Series A and B,
Global Series A and B, Asset Allocation Series A and B, or Social
Awareness Series A and B, to which they relate and held for the
benefit of the stockholders owning shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the Board of Directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the Board of Directors deems
appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
7. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
8. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Equity Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Equity
Series. Stockholders of the Equity Series shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Global Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the
<PAGE>
same time, on the same day, and shall be paid at the same dividend rate
except that expenses attributable to a particular series and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Global Series. Stockholders of the Global
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares
of Asset Allocation Series A and B represent a stockholder interest in a
particular fund of assets held by the corporation and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and shall be paid at the same
dividend rate, except that expenses attributable to a particular series and
payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall
be borne exclusively by the affected Asset Allocation Series. Stockholders
of the Asset Allocation Series shall share in dividends declared and paid
with respect to such series pro rata based on their ownership of shares of
such series. Shares of Social Awareness Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the same time, on the same day, and shall be
paid at the same dividend rate, except that expenses attributable to a
particular series and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Social Awareness
Series. Stockholders of the Social Awareness Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Whenever dividends are declared
and paid with respect to the Equity Series A and B, the Global Series A and
B, the Asset Allocation Series A and B, or the Social Awareness Series A
and B, the holders of shares of the other series shall have no rights in or
to such dividends.
9. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
10. On the eighth anniversary of the purchase of shares of the Equity Series B,
the Global Series B, the Asset Allocation Series B, or the Social Awareness
Series B, those shares (except those purchased through the reinvestment of
dividends and other distributions) shall automatically convert to Equity
Series A, Global Series A, Asset Allocation Series A or Social Awareness
Series A shares respectively, at the relative net asset values of each of
the series without the imposition of any sales load, fee or other charge.
All shares in a stockholder's account that were purchased through the
reinvestment of dividends and other distributions paid with respect to
Series B shares will be considered to be held in a separate sub-account.
Each time Series B shares are converted to Series A shares, a pro rata
portion of the Series B shares held in the sub-account will also convert to
Series A shares.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 1st day of August, 1996.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me Jana R. Selley, a Notary Public in and for the
County and State aforesaid, came John D. Cleland, President, and Amy J. Lee,
Secretary, of Security Equity Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 1st day of August, 1996.
Jana Selley
------------------------------
Notary Public
My commission expires: June 14, 2000
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 7th day of February,
1997, adopted resolutions (i) establishing two new series of common stock in
addition to those eight series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the ten series of common stock of the corporation. Resolutions were also
adopted which reaffirmed the preferences, rights, privileges and restrictions of
the separate series of stock of Security Equity Fund, which resolutions are
provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two
new series of common stock of Security Equity Fund in addition to the eight
separate series of common stock presently issued by the fund designated as
Equity Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A, Asset Allocation Series B, Social Awareness Series A
and Social Awareness Series B;
WHEREAS, the Board of Directors desires to authorize the issuance of
an indefinite number of shares of capital stock of each of the ten series
of common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation
are hereby directed and authorized to establish two new series of the
Security Equity Fund designated as Value Series A and Value Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby
directed and authorized to issue an indefinite number of $0.25 par value
shares of capital stock of each series of the corporation, which consist of
Equity Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A, Asset Allocation Series B, Social Awareness Series A,
Social Awareness Series B, Value Series A and Value Series B.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the series of Security Equity Fund
shall be as follows.
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
2. At all meetings of stockholders, each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance
<PAGE>
with the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled
to as many votes as shall equal the number of shares of stock multiplied by
the number of directors to be elected, and he or she may cast all of such
votes for a single director or may distribute them among the number to be
voted for, or any two or more of them as he or she may see fit.
Notwithstanding the foregoing, (i) if any matter is submitted to the
stockholders which does not affect the interests of all series, then only
stockholders of the affected series shall be entitled to vote and (ii) in
the event the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder shall require a greater or different
vote than would otherwise be required herein or by the Articles of
Incorporation of the corporation, such greater or different voting
requirement shall also be satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. The corporation, pursuant to a resolution by the Board of Directors and
without the vote or consent of stockholders of the corporation, shall have
the right to redeem at net asset value all shares of capital stock of the
corporation in any stockholder account in which there has been no
investment (other than the reinvestment of income dividend or capital gains
distributions) for at least six months and in which there are fewer than 25
shares or such fewer shares as shall be specified in such resolution. Such
resolution shall set forth that redemption of shares in such accounts has
been determined to be in the economic best interests of the corporation or
necessary to reduce disproportionately burdensome expenses in servicing
stockholder accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such redemption of
shares, and that the stockholder will have six months (or such longer
period as specified in the resolution) from the date of the notice to avoid
such redemption by increasing his or her account to at least 25 shares, or
such fewer shares as is specified in the resolution.
5. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
<PAGE>
6. (a) Outstanding shares of Equity Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these series. Outstanding shares of Global Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors for these series. Outstanding shares of Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested
and reinvested in accordance with policies and objectives established
by the Board of Directors for these series. Outstanding shares of
Social Awareness Series A and B shall represent a stockholder interest
in a particular fund of assets held by the corporation which fund
shall be invested and reinvested in accordance with policies and
objectives established by the Board of Directors for these Series.
Outstanding shares of Values Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these Series.
(b) All cash and other property received by the corporation from the sale
of shares of the Equity Series A and B, Global Series A and B, Asset
Allocation Series A and B, Social Awareness Series A and B, and Value
Series A and B, respectively, all securities and other property held
as a result of the investment and reinvestment of such cash and other
property, all revenues and income received or receivable with respect
to such cash, other property, investments and reinvestments, and all
proceeds derived from the sale, exchange, liquidation or other
disposition of any of the foregoing, shall be allocated to the Equity
Series A and B, Global Series A and B, Asset Allocation Series A and
B, Social Awareness Series A and B, or Value Series A and B, to which
they relate and held for the benefit of the stockholders owning shares
of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the Board of Directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the Board of Directors deems
appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
7. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
8. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Equity Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Equity
Series.
<PAGE>
Stockholders of the Equity Series shall share in dividends declared and
paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Global Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the same time, on the same day, and shall be
paid at the same dividend rate except that expenses attributable to a
particular series and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Global Series.
Stockholders of the Global Series shall share in dividends declared and
paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Asset Allocation Series A and B represent
a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Asset
Allocation Series. Stockholders of the Asset Allocation Series shall share
in dividends declared and paid with respect to such series pro rata based
on their ownership of shares of such series. Shares of Social Awareness
Series A and B represent a stockholder interest in a particular fund of
assets held by the corporation and, accordingly, dividends shall be
calculated and declared for these series in the same manner, at the same
time, on the same day, and shall be paid at the same dividend rate, except
that expenses attributable to a particular series and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Social Awareness Series. Stockholders of the
Social Awareness Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Shares of Value Series A and B represent a stockholder interest in
a particular fund of assets held by the corporation and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and shall be paid at the same
dividend rate, except that expenses attributable to a particular series and
payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall
be borne exclusively by the affected Value Series. Stockholders of the
Value Series shall share in dividends declared and paid with respect to
such series pro rata based on their ownership of shares of such series.
Whenever dividends are declared and paid with respect to the Equity Series
A and B, the Global Series A and B, the Asset Allocation Series A and B,
the Social Awareness Series A and B, or the Value Series A and B, the
holders of shares of the other series shall have no rights in or to such
dividends.
9. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
10. On the eighth anniversary of the purchase of shares of the Equity Series B,
the Global Series B, the Asset Allocation Series B, the Social Awareness
Series B, or the Value Series B, those shares (except those purchased
through the reinvestment of dividends and other distributions) shall
automatically convert to Equity Series A, Global Series A, Asset Allocation
Series A, Social Awareness Series A, or Value Series A shares respectively,
at the relative net asset values of each of the series without the
imposition of any sales load, fee or other charge. All shares in a
stockholder's account that were purchased through the reinvestment of
dividends and other distributions paid with respect to Series B shares will
be considered to be held in a separate sub-account. Each time Series B
shares are converted to Series A shares, a pro rata portion of the Series B
shares held in the sub-account will also convert to Series A shares.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 12th day of March, 1997.
John D. Cleland
------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me L. Charmaine Lucas, a Notary Public in and for
the County and State aforesaid, came John D. Cleland, President, and Amy J. Lee,
Secretary, of Security Equity Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 12th day of March, 1997.
L. Charmaine Lucas
------------------------------
Notary Public
My commission expires: April 1, 1998
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary, of Security Equity
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 25th day of July, 1997,
adopted resolutions (i) establishing two new series of common stock in addition
to those ten series of common stock currently being issued by the corporation,
and (ii) allocating the corporation's authorized capital stock among the twelve
series of common stock of the corporation. Resolutions were also adopted which
reaffirmed the preferences, rights, privileges and restrictions of the separate
series of stock of Security Equity Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two
new series of common stock of Security Equity Fund in addition to the ten
separate series of common stock presently issued by the fund designated as
Equity Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A, Asset Allocation Series B, Social Awareness Series A,
Social Awareness Series B, Value Series A and Value Series B;
WHEREAS, the Board of Directors desires to authorize the issuance of
an indefinite number of shares of capital stock of each of the twelve
series of common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation
are hereby directed and authorized to establish two new series of the
Security Equity Fund designated as Small Company Series A and Small Company
Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby
directed and authorized to issue an indefinite number of $0.25 par value
shares of capital stock of each series of the corporation, which consist of
Equity Series A, Equity Series B, Global Series A, Global Series B, Asset
Allocation Series A, Asset Allocation Series B, Social Awareness Series A,
Social Awareness Series B, Value Series A, Value Series B, Small Company
Series A and Small Company Series B.
FURTHER RESOLVED, that, the preferences, rights, privileges and
restrictions of the shares of each of the series of Security Equity Fund
shall be as follows.
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
2. At all meetings of stockholders, each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common
<PAGE>
stock standing in his or her name on the books of the corporation on the
date, fixed in accordance with the bylaws, for determination of
stockholders entitled to vote at such meeting. At all elections of
directors each stockholder shall be entitled to as many votes as shall
equal the number of shares of stock multiplied by the number of directors
to be elected, and he or she may cast all of such votes for a single
director or may distribute them among the number to be voted for, or any
two or more of them as he or she may see fit. Notwithstanding the
foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. The corporation, pursuant to a resolution by the Board of Directors and
without the vote or consent of stockholders of the corporation, shall have
the right to redeem at net asset value all shares of capital stock of the
corporation in any stockholder account in which there has been no
investment (other than the reinvestment of income dividend or capital gains
distributions) for at least six months and in which there are fewer than 25
shares or such fewer shares as shall be specified in such resolution. Such
resolution shall set forth that redemption of shares in such accounts has
been determined to be in the economic best interests of the corporation or
necessary to reduce disproportionately burdensome expenses in servicing
stockholder accounts. Such resolution shall provide that prior notice of at
least six months shall be given to a stockholder before such redemption of
shares, and that the stockholder will have six months (or such longer
period as specified in the resolution) from the date of the notice to avoid
such redemption by increasing his or her account to at least 25 shares, or
such fewer shares as is specified in the resolution.
5. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
<PAGE>
6. (a) Outstanding shares of Equity Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these series. Outstanding shares of Global Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors for these series. Outstanding shares of Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested
and reinvested in accordance with policies and objectives established
by the Board of Directors for these series. Outstanding shares of
Social Awareness Series A and B shall represent a stockholder interest
in a particular fund of assets held by the corporation which fund
shall be invested and reinvested in accordance with policies and
objectives established by the Board of Directors for these Series.
Outstanding shares of Values Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors for
these Series. Outstanding shares of Small Company Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors for these Series
(b) All cash and other property received by the corporation from the sale
of shares of the Equity Series A and B, Global Series A and B, Asset
Allocation Series A and B, Social Awareness Series A and B, Value
Series A and B, and Small Company Series A and B, respectively, all
securities and other property held as a result of the investment and
reinvestment of such cash and other property, all revenues and income
received or receivable with respect to such cash, other property,
investments and reinvestments, and all proceeds derived from the sale,
exchange, liquidation or other disposition of any of the foregoing,
shall be allocated to the Equity Series A and B, Global Series A and
B, Asset Allocation Series A and B, Social Awareness Series A and B,
Value Series A and B, or Small Company Series A and B, to which they
relate and held for the benefit of the stockholders owning shares of
such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the Board of Directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the Board of Directors deems
appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
7. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
<PAGE>
8. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Equity Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Equity
Series. Stockholders of the Equity Series shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Global Series A and B represent a
stockholder interest in a particular fund of assets held by the corporation
and, accordingly, dividends shall be calculated and declared for these
series in the same manner, at the same time, on the same day, and shall be
paid at the same dividend rate except that expenses attributable to a
particular series and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Global Series.
Stockholders of the Global Series shall share in dividends declared and
paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of Asset Allocation Series A and B represent
a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared
for these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected Asset
Allocation Series. Stockholders of the Asset Allocation Series shall share
in dividends declared and paid with respect to such series pro rata based
on their ownership of shares of such series. Shares of Social Awareness
Series A and B represent a stockholder interest in a particular fund of
assets held by the corporation and, accordingly, dividends shall be
calculated and declared for these series in the same manner, at the same
time, on the same day, and shall be paid at the same dividend rate, except
that expenses attributable to a particular series and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Social Awareness Series. Stockholders of the
Social Awareness Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Shares of Value Series A and B represent a stockholder interest in
a particular fund of assets held by the corporation and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and shall be paid at the same
dividend rate, except that expenses attributable to a particular series and
payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall
be borne exclusively by the affected Value Series. Stockholders of the
Value Series shall share in dividends declared and paid with respect to
such series pro rata based on their ownership of shares of such series.
Shares of Small Company Series A and B represent a stockholder interest in
a particular fund of assets held by the corporation and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and shall be paid at the same
dividend rate, except that expenses attributable to a particular series and
payments made pursuant to a 12b-1 Plan or Shareholder Services Plan shall
be borne exclusively by the affected Small Company Series. Stockholders of
the Small Company Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Whenever dividends are declared and paid with respect to the Equity
Series A and B, the Global Series A and B, the Asset Allocation Series A
and B, the Social Awareness Series A and B, the Value Series A and B, or
the Small Company Series A and B, the holders of shares of the other series
shall have no rights in or to such dividends.
<PAGE>
9. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
10. On the eighth anniversary of the purchase of shares of the Equity Series B,
the Global Series B, the Asset Allocation Series B, the Social Awareness
Series B, the Value Series B, or the Small Company Series B, those shares
(except those purchased through the reinvestment of dividends and other
distributions) shall automatically convert to Equity Series A, Global
Series A, Asset Allocation Series A, Social Awareness Series A, Value
Series A or Small Company Series A shares respectively, at the relative net
asset values of each of the series without the imposition of any sales
load, fee or other charge. All shares in a stockholder's account that were
purchased through the reinvestment of dividends and other distributions
paid with respect to Series B shares will be considered to be held in a
separate sub-account. Each time Series B shares are converted to Series A
shares, a pro rata portion of the Series B shares held in the sub-account
will also convert to Series A shares.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 15th day of September, 1997.
JOHN D. CLELAND
----------------------------------
John D. Cleland, President
AMY J. LEE
----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me Jana R. Selley, a Notary Public in and for the
County and State aforesaid, came John D. Cleland, President, and Amy J. Lee,
Secretary, of Security Equity Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 15th day of September, 1997.
JANA R. SELLEY
----------------------------------
Notary Public
My commission expires: June 14, 2000
<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 others 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
ATTEST: By: M. J. PROVINES
-------------------------
Amy J. Lee
- -------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: M. J. PROVINES
-------------------------
ATTEST:
Amy J. Lee
- -------------------------
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;
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
<PAGE>
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 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:
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
(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>
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 July 26, 1996, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Social
Awareness Series, in addition to its presently offered series of common stock of
Equity Series, Global Series, and Asset Allocation Series, with each series
representing separate interests in a separate portfolio of securities and other
assets;
WHEREAS, on July 26, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Social Awareness Series in two classes,
designated Class A shares and Class B shares;
WHEREAS, on July 26, 1996, 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 Social
Awareness Series of the Fund under the terms and conditions of the Agreement;
and
WHEREAS, this amendment to the Agreement is subject to the approval of the
initial shareholder of the Social Awareness Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC hereby amend the Agreement,
effective October 30, 1996, to provide that SMC shall provide all investment
advisory services, general administrative, fund accounting, transfer agency and
dividend disbursing services to the
<PAGE>
Social Awareness Series of the Fund pursuant to the terms set forth in the
Agreement, as amended 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 and Social Awareness
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 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
<PAGE>
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 and Social Awareness 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 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.
<PAGE>
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 Series and to
Social Awareness Series, for each of the years this agreement is in
effect, each of the Asset Allocation Series and Social Awareness
Series shall pay SMC an annual fee equal to 1% of their respective
average daily net assets. Such fee shall be calculated daily and
payable monthly. 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 fee shall be calculated daily and payable
monthly. As compensation for the administrative services to be
rendered by SMC to Social Awareness Series, the Social Awareness
Series shall pay SMC an annual fee equal to .09% of the average daily
net assets of the Social Awareness Series. Such fee 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
<PAGE>
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 and to Social Awareness Series, each such 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Management and Services Agreement this 1st day of August, 1996.
SECURITY EQUITY FUND
By: John D. Cleland
---------------------------
John D. Cleland, President
ATTEST:
By: Amy J. Lee
-------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: James R. Schmank
---------------------------
James R. Schmank, President
ATTEST:
By: Amy J. Lee
-------------------------
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 October 31, 1996, the operations of SMC, a Kansas corporation, will
be transferred to Security Management Company, LLC ("SMC, LLC"), a Kansas
limited liability company; and
WHEREAS, SMC, LLC desires to assume all rights, duties and obligations of SMC
under the Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. The Agreement is hereby amended to substitute SMC, LLC for SMC, with the
same effect as though SMC, LLC were the originally named management
company, effective November 1, 1996;
2. SMC, LLC agrees to assume the rights, duties and obligations of SMC
pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Investment Management and Services Agreement this 1st day of November, 1996.
SECURITY EQUITY FUND SECURITY MANAGEMENT COMPANY, LLC
By: JOHN D. CLELAND By: JAMES R. SCHMANK
------------------------------ --------------------------------
John D. Cleland, President James R. Schmank, President
ATTEST: ATTEST:
AMY J. LEE AMY J. LEE
- ------------------------------------ -------------------------------------
Amy J. Lee, Secretary Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Management Company, LLC
("SMC, LLC") are parties to an Investment Management and Services Agreement,
dated December 8, 1988, as amended (the "Agreement"), under which SMC, LLC
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 February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Value Series,
in addition to its presently offered series of common stock of Equity Series,
Global Series, Asset Allocation Series, and Social Awareness Series, with each
series representing separate interests in a separate portfolio of securities and
other assets;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Value Series in two classes,
designated Class A shares and Class B shares;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved the
amendment of the Agreement to provide that SMC, LLC would provide investment
advisory and business management services to each class of common stock of the
Value Series of the Fund under the terms and conditions of the Agreement; and
WHEREAS, this amendment to the Agreement is subject to the approval of the
initial shareholder of the Value Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC, LLC hereby amend the
Agreement, effective April 30, 1997, to provide that SMC, LLC shall provide all
investment advisory services, general administrative, fund accounting, transfer
agency and dividend
<PAGE>
disbursing services to the Value Series of the Fund pursuant to the terms set
forth in the Agreement, as amended and as follows.
Paragraph 1 is deleted in its entirety and the following paragraph inserted in
lieu thereof:
1. EMPLOYMENT OF SMC, LLC.
The Fund hereby employs SMC, LLC 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) 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) 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, LLC may, in accordance with all applicable
legal requirements, engage the services of other persons or entities, regardless
of any affiliation with SMC, LLC, to provide services to the Fund under this
Agreement. SMC, LLC shall bear the expense of providing such other services to
the Equity and Global Series. Asset Allocation Series, Social Awareness Series
and Value Series shall bear the expense of such other services and all other
expenses of the Series. SMC, LLC 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, LLC 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, LLC. SMC, LLC shall pay all expenses in
connection with the performance of its services under this
Agreement,
<PAGE>
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, LLC 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,
LLC for the payment of the following described expenses of the
Fund whether or not billed to the Fund, SMC, LLC 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, Social Awareness Series and Value Series shall
pay all expenses of the Series whether or not billed to the Fund,
SMC, LLC 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 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
<PAGE>
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, LLC.
(a) As compensation for the services to be rendered by SMC, LLC
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, LLC 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, LLC to Asset Allocation Series,
Social Awareness Series and Value Series, for each of the years
this agreement is in effect, the Asset Allocation Series, Social
Awareness Series and Value Series shall each pay SMC, LLC an
annual fee equal to 1% of their respective average daily net
assets. Such fee shall be calculated daily and payable monthly.
As compensation for the administrative services to be rendered by
SMC, LLC to Asset Allocation Series, the Asset Allocation Series
shall pay SMC, LLC 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
ended 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. As compensation for the administrative
services to be rendered by
<PAGE>
SMC, LLC to Social Awareness Series and Value Series, each such
Series shall pay SMC, LLC an annual fee equal to .09% of their
respective average daily net assets. Such fees shall be
calculated daily and payable monthly. If this Agreement shall be
effective for only a portion of a year, then SMC, LLC'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, LCC to Asset Allocation Series,
Social Awareness Series, and Value Series, each such 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Management and Services Agreement this 12th day of March, 1997.
SECURITY EQUITY FUND
By: John D. Cleland
------------------------------
John D. Cleland, President
ATTEST:
By: Amy J. Lee
------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: James R. Schmank
------------------------------
James R. Schmank, President
ATTEST:
By: Amy J. Lee
------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Management Company, LLC
("SMC, LLC") are parties to an Investment Management and Services Agreement,
dated December 8, 1988, as amended (the "Agreement"), under which SMC, LLC
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 25, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Small Company
Series, in addition to its presently offered series of common stock of Equity
Series, Global Series, Asset Allocation Series, Social Awareness Series, and
Value Series, with each series representing separate interests in a separate
portfolio of securities and other assets;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Small Company Series in two classes, designated
Class A shares and Class B shares;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund approved the
amendment of the Agreement to provide that SMC, LLC would provide investment
advisory and business management services to each class of common stock of the
Small Company Series of the Fund under the terms and conditions of the
Agreement; and
WHEREAS, this amendment to the Agreement is subject to the approval of the
initial shareholder of the Small Company Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC, LLC hereby amend the
Agreement, effective October 15, 1997, to provide that SMC, LLC shall provide
all investment advisory services, general administrative, fund accounting,
transfer agency and dividend
<PAGE>
disbursing services to the Small Company Series of the Fund pursuant to the
terms set forth in the Agreement, as amended and as follows.
Paragraph 1 is deleted in its entirety and the following paragraph inserted in
lieu thereof:
1. EMPLOYMENT OF SMC, LLC.
The Fund hereby employs SMC, LLC to (a) act as investment adviser to the Fund
with respect to the investment of its assets and to supervise and arrange for
the purchase of securities of 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) 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) 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, LLC may, in accordance with all applicable
legal requirements, engage the services of other persons or entities, regardless
of any affiliation with SMC, LLC, to provide services to the Fund under this
Agreement. SMC, LLC shall bear the expense of providing such other services to
the Equity and Global Series. Asset Allocation Series, Social Awareness Series,
Value Series and Small Company Series shall bear the expense of such other
services and all other expenses of the Series. SMC, LLC 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, LLC 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, LLC. SMC, LLC 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
<PAGE>
expenses are billed to SMC, LLC 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, LLC for the
payment of the following described expenses of the Fund whether or not
billed to the Fund, SMC, LLC 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, Social Awareness Series, Value Series and Small Company Series
shall pay all expenses of the Series whether or not billed to the
Fund, SMC, LLC 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 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.
<PAGE>
Paragraph 3(a) shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
3. COMPENSATION OF SMC, LLC.
(a) As compensation for the services to be rendered by SMC, LLC
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, LLC 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, LLC to Asset Allocation Series,
Social Awareness Series, Value Series and Small Company Series,
for each of the years this agreement is in effect, the Asset
Allocation Series, Social Awareness Series, Value Series and
Small Company Series shall each pay SMC, LLC an annual fee equal
to 1% of their respective average daily net assets. Such fee
shall be calculated daily and payable monthly. As compensation
for the administrative services to be rendered by SMC, LLC to
Asset Allocation Series, the Asset Allocation Series shall pay
SMC, LLC 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 ended
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. As compensation for the administrative
services to be rendered by SMC, LLC to Social Awareness Series,
Value Series and Small Company Series, each such Series shall pay
SMC, LLC an annual fee equal to .09% of their respective average
daily net assets. Such fees shall be calculated daily and payable
<PAGE>
monthly. If this Agreement shall be effective for only a portion
of a year, then SMC, LLC'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, LCC to Asset
Allocation Series, Social Awareness Series, Value Series, and
Small Company Series, each such 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Management and Services Agreement this 15th day of September, 1997.
SECURITY EQUITY FUND
By: JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
ATTEST:
By: AMY J. LEE
----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: JEFFREY B. PANTAGES
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
By: AMY J. LEE
----------------------------------
Amy J. Lee, Secretary
<PAGE>
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this 9th day of September, 1997
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and STRONG CAPITAL MANAGEMENT, INC.
(the "Subadviser"), a Wisconsin corporation registered under the Investment
Advisers Act.
W I T N E S S E T H :
WHEREAS, SBL Fund and Security Equity Fund, Kansas corporations, are
registered with the Securities and Exchange Commission (the "Commission") as
open-end management investment companies under the Investment Company Act of
1940, as amended (the "Investment Company Act");
WHEREAS, SBL Fund is authorized to issue shares of Series X, a separate
series of SBL Fund and Security Equity Fund is authorized to issue shares of the
Small Company Series, a separate series of Security Equity Fund (each series
referred to herein individually as a "Fund" and collectively as the "Funds");
WHEREAS, each of SBL Fund and Security Equity Fund has, pursuant to an
Advisory Agreement with the Adviser (the "Advisory Agreements"), retained the
Adviser to act as investment adviser for and to manage each Fund's assets;
WHEREAS, the Advisory Agreements permit the Adviser to delegate certain of
its duties under the Advisory Agreements to other investment advisers, subject
to the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Funds to act as investment adviser for and to manage each Fund's Investments (as
defined below) and the Subadviser desires to render such services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Funds subject
to the supervision of the Adviser and the respective Boards of Directors of SBL
Fund and Security Equity Fund and subject to the terms of this Agreement; and
the Subadviser hereby accepts such employment. In such capacity, the Subadviser
shall be responsible for each Fund's Investments.
1
<PAGE>
2. DUTIES OF SUBADVISER.
(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions
of the Funds as set forth in each Fund's current prospectus and statement
of additional information as currently in effect and as supplemented or
amended from time to time (collectively referred to hereinafter as the
"Prospectus") and subject to the directions of the Adviser and the
respective Fund's Board to purchase, hold and sell investments for the
account of the Funds (hereinafter "Investments") and to monitor on a
continuous basis the performance of such Investments. The Subadviser shall
give the Funds the benefit of its best efforts in rendering its services as
Subadviser.
(b) BROKERAGE. The Subadviser is authorized, subject to the
supervision of the Adviser and the respective Fund's Board to establish and
maintain accounts on behalf of each Fund with, and place orders for the
purchase and sale of the Fund's Investments with or through, such persons,
brokers or dealers as Subadviser may select and negotiate commissions to be
paid on such transactions. The Subadviser agrees that in placing such
orders it shall attempt to obtain best execution, provided that, the
Subadviser may, on behalf of a Fund, pay brokerage commissions to a broker
which provides brokerage and research services to the Subadviser in excess
of the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular
transaction or in terms of the Subadviser's overall responsibilities with
respect to the Fund and the accounts as to which the Subadviser exercises
investment discretion, (ii) such payment is made in compliance with Section
28(e) of the Securities Exchange Act of 1934, as amended, and any other
applicable laws and regulations, and (iii) in the opinion of the
Subadviser, the total commissions paid by the Fund will be reasonable in
relation to the benefits to the Fund over the long term. It is recognized
that the services provided by such brokers may be useful to the Subadviser
in connection with the Subadviser's services to other clients. On occasions
when the Subadviser deems the purchase or sale of a security to be in the
best interests of a Fund as well as other clients of the Subadviser, the
Subadviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
securities so sold or purchased, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and to such other clients. The Subadviser will
report on such allocations at the request of the Adviser, the Funds or the
respective Fund's Board providing such information as the number of
aggregated trades to which the Fund was a party, the broker(s) to whom such
trades were directed and the basis of the allocation for the aggregated
trades.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person
of the Subadviser will not purchase securities or other
2
<PAGE>
instruments from or sell securities or other instruments to a Fund
("Principal Transactions"); PROVIDED, HOWEVER, the Subadviser may enter
into a Principal Transaction with a Fund if (i) the transaction is
permissible under applicable laws and regulations, including, without
limitation, the Investment Company Act and the Investment Advisers Act and
the rules and regulations promulgated thereunder, and (ii) the transaction
receives the express written approval of the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the
Funds with a copy of such Code of Ethics.
(d) BOOKS AND RECORDS. The Subadviser will maintain all books and
records required to be maintained pursuant to the Investment Company Act
and the rules and regulations promulgated thereunder with respect to
transactions made by it on behalf of the Funds including, without
limitation, the books and records required by Subsections (b)(1), (5), (6),
(7), (9), (10) and (11) and Subsection (f) of Rule 31a-1 under the
Investment Company Act and shall timely furnish to the Adviser all
information relating to the Subadviser's services hereunder needed by the
Adviser to keep such other books and records of the Funds required by Rule
31a-1 under the Investment Company Act. The Subadviser will also preserve
all such books and records for the periods prescribed in Rule 31a-2 under
the Investment Company Act, and agrees that such books and records shall
remain the sole property of the respective Fund and shall be immediately
surrendered to a Fund upon request. The Subadviser further agrees that all
books and records maintained hereunder shall be made available to the Funds
or the Adviser at any time upon reasonable request, including telecopy,
during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to
time as the Adviser or the Funds may request, the Subadviser will furnish
the requesting party reports on portfolio transactions and reports on
Investments held in the portfolio, all in such detail as the Adviser or the
Funds may reasonably request. The Subadviser will make available its
officers and employees to meet with the respective Fund's Board of
Directors at the Funds' principal place of business on due notice to review
the Investments of the Funds.
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Funds or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule
or regulation thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Funds'
custodian, on each business day with information relating to all
transactions concerning each Fund's assets.
3
<PAGE>
(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser and
its directors, officers, partners, employees and interested persons shall
act in conformity with each Fund's Articles of Incorporation, By-Laws, and
currently effective registration statement and with the written
instructions and directions of the respective Fund's Board and the Adviser,
and shall comply with the requirements of the Investment Company Act, the
Investment Advisers Act, the Commodity Exchange Act, the rules thereunder,
and all other applicable federal and state laws and regulations.
In carrying out its obligations under this Agreement, the Subadviser
shall, solely with regard to those matters within its control, ensure that
each Fund complies with all applicable statutes and regulations necessary
to qualify the Fund as a Regulated Investment Company under Subchapter M of
the Code (or any successor provision), and shall notify the Adviser
immediately upon having a reasonable basis for believing that a Fund has
ceased to so qualify or that it might not so qualify in the future.
In carrying out its obligations under this Agreement, the Subadviser
shall invest the assets of Series X in such a manner as to ensure that the
Fund complies with the diversification provisions of Section 817(h) of the
Code (or any successor provision) and the regulations issued thereunder
relating to the diversification requirements for variable insurance
contracts and any prospective amendments or other modifications to Section
817 or regulations thereunder. Subadviser shall notify the Adviser
immediately upon having a reasonable basis for believing that the Fund has
ceased to comply and will take all reasonable steps to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
The Adviser has furnished the Subadviser with copies of each of the
following documents and will furnish the Subadviser at its principal office
all future amendments and supplements to such documents, if any, as soon as
practicable after such documents become available: (i) the Articles of
Incorporation of each Fund, (ii) the By-Laws of each Fund and (iii) each
Fund's registration statement under the Investment Company Act and the
Securities Act of 1933, as amended, as filed with the Commission.
(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection
with any matters submitted to a vote of shareholders of securities held by
the Funds.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Funds or the Adviser in any way or
otherwise be deemed an agent of the Funds or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, the fees set forth in Exhibit A attached hereto.
4
<PAGE>
5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the respective Fund's
Board.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Funds as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the
occurrence of any event that would disqualify the Subadviser from serving
as an investment adviser of an investment company pursuant to Section 9(a)
of the Investment Company Act;
(c) The Subadviser has filed a notice of exemption pursuant to Rule
4.14 under the CEA with the Commodity Futures Trading Commission (the
"CFTC") and the National Futures Association;
(d) The Subadviser is a corporation duly organized and validly
existing under the laws of the State of Wisconsin with the power to own and
possess its assets and carry on its business as it is now being conducted;
(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized
by all necessary action on the part of its shareholders, and no action by
or in respect of, or filing with, any governmental body, agency or official
is required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution,
delivery and performance by the Subadviser of this Agreement do not
contravene or constitute a default under (i) any provision of applicable
law, rule or regulation, (ii) the Subadviser's governing instruments, or
(iii) any agreement, judgment, injunction, order, decree or other
instrument binding upon the Subadviser;
(f) This Agreement is a valid and binding agreement of the Subadviser;
(g) The Form ADV of the Subadviser previously provided to the Adviser
is a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading;
5
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC")
and the National Futures Association;
(c) The Adviser is a limited liability company duly organized and
validly existing under the laws of the State of Kansas with the power to
own and possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery
and performance by the Adviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Adviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
(f) The Form ADV of the Adviser previously provided to the Subadviser
is a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they
were made, not misleading;
(g) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV at least 48 hours prior to the execution of this
Agreement.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 7 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
9. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of willful misfeasance, bad faith or
negligence on the part of the Subadviser or a breach of its duties
hereunder, the Subadviser shall not be
6
<PAGE>
subject to any liability to the Adviser or the Funds or any of the Funds'
shareholders, and, in the absence of willful misfeasance, bad faith or
negligence on the part of the Adviser or a breach of its duties hereunder,
the Adviser shall not be subject to any liability to the Subadviser, for
any act or omission in the case of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of Investments; PROVIDED, HOWEVER, that nothing herein shall
relieve the Adviser and the Subadviser from any of their obligations under
applicable law, including, without limitation, the federal and state
securities laws and the CEA.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and
the Funds, and their respective officers and directors, for any liability
and expenses, including attorneys' fees, which may be sustained as a result
of the Subadviser's willful misfeasance, bad faith, negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The Adviser
shall indemnify the Subadviser and its officers and directors, for any
liability and expenses, including attorneys' fees, which may be sustained
as a result of the Adviser's willful misfeasance, bad faith, negligence,
breach of its duties hereunder or violation of applicable law, including,
without limitation, the federal and state securities laws or the CEA.
10. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
with respect to a Fund unless it has first been approved (i) by a vote of a
majority of those directors of the Fund who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of the Fund's outstanding voting securities. This Agreement
shall continue in effect for a period of two years from the date hereof,
subject thereafter to being continued in force and effect from year to year
with respect to each Fund if specifically approved each year by either (i)
the Board of Directors of the Fund, or (ii) by the affirmative vote of a
majority of the Fund's outstanding voting securities. In addition to the
foregoing, each renewal of this Agreement with respect to a Fund must be
approved by the vote of a majority of the Fund's directors who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
Prior to voting on the renewal of this Agreement, the Board of Directors of
each Fund may request and evaluate, and the Subadviser shall furnish, such
information as may reasonably be necessary to enable the Fund's Board of
Directors to evaluate the terms of this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein to
the contrary, this Agreement may be terminated at any time, without payment
of any penalty:
(i) By vote of a majority of the Board of Directors of a Fund
with respect to that Fund, or by vote of a majority of the outstanding
voting securities of the
7
<PAGE>
Fund, or by the Adviser, in each case, upon sixty (60) days' written
notice to the Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall
not have been cured during the notice period, upon twenty (20) days
written notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its duties
and obligations under this Agreement; or
(iv) By the Subadviser upon 180 days written notice to the
Adviser and the Fund.
This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent or upon the termination of the Advisory
Agreement.
11. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Funds pursuant to the
Advisory Agreements and shall oversee and review the Subadviser's performance of
its duties under this Agreement.
12. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to a Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund.
13. CONFIDENTIALITY. Subject to the duties of the Adviser, the Funds and
the Subadviser to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Funds and the actions of
the Subadviser, the Adviser and the Funds in respect thereof.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Funds) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
8
<PAGE>
(a) If to the Subadviser:
Strong Capital Management, Inc.
900 Heritage Reserve
Menomonee Falls, Wisconsin 53051
Attention: General Counsel
Facsimile: (414) 359-3948
(b) If to the Adviser:
James R. Schmank
Senior Vice President and Chief Fiscal Officer
Security Management Company, LLC
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: James R. Schmank
Facsimile: (785) 431-3080
(c) If to Security Equity Fund:
Amy J. Lee
Secretary
Security Equity Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
(d) If to SBL Fund:
Amy J. Lee
Secretary
SBL Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
9
<PAGE>
17. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
18. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
19. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.
(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the U.S. courts or, in the absence of
any controlling decisions of any such court, by rules, regulation or order
of the Commission validly issued pursuant to the Investment Company Act.
Specifically, as used herein, "investment company," "affiliated person,"
"interested person," "assignment," "broker," "dealer" and "affirmative vote
of the majority of the Fund's outstanding voting securities" shall all have
such meaning as such terms have in the Investment Company Act. The term
"investment adviser" shall have such meaning as such term has in the
Investment Advisers Act and the Investment Company Act, and in the event of
a conflict between such Acts, the most expansive definition shall control.
In addition, where the effect of a requirement of the Investment Company
Act reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Commission, whether of special or general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SECURITY MANAGEMENT COMPANY, LLC
By: JAMES R. SCHMANK
-----------------------------------
Name: James R. Schmank
Title: Senior VP and Chief Fiscal Officer
Attest: AMY J. LEE
---------------------------------
Name: Amy J. Lee
Title: Secretary
STRONG CAPITAL MANAGEMENT, INC.
By: STEPHEN J. SHENKENBERG
-----------------------------------
Name: Stephen J. Shenkenberg
Title:Vice President, Assistant Secretary
Attest: DONALD C. TYLER
---------------------------------
Name: Donald C. Tyler
Title: Vice President
11
<PAGE>
Exhibit A
SUBADVISORY FEE
For all services rendered by the Subadviser hereunder, Adviser shall pay to
Subadviser an annual fee (the "Subadvisory Fee"), as follows:
An annual rate of .50% of the combined average daily net assets of the
Funds under $150 million.
An annual rate of .45% of the combined average daily net assets of the
Funds at or above $150 million but less than $500 million.
An annual rate of .40% of the combined average daily net assets of the
Funds at or above $500 million.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than ten (10) calendar days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion. The daily fee accruals on the first $150
million of the Funds' net assets will be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the appropriate annual
rate described above and multiplying the product of the net asset value of the
Funds as determined in accordance with each Fund's prospectus as of the close of
business on the previous business day on which the Funds were open for business.
The daily fee accruals on the Funds' net assets equal to or in excess of $150
million but less than $500 million will be computed by multiplying the fraction
of one (1) over the number of calendar days in the year by the appropriate
annual rate described above and multiplying the product by the amount by which
the average daily net asset value of the Funds, as determined in accordance with
each Fund's prospectus as of the close of business on the previous business day
on which the Funds were open for business, equals or exceeds $150 million but is
less than $500 million. The daily fee accruals on the Funds' net assets at or
above $500 million will be computed by multiplying the fraction of one (1) over
the number of calendar days in the year by the appropriate annual rate described
above and multiplying the product by the amount by which the average daily net
asset value of the Funds, as determined in accordance with each Fund's
prospectus as of the close of business on the previous business day on which the
Funds were open for business, equals or exceeds $500 million.
12
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT, dated as of 1 January 1964, between SECURITY EQUITY FUND,
INC., a Kansas corporation with offices in Topeka, Kansas, Party of the First
Part (hereinafter sometimes called the "Company"), and SECURITY DISTRIBUTORS,
INC., a Kansas corporation with offices in Topeka, Kansas, Party of the Second
Part (hereinafter sometimes called the "Distributor").
WITNESSETH:
1. The Company hereby covenants and agrees that during the term of this
Agreement, and any renewal or extension thereof, or until any prior termination
thereof, the Distributor shall have the exclusive right to offer for sale and to
distribute any and all shares of capital stock issued or to be issued by the
Company.
2. The Distributor hereby covenants and agrees to act as the distributor of
the shares issued or to be issued by the Company during the period this
Agreement is in effect and agrees during such period to offer for sale such
shares as long as such shares remain available for sale, unless the Distributor
is unable legally to make such offer for sale as the result of any governmental
law or regulation.
3. Prior to the issuance of any shares by the Company pursuant to any
subscription tendered by or through the Distributor and confirmed for sale to or
through the Distributor, the Distributor shall pay or cause to be paid to the
Custodian of the Company in cash, an amount equal to the net asset value of such
shares at the time of acceptance of each such subscription and confirmation by
the Company of the sale of such shares. The Distributor shall be entitled to
charge a commission on each such sale of shares in the amount set forth in the
prospectus of the Company, such commission to be an amount equal to the
difference between the net asset value and the offering price of the shares, as
such offering price may from time to time be determined by the board of
directors of the Company. All shares of the Company shall be sold to the public
only at their public offering price at the time of such sale, and the Company
shall receive not less than the full net asset value thereof.
4. The Distributor agrees that, during the period this Agreement is in
effect and to the extent hereinafter in this Section 4 provided, it will
reimburse the Company for or pay -
(a) All Costs, expenses and fees incurred in connection with the
registration and qualification of the Company's shares under the Federal
Securities Act of 1933 and under
<PAGE>
the applicable "Blue Sky" laws of the states in which the Company wishes to
distribute its shares;
(b) All costs and expenses of all prospectuses, advertising material, sales
literature, circulars and other material used or to be used in connection
with the offering for sale of the shares of the Company;
(c) All costs, expenses and fees in connection with the printing of
application and confirmation forms; and
(d) All clerical and administrative costs in processing the applications
for and in connection with the sale of shares of the Company.
The Distributor agrees to submit to the Company for its prior approval all
advertising material, sales literature, circulars and any other material which
the Distributor proposes to use in connection with the offering for sale of the
Company's shares.
5. Notwithstanding any other provisions of this Agreement, it is understood
and agreed that the Distributor may act as a broker, on behalf of the Company,
in the purchase and sale of securities not effected on a securities exchange,
provided that any such transactions and any commission paid in connection
herewith shall comply in every respect with the requirements of the Federal
Investment Company Act of 1940 and in particular with Section 17(e) of said
statute and the Rules and Regulations of the Securities and Exchange Commission
promulgated thereunder.
6. The parties hereto agree that all provisions of this Agreement will be
performed in strict accordance with the requirements of the Investment Company
Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934,
and the rules and regulations of the Securities and Exchange Commission under
said statutes, in strict accordance with all applicable state "Blue Sky" laws
and the rules and regulations thereunder, and in strict accordance with the
provisions of the Articles of Incorporation and Bylaws of the Company.
7. This Agreement shall become effective on January 1, 1964, or as soon
thereafter as an amendment to the Company's prospectus, reflecting the
underwriting arrangements provided by this Agreement, shall become effective
under the Securities Act of 1933.
8. Upon becoming effective as provided in the preceding Section 7, this
Agreement shall continue in effect until the close of business on December 31,
1964, and thereafter from year to year, provided that such continuance for each
successive year after December 31, 1964, is specifically approved in advance at
least annually by the board of directors (including approval by
<PAGE>
a majority of the directors who are not parties to the Agreement or affiliated
persons of any such party) or by the vote of a majority of the outstanding
voting securities of the Company. Written notice of any such approval by the
board of directors or by the holders of a majority of the outstanding voting
securities of the Company shall be given promptly to the Distributor.
9. This Agreement may be terminated by the Company at any time by giving
the Distributor at least sixty (60) days previous written notice of such
intention to terminate. This Agreement may be terminated by the Distributor at
any time by giving the Company at least sixty (60) days previous written notice
of such intention to terminate.
This Agreement shall terminate automatically in the event of its assignment
by the Distributor. As used in the preceding sentence, the word "assignment"
shall have the meaning set forth in Section 2(a) (4) of the Investment Company
Act of 1940.
10. No provision of this Agreement is intended to or shall be construed as
protecting the Distributor against any liability to the Company or to the
Company's security holders to which the Distributor would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of the Distributor's reckless disregard
of its obligations and duties under this Agreement.
11. Terms or words used in this Agreement, which also occur in the Articles
of Incorporation or Bylaws of the Company, shall have the same meaning herein as
given to such terms or words in Articles of Incorporation or Bylaws of the
Company.
12. The Distributor shall be deemed to be an independent contractor and,
except as expressly provided or authorized by the Company, shall have no
authority to act for or represent the Company.
13. Any notice required or permitted to be given hereunder to either of the
parties hereto shall be deemed to have been given if mailed by certified mail in
a postage prepaid envelope addressed to the respective party as follows, unless
any such party has notified the other party hereto that notices thereafter
intended for such party shall be mailed to some other address, in which event
notices thereafter shall be addressed to such party at the address designated in
such request:
Security Equity Fund, Inc.
Security Benefit Life Building
700 Harrison Street
Topeka, Kansas
<PAGE>
Security Distributors, Inc.
Security Benefit Life Building
700 Harrison Street
Topeka, Kansas
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
SECURITY EQUITY FUND, INC.
By: Dean L. Smith
-------------------------
President
ATTEST:
Will J. Miller, Jr.
- -------------------------
Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By: Robert E. Jacoby
-------------------------
President
ATTEST:
Will J. Miller, Jr.
- -------------------------
Secretary
(SEAL)
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund, Inc. (the "Company") and Security
Distributors, Inc. (the "Distributor") are parties to a Distribution Agreement
dated as of January 1, 1964, (the "Distribution Agreement") under which the
Distributor agrees to act as principal underwriter in connection with sales of
the shares of the Company's capital stock; and
WHEREAS, certain provisions of the Federal Investment Company Act of 1940
have been amended, and those amendments have an effect upon the relationship
between the Company and the Distributor, and the Distribution Agreement; and
WHEREAS, the Company and the Distributor wish to amend the Distribution
Agreement to conform to the requirements of the Federal Investment Company Act
of 1940, as amended;
NOW, THEREFORE, the Company and Distributor hereby amend the Distribution
Agreement, effective immediately, as follows:
1. Section 8 of the Distribution Agreement is amended to provide as
follows:
"8. Upon becoming effective as provided in the preceding Section 7,
this Agreement shall continue in effect until the close of business on
December 31, 1964, and thereafter from year to year, provided that such
continuance for each successive year after December 31, 1964, is
specifically approved in advance at least annually by the vote of the board
of directors (including approval by the vote of a majority of the directors
of the Company who are not parties to the Agreement or interested persons
of any such party) cast in person at a meeting called for the purpose of
voting upon such approval, or by the vote of a majority (as defined in the
Investment Company Act of 1940) of the outstanding voting securities of the
Company and by such a vote of the board of directors. As used in the
preceding sentence, the words "interested persons" shall have the meaning
set forth in Section 2(a) (19) of the Investment Company Act of 1940.
Written notice of any such approval by the board of directors or by the
holders of a majority of the outstanding voting securities of the Company
shall be given promptly to the Distributor."
2. The second paragraph of Section 9 of the Distribution Agreement is
amended to provide as follows:
"This Agreement shall terminate automatically in the event of its
assignment. As used in the preceding sentence, the word "assignment" shall
have the meaning set forth in Section 2(a) (4) of the Investment Company
Act of 1940."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 9th day of December, 1971.
SECURITY EQUITY FUND, INC.
By: Dean L. Smith
---------------------------
Dean L. Smith, President
ATTEST:
Will J. Miller, Jr.
- -------------------------
Will J. Miller, Jr., Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By: Dave E. Davidson
---------------------------
Dave E. Davidson, President
ATTEST:
Will J. Miller, Jr.
- -------------------------
Will J. Miller, Jr., Secretary
<PAGE>
AMENDMENT NO. 2 TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund, Inc., a Kansas corporation (the "Company"),
and Security Distributors, Inc., a Kansas corporation (the "Distributor"), are
parties to a Distribution Agreement dated as of January 1, 1964, under which the
Distributor has agreed to act as principal underwriter in connection with sales
of shares of the Company's stock, which Distribution Agreement has heretofore
been amended on December 9, 1971; and
WHEREAS the Company and the Distributor wish to further amend the
Distribution Agreement to omit the provision that the Distributor shall
reimburse the Company for or pay all costs, expenses and fees incurred in
connection with the registration of the Company's shares under the Securities
Act of 1933;
NOW, THEREFORE, the Company and the Distributor hereby amend Section 4(a)
of the Distribution Agreement as follows:
"4. The Distributor agrees that, during the period this Agreement is
in effect and to the extent hereinafter in this Section 4
provided, it will reimburse the Company for or pay -
(a) All costs, expenses and fees incurred in connection with the
registration and qualification of the Company's shares under
the applicable "Blue Sky" laws of the states in which the
Company wishes to distribute its shares;"
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Distribution Agreement to be duly executed this 9th day of October, 1974.
(Corporate Seal)
SECURITY EQUITY FUND, INC.
By: Dean L. Smith
------------------------------
Dean L. Smith, President
ATTEST:
Will J. Miller, Jr.
- ------------------------------
Will J. Miller, Jr., Secretary
(Corporate Seal)
SECURITY DISTRIBUTORS, INC.
By: Dave E. Davidson
------------------------------
Dave E. Davidson, President
ATTEST:
Will J. Miller, Jr.
- ------------------------------
Will J. Miller, Jr., Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Company") and Security Distributors,
Inc. (the "Distributor") are parties to a Distribution Agreement dated as of
January 1, 1964 and amended as of December 9, 1971 and October 9, 1974, (the
"Distribution Agreement") under which the Distributor agrees to act as principal
underwriter in connection with sales of the shares of the Company's capital
stock; and,
WHEREAS, The Company and the Distributor wish to amend Section 4 of the
Distribution Agreement pertaining to the allocation of expenses and charges.
NOW, THEREFORE, The Company and Distributor hereby amend said Section 4 of
the Distribution Agreement, effective as of January 31, 1984, as follows:
4. During the period this Agreement is in effect, the Company shall pay
all costs and expenses in connection with the registration of shares
under the Securities Act of 1933, including all expenses in connection
with the preparation and printing of any registration statements and
prospectuses necessary for registration thereunder but excluding any
additional costs and expenses incurred in furnishing the Distributor
with prospectuses.
The company will also pay all costs, expenses and fees incurred in
connection with the qualification of the shares under the applicable
Blue Sky laws of the states in which the shares are offered.
During the period this agreement is in effect the Distributor
will pay or reimburse the Company for:
(a) All costs and expenses of printing and mailing prospectuses
(other than to existing shareholders) and confirmations, and all
costs and expenses of preparing, printing and mailing advertising
material sales literature, circulars, applications, and other
materials used or to be used in connection with the offering for
sale and the sale of shares; and
(b) All clerical and administrative costs in processing the
application for and in connection with the sale of shares.
The Distributor agrees to submit to the Company for its prior
approval all advertising material, sales literature, circulars and any
other material which the Distributor proposes to use in connection
with the offering for sale of shares.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 31st day of January, 1984.
SECURITY EQUITY FUND, INC.
By: Everett S. Gille
-------------------------------
Everett S. Gille, President
ATTEST:
Tad Patton
- -------------------------------
Tad Patton, Assistant Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By: Gordon Evans
-------------------------------
Gordon Evans, President
ATTEST:
Tad Patton
- -------------------------------
Tad Patton, Assistant Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Company") and Security Distributors, Inc.
(the "Distributor") are parties to a Distribution Agreement dated January 1,
1964, as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Company's capital stock; and
WHEREAS, the Company expects to receive an exemptive order from the Securities
and Exchange Commission allowing the Company to issue and offer for sale two or
more classes of the Company's capital stock; and
WHEREAS, the Company and the Distributor wish to amend the Distribution
Agreement to clarify that the Distribution Agreement applies only to the sale of
Class A shares of the capital stock of the Equity Series and Global Series of
the Company and the Class A shares of all other Series subsequently established
by the Company:
NOW THEREFORE, the Company and Distributor hereby amend the Distribution
Agreement, effective immediately, as follows:
1. The term "Shares" as referred to in the Distribution Agreement shall refer
to the Class A Shares of the Company's $.25 par value stock.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 1st day of October, 1993.
SECURITY EQUITY FUND
By: M. J. Provines
-------------------------------
President
ATTEST:
By: Amy J. Lee
-------------------------------
Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By: Howard R. Fricke
-------------------------------
President
ATTEST:
By: Amy J. Lee
-------------------------------
Secretary
(SEAL)
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated January 1, 1964, as
amended (the "Distribution Agreement"), under which the Distributor has agreed
to act as principal underwriter in connection with sales of the shares of the
Fund's Class A common stock;
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;
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; and
WHEREAS, on April 3, 1995, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Asset Allocation Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the Asset
Allocation Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 18th day of April, 1995.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated January 1, 1964, as
amended (the "Distribution Agreement"), under which the Distributor has agreed
to act as principal underwriter in connection with sales of the shares of the
Fund's Class A common stock;
WHEREAS, on July 26, 1996, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Social
Awareness Series, in addition to its presently offered series of common stock of
Equity Series, Global Series and Asset Allocation Series;
WHEREAS, on July 26, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Social Awareness Series in two classes,
designated Class A shares and Class B shares; and
WHEREAS, on July 26, 1996, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Social Awareness Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the Social
Awareness Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 1st day of August, 1996.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated January 1, 1964, as
amended (the "Distribution Agreement"), under which the Distributor has agreed
to act as principal underwriter in connection with sales of the shares of the
Fund's Class A common stock;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Value Series,
in addition to its presently offered series of common stock of Equity Series,
Global Series, Asset Allocation Series and Social Awareness Series;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Value Series in two classes,
designated Class A shares and Class B shares; and
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Value Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the Value Series
of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 12th day of March, 1997.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
-------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated January 1, 1964, as
amended (the "Distribution Agreement"), under which the Distributor has agreed
to act as principal underwriter in connection with sales of the shares of the
Fund's Class A common stock;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Small Company
Series, in addition to its presently offered series of common stock of Equity
Series, Global Series, Asset Allocation Series, Social Awareness Series and
Value Series;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Small Company Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on July 25, 1997, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Small Company Series.
WHEREAS, on July 25, 1997, the Board of Directors of the Fund approved a Class A
Distribution Plan (the "Class A Plan") with respect to the Small Company Series
pursuant to Rule 12b-1 under the Investment Company Act of 1940, the provisions
of which have an effect upon the relationship between the Fund and the
Distributor, and the Distribution Agreement; and
WHEREAS, the Fund and Distributor wish to amend the Distribution Agreement to
incorporate the necessary provisions of the Class A Plan into the Agreement.
NOW, THEREFORE, the Fund and Distributor hereby amend the Distribution Agreement
to include the sale of Class A shares of the Small Company Series of the Fund.
The Fund and Distributor hereby further amend the Distribution Agreement,
effective October 15, 1997, by adding new Section 5A, which provides as follows:
5A. (a) Pursuant to a Class A Distribution Plan adopted by the Fund
with respect to the Small Company Series (the "Series"), the Fund
agrees to make monthly payments to the Distributor in an amount
computed at an annual rate of .25 of 1% of the Series' average daily
net assets, to finance activities undertaken by the Distributor for
the purpose of distributing the Series' shares to investors. The
Distributor is obligated to and hereby agrees to use the entire amount
of said fee to finance the following distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus
and Statement of Additional Information and any supplement
thereto used in connection with the offering of the
Series' shares to the public;
<PAGE>
(ii) Printing of additional copies for use by the Distributor
as sales literature, of reports and other communications
which were prepared by the Fund for distribution to
existing shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of the
Series' shares to the public;
(iv) Expenses incurred in advertising, promoting and selling
shares of the Series to the public;
(v) Any fees paid by the Distributor to securities dealers who
have executed a Dealer's Distribution Agreement with the
Distributor for account maintenance and personal service
to shareholders of the Series (a "Service Fee");
(vi) Commissions to sales personnel for selling shares of the
Series and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the
Series by securities dealers, including the costs of
preparation of materials for presentations, travel
expenses, costs of entertainment, and other expenses
incurred in connection with promoting sales of the Series
shares by dealers.
(b) All payments to the Distributor pursuant to this paragraph are
subject to the following conditions being met by the Distributor.
The Distributor shall furnish the Fund with quarterly reports of
its expenditures and such other information relating to
expenditures or to the other distribution-related activities
undertaken or proposed to be undertaken by the Distributor during
such fiscal year under its Distribution Agreement with the Fund
as the Fund may reasonably request;
(c) The Dealer's Distribution Agreement (the "Agreement")
contemplated by paragraph 5A(a)(v) above shall permit payments to
securities dealers by the Distributor only in accordance with the
provisions of this paragraph and shall have the approval of the
majority of the Board of Directors of the Fund including a
majority of the directors who are not interested persons of the
Fund as required by the Rule. The Distributor may pay to the
other party to any Dealer's Distribution Agreement a quarterly
fee for distribution and marketing services provided by such
other party. Such quarterly fee shall be payable in arrears in an
amount equal to such percentage (not in excess of .000685% per
day) of the aggregate net asset value of the Series' shares held
by such other party's customers or clients at the close of
business each day as determined from time to time by the
Distributor. The distribution and marketing services contemplated
hereby shall include, but are not limited to, answering inquiries
regarding the Series, account designations and addresses,
maintaining the investment of such other party's customers or
clients in the Series and similar services. In determining the
extent of such other party's assistance in maintaining such
investment by its customers or clients, the Distributor may take
into account the possibility that the shares held by such
customer or client would be redeemed in the absence of such
quarterly fee.
<PAGE>
(d) The provisions of the Distribution Plan approved by the Board of
Directors of the Fund on July 25, 1997, are fully incorporated
herein by reference. In the event the Class A Distribution Plan
is terminated by the Board of Directors or Shareholders of the
Series as provided therein, this paragraph shall no longer be
effective.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 15th day of September, 1997.
SECURITY EQUITY FUND
By: JAMES R. SCHMANK
-------------------------------------
James R. Schmank,
Vice President and Treasurer
ATTEST:
By: AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: RICHARD K RYAN
-------------------------------------
Richard K Ryan, President
ATTEST:
By: AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
<PAGE>
CLASS B
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 1st day of October 1993, between Security Equity Fund,
a Kansas corporation (hereinafter referred to as the "Company"), and Security
Distributors, Inc., a Kansas corporation (hereinafter referred to as the
"Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as an open-end, management
investment company registered under the federal Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Distributor is willing to act as principal underwriter for the
Company to offer for sale, sell and deliver after sale, the Class B Shares of
the Company's $.25 par value common stock (hereinafter referred to as the
"Shares") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF DISTRIBUTOR. The Company hereby employs the Distributor to
act as principal underwriter for the Company with respect to its Class B Shares
and hereby agrees that during the term of this Agreement, and any renewal or
extension thereof, or until any prior termination thereof, the Distributor shall
have the exclusive right to offer for sale and to distribute any and all of its
Class B Shares issued or to be issued by the Company. The Distributor hereby
accepts such employment and agrees to act as the distributor of the Class B
Shares issued or to be issued by the Company during the period this Agreement is
in effect and agrees during such period to offer for sale such Shares as long as
such Shares remain available for sale, unless the Distributor is unable legally
to make such offer for sale as the result of any law or governmental regulation.
2. OFFERING PRICE AND COMMISSIONS. Prior to the issuance of any Shares by
the Company pursuant to any subscription tendered by or through the Distributor
and confirmed for sale to or through the Distributor, the Distributor shall pay
or cause to be paid to the custodian of the Company in cash, an amount equal to
the net asset value of such Shares at the time of acceptance of each such
subscription and confirmation by the Company of the sale of such Shares. All
Shares shall be sold to the public only at their public offering price at the
time of such sale, and the Company shall receive not less than the full net
asset value thereof.
3. ALLOCATION OF EXPENSES AND CHARGES. During this period this Agreement is
in effect, the Company shall pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933 (the "1933 Act"),
including all expenses in connection with the preparation and printing of any
registration statements and prospectuses necessary for registration thereunder
but excluding any additional costs and expenses incurred in furnishing the
Distributor with prospectuses.
<PAGE>
The Company will also pay all costs, expenses and fees incurred in connection
with the qualification of the Shares under the applicable Blue Sky laws of the
states in which the Shares are offered.
During the period this Agreement is in effect, the Distributor will pay or
reimburse the Company for:
(a) All costs and expenses of printing and mailing prospectuses (other
than to existing shareholders) and confirmations, and all costs and
expenses of preparing, printing and mailing advertising material,
sales literature, circulars, applications, and other materials used or
to be used in connection with the offering for sale and the sale of
Shares; and
(b) All clerical and administrative costs in processing the applications
for and in connection with the sale of Shares.
The Distributor agrees to submit to the Company for its prior approval all
advertising material, sales literature, circulars and any other material which
the Distributor proposes to use in connection with the offering for sale of
Shares.
4. REDEMPTION OF SHARES. The Distributor, as agent of and for the account
of the Fund, may redeem Shares of the Fund offered for resale to it at the net
asset value of such Shares (determined as provided in the Articles of
Incorporation or Bylaws) and not in excess of such maximum amounts as may be
fixed from time to time by an officer of the Fund. Whenever the officers of the
Fund deem it advisable for the protection of the shareholders of the Fund, they
may suspend or cancel such authority.
5. SALES CHARGES. A contingent deferred sales charge shall be retained by
the Distributor from the net asset value of Shares of the Fund that it has
redeemed, it being understood that such amounts will not be in excess of that
set forth in the then-current registration statement of the Fund. Furthermore,
the Distributor may retain any amounts authorized for payment to it under the
Fund's Distribution Plan.
6. DISTRIBUTOR MAY ACT AS BROKER AND RECEIVE COMMISSIONS. Notwithstanding
any other provisions of this Agreement, it is understood and agreed that the
Distributor may act as a broker, on behalf of the Company, in the purchase and
sale of securities not effected on a securities exchange, provided that any such
transactions and any commission paid in connection therewith shall comply in
every respect with the requirements of the 1940 Act and in particular with
Section 17(e) of that Act and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
7. AGREEMENTS SUBJECT TO APPLICABLE LAW AND REGULATIONS. The parties hereto
agree that all provisions of this Agreement will be performed in strict
accordance with the requirements of: the 1940 Act, the 1933 Act, the Securities
Exchange Act of 1934, the rules and regulations of the Securities and Exchange
Commission under said statutes, all applicable state Blue Sky laws and the rules
and regulations thereunder, the rules of the National Association of Securities
Dealers, Inc., and, in strict accordance with, the provisions of the Articles of
Incorporation and Bylaws of the Company.
<PAGE>
8. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective at the date and time that the Company's prospectus, reflecting the
underwriting arrangements provided by this Agreement, shall become effective
under the 1933 Act, and shall, unless terminated as provided herein, continue in
force for two years from that date, and from year to year thereafter, provided
that such continuance for each successive year is specifically approved in
advance at least annually by either the Board of Directors or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Company and, in either event, by the vote of a majority of the directors of
the Company who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting upon
such approval. As used in the preceding sentence, the words "interested persons"
shall have the meaning set forth in Section 2(a)(19) of the 1940 Act. Written
notice of any such approval by the Board of Directors or by the holders of a
majority of the outstanding voting securities of the Company and by the
directors who are not such interested persons shall be given promptly to the
Distributor.
This Agreement may be terminated at any time without the payment of any penalty
by the Company by giving the Distributor at least sixty (60) days' previous
written notice of such intention to terminate. This Agreement must be terminated
by the Distributor at any time by giving the Company at least sixty (60) days'
previous written notice of such intention to terminate.
This Agreement shall terminate automatically in the event of its assignment. As
used in the preceding sentence, the word "assignment" shall have the meaning set
forth in Section 2(a)(4) of the 1940 Act.
9. CONSTRUCTION OF AGREEMENT. No provision of this Agreement is intended to
or shall be construed as protecting the Distributor against any liability to the
Company or to the Company's security holders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties under this Agreement.
Terms or words used in the Agreement, which also occur in the Articles of
Incorporation or Bylaws of the Company, shall have the same meaning herein as
given to such terms or words in the Articles of Incorporation or Bylaws of the
Company.
10. DISTRIBUTOR AN INDEPENDENT CONTRACTOR. The Distributor shall be deemed
to be an independent contractor and, except as expressly provided or authorized
by the Company, shall have no authority to act for or represent the Company.
11. NOTICE. Any notice required or permitted to be given hereunder to
either of the parties hereto shall be deemed to have been given if mailed by
certified mail in a postage-prepaid envelope addressed to the respective party
as follows, unless any such party has notified the other party hereto that
notices thereafter intended for such party shall be mailed to some other
address, in which event notices thereafter shall be addressed to such party at
the address designated in such request:
<PAGE>
Security Equity Fund
Security Benefit Group Building
700 Harrison
Topeka, Kansas
Security Distributors, Inc.
Security Benefit Group Building
700 Harrison
Topeka, Kansas
12. AMENDMENT OF AGREEMENT. No amendment to this Agreement shall be
effective until approved by (a) a majority of the Board of Directors of the
Company and a majority of the directors of the Company who are not parties to
this Agreement or affiliated persons of any such party, or (B) a vote of the
holders of a majority of the outstanding voting securities of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
by their respective corporate officers thereto duly authorized on the day, month
and year first above written.
SECURITY EQUITY FUND
By: M. J. Provines
-------------------------
President
ATTEST:
Amy J. Lee
- -------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Howard R. Fricke
-------------------------
President
ATTEST:
Amy J. Lee
- -------------------------
Secretary
(SEAL)
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
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;
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; and
WHEREAS, on April 3, 1995, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Asset Allocation
Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Asset Allocation Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 18th day of April, 1995.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
-------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
-------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
WHEREAS, on July 26, 1996, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Social
Awareness Series, in addition to its presently offered series of common stock of
Equity Series, Global Series and Asset Allocation Series;
WHEREAS, on July 26, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Social Awareness Series in two classes,
designated Class A shares and Class B shares; and
WHEREAS, on July 26, 1996, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Social Awareness
Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Social Awareness Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 1st day of August, 1996.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
--------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
--------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Value Series,
in addition to its presently offered series of common stock of Equity Series,
Global Series, Asset Allocation Series and Social Awareness Series;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Value Series in two classes,
designated Class A shares and Class B shares; and
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Value Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Value Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 12th day of March, 1997.
SECURITY EQUITY FUND
By: James R. Schmank
--------------------------------
James R. Schmank, Vice President
and Treasurer
ATTEST:
By: Amy J. Lee
--------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: Richard K Ryan
--------------------------------
Richard K Ryan, President
ATTEST:
By: Amy J. Lee
--------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Small Company
Series, in addition to its presently offered series of common stock of Equity
Series, Global Series, Asset Allocation Series, Social Awareness Series and
Value Series;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Small Company Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on July 25, 1997, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Small Company Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Small Company Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 15th day of September, 1997.
SECURITY EQUITY FUND
By: JAMES R. SCHMANK
------------------------------------
James R. Schmank,
Vice President and Treasurer
ATTEST:
By: AMY J. LEE
------------------------------------
Amy J. Lee, Secretary
SECURITY DISTRIBUTORS, INC.
By: RICHARD K RYAN
------------------------------------
Richard K Ryan, President
ATTEST:
By: AMY J. LEE
------------------------------------
Amy J. Lee, Secretary
<PAGE>
SECURITY EQUITY FUND, SMALL COMPANY SERIES
CLASS A
DISTRIBUTION PLAN
1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing
by Security Equity Fund (the "Fund") of activities which are, or may be
deemed to be, primarily intended to result in the sale of class A shares of
the Small Company Series of the Fund (hereinafter called
"distribution-related activities"). The principal purpose of this Plan is
to enable the Fund to supplement expenditures by Security Distributors,
Inc., the Distributor of its shares (the "Distributor") for
distribution-related activities. This Plan is intended to comply with the
requirements of Rule 12b-1 (the "Rule") under the Investment Company Act of
1940 (the "1940 Act").
The Board of Directors, in considering whether the Fund should implement
the Plan, has requested and evaluated such information as it deemed
necessary to make an informed determination as to whether the Plan should
be implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for
such purposes.
In voting to approve the implementation of the Plan, the Directors have
concluded, in the exercise of their reasonable business judgment and in
light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Small Company Series and its
shareholders.
2. COVERED EXPENSES.
(a) The Fund may make payments under this Plan, or any agreement relating
to the implementation of this Plan, in connection with any activities
or expenses primarily intended to result in the sale of class A shares
of the Small Company Series of the Fund, including, but not limited
to, the following distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus and
Statement of Additional Information and any supplement thereto
used in connection with the offering of the Series' shares to
the public;
(ii) Printing of additional copies for use by the Distributor as
sales literature, of reports and other communications which
were prepared by the Fund for distribution to existing
shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of the Series'
shares to the public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Series to the public;
<PAGE>
(v) Any fees paid by the Distributor to securities dealers who have
executed a Dealer's Distribution Agreement with the Distributor
for account maintenance and personal service to shareholders of
the Series (a "Service Fee");
(vi) Commissions to sales personnel for selling shares of the Series
and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the Series by
securities dealers, including the costs of preparation of
materials for presentations, travel expenses, costs of
entertainment, and other expenses incurred in connection with
promoting sales of Series shares by dealers.
(b) Any payments for distribution-related activities shall be made
pursuant to an agreement. As required by the Rule, each agreement
relating to the implementation of this Plan shall be in writing and
subject to approval and termination pursuant to the provisions of
Section 7 of this Plan. However, this Plan shall not obligate the Fund
or any other party to enter into such agreement.
3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to
this Plan shall be subject to and be made in compliance with a written
agreement between the Fund and the Distributor containing a provision that
the Distributor shall furnish the Fund with quarterly written reports of
the amounts expended and the purposes for which such expenditures were
made, and such other information relating to such expenditures or to the
other distribution-related activities undertaken or proposed to be
undertaken by the Distributor during such fiscal year under its
Distribution Agreement with the Fund as the Fund may reasonably request.
4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the
"Agreement") contemplated by Section 2(a)(v) above shall permit payment of
Service Fees to securities dealers by the Distributor only in accordance
with the provisions of this paragraph and shall have the approval of the
majority of the Board of Directors of the Fund, including the affirmative
vote of a majority of those Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan ("Independent Directors"),
as required by the Rule. The Distributor may pay to the other party to any
Agreement a Service Fee for distribution and marketing services provided by
such other party. Such Service Fee shall be payable (a) for the first year,
initially, in any amount equal to .25 percent annually of the aggregate net
asset value of the shares purchased by such other party's customers or
clients, and (b) for each year thereafter, quarterly, in arrears in an
amount equal to such percentage (not in excess of .000685 percent per day
or .25 percent annually) of the aggregate net asset value of the shares
held by such other party's customers or clients at the close of business
each day as determined from time to time by the Distributor. The
distribution and marketing services contemplated hereby shall include, but
are not limited to, answering inquiries regarding the Fund, account
designations and addresses, maintaining the investment of such other
party's customers or clients in the Series and similar services. In
determining the extent of such
<PAGE>
other party's assistance in maintaining such investment by its customers or
clients, the Distributor may take into account the possibility that the
shares held by such customer or client would be redeemed in the absence of
such fee.
5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses
incurred by the Fund under Section 2 of this Plan (including Service Fees)
in any fiscal year of the Fund shall be one-quarter of one percent (.25%)
of the Fund's average daily net assets for such fiscal year. The payments
to be paid pursuant to this Plan shall be calculated and accrued daily and
paid monthly or at such other intervals as the Directors shall determine,
subject to any applicable restriction imposed by rules of the National
Association of Securities Dealers, Inc.
6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and
nomination of Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. Nothing herein shall prevent the
involvement of others in such selection and nomination if the final
decision on any such selection and nomination is approved by a majority of
the Independent Directors.
7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each
Agreement relating to the implementation of this Plan shall go into effect
when approved.
(a) By vote of the Fund's Directors, including the affirmative vote of a
majority of the Independent Directors, cast in person at a meeting
called for the purpose of voting on the Plan or the Agreement;
(b) By a vote of holders of at least a majority of the outstanding voting
securities of the Series; and
(c) Upon the effectiveness of an amendment to the Fund's registration
statement, reflecting this Plan, filed with the Securities and
Exchange Commission under the Securities Act of 1933.
This Plan and any Agreements relating to the implementation of this Plan
shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at
least annually by vote of the Fund's Directors, including the affirmative
vote of a majority of its Independent Directors, cast in person at a
meeting called for the purpose of voting on such continuance. This Plan and
any Agreements relating to the implementation of this Plan may be
terminated, in the case of the plan, at any time or, in the case of any
agreements upon not more than sixty (60) days' written notice to any other
party to the Agreement by vote of a majority of the Independent Directors
or by the vote of the holders of a majority of the outstanding voting
securities of the Fund. Any Agreement relating to the implementation of
this Plan shall terminate automatically in the event it is assigned. Any
material amendment to this Plan shall require approval by vote of the
Fund's Directors, including the affirmative vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose
of voting on such
<PAGE>
amendment and, if such amendment materially increases the limitations on
expenses payable under the Plan, it shall also require approval by a vote
of holders of at least a majority of the outstanding voting securities of
the Fund. As applied to the Fund the phrase "majority of the outstanding
voting securities" shall have the meaning specified in Section 2(a) of the
1940 Act.
In the event this Plan should be terminated by the shareholders or
Directors of the Fund, the payments paid to the Distributor pursuant to the
Plan up to the date of termination shall be retained by the Distributor.
Any expenses incurred by the Distributor in excess of those payments will
be the sole responsibility of the Distributor.
8. RECORDS. The Fund shall preserve copies of this Plan and any related
Agreements and all reports made pursuant to Section 3 hereof, for a period
of not less than six (6) years from the date of this Plan, any such
Agreement or any such report, as the case may be, the first two years in an
easily accessible place.
SECURITY EQUITY FUND
Date: September 15, 1997 By: JOHN D. CLELAND
------------------------------ --------------------------------------
<PAGE>
CUSTODY AGREEMENT
DATED JANUARY 1, 1995
BETWEEN
UMB BANK, N.A.
AND
SECURITY MANAGEMENT COMPANY
FAMILY OF FUNDS
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. APPOINTMENT OF CUSTODIAN 1
2. DEFINITIONS 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. DELIVERY OF CORPORATE DOCUMENTS 2
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN 3
(a) Safekeeping 3
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 6
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 8
(h) Futures Contracts 8
(i) Segregated Accounts 9
(j) Depository Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 10
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions Other than as Principal 11
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 13
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 14
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public Accountants 14
(x) Reports by Independent Certified Public Accountants 14
(y) Bills and Other Disbursements 15
<PAGE>
5. SUBCUSTODIANS 15
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 17
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. STANDARD OF CARE 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Armed Conflict, Sovereign Risk, Etc. 18
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 19
(f) Instructions Appearing to be Genuine 19
(g) Exceptions from Liability 19
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS 20
(a) Domestic Subcustodians 20
(b) Liability for Acts and Omissions of Foreign Subcustodians 20
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing Agencies 20
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. INDEMNIFICATION 21
(a) Indemnification by Fund 21
(b) Indemnification by Custodian 21
9. ADVANCES 21
10. LIENS 22
11. COMPENSATION 22
12. POWERS OF ATTORNEY 22
13. TERMINATION AND ASSIGNMENT 23
14. ADDITIONAL FUNDS 23
15. NOTICES 23
16. MISCELLANEOUS 24
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 1st day of January, 1995, between UMB Bank, n.a.,
a national banking association with its principal place of business located at
Kansas City, Missouri (hereinafter "Custodian"), and each of the Funds which
have executed the signature page hereof together with such additional Funds
which shall be made parties to this Agreement by the execution of a separate
signature page hereto (individually, a "Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the custody
of Assets (as hereinafter defined) owned by such Fund which Assets are to be
held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto, intending to be legally bound, mutually covenant and agree as
follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to
time deposited with the Custodian. Custodian accepts such appointment as a
custodian and agrees to perform the duties and responsibilities of
Custodian as set forth herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other
instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission)
request, direction, instruction or
1
<PAGE>
certification signed or initialed by or on behalf of a Fund by an
Authorized Person; (ii) a telephonic or other oral communication
from a person the Custodian reasonably believes to be an Authorized
Person; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including,
without limitation, computers) on behalf of a Fund. Instructions in
the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall
in no way affect any action taken by the Custodian in reliance upon
such oral Instructions prior to the Custodian's receipt of such
confirmation. Each Fund authorizes the Custodian to record any and
all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any
Assistant Treasurer of a Fund or any other person designated by the
Treasurer of such Fund in writing, which countersignature or
confirmation shall be included on the same instrument containing
the Instructions or on a separate instrument relating thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission
or telex number agreed upon from time to time by the Custodian and
each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been
taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
2
<PAGE>
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or
Trustees and all amendments or supplements thereto, properly certified or
authenticated, designating certain officers or employees of each such Fund
who will have continuing authority to certify to the Custodian: (a) the
names, titles, signatures and scope of authority of all persons authorized
to give Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of each Fund, and (b) the names, titles
and signatures of those persons authorized to countersign or confirm
Special Instructions on behalf of each Fund (in both cases collectively,
the "Authorized Persons" and individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and shall
be considered to be in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the contrary. Upon
delivery of a certificate which deletes or does not include the name(s) of
a person previously authorized to give Instructions or to countersign or
confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or
confirm Special Instructions. Unless the certificate specifically requires
that the approval of anyone else will first have been obtained, the
Custodian will be under no obligation to inquire into the right of the
person giving such Instructions or Special Instructions to do so.
Notwithstanding any of the foregoing, no Instructions or Special
Instructions received by the Custodian from a Fund will be deemed to
authorize or permit any director, trustee, officer, employee, or agent of
such Fund to withdraw any of the Assets of such Fund upon the mere receipt
of such authorization, Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform
the powers and duties hereinafter set forth in this Section 4. For purposes
of this Section 4 all references to powers and duties of the "Custodian"
shall also refer to any Domestic Subcustodian appointed pursuant to Section
5(a).
(a) SAFEKEEPING.
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be
responsible for any property of a Fund held or received by such
Fund and not delivered to the Custodian.
3
<PAGE>
(b) MANNER OF HOLDING SECURITIES.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates
or other instruments representing such Securities in
registered or bearer form; or (ii) in book-entry form by a
Securities System (as hereinafter defined) in accordance with
the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which
have been delivered to it in physical form, by registering the
same in the name of the appropriate Fund or its nominee, or in
the name of the Custodian or its nominee, for whose actions
such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian
shall hold such Securities in street certificate form, so
called, with or without any indication of fiduciary capacity.
However, unless it receives Instructions to the contrary, the
Custodian will register all such portfolio Securities in the
name of the Custodian's authorized nominee. All such
Securities shall be held in an account of the Custodian
containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the
records of the Custodian shall indicate at all times the Fund
or other customer for which such Securities are held in such
accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a)
The Depository Trust Company; (b) The Participants Trust
Company; and (c) any book-entry system as provided in (i)
Subpart 0 of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76,
31 CFR 350.2, or (iii) the book-entry regulations of federal
agencies substantially in the form of 31 CFR 306.115. Upon the
receipt of Special Instructions, the Custodian may deposit
and/or maintain domestic Securities owned by a Fund in any
other domestic clearing agency registered with the Securities
and Exchange Commission ("SEC") under Section 17A of the
Securities Exchange Act of 1934 (or as may otherwise be
authorized by the SEC to serve in the capacity of depository
or clearing agent for the Securities or other assets of
investment companies) which acts as a Securities depository.
Each of the foregoing shall be referred to in this Agreement
as a "Securities System", and all such Securities Systems
shall be listed on the attached Appendix A. Use of a
Securities System shall be in accordance with applicable
Federal Reserve Board and SEC rules and regulations, if any,
and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or
through one or more agents or Subcustodians which are
also qualified to act as custodians for investment
companies.
4
<PAGE>
(ii) The Custodian shall deposit and/or maintain the
Securities in a Securities System, provided that such
Securities are represented in an account ("Account") of
the Custodian in the Securities System that includes
only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all
times identify those Securities belonging to any one or
more Funds which are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for
the account of a Fund only upon (a) receipt of advice
from the Securities System that such Securities have
been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and
(b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the
account of such Fund. The Custodian shall transfer
Securities sold for the account of a Fund only upon (a)
receipt of advice from the Securities System that
payment for such Securities has been transferred to the
Account of the Custodian in accordance with the rules
of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such
transfer and payment for the account of such Fund.
Copies of all advices from the Securities System
relating to transfers of Securities for the account of
a Fund shall be maintained for such Fund by the
Custodian. The Custodian shall deliver to a Fund on the
next succeeding business day daily transaction reports
which shall include each day's transactions in the
Securities System for the account of such Fund. Such
transaction reports shall be delivered to such Fund or
any agent designated by such Fund pursuant to
Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained
by the Custodian or any Subcustodian with respect to a
Securities System's accounting system, internal
accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian
shall terminate the use of any Securities System on
behalf of a Fund as promptly as practicable and shall
take all actions reasonably practicable to safeguard
the Securities of such Fund maintained with such
Securities System.
5
<PAGE>
(c) FREE DELIVERY OF ASSETS.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of
Special Instructions, will undertake to make free delivery of
Assets, provided such Assets are on hand and available, in
connection with a Fund's transactions and to transfer such Assets
to such broker, dealer, Subcustodian, bank, agent, Securities
System or otherwise as specified in such Special Instructions.
(d) EXCHANGE OF SECURITIES.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid
in connection with any reorganization, recapitalization, merger,
consolidation, or conversion of convertible Securities, and will
deposit any such Securities in accordance with the terms of any
reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in
definitive form, to surrender Securities for transfer into a name
or nominee name as permitted in Section 4(b)(2), to effect an
exchange of shares in a stock split or when the par value of the
stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities
held by it at maturity or call.
(e) PURCHASE OF ASSETS.
(1) SECURITIES PURCHASES. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay
for such Securities out of monies held for a Fund's account
for which the purchase was made, but only insofar as monies
are available therein for such purpose, and receive the
portfolio Securities so purchased. Unless the Custodian has
received Special Instructions to the contrary, such payment
will be made only upon receipt of Securities by the Custodian,
a clearing corporation of a national Securities exchange of
which the Custodian is a member, or a Securities System in
accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, upon receipt of Instructions:
(i) in connection with a repurchase agreement, the Custodian
may release funds to a Securities System prior to the receipt
of advice from the Securities System that the Securities
underlying such repurchase agreement have been transferred by
book-entry into the Account maintained with such Securities
System by the Custodian, provided that the Custodian's
instructions to the Securities System require that the
Securities System may make payment of such funds to the other
party to the repurchase agreement only upon transfer by
book-entry of the Securities underlying the repurchase
agreement into such Account; (ii) in the case of Interest
Bearing Deposits, currency deposits, and
6
<PAGE>
other deposits, foreign exchange transactions, futures
contracts or options, pursuant to Sections 4(g), 4(h), 4(1),
and 4(m) hereof, the Custodian may make payment therefor
before receipt of an advice of transaction; and (iii) in the
case of Securities as to which payment for the Security and
receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the
instrument representing the Security expected to take place in
different locations or through separate parties, such as
commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may
make payment for such Securities prior to delivery thereof in
accordance with such generally accepted trade practice or the
terms of the instrument representing such Security.
(2) OTHER ASSETS PURCHASED. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall pay
for and receive other Assets for the account of a Fund as
provided in Instructions.
(f) SALES OF ASSETS.
(1) SECURITIES SOLD. In accordance with Instructions, the
Custodian will, with respect to a sale, deliver or cause to be
delivered the Securities thus designated as sold to the broker
or other person specified in the Instructions relating to such
sale. Unless the Custodian has received Special Instructions
to the contrary, such delivery shall be made only upon receipt
of payment therefor in the form of: (a) cash, certified check,
bank cashier's check, bank credit, or bank wire transfer; (b)
credit to the account of the Custodian with a clearing
corporation of a national Securities exchange of which the
Custodian is a member; or (c) credit to the Account of the
Custodian with a Securities System, in accordance with the
provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a
broker or its clearing agent, against delivery to the
Custodian of a receipt for such Securities, provided that the
Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such Securities
by the broker or its clearing agent, and provided further that
the Custodian shall not be responsible for the selection of or
the failure or inability to perform of such broker or its
clearing agent or for any related loss arising from delivery
or custody of such Securities prior to receiving payment
therefor.
(2) OTHER ASSETS SOLD. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment
for and deliver other Assets for the account of a Fund as
provided in Instructions.
7
<PAGE>
(g) OPTIONS.
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall:
(a) receive and retain confirmations or other documents, if
any, evidencing the purchase or writing of the option by a
Fund; (b) if the transaction involves the sale of a covered
call option, deposit and maintain in a segregated account the
Securities (either physically or by book-entry in a Securities
System) subject to the covered call option written on behalf
of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any
notices or other communications evidencing the expiration,
termination or exercise of such options which are furnished to
the Custodian by the Options Clearing Corporation (the "OCC"),
the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for
handling such option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the
Custodian, the appropriate Fund and the broker-dealer shall
enter into an agreement to comply with the rules of the OCC or
of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the
writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by
book-entry in a Securities System), cash and/or other Assets;
and (c) pay, release and/or transfer such Securities, cash or
other Assets in accordance with any such agreement and with
any notices or other communications evidencing the expiration,
termination or exercise of such option which are furnished to
the Custodian by the OCC, the securities or options exchanges
on which such options were traded, or such other organization
as may be responsible for handling such option transactions.
The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets
held in any segregated account established in compliance with
applicable margin maintenance requirements and the performance
of other terms of any option contract.
(h) FUTURES CONTRACTS.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the
Custodian and the designated futures commission merchant (a
"Procedural Agreement"). Under the Procedural Agreement the
Custodian shall: (a) receive and retain confirmations, if any,
evidencing the purchase or sale of a futures contract or an option
on a futures contract by such Fund; (b) deposit and maintain in a
segregated account cash, Securities and/or other Assets designated
as initial, maintenance or variation
8
<PAGE>
"margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any
options on futures contracts written by such Fund, in accordance
with the provisions of any Procedural Agreement designed to comply
with the provisions of the Commodity Futures Trading Commission
and/or any commodity exchange or contract market (such as the
Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer
Assets into such margin accounts only in accordance with any such
Procedural Agreements. The appropriate Fund and such futures
commission merchant shall be responsible for determining the type
and amount of Assets held in the segregated account or paid to the
broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option
on a futures contract in accordance with its terms.
(i) SEGREGATED ACCOUNTS.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred
Assets of such Fund, including Securities maintained by the
Custodian in a Securities System pursuant to Paragraph (b)(3) of
this Section 4, said account or accounts to be maintained (i) for
the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for
the purpose of compliance by such Fund with the procedures required
by the SEC Investment Company Act Release Number 10666 or any
subsequent release or releases relating to the maintenance of
segregated accounts by registered investment companies, or (iii)
for such other purposes as may be set forth, from time to time, in
Special Instructions. The Custodian shall not be responsible for
the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance
by the Fund with required procedures noted in (ii) above.
(j) DEPOSITORY RECEIPTS.
Upon receipt of Instructions, the Custodian shall surrender or
cause to be surrendered Securities to the depositary used for such
Securities by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter referred to,
collectively, as "ADRs"), against a written receipt therefor
adequately describing such Securities and written evidence
satisfactory to the organization surrendering the same that the
depositary has acknowledged receipt of instructions to issue ADRs
with respect to such Securities in the name of the Custodian or a
nominee of the Custodian, for delivery in accordance with such
instructions.
Upon receipt of Instructions, the Custodian shall surrender or
cause to be surrendered ADRs to the issuer thereof, against a
written receipt therefor adequately describing the ADRs surrendered
and written evidence satisfactory to the organization surrendering
the same that the issuer of the ADRs has
9
<PAGE>
acknowledged receipt of instructions to cause its depository to
deliver the Securities underlying such ADRs in accordance with such
instructions.
(k) CORPORATE ACTIONS, PUT BONDS, CALLED BONDS, ETC.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer
or trustee thereof (or to the agent of such issuer or trustee) for
the purpose of exercise or sale, provided that the new Securities,
cash or other Assets, if any, acquired as a result of such actions
are to be delivered to the Custodian; and (b) deposit Securities
upon invitations for tenders thereof, provided that the
consideration for such Securities is to be paid or delivered to the
Custodian, or the tendered Securities are to be returned to the
Custodian.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary in Instructions, to comply with the terms
of all mandatory or compulsory exchanges, calls, tenders,
redemptions, or similar rights of security ownership, and shall
notify the appropriate Fund of such action in writing by facsimile
transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance
of an act on the last permissible date of a period established by
any optional offer or on the last permissible date for the
performance of such act, the Fund shall hold the Bank harmless from
any adverse consequences in connection with acting upon or failing
to act upon such Instructions.
(l) INTEREST BEARING DEPOSITS.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred
to, collectively, as "Interest Bearing Deposits") for the account
of a Fund, the Custodian shall purchase such Interest Bearing
Deposits in the name of such Fund with such banks or trust
companies, including the Custodian, any Subcustodian or any
subsidiary or affiliate of the Custodian (hereinafter referred to
as "Banking Institutions"), and in such amounts as such Fund may
direct pursuant to Instructions. Such Interest Bearing Deposits may
be denominated in U.S. dollars or other currencies, as such Fund
may determine and direct pursuant to Instructions. The
responsibilities of the Custodian to a Fund for Interest Bearing
Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other
than those issued by the Custodian, (a) the Custodian shall be
responsible for the collection of income and the transmission of
cash to and from such accounts; and (b) the Custodian shall have no
duty with respect to the selection of the Banking Institution or
for the failure of such Banking Institution to pay upon demand.
10
<PAGE>
(m) FOREIGN EXCHANGE TRANSACTIONS OTHER THAN AS PRINCIPAL.
(1) Upon receipt of Instructions, the Custodian shall settle
foreign exchange contracts or options to purchase and sell
foreign currencies for spot and future delivery on behalf of
and for the account of a Fund with such currency brokers or
Banking Institutions as such Fund may determine and direct
pursuant to Instructions. Each Fund accepts full
responsibility for its use of third party foreign exchange
brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and
all costs and interest charges which may be incurred as a
result of the failure or delay of its third party broker to
deliver foreign exchange. The Custodian shall have no
responsibility with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or, so
long as the Custodian acts in accordance with Instructions,
for the failure of such brokers or Banking Institutions to
comply with the terms of any contract or option.
(2) Notwithstanding anything to the contrary contained herein,
upon receipt of Instructions the Custodian may, in connection
with a foreign exchange contract, make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency prior
to receipt of confirmation of such foreign exchange contract
or confirmation that the countervalue currency completing such
contract has been delivered or received.
(n) PLEDGES OR LOANS OF SECURITIES.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to
the pledgees designated in such Instructions by way of pledge
or hypothecation to secure loans incurred by such Fund with
various lenders including but not limited to UMB Bank, n.a.;
provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except
that in cases where additional collateral is required to
secure existing borrowings, further Securities may be released
or delivered, or caused to be released or delivered for that
purpose upon receipt of Instructions. Upon receipt of
Instructions, the Custodian will pay, but only from funds
available for such purpose, any such loan upon re-delivery to
it of the Securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such loan. In lieu
of delivering collateral to a pledgee, the Custodian, on the
receipt of Instructions, shall transfer the pledged Securities
to a segregated account for the benefit of the pledgee.
11
<PAGE>
(2) Upon receipt of Special Instructions, and execution of a
separate Securities Lending Agreement, the Custodian will
release Securities held in custody to the borrower designated
in such Instructions and may, except as otherwise provided
below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case
of loans of Securities held by a Securities System that are
secured by cash collateral, the Custodian's instructions to
the Securities System shall require that the Securities System
deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such
borrowing. The Custodian shall have no responsibility or
liability for any loss arising from the delivery of Securities
prior to the receipt of collateral. Upon receipt of
Instructions and the loaned Securities, the Custodian will
release the collateral to the borrower.
(o) STOCK DIVIDENDS, RIGHTS, ETC.
The Custodian shall receive and collect all stock dividends,
rights, and other items of like nature and, upon receipt of
Instructions, take action with respect to the same as directed in
such Instructions.
(p) ROUTINE DEALINGS.
The Custodian will, in general, attend to all routine and
mechanical matters in accordance with industry standards in
connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with Securities or other property of
each Fund except as may be otherwise provided in this Agreement or
directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from
the Assets for disbursements and out-of-pocket expenses incidental
to handling Securities or other similar items relating to its
duties under this Agreement, provided that all such payments shall
be accounted for to the appropriate Fund.
(q) COLLECTIONS.
The Custodian shall (a) collect amounts due and payable to each
Fund with respect to portfolio Securities and other Assets; (b)
promptly credit to the account of each Fund all income and other
payments relating to portfolio Securities and other Assets held by
the Custodian hereunder upon Custodian's receipt of such income or
payments or as otherwise agreed in writing by the Custodian and any
particular Fund; (c) promptly endorse and deliver any instruments
required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal,
state, local and foreign tax purposes in connection with receipt of
income or other payments with respect to portfolio Securities and
other Assets, or in connection with the transfer of such Securities
or other Assets; provided, however, that with respect to portfolio
Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use
its
12
<PAGE>
best efforts to collect amounts due and payable to any such Fund.
The Custodian shall notify a Fund in writing by facsimile
transmission or in such other manner as such Fund and Custodian may
agree in writing if any amount payable with respect to portfolio
Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of
amounts due and payable with respect to portfolio Securities or
other Assets that are in default.
(r) BANK ACCOUNTS.
Upon Instructions, the Custodian shall open and operate a bank
account or accounts on the books of the Custodian; provided that
such bank account(s) shall be in the name of the Custodian or a
nominee thereof, for the account of one or more Funds, and shall be
subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for
deposits accepted on the Custodian's books shall be that of a U.S.
bank for a similar deposit.
(s) DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders
who have requested repurchase or redemption of their shares of each
such Fund (collectively, the "Shares"), the Custodian shall release
cash or Securities insofar as available. In the case of cash, the
Custodian shall, upon the receipt of Instructions, transfer such
funds by check or wire transfer to any account at any bank or trust
company designated by each such Fund in such Instructions. In the
case of Securities, the Custodian shall, upon the receipt of
Special Instructions, make such transfer to any entity or account
designated by each such Fund in such Special Instructions.
(t) PROCEEDS FROM SHARES SOLD.
The Custodian shall receive funds representing cash payments
received for shares issued or sold from time to time by each Fund,
and shall credit such funds to the account of the appropriate Fund.
The Custodian shall notify the appropriate Fund of Custodian's
receipt of cash in payment for shares issued by such Fund by
facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian
shall: (a) deliver all federal funds received by the Custodian in
payment for shares as may be set forth in such Instructions and at
a time agreed upon between the Custodian and such Fund; and (b)
make federal funds available to a Fund as of specified times agreed
upon from time to time by such Fund and the Custodian, in the
amount of checks received in payment for shares which are deposited
to the accounts of such Fund.
13
<PAGE>
(u) PROXIES AND NOTICES; COMPLIANCE WITH THE SHAREHOLDERS COMMUNICATION
ACT OF 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and
any other notices or announcements affecting or relating to
Securities owned by such Fund that are received by the Custodian,
any Subcustodian, or any nominee of either of them, and, upon
receipt of Instructions, the Custodian shall execute and deliver,
or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as
directed pursuant to Instructions, neither the Custodian nor any
Subcustodian or nominee shall vote upon any such Securities, or
execute any proxy to vote thereon, or give any consent or take any
other action with respect thereto.
The Custodian will not release the identity of any Fund to an
issuer which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and any such Fund unless a
particular Fund directs the Custodian otherwise in writing.
(v) BOOKS AND RECORDS.
The Custodian shall maintain such records relating to its
activities under this Agreement as are required to be maintained by
Rule 31a-1 under the Investment Company Act of 1940 ("the 1940
Act") and to preserve them for the periods prescribed in Rule 31a-2
under the 1940 Act. These records shall be open for inspection by
duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during
normal business hours of the Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the
Custodian.
(w) OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
The Custodian shall take all reasonable action as each Fund may
request to obtain from year to year favorable opinions from each
such Fund's independent certified public accountants with respect
to the Custodian's activities hereunder and in connection with the
preparation of each such Fund's periodic reports to the SEC and
with respect to any other requirements of the SEC.
(x) REPORTS BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
At the request of a Fund, the Custodian shall deliver to such Fund
a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the
Custodian under this Agreement, including, without
14
<PAGE>
limitation, the Custodian's accounting system, internal accounting
control and procedures for safeguarding cash, Securities and other
Assets, including cash, Securities and other Assets deposited
and/or maintained in a Securities System or with a Subcustodian.
Such report shall be of sufficient scope and in sufficient detail
as may reasonably be required by such Fund and as may reasonably be
obtained by the Custodian.
(y) BILLS AND OTHER DISBURSEMENTS.
Upon receipt of Instructions, the Custodian shall pay, or cause to
be paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians,
Foreign Subcustodians, Special Subcustodians, or Interim Subcustodians (as
each are hereinafter defined) to act on behalf of any one or more Funds. A
Domestic Subcustodian, in accordance with the provisions of this Agreement,
may also appoint a Foreign Subcustodian, Special Subcustodian, or Interim
Subcustodian to act on behalf of any one or more Funds. For purposes of
this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians and Interim Subcustodians shall be referred to collectively
as "Subcustodians".
(a) DOMESTIC SUBCUSTODIANS.
The Custodian may, at any time and from time to time, appoint any
bank as defined in Section 2(a)(5) of the 1940 Act or any trust
company or other entity, any of which meet the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and
regulations thereunder, to act for the Custodian on behalf of any
one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian
within the United States (a "Domestic Subcustodian"). Each Fund
shall approve in writing the appointment of the proposed Domestic
Subcustodian; and the Custodian's appointment of any such Domestic
Subcustodian shall not be effective without such prior written
approval of the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it
may be amended, from time to time.
(b) FOREIGN SUBCUSTODIANS.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity
meeting the requirements of an "eligible foreign custodian" under
Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if appointed by a
Domestic Subcustodian)
15
<PAGE>
for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United
States of America (hereinafter referred to as a "Foreign
Subcustodian" in the context of either a subcustodian or a
sub-subcustodian); provided that the Custodian shall have obtained
written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval
may be withheld in the sole discretion of such Board of Directors
or other governing body or entity) with respect to (i) the identity
of any proposed Foreign Subcustodian (including branch
designation), (ii) the country or countries in which, and the
securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through
which, the Custodian or any proposed Foreign Subcustodian is
authorized to hold Securities and other Assets of each such Fund,
and (iii) the form and terms of the subcustodian agreement to be
entered into with such proposed Foreign Subcustodian. Each such
duly approved Foreign Subcustodian and the countries where and the
Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed
on Appendix A attached hereto, as it may be amended, from time to
time. Each Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be
held in a country in which no Foreign Subcustodian is authorized to
act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian, to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including
obtaining approval as provided in this Section 5(b). In connection
with the appointment of any Foreign Subcustodian, the Custodian
shall, or shall cause the Domestic Subcustodian to, enter into a
subcustodian agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian shall not
consent to the amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of, any agreement
entered into with a Foreign Subcustodian, which materially affects
any Fund's rights under such agreement, except upon prior written
approval of such Fund pursuant to Special Instructions.
(c) INTERIM SUBCUSTODIANS.
Notwithstanding the foregoing, in the event that a Fund shall
invest in an Asset to be held in a country in which no Foreign
Subcustodian is authorized to act, the Custodian shall notify such
Fund in writing by facsimile transmission or in such other manner
as such Fund and the Custodian shall agree in writing of the
unavailability of an approved Foreign Subcustodian in such country;
and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to,
appoint or approve an entity (referred to herein as an "Interim
Subcustodian") designated in such Special Instructions to hold such
Security or other Asset.
16
<PAGE>
(d) SPECIAL SUBCUSTODIANS.
Upon receipt of Special Instructions, the Custodian shall on behalf
of a Fund, appoint one or more banks, trust companies or other
entities designated in such Special Instructions to act for the
Custodian on behalf of such Fund as a subcustodian for purposes of:
(i) effecting third-party repurchase transactions with banks,
brokers, dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and clearing
agency services with respect to certain variable rate demand note
Securities, (iii) providing depository and clearing agency services
with respect to dollar denominated Securities, and (iv) effecting
any other transactions designated by such Fund in such Special
Instructions. Each such designated subcustodian (hereinafter
referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time.
In connection with the appointment of any Special Subcustodian, the
Custodian shall enter into a subcustodian agreement with the
Special Subcustodian in form and substance approved by the
appropriate Fund in Special Instructions. The Custodian shall not
amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon
prior approval pursuant to Special Instructions.
(e) TERMINATION OF A SUBCUSTODIAN.
The Custodian may, at any time in its discretion upon notification
to the appropriate Fund(s), terminate any Subcustodian of such
Fund(s) in accordance with the termination provisions under the
applicable subcustodian agreement, and upon the receipt of Special
Instructions, the Custodian will terminate any Subcustodian in
accordance with the termination provisions under the applicable
subcustodian agreement.
(f) CERTIFICATION REGARDING FOREIGN SUBCUSTODIANS.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian
then acting on behalf of the Custodian; (ii) the countries in which
and the Securities Depositories and Clearing Agencies through which
each such Foreign Subcustodian is then holding cash, Securities and
other Assets of such Fund; and (iii) such other information as may
be requested by such Fund, and as the Custodian shall be reasonably
able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(a) GENERAL STANDARD OF CARE.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund
resulting from the gross
17
<PAGE>
negligence or willful misfeasance of the Custodian; provided,
however, in no event shall the Custodian be liable for special,
indirect or consequential damages arising under or in connection
with this Agreement.
(b) ACTIONS PROHIBITED BY APPLICABLE LAW, EVENTS BEYOND CUSTODIAN'S
CONTROL, SOVEREIGN RISK, ETC.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities System,
Securities Depository or Clearing Agency utilized by the Custodian
or any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or
delayed from performing, or omits to perform, any act or thing
which this Agreement provides shall be performed or omitted to be
performed, by reason of: (i) any provision of any present or future
law or regulation or order of the United States of America, or any
state thereof, or of any foreign country, or political subdivision
thereof or of any court of competent jurisdiction (and neither the
Custodian nor any other Person shall be obligated to take any
action contrary thereto); or (ii) any event beyond the control of
the Custodian or other Person such as armed conflict, riots,
strikes, lockouts, labor disputes, equipment or transmission
failures, natural disasters, or failure of the mails,
transportation, communications or power supply; or (iii) any
"Sovereign Risk." A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other
charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event
beyond the Custodian's or such other Person's control.
(c) LIABILITY FOR PAST RECORDS.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a
Fund, insofar as such loss, damage or expense arises from the
performance of the Custodian or any Domestic Subcustodian in
reliance upon records that were maintained for such Fund by
entities other than the Custodian or any Domestic Subcustodian
prior to the Custodian's employment hereunder.
(d) ADVICE OF COUNSEL.
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all
matters. The Custodian and all Domestic Subcustodians shall be
without liability for any actions taken or omitted in good faith
pursuant to the advice of counsel.
18
<PAGE>
(e) ADVICE OF THE FUND AND OTHERS.
The Custodian and any Domestic Subcustodian may rely upon the
advice of any Fund and upon statements of such Fund's accountants
and other persons believed by it in good faith to be expert in
matters upon which they are consulted, and neither the Custodian
nor any Domestic Subcustodian shall be liable for any actions taken
or omitted, in good faith, pursuant to such advice or statements.
(f) INSTRUCTIONS APPEARING TO BE GENUINE.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon
any Resolutions of the Board of Directors or Trustees,
Instructions, Special Instructions, advice, notice, request,
consent, certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and shall, unless
otherwise specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be ascertained
from any Fund hereunder a certificate signed by any officer of such
Fund authorized to countersign or confirm Special Instructions.
(g) EXCEPTIONS FROM LIABILITY.
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under
any duty or obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or
for any Fund, the legality of the purchase thereof or
evidence of ownership required to be received by any such
Fund, or the propriety of the decision to purchase or amount
paid therefor;
(ii) the legality of the sale of any Securities by or for any
Fund, or the propriety of the amount for which the same were
sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any Fund's
Assets;
and may, until notified to the contrary, presume that all
Instructions or Special Instructions received by it are not in
conflict with or in any way contrary to any provisions of any such
Fund's Declaration of Trust, Partnership Agreement, Articles of
Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or
any such Fund's currently effective Registration Statement on file
with the SEC.
19
<PAGE>
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) DOMESTIC SUBCUSTODIANS
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or
omissions were performed by the Custodian itself.
(b) LIABILITY FOR ACTS AND OMISSIONS OF FOREIGN SUBCUSTODIANS.
The Custodian shall be liable to a Fund for any loss or damage to
such Fund caused by or resulting from the acts or omissions of any
Foreign Subcustodian to the extent that, under the terms set forth
in the subcustodian agreement between the Custodian or a Domestic
Subcustodian and such Foreign Subcustodian, the Foreign
Subcustodian has failed to perform in accordance with the standard
of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign
Subcustodian under the applicable subcustodian agreement.
(c) SECURITIES SYSTEMS, INTERIM SUBCUSTODIANS, SPECIAL SUBCUSTODIANS,
SECURITIES DEPOSITORIES AND CLEARING AGENCIES.
The Custodian shall not be liable to any Fund for any loss, damage
or expense suffered or incurred by such Fund resulting from or
occasioned by the actions or omissions of a Securities System,
Interim Subcustodian, Special Subcustodian, or Securities
Depository and Clearing Agency unless such loss, damage or expense
is caused by, or results from, the gross negligence or willful
misfeasance of the Custodian.
(d) DEFAULTS OR INSOLVENCIES OF BROKERS, BANKS, ETC.
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by
the actions, omissions, neglects, defaults or insolvency of any
broker, bank, trust company or any other person with whom the
Custodian may deal (other than any of such entities acting as a
Subcustodian, Securities System or Securities Depository and
Clearing Agency, for whose actions the liability of the Custodian
is set out elsewhere in this Agreement) unless such loss, damage or
expense is caused by, or results from, the gross negligence or
willful misfeasance of the Custodian.
(e) REIMBURSEMENT OF EXPENSES.
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this
Agreement, but excluding salaries and usual overhead expenses.
20
<PAGE>
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY FUND.
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its
nominees from all losses, damages and expenses (including
attorneys' fees) suffered or incurred by the Custodian or its
nominee caused by or arising from actions taken by the Custodian,
its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to,
any indemnification obligations undertaken by the Custodian under
any relevant subcustodian agreement; provided, however, that such
indemnity shall not apply to the extent the Custodian is liable
under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect
to Securities, which action involves the payment of money or which
may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to such Fund being liable for the payment of
money or incurring liability of some other form, such Fund, as a
prerequisite to requiring the Custodian to take such action, shall
provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) INDEMNIFICATION BY CUSTODIAN.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the
Custodian agrees to indemnify and hold harmless each Fund from all
losses, damages and expenses suffered or incurred by each such Fund
caused by the gross negligence or willful misfeasance of the
Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing
Agency acting either directly or indirectly under agreement with the
Custodian (each of which for purposes of this Section 9 shall be referred
to as "Custodian"), makes any payment or transfer of funds on behalf of any
Fund as to which there would be, at the close of business on the date of
such payment or transfer, insufficient funds held by the Custodian on
behalf of any such Fund, the Custodian may, in its discretion without
further Instructions, provide an advance ("Advance") to any such Fund in an
amount sufficient to allow the completion of the transaction by reason of
which such payment or transfer of funds is to be made. In addition, in the
event the Custodian is directed by Instructions to make any payment or
transfer of funds on behalf of any Fund as to which it is subsequently
determined that such Fund has overdrawn its cash account with the Custodian
as of the close of business on the date of such payment or transfer, said
overdraft shall constitute an Advance. Any
21
<PAGE>
Advance shall be payable by the Fund on behalf of which the Advance was
made on demand by Custodian, unless otherwise agreed by such Fund and the
Custodian, and shall accrue interest from the date of the Advance to the
date of payment by such Fund to the Custodian at a rate agreed upon in
writing from time to time by the Custodian and such Fund. It is understood
that any transaction in respect of which the Custodian shall have made an
Advance, including but not limited to a foreign exchange contract or
transaction in respect of which the Custodian is not acting as a principal,
is for the account of and at the risk of the Fund on behalf of which the
Advance was made, and not, by reason of such Advance, deemed to be a
transaction undertaken by the Custodian for its own account and risk. The
Custodian and each of the Funds which are parties to this Agreement
acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of Securities for prompt delivery in accordance with the
settlement terms of such transactions or to meet emergency expenses not
reasonably foreseeable by a Fund. The Custodian shall promptly notify the
appropriate Fund of any Advance. Such notification shall be sent by
facsimile transmission or in such other manner as such Fund and the
Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to secure
payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any
purpose or in the event that the Bank or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of its duties hereunder, except such as
may arise from its or its nominee's negligent action, negligent failure to
act or willful misconduct, any Property at any time held for the Custody
Account shall be security therefor and the Fund hereby grants a security
interest therein to the Bank. The Fund shall promptly reimburse the Bank
for any such advance of cash or securities or any such taxes, charges,
expenses, assessments, claims or liabilities upon request for payment, but
should the Fund fail to so reimburse the Bank, the Bank shall be entitled
to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund
with the Bank including, without limitation, the Custody Account, in
connection with any such advance and any interest on such advance as the
Bank deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to in
writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such
Fund and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies, powers
of attorney or other instruments as may be reasonable and necessary or
desirable in connection with
22
<PAGE>
the performance by the Custodian or any Subcustodian of their respective
obligations under this Agreement or any applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 90 days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement, the appropriate Fund shall pay to the Custodian such fees as may
be due the Custodian hereunder as well as its reimbursable disbursements,
costs and expenses paid or incurred. Upon termination of this Agreement,
the Custodian shall deliver, at the terminating party's expense, all Assets
held by it hereunder to the appropriate Fund or as otherwise designated by
such Fund by Special Instructions. Upon such delivery, the Custodian shall
have no further obligations or liabilities under this Agreement except as
to the final resolution of matters relating to activity occurring prior to
the effective date of termination.
This Agreement may not be assigned by the Custodian or any Fund without the
respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund
or Funds and the Custodian. If this Agreement is terminated as to one or
more of the Funds (but less than all of the Funds) or if an additional Fund
or Funds shall become a party to this Agreement, there shall be delivered
to each party an Appendix B or an amended Appendix B, signed by each of the
additional Funds (if any) and each of the remaining Funds as well as the
Custodian, deleting or adding such Fund or Funds, as the case may be. The
termination of this Agreement as to less than all of the Funds shall not
affect the obligations of the Custodian and the remaining Funds hereunder
as set forth on the signature page hereto and in Appendix B as revised from
time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to THE SECURITY BENEFIT GROUP OF COMPANIES, 700 HARRISON, TOPEKA,
KS 66636-0001, postage prepaid, or to such other address as any particular
Fund may have designated to the Custodian in writing, shall be deemed to
have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928
Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the
Custodian's Securities Administration Department, Post Office Box 226,
Kansas City, Missouri 64141, or to such other addresses as the Custodian
may have designated to each Fund in writing, shall be deemed
23
<PAGE>
to have been properly delivered or given to the Custodian hereunder;
provided, however, that procedures for the delivery of Instructions and
Special Instructions shall be governed by Section 2(c) hereof..
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived,
in any manner except in writing, properly executed by both parties
hereto; provided, however, Appendix A may be amended from time to
time as Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians, and Securities Depositories and Clearing Agencies
are approved or terminated according to the terms of this
Agreement.
(d) The captions 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 or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following
sections of the Agreement:
24
<PAGE>
TERM SECTION
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2
Authorized Person 3
Banking Institution 4(l)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(l)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court
of competent jurisdiction, the remaining portion or portions shall
be considered severable and shall not be affected, and the rights
and obligations of the parties shall be construed and enforced as
if this Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof,
and accordingly supersedes, as of the effective date of this
Agreement, any custodian agreement heretofore in effect between the
Fund and the Custodian.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be
executed by their respective duly authorized officers.
ATTEST: Security Ultra Fund
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Equity Fund
Equity Series
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Growth and Income Fund
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Income Fund
Corporate Bond Series
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Income Series
Limited Maturity Bond Series
AMY J. LEE By: JOHN D. CLELAND
Title: President
26
<PAGE>
ATTEST: Security Income Fund
U. S. Government Series
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Tax-Exempt Fund
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: Security Cash Fund
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: SBL Fund
Series A, B, C, E, S and J
AMY J. LEE By: JOHN D. CLELAND
Title: President
ATTEST: UMB BANK, N.A.
R. WILLIAM BLOOM By: DAVID SWAN
Title: Senior Vice President
Date: 1/11/95
27
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
Security Income Fund
Security Ultra Fund Limited Maturity Bond Series
By: JOHN D. CLELAND By: JOHN D. CLELAND
Title: President Title: President
Security Equity Fund Security Income Fund
Equity Series U. S. Government Series
By: JOHN D. CLELAND By: JOHN D. CLELAND
Title: President Title: President
Security Growth and Income Fund SBL Fund
By: JOHN D. CLELAND By: JOHN D. CLELAND
Title: President Title: President
Security Income Fund
Corporate Bond Series UMB BANK, N.A.
By: JOHN D. CLELAND By: DAVID SWAN
Title: President Title: Senior Vice President
Date: 1/11/95
28
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are hereby made
parties to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a.
("Custodian"), and agree to be bound by all the terms and conditions contained
in said Agreement:
List of Funds
Security Income Fund, High Yield Series
SBL Fund, Series P
ATTEST: Security Income Fund
High Yield Series
AMY J. LEE
- ----------------------------------- By: JOHN D. CLELAND
-----------------------------------
Title: President
ATTEST: SBL Fund
Series P
AMY J. LEE
- ----------------------------------- By: JOHN D. CLELAND
-----------------------------------
Title: President
ATTEST: UMB BANK, N.A.
R.WM. BLOOM By: DAVID SWAN
- ----------------------------------- -----------------------------------
Title: Senior Vice President
Date: April 29, 1996
<PAGE>
AMENDMENT TO APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
Security Income Fund
High Yield Series
By: JAMES R. SCHMANK
-----------------------------------
Title: Vice President & Treasurer
SBL Fund
Series B
Series E
Series P
By: JAMES R. SCHMANK
-----------------------------------
Title: Vice President & Treasurer
UMB BANK, N.A.
By: RALPH SANTORO
-----------------------------------
Title: Vice President
Date: August 15, 1996
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
The following open-end management investment company ("Fund") is hereby made a
party to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a.
("Custodian"), and agrees to be bound by all the terms and conditions contained
in said Agreement:
Security Equity Fund
Social Awareness Series
ATTEST: Security Equity Fund
Social Awareness Series
CHRIS SWICKARD
- -----------------------------------
By: JAMES R. SCHMANK
-----------------------------------
Title: Vice President and Treasurer
ATTEST: UMB BANK, N.A.
WILLIAM BLOEMKER By: RALPH SANTORO
- ----------------------------------- -----------------------------------
Title: Vice President
Date: August 15, 1996
<PAGE>
UMB Financial Corporation
CUSTODY FEE SCHEDULE
Security Management Group of Mutual Funds
- --------------------------------------------------------------------------------
NET ASSET VALUE CHARGES
A fee to be computed as of month-end and payable on the last day of each
month of the portfolios' fiscal year, at the annual rate of:
0.275 basis points on the combined net assets of all portfolios, subject to
a $100.00 per month minimum per portfolio.
PORTFOLIO TRANSACTION CHARGES
DTC Book-Entry Transactions* $5.00
PTC Book-Entry Transactions* 11.50
Federal Book-Entry Transactions* 7.50
Physical Transactions* 18.00
Third Party (Bank Book-Entry) Transactions 15.00
Principal and Interest Paydowns 3.00
Options/Futures 25.00
Corporate Actions/Calls/Reorgs 30.00
*A TRANSACTION INCLUDES BUYS, SELLS, MATURITIES, AND FREE SECURITY MOVEMENTS.
OUT OF POCKET EXPENSES
Including, but not limited to, security transfer fees, certificate fees,
shipping/courier fees or charges, FDIC insurance premiums, and remote
system access charges.
UMB Bank, N.A. agrees that the foregoing fees and charges will be in effect for
a period of three years beginning December 1, 1996, unless otherwise agreed by
the parties.
IN WITNESS WHEREOF, the parties hereto have executed this amendment to the
Custody Agreement dated January 1, 1995, this 26th day of November, 1996.
ATTEST: Security Ultra Fund
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: Security Equity Fund
Equity Series
Social Awareness Series
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
<PAGE>
ATTEST: Security Growth and Income Fund
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: Security Income Fund
Corporate Bond Series
Limited Maturity Bond Series
U.S. Government Bond Series
High Yield Series
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: Security Tax-Exempt Fund
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: Security Cash Fund
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: SBL Fund
Series A, B, C, E, S, J and P
AMY J. LEE By: JOHN D. CLELAND
- -------------------------------- --------------------------------
Name: John D. Cleland
Title: President
ATTEST: UMB Bank, N.A.
R. W. BLOOM By: PATRICIA A. PETERSON
- -------------------------------- --------------------------------
Name: Patricia A. Peterson
Title: Senior Vice President
<PAGE>
AMENDMENT TO APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
Security Equity Fund
Value Series
By: AMY J. LEE
--------------------------------
Title: Secretary
SBL Fund
Series V
By: AMY J. LEE
--------------------------------
Title: Secretary
UMB BANK, N.A.
By: RALPH SANTORO
--------------------------------
Title: Vice President
Date: April 23, 1997
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
The following open-end management investment company ("Fund") is hereby made
party to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a.
("Custodian"), and agrees to be bound by all the terms and conditions contained
in said Agreement:
Security Equity Fund, Value Series
SBL Fund, Series V
Security Equity Fund
ATTEST: Value Series
CHRIS SWICKARD By: AMY J. LEE
- --------------------------------- ---------------------------------
Title: Secretary
SBL Fund
ATTEST: Series V
CHRIS SWICKARD By: AMY J. LEE
- --------------------------------- ---------------------------------
Title: Secretary
ATTEST: UMB BANK, N.A.
CHRIS SWICKARD By: RALPH SANTORO
- --------------------------------- ---------------------------------
Title: Vice President
Date: February 14, 1997
<PAGE>
AMENDMENT TO APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS and CLEARING AGENCIES
Euroclear
Security Equity Fund
Small Company Series
By: JAMES R. SCHMANK
--------------------------------
Name: JAMES R. SCHMANK
--------------------------------
Title: Vice President and Treasurer
--------------------------------
Date: October 7, 1997
--------------------------------
SBL Fund
Series X
By: JAMES R. SCHMANK
--------------------------------
Name: JAMES R. SCHMANK
--------------------------------
Title: Vice President and Treasurer
--------------------------------
Date: October 7, 1997
--------------------------------
UMB BANK, N.A.
By: RALPH R. SANTORO
--------------------------------
Name: RALPH R. SANTORO
--------------------------------
Title: Vice President
--------------------------------
Date: September 26, 1997
--------------------------------
<PAGE>
AMENDMENT TO CUSTODY AGREEMENT
The following open-end management investment company ("Funds") is hereby made
party to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a.
("Custodian"), and agree to be bound by all the terms and conditions contained
in said Agreement:
List of Funds:
Security Equity Fund, Small Company Series
SBL Fund, Series X
Security Equity Fund
ATTEST: Small Company Series
AMY J. LEE By: JAMES R. SCHMANK
- --------------------------------- ---------------------------------
Title: Vice President and Treasurer
-------------------------------
SBL Fund
ATTEST: Series X
AMY J. LEE By: JAMES R. SCHMANK
- --------------------------------- ---------------------------------
Title: Vice President and Treasurer
-------------------------------
ATTEST: UMB BANK, N.A.
By: RALPH R. SANTORO
- --------------------------------- ---------------------------------
Title: Vice President
------------------------------
Date: September 26, 1997
-------------------------------
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation by reference of
our report dated November 1, 1996, in Post-Effective Amendment No. 80 to the
Registration Statement (Form N-1A) and related Prospectus of Security Equity
Fund filed with the Securities and Exchange Commission under the Securities Act
of 1933 (Registration No. 2-19458) and under the Investment Company Act of 1940
(Registration No. 811-1136).
Ernst & Young LLP
Kansas City, Missouri
October 15, 1997
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
EQUITY SERIES
A SHARES
Total Return from March 31, 1987, to March 31, 1997. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000/ 6.63 =
150.8296 shares.
Ending value of initial investment at March 31, 1997, NAV price = 150.8296
shares x 7.25 = $1,093.51.
Ending value of shares received from reinvestment of all dividends at NAV =
331.1398 shares x 7.25 = $2,400.76.
Total ending redeemable value: 1,093.51
+ 2,400.76
--------
3,494.27
Total Return: 3,494.27 - 1,000 = 2,494.27
2,494.27/1,000 = 249.43%
----------------------------------------------
Calendar 1997 % change from previous year
= value at end of year............... 1,143
less value at beginning.............. 1,000
-----
143
Change 143
----- = 14.3%
Beginning Value 1,000
<PAGE>
Item 24.b. Exhibit (16)
EQUITY SERIES
B SHARES
Total Return from October 19, 1993, to March 31, 1997. 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 March 31, 1997, NAV price = 146.8429
shares x 7.08= $1,039.65.
Ending value of shares received from reinvestment of all dividends at NAV =
85.0489 shares x 7.08 = $602.15.
Contingent deferred sales charge = 1,000 x .03 = $30.00.
Total ending redeemable value: 1,039.65
602.15
(30.00)
---------
1,611.80
Total Return: 1,611.80 - 1,000 = 611.80
611.80/1,000 = 61.18%
----------------------------------------------
Calendar 1996 % change
= value at end of year............... 1,134
less value at beginning.............. 1,000
-----
134
Change 134
----- = 13.4%
Beginning Value 1,000
<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 March 31, 1997,
(according to the Form N-1A calculation).
A SHARES
1. Average total return for 1 year = 7.77%
=====
1000 (1+T)1 = 1,077.71
(1+T)1 = 1.07771
1+T = 1.07771
T = .07771
2. Average total return for 5 years = 14.51%
1000 (1+T)5 = 1,969.09
(1+T)5 = 1.96909
((1+T)5)1/5 = (1.96909)1/5
1+T = 1.1451
T = .1451
3. Average total return for 10 years = 13.33%
======
1000 (1+T)10 = 3,494.28
(1+T)10 = 3.49428
((1+T)10)1/10 = (3.49428)1/10
1+T = 1.1333
T = .1333
B SHARES
1. Average total return for 1 year with CDSC = 8.35%
=====
1000 (1+T)1 = 1,083.52
(1+T)1 = (1.08352)
1+T = 1.08352
T = .0835
2. Average total return since October 19, 1993 (inception) with CDSC
= 14.84%
======
1000 (1+T)3.4493 = 1,611.79
((1+T)3.4493 )1/3.4493 = (1.61179)1/3.4493
1+T = 1.1484
T = .1484
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
GLOBAL SERIES
A SHARES
Total Return from October 1, 1993, to March 31, 1997. 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 March 31, 1997, NAV price = 94.2507
shares x 11.90 = $1,121.58
Ending redeemable value of shares received from reinvestment of all
dividends at NAV = 15.3793 x 11.90 = 183.01.
Total ending redeemable value: 1,121.58
183.01
--------
1,304.59
Total Return: 1,304.59 - 1,000 = 304.59
304.59/1,000 = 30.46%
-----------------------------------------------
Calendar 1996 % change from previous year
= value at end of year............... 1,127
less value at beginning.............. 1,000
-----
127
Change 127
----- = +12.7%
Beginning Value 1,000
<PAGE>
Item 24.b. Exhibit (16)
GLOBAL SERIES
B SHARES
Total Return from October 19, 1993, to March 31, 1997. 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 March 31, 1997, NAV price = 100.402
shares x 11.66 = $1,170.69.
Ending value of shares received from reinvestment of all dividends at NAV =
14.895 x 11.66 = $173.68.
Contingent deferred sales charge = 1,000 x .03 = $30.
Total ending redeemable value: 1,170.69
173.68
+ (30.00)
---------
1,314.37
Total Return: 1,314.37 - 1,000 = 314.37
314.37/1,000 = 31.44%
-----------------------------------------------
Calendar 1996 % change
= value at end of year............... 1,116
less value at beginning.............. 1,000
-----
116
Change 116
----- = +11.6%
Beginning Value 1,000
<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 March 31, 1997,
(according to the Form N-1A calculation).
A SHARES
1. Average total return for 1 year = 6.19 %
======
1000 (1+T)1 = 1,061.86
(1+T)1 = 1.06186
1+T = 1.06186
T = .06186
2. Average total return since October 1, 1993 (inception) with CDSC
= 7.99%
=====
1000 (1+T)3 = 1,259.27
(1+T)3 = 1.25927
((1+T)3)1/3 = (1.25927) 1/3
1+T = 1.0799
T = .0799
B SHARES
1. Average annual return for 1 year with CDSC = 6.56%
=====
1000 (1+T)1 = 1,065.65
(1+T)1 = 1.06565
1+T = 1.06565
T = .0656
2. Average total return since October 19, 1993 (inception) with CDSC
= 8.25%
=====
1000 (1+T) 3.4493 = 1,314.36
((1+T)3.4493)1/3.4493 = (1.31436)1/3.4493
1+T = 1.0825
T = .0825
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
ASSET ALLOCATION SERIES
A SHARES
Total Return from June 1, 1995, to March 31, 1997. 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 March 31, 1997, NAV price = 94.2507
shares x 11.19 = $1,054.67.
Ending value of shares received from reinvestment of all dividends at NAV =
9.1333 x 11.19 = $102.20.
Total ending redeemable value: 1,054.67
+ 102.20
--------
1,156.87
Total Return: 1,156.87 - 1,000 = 156.87
156.87/1,000 = 15.69%
----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
ASSET ALLOCATION SERIES
B SHARES
Total Return from June 1, 1995, to March 31, 1997. 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 March 31, 1997, NAV price = 100
shares x 11.12 = $1,110.00.
Ending value of shares received from reinvestment of all dividends at NAV =
8.401 x 11.12 = $93.42
Contingent deferred sales charge = 1,000 x .04 = $40.
Total ending redeemable value: 1,110.00
+ 93.42
(40.00)
---------
1,163.42
Total Return: 1,163.42 - 1,000 = 163.42
163.42/1,000 = 16.34%
----------------------------------------------
<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 March
31, 1997, (according to the Form N-1A calculation).
A SHARES
1. Average total return for 1 year = 3.22%
=====
1000 (1+T) 1 = 1,032.22
(1+T) 1 = 1.03222
1+T = 1.03222
T = .03222
2. Average total return since June 1, 1995
(inception) = 8.27%
=====
1000 (1+T)1.7506 = 1,156.86
(1+T)1.7506)1/1.7506 = (1.15686)1.7506
1+T = 1.0827
T = .0827
B SHARES
1. Average total return for 1 year = 3.41%
=====
1000 (1+T) 1 = 1,034.11
(1+T) 1 = 1.03411
1+T = 1.03411
T = .0341
2. Average annual return since June 1, 1995 (inception) with CDSC
= 8.71%
=====
1000 (1+T)1.7506 = 1,165.42
((1+T)1.7506)1/1.7506 = (1.16542)1.7506
1+T = 1.0871
T = .0871
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
SOCIAL AWARENESS SERIES
A SHARES
Total Return from November 4, 1996, to March 31, 1997. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000/
15.92 = 62.8141 shares.
Ending value of initial investment at March 31, 1997, NAV price = 62.8141
shares x 14.34 = $900.75.
Total ending redeemable value: 900.75
+ .00
----------
900.75
Total Return: 900.75 - 1,000 = -99.25
-99.25/1,000 = -9.925%
----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
SOCIAL AWARENESS SERIES
B SHARES
Total Return from November 4, 1996, to March 31, 1997. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 15.00
= 66.6667 shares.
Ending value of initial investment at March 31, 1997, NAV price = 66.6667
shares x 14.29 = $952.67.
Contingent deferred sales charge = 952.67 x .05 = $47.63.
Total ending redeemable value: 952.67
(47.63)
-------
905.04
Total Return: 905.04 - 1,000 = 94.96
-94.96/1,000 = -9.50%
----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
AVERAGE ANNUAL TOTAL RETURN
FOR SECURITY EQUITY FUND, SOCIAL AWARENESS SERIES
Total Return of Security Equity Fund Social Awareness Series, as of March
31, 1997, (according to the Form N-1A calculation).
A SHARES
1. Average total return since November 4, 1996
(inception) = -22.31%
======
1000 (1+T) .414 = 900.75
((1+T) .414) 1/.414 = (900.75) 1/.414
1+T = .7769
T = -.2231
B SHARES
1. Average total return since November 4, 1996 (inception) with CDSC
(inception) with CDSC = -21.42%
======
1000 (1+T) .414 = 905.03
((1+T) .414) 1/.414 = (905.03) 1/.414
1+T = .7858
T = -.2142
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
VALUE SERIES
A SHARES
Total Return from May 1, 1997, to August 31, 1997. Assuming Initial Investment
of $1,000 at offering price at the beginning of period $1,000 / 10.61 = 94.25071
shares.
Ending value of initial investment at August 31, 1997, NAV price = 94.25071
shares x 12.26 = $1,155.51.
Total ending redeemable value: 1,155.51
+ .00
----------
1,155.51
Total Return: 1,155.51 - 1,000 = 155.51
155.51 / 1,000 = 15.55%
-----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
VALUE SERIES
B SHARES
Total Return from May 1, 1997, to August 31, 1997. Assuming Initial Investment
of $1,000 at offering price at the beginning of period $1,000 / 15.00 = 66.6667
shares.
Ending value of initial investment at August 31, 1997, NAV price = 100.00 shares
x 12.23 = $1,223.00
Contingent deferred sales charge = 1,000 x .05 = $50.00.
Total ending redeemable value: 1,223.00
+ (50.00)
--------
1,173.00
Total Return: 1,173.00 - 1,000 = 173.00
173.00 / 1,000 = 17.30%
-----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
AVERAGE ANNUAL TOTAL RETURN
FOR SECURITY EQUITY FUND, VALUE SERIES
Total Return of Security Equity Fund, Value Series, as of August 31, 1997,
(according to the Form N-1A calculation).
A SHARES
1. Average total return since May 1, 1997 (inception) = +53.56%
=====
1000 (1+T) .3370 = 1,155.51
((1+T) .3370) 1/.3370 = (1.15551) 1/.3370
1+T = 1.5356
T = .5356
B SHARES
1. Average total return since May 1, 1997 (inception) with CDSC
(inception) with CDSC = +60.56%
1000 (1+T) .3370 = 1,173.00
((1+T) .3370) 1/.3370 = (1.17300) 1/.3370
1+T = 1.6056
T = .6056
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 011
<NAME> EQUITY SERIES-A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 471,903
<INVESTMENTS-AT-VALUE> 639,613
<RECEIVABLES> 1,874
<ASSETS-OTHER> 20,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 661,768
<PAYABLE-FOR-SECURITIES> 616
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,274
<TOTAL-LIABILITIES> 2,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,328
<SHARES-COMMON-STOCK> 82,720
<SHARES-COMMON-PRIOR> 76,390
<ACCUMULATED-NII-CURRENT> 1,037
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167,710
<NET-ASSETS> 658,878
<DIVIDEND-INCOME> 4,556
<INTEREST-INCOME> 576
<OTHER-INCOME> 0
<EXPENSES-NET> 3,669
<NET-INVESTMENT-INCOME> 1,463
<REALIZED-GAINS-CURRENT> 36,568
<APPREC-INCREASE-CURRENT> (4,965)
<NET-CHANGE-FROM-OPS> 33,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,155
<DISTRIBUTIONS-OF-GAINS> 49,869
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,293
<NUMBER-OF-SHARES-REDEEMED> 17,849
<SHARES-REINVESTED> 6,886
<NET-CHANGE-IN-ASSETS> 24,387
<ACCUMULATED-NII-PRIOR> 2,729
<ACCUMULATED-GAINS-PRIOR> 46,268
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,669
<AVERAGE-NET-ASSETS> 663,332
<PER-SHARE-NAV-BEGIN> 7.54
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .379
<PER-SHARE-DIVIDEND> .041
<PER-SHARE-DISTRIBUTIONS> .648
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.25
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 012
<NAME> EQUITY SERIES-B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 471,903
<INVESTMENTS-AT-VALUE> 639,613
<RECEIVABLES> 1,874
<ASSETS-OTHER> 20,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 661,768
<PAYABLE-FOR-SECURITIES> 616
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,274
<TOTAL-LIABILITIES> 2,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,328
<SHARES-COMMON-STOCK> 8,312
<SHARES-COMMON-PRIOR> 5,276
<ACCUMULATED-NII-CURRENT> 1,037
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 167,710
<NET-ASSETS> 658,878
<DIVIDEND-INCOME> 4,556
<INTEREST-INCOME> 576
<OTHER-INCOME> 0
<EXPENSES-NET> 3,669
<NET-INVESTMENT-INCOME> 1,463
<REALIZED-GAINS-CURRENT> 36,868
<APPREC-INCREASE-CURRENT> (4,965)
<NET-CHANGE-FROM-OPS> 33,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 4,464
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,280
<NUMBER-OF-SHARES-REDEEMED> 5,871
<SHARES-REINVESTED> 628
<NET-CHANGE-IN-ASSETS> 19,988
<ACCUMULATED-NII-PRIOR> 2,729
<ACCUMULATED-GAINS-PRIOR> 46,268
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,407
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,669
<AVERAGE-NET-ASSETS> 663,332
<PER-SHARE-NAV-BEGIN> 7.36
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .388
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.648)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.08
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 021
<NAME> GLOBAL SERIES-A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 26,899
<INVESTMENTS-AT-VALUE> 29,180
<RECEIVABLES> 1,165
<ASSETS-OTHER> 2,207
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,552
<PAYABLE-FOR-SECURITIES> 816
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71
<TOTAL-LIABILITIES> 887
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,499
<SHARES-COMMON-STOCK> 1,851
<SHARES-COMMON-PRIOR> 1,582
<ACCUMULATED-NII-CURRENT> (225)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,121
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,270
<NET-ASSETS> 31,665
<DIVIDEND-INCOME> 190
<INTEREST-INCOME> 41
<OTHER-INCOME> 0
<EXPENSES-NET> 331
<NET-INVESTMENT-INCOME> (100)
<REALIZED-GAINS-CURRENT> 1,320
<APPREC-INCREASE-CURRENT> 248
<NET-CHANGE-FROM-OPS> 1,468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 525
<DISTRIBUTIONS-OF-GAINS> 1,243
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 245
<NUMBER-OF-SHARES-REDEEMED> 134
<SHARES-REINVESTED> 158
<NET-CHANGE-IN-ASSETS> 2,374
<ACCUMULATED-NII-PRIOR> 672
<ACCUMULATED-GAINS-PRIOR> 1,559
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 289
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 331
<AVERAGE-NET-ASSETS> 31,588
<PER-SHARE-NAV-BEGIN> 12.42
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> .669
<PER-SHARE-DIVIDEND> .376
<PER-SHARE-DISTRIBUTIONS> .783
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.90
<EXPENSE-RATIO> 2.0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 022
<NAME> GLOBAL SERIES-B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 26,899
<INVESTMENTS-AT-VALUE> 29,180
<RECEIVABLES> 1,165
<ASSETS-OTHER> 2,207
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,552
<PAYABLE-FOR-SECURITIES> 816
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71
<TOTAL-LIABILITIES> 887
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,499
<SHARES-COMMON-STOCK> 827
<SHARES-COMMON-PRIOR> 598
<ACCUMULATED-NII-CURRENT> (225)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,121
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,270
<NET-ASSETS> 31,665
<DIVIDEND-INCOME> 190
<INTEREST-INCOME> 41
<OTHER-INCOME> 0
<EXPENSES-NET> 331
<NET-INVESTMENT-INCOME> (100)
<REALIZED-GAINS-CURRENT> 1,320
<APPREC-INCREASE-CURRENT> 248
<NET-CHANGE-FROM-OPS> 1,468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 272
<DISTRIBUTIONS-OF-GAINS> 515
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 228
<NUMBER-OF-SHARES-REDEEMED> 62
<SHARES-REINVESTED> 63
<NET-CHANGE-IN-ASSETS> 2,363
<ACCUMULATED-NII-PRIOR> 672
<ACCUMULATED-GAINS-PRIOR> 1,559
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 289
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 331
<AVERAGE-NET-ASSETS> 31,588
<PER-SHARE-NAV-BEGIN> 12.18
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .637
<PER-SHARE-DIVIDEND> .304
<PER-SHARE-DISTRIBUTIONS> .783
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.66
<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> 031
<NAME> ASSET ALLOCATION-CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 6,622
<INVESTMENTS-AT-VALUE> 6,657
<RECEIVABLES> 61
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,718
<PAYABLE-FOR-SECURITIES> 39
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<TOTAL-LIABILITIES> 66
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,227
<SHARES-COMMON-STOCK> 289
<SHARES-COMMON-PRIOR> 221
<ACCUMULATED-NII-CURRENT> 24
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 366
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35
<NET-ASSETS> 6,652
<DIVIDEND-INCOME> 41
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> 63
<NET-INVESTMENT-INCOME> 28
<REALIZED-GAINS-CURRENT> 372
<APPREC-INCREASE-CURRENT> (91)
<NET-CHANGE-FROM-OPS> 309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 63
<DISTRIBUTIONS-OF-GAINS> 61
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76
<NUMBER-OF-SHARES-REDEEMED> 19
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 785
<ACCUMULATED-NII-PRIOR> 113
<ACCUMULATED-GAINS-PRIOR> 128
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85
<AVERAGE-NET-ASSETS> 6,137
<PER-SHARE-NAV-BEGIN> 11.06
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .562
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> .252
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.19
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 032
<NAME> ASSET ALLOCATION-CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 6,622
<INVESTMENTS-AT-VALUE> 6,657
<RECEIVABLES> 61
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,718
<PAYABLE-FOR-SECURITIES> 39
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27
<TOTAL-LIABILITIES> 66
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,227
<SHARES-COMMON-STOCK> 307
<SHARES-COMMON-PRIOR> 253
<ACCUMULATED-NII-CURRENT> 24
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 366
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35
<NET-ASSETS> 6,652
<DIVIDEND-INCOME> 41
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> 63
<NET-INVESTMENT-INCOME> 28
<REALIZED-GAINS-CURRENT> 372
<APPREC-INCREASE-CURRENT> (91)
<NET-CHANGE-FROM-OPS> 309
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53
<DISTRIBUTIONS-OF-GAINS> 74
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 68
<NUMBER-OF-SHARES-REDEEMED> 25
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 637
<ACCUMULATED-NII-PRIOR> 113
<ACCUMULATED-GAINS-PRIOR> 128
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 29
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85
<AVERAGE-NET-ASSETS> 6,137
<PER-SHARE-NAV-BEGIN> 10.97
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .553
<PER-SHARE-DIVIDEND> .181
<PER-SHARE-DISTRIBUTIONS> .252
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 2.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 041
<NAME> SOCIAL AWARENESS SERIES-CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> NOV-04-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,028
<INVESTMENTS-AT-VALUE> 2,944
<RECEIVABLES> 97
<ASSETS-OTHER> 560
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,601
<PAYABLE-FOR-SECURITIES> 308
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,481
<SHARES-COMMON-STOCK> 100
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (5)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (104)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (83)
<NET-ASSETS> 3,289
<DIVIDEND-INCOME> 8
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 20
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> (104)
<APPREC-INCREASE-CURRENT> (83)
<NET-CHANGE-FROM-OPS> (192)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 103
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,431
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31
<AVERAGE-NET-ASSETS> 2,681
<PER-SHARE-NAV-BEGIN> 15
<PER-SHARE-NII> (.002)
<PER-SHARE-GAIN-APPREC> (.658)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.34
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 042
<NAME> SOCIAL AWARENESS SERIES-CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> NOV-04-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,028
<INVESTMENTS-AT-VALUE> 2,944
<RECEIVABLES> 97
<ASSETS-OTHER> 560
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,601
<PAYABLE-FOR-SECURITIES> 308
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,481
<SHARES-COMMON-STOCK> 130
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (5)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (104)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (83)
<NET-ASSETS> 3,289
<DIVIDEND-INCOME> 8
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 20
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> (104)
<APPREC-INCREASE-CURRENT> (83)
<NET-CHANGE-FROM-OPS> (192)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 130
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,858
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31
<AVERAGE-NET-ASSETS> 2,681
<PER-SHARE-NAV-BEGIN> 15
<PER-SHARE-NII> (.046)
<PER-SHARE-GAIN-APPREC> (.664)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.29
<EXPENSE-RATIO> 2.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 051
<NAME> VALUE SERIES-A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,180
<INVESTMENTS-AT-VALUE> 5,713
<RECEIVABLES> 180
<ASSETS-OTHER> 137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,030
<PAYABLE-FOR-SECURITIES> 137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 142
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,287
<SHARES-COMMON-STOCK> 220
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 63
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 533
<NET-ASSETS> 5,888
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> 17
<NET-INVESTMENT-INCOME> 5
<REALIZED-GAINS-CURRENT> 63
<APPREC-INCREASE-CURRENT> 533
<NET-CHANGE-FROM-OPS> 601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 221
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,701
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28
<AVERAGE-NET-ASSETS> 2,182
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 2.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.26
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 052
<NAME> VALUE SERIES-B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,180
<INVESTMENTS-AT-VALUE> 5,713
<RECEIVABLES> 180
<ASSETS-OTHER> 137
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,030
<PAYABLE-FOR-SECURITIES> 137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 142
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,287
<SHARES-COMMON-STOCK> 261
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 63
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 533
<NET-ASSETS> 5,888
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 6
<OTHER-INCOME> 0
<EXPENSES-NET> 17
<NET-INVESTMENT-INCOME> 5
<REALIZED-GAINS-CURRENT> 63
<APPREC-INCREASE-CURRENT> 533
<NET-CHANGE-FROM-OPS> 601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 262
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,187
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28
<AVERAGE-NET-ASSETS> 2,182
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .00
<PER-SHARE-GAIN-APPREC> 2.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
