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File No. 811-1136
File No. 2-19458
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 84 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Post-Effective Amendment No. 84 [X]
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(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 January 28, 1999, pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on January 28, 1999, pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on January 28, 1999, 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
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SECURITY
FUNDS
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PROSPECTUS
FEBRUARY 1, 1999
- Security Growth
and Income Fund
- Security Equity Fund
- Security Global Fund
- Security Value Fund
- Security Small
Company Fund
- Security Ultra Fund
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
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FUNDS' OBJECTIVES........................................................... 2
Security Growth and Income Fund........................................... 2
Security Equity Fund...................................................... 2
Security Global Fund...................................................... 2
Security Value Fund....................................................... 2
Security Small Company Fund............................................... 2
Security Enhanced Index Fund.............................................. 2
Security International Fund............................................... 2
Security Select 25 Fund................................................... 2
Security Ultra Fund....................................................... 2
FUNDS' PRINCIPAL INVESTMENT STRATEGIES...................................... 2
Security Growth and Income Fund........................................... 2
Security Equity Fund...................................................... 2
Security Global Fund...................................................... 3
Security Value Fund....................................................... 3
Security Small Company Fund............................................... 3
Security Enhanced Index Fund.............................................. 3
Security International Fund............................................... 4
Security Select 25 Fund................................................... 4
Security Ultra Fund....................................................... 5
MAIN RISKS.................................................................. 5
Market Risk............................................................... 5
Smaller Companies......................................................... 5
Value Stocks.............................................................. 5
Growth Stocks............................................................. 5
Foreign Securities........................................................ 5
Emerging Markets.......................................................... 6
Options and Futures....................................................... 6
Fixed-Income Securities................................................... 6
Diversification........................................................... 6
Investment in Investment Companies........................................ 6
Active Trading............................................................ 7
PAST PERFORMANCE............................................................ 7
FEES AND EXPENSES OF THE FUNDS.............................................. 11
INVESTMENT MANAGER.......................................................... 12
Management Fees........................................................... 12
Portfolio Managers........................................................ 13
Year 2000 Compliance...................................................... 14
BUYING SHARES............................................................... 15
Class A Shares............................................................ 15
Class A Distribution Plan................................................. 15
Class B Shares............................................................ 15
Class B Distribution Plan................................................. 15
Class C Shares............................................................ 16
Class C Distribution Plan................................................. 16
Waiver of Deferred Sales Charge........................................... 16
Confirmations and Statements.............................................. 16
SELLING SHARES.............................................................. 16
By Mail................................................................... 16
By Telephone.............................................................. 17
By Broker................................................................. 17
Payment of Redemption Proceeds............................................ 17
DIVIDENDS AND TAXES......................................................... 17
Tax on Distributions...................................................... 17
Taxes on Sales or Exchanges............................................... 18
Backup Withholding........................................................ 18
DETERMINATION OF NET ASSET VALUE............................................ 18
SHAREHOLDER SERVICES........................................................ 18
Accumulation Plan......................................................... 18
Systematic Withdrawal Program............................................. 18
Exchange Privilege........................................................ 19
Retirement Plans.......................................................... 19
GENERAL INFORMATION......................................................... 19
Shareholder Inquiries..................................................... 19
FINANCIAL HIGHLIGHTS........................................................ 20
APPENDIX A - REDUCED SALES CHARGES.......................................... 26
Class A Shares............................................................ 26
Rights of Accumulation.................................................... 26
Statement of Intention.................................................... 26
Reinstatement Privilege................................................... 26
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FUNDS' OBJECTIVES
Described below are the investment objectives for each of the Funds. Each Fund's
Board of Directors may change their investment objectives without shareholder
approval. As with any investment, there can be no guarantee the Funds will
achieve their investment objectives.
SECURITY GROWTH AND INCOME FUND -- The Growth and Income Fund seeks long-term
growth of capital with secondary emphasis on income.
SECURITY EQUITY FUND -- The Equity Fund seeks long-term capital growth.
SECURITY GLOBAL FUND -- The Global Fund seeks long-term growth of capital
primarily through investment in securities of companies in foreign countries and
the United States.
SECURITY VALUE FUND -- The Value Fund seeks long-term growth of capital.
SECURITY SMALL COMPANY FUND -- The Small Company Fund seeks long-term growth of
capital.
SECURITY ENHANCED INDEX FUND -- The Enhanced Index Fund seeks to outperform the
S&P 500 Index through stock selection resulting in different weightings of
common stocks relative to the index.
SECURITY INTERNATIONAL FUND -- The International Fund seeks long-term capital
appreciation primarily by investing in non-U.S. equity securities and other
securities with equity characteristics.
SECURITY SELECT 25 FUND -- The Select 25 Fund seeks long-term growth of capital.
SECURITY ULTRA FUND -- The Ultra Fund seeks capital appreciation.
FUNDS' PRINCIPAL INVESTMENT STRATEGIES
SECURITY GROWTH AND INCOME FUND -- The Fund pursues its objective by investing,
under normal circumstances, in a well-diversified portfolio of stocks that the
Investment Manager, Security Management Company, LLC, believes are attractively
valued with above-average growth potential. The Fund also invests in
fixed-income securities, which are less volatile than stocks, to adjust the risk
characteristics of the portfolio. Fixed-income securities and stocks that
provide income will make up at least 25 percent of the Fund's portfolio.
The Investment Manager uses a value-oriented strategy to choose stocks. The
Investment Manager identifies stocks that are undervalued in terms of price or
other financial measurements with above average growth potential. The Fund
typically invests in the common stock of companies whose total market value is
$1 billion or greater at the time of purchase.
To manage risk in declining or volatile markets, the Investment Manager may
invest more in cash, fixed-income securities and stocks that provide income.
Fixed-income securities may include U.S. government securities, high yield
securities (also referred to as "junk bonds") and other corporate debt
securities.
The Fund typically sells an investment when the reasons for buying no longer
apply, or when the company or issuer begins to show deteriorating fundamentals
or poor relative performance.
Under adverse market conditions, the Fund could invest some or all of its assets
in government bonds or money market securities. Although the Fund would do this
only in seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY EQUITY FUND -- The Fund pursues its objective by investing, under
normal circumstances, at least 65% of its total assets in a widely-diversified
portfolio of stocks.
To choose stocks, the Investment Manager uses a blended approach, investing in
growth stocks and value stocks. The Investment Manager typically chooses larger,
growth-oriented companies. The Investment Manager will also invest in
value-oriented stocks to attempt to reduce the Fund's potential volatility. In
choosing the balance of growth stocks and value stocks, the Investment Manager
compares the potential risks and rewards of each category.
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GROWTH-ORIENTED STOCKS are stocks of established companies that typically have a
record of consistent earnings growth.
VALUE-ORIENTED STOCKS are stocks of companies that are believed to be
undervalued in terms of price or other financial measurements and that are
believed to have above average growth potential.
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The Fund typically sells a stock when the reasons for buying it no longer apply,
or when the company begins to show deteriorating fundamentals or poor relative
performance.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY GLOBAL FUND -- The Fund pursues its objective by investing, under
normal circumstances, in a diversified portfolio of securities with at least 65%
of its total assets in at least three countries, one of which may be the United
States. The Fund primarily invests in foreign and domestic common stocks or
convertible stocks of growth-oriented companies considered to have appreciation
possibilities. Investments in debt securities may be made when market conditions
are uncertain. The Fund also may invest some assets in options, futures and
foreign currencies, which are primarily used to hedge the Fund's portfolio but
may be used to increase returns.
The Sub-Adviser, OppenheimerFunds, Inc., uses a disciplined theme approach to
choose securities in foreign and U.S. markets. By identifying key worldwide
trends, OppenheimerFunds focuses on areas they believe offer some of the best
opportunities for long-term growth. These trends fall into three categories of
change: (1) technological change; (2) demographic/geopolitical change; and (3)
changing resource needs.
OppenheimerFunds looks for the following securities:
* Stocks of small, medium and large growth-oriented companies worldwide
* Companies that stand to benefit from one or more global trends
* Businesses with strong competitive positions and high demand for their
products or services
To lower the risks of foreign investing, such as currency fluctuations,
OppenheimerFunds generally diversifies broadly across countries and industries.
Under adverse market conditions, the Fund could invest some or all of its assets
in debt obligations consisting of repurchase agreements and money market
instruments of foreign or domestic issuers and the U.S. and foreign governments.
Although the Fund would do this only in seeking to avoid losses, the Fund may be
unable to pursue its investment objective during that time, and it could reduce
the benefit from any upswing in the market.
SECURITY VALUE FUND -- The Fund pursues its objective by investing, under normal
circumstances, at least 65% of its total assets in a diversified portfolio of
stocks which are considered undervalued.
The Investment Manager typically chooses stocks that appear undervalued relative
to assets, earnings, growth potential or cash flows. The value stocks included
in the Fund's portfolio consist of all sizes of companies, but due to the nature
of value companies, typically consist of small- to medium-size companies.
The Fund may sell a stock if it is no longer considered undervalued or when the
company begins to show deteriorating fundamentals.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY SMALL COMPANY FUND -- The Fund pursues its investment objective by
investing at least 65% of its assets in equity securities of domestic and
foreign companies with total market value of less than $1.2 billion at the time
of purchase. The Fund may also invest in securities of emerging growth companies
(some of which have total market value over $1.2 billion). Emerging growth
companies include companies that are past their start-up phase and that show
positive earnings and prospects of achieving significant profit and gain in a
relatively short period of time.
The Sub-Adviser, Strong Capital Management, Inc., focuses on common stocks of
companies that it believes are reasonably priced and have above-average growth
potential. Strong may decide to sell a stock when the company's growth prospects
become less attractive, but it is not required to do so.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash, fixed-income securities or money market securities. Although the Fund
would do this only in seeking to avoid losses, the Fund may be unable to pursue
its investment objective during that time, and it could reduce the benefit from
any upswing in the market.
SECURITY ENHANCED INDEX FUND -- The Fund pursues its objective by investing,
under normal circumstances in a portfolio of stocks representative of the
holdings in the S&P 500 Index. The stocks are analyzed using a set of
quantitative criteria that is designed to indicate whether a stock will
predictably generate returns that will exceed or be less than the S&P 500 Index.
Based on the quantitative criteria, the Sub-Adviser, Bankers Trust Company,
determines whether the Fund should (1) overweight - invest more in a particular
stock, (2) underweight - invest less in a particular stock or (3) hold a neutral
position in the stock - invest a similar amount in a particular stock, relative
to the proportion of the S&P 500 Index that the stock represents. While the
majority of issues held by the Fund will be similar to those comprising the S&P
500, approximately 100 will be over- or underweighted relative to the index. In
addition, Bankers Trust may determine that certain S&P 500 stocks should not be
held by the Fund in any amount. The Fund may invest up to 25% of its assets in
equity securities of companies not included in the index. Bankers Trust believes
that its quantitative criteria will result in a portfolio with an overall risk
similar to that of the S&P 500.
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THE S&P 500 INDEX is a well-known stock market index that includes common stocks
of 500 companies. These companies are from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the U.S., most of which are listed on the New York Stock
Exchange.
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The Fund also may invest a portion of its assets in options and futures, which
are primarily used to hedge the Fund's portfolio but may be used to increase
returns and to maintain exposure to the equity markets.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY INTERNATIONAL FUND -- The Fund pursues its objective by investing,
under normal circumstances, at least 65% of its assets in equity securities of
foreign issuers. These issuers are primarily established companies based in
developed countries outside of the United States. However, the Fund may also
invest in securities of issuers based in underdeveloped countries. Investments
in underdeveloped countries will be based on what the Sub-Adviser, Bankers Trust
Company, believes to be an acceptable degree of risk in anticipation of superior
returns. The Fund will, under normal circumstances, be invested in the
securities of issuers based in at least 3 countries other than the United
States.
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EQUITY SECURITIES may include common stock, preferred stock, trust or limited
partnership interests, rights and warrants and convertible securities
(consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock).
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The Fund's investments will generally be diversified among several geographic
regions and countries. Bankers Trust uses the following criteria to determine
the appropriate distribution of investments among various countries and regions:
* The prospects for relative growth among foreign countries
* Expected levels of inflation
* Government policies influencing business conditions
* The outlook for currency relationships
* The range of alternative opportunities available to international investors
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will identify individual investments for
the Fund. Criteria for selection of individual securities include:
* The issuer's competitive position
* Prospects for growth
* Management strength
* Earnings quality
* Underlying asset value
* Relative market value
* Overall marketability
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, Bankers Trust may choose
to invest only at the market level through use of options or futures based upon
an established index of securities of locally based issuers. Similarly, country
exposure may also be achieved through investments in other registered investment
companies.
The Fund typically sells an investment when the reasons for buying it no longer
apply, or when the issuer begins to show deteriorating fundamentals or poor
relative performance.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY SELECT 25 FUND -- The Fund pursues its objective by concentrating its
investments in a core position of 20-30 common stocks of growth companies which
have exhibited consistent above average earnings growth. The Investment Manager
selects what it believes to be premier growth companies as the core position for
the Fund. The Investment Manager uses a "bottom-up" approach in selecting growth
stocks. Portfolio holdings will be replaced when one or more of a company's
fundamentals have changed and, in the opinion of the Investment Manager, it is
no longer a premier growth company.
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BOTTOM-UP APPROACH means that the Investment Manager primarily analyzes the
fundamentals of individual companies rather than focusing on broader market or
sector themes. Some of the things which the Investment Manager looks at when
analyzing individual companies include relative earnings growth, profitability
trends, the company's financial strength, valuation analysis and strength of
management.
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Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
SECURITY ULTRA FUND -- The Fund pursues its objective by investing, under normal
circumstances, in a diversified portfolio of stocks that the Investment Manager
believes are attractively valued with the greatest potential for appreciation.
The Investment Manager uses a value-oriented strategy and "bottom-up" approach
to choose stocks. The Investment Manager identifies stock of companies that are
in the early to middle stages of growth and are valued at a reasonable price.
Stocks considered to have appreciation potential may include securities of
smaller and less mature companies which have unique proprietary products or
profitable market niches and the potential to grow very rapidly.
The Fund also may invest a portion of its assets in futures, which are primarily
used to hedge the Fund's portfolio but may be used to increase returns and to
maintain exposure to the equity markets.
The Fund typically sells a stock if its growth prospects diminish, or if better
opportunities become available.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
MAIN RISKS
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An investment in the Funds is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The value of an investment in the Funds will go up and down, which means
investors could lose money.
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MARKET RISK -- While stocks have historically been a leading choice of long-term
investors, they do fluctuate in price. Their prices tend to fluctuate more
dramatically over the shorter term than do the prices of other asset classes.
These movements may result from factors affecting individual companies, or from
broader influences like changes in interest rates, market conditions, investor
confidence or announcements of economic, political or financial information.
SMALLER COMPANIES -- While potentially offering greater opportunities for
capital growth than larger, more established companies, the stocks of smaller
companies may be particularly volatile, especially during periods of economic
uncertainty. Securities of smaller companies may present additional risks
because their earnings are less predictable, their share prices tend to be more
volatile and their securities often are less liquid than larger, more
established companies, among other reasons. By virtue of their investment
strategies, Value Fund, Small Company Fund and Ultra Fund may be particularly
susceptible to the risks posed by investing in smaller companies.
VALUE STOCKS -- Investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or that their prices may
go down. While the Funds' investments in value stocks may limit downside risk
over time, a Fund may, as a trade-off, produce more modest gains than riskier
stock funds. Growth and Income Fund, Equity Fund, Value Fund and Ultra Fund in
particular offer the potential rewards, and risks, of a value-oriented
investment strategy.
GROWTH STOCKS -- While potentially offering greater or more rapid capital
appreciation potential than value stocks, investments in growth stocks may lack
the dividend yield that can cushion stock prices in market downturns. Growth
companies often are expected to increase their earnings at a certain rate. If
expectations are not met, investors can punish the stocks, even if earnings do
increase. Equity Fund, Global Fund, Small Company Fund, Enhanced Index Fund,
International Fund and Select 25 Fund feature an investment strategy that
emphasizes investment in growth stocks.
FOREIGN SECURITIES -- Global Fund, International Fund and, to a lesser extent,
the other Funds may invest in foreign securities and/or American Depositary
Receipts (ADRs). Investing in foreign securities involves additional risks such
as currency fluctuations, differences in financial reporting standards, a lack
of adequate company information and political instability. These risks may be
particularly acute in underdeveloped capital markets.
RISKS OF CONVERSION TO EURO. On January 1, 1999, eleven countries in the
European Monetary Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
provide some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Funds operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
* issuers in which the Funds invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress stock values.
* vendors the Funds depend on to carry out their business, such as the
custodian bank (which holds the foreign securities the Funds buy), the
Investment Manager (which prices the Funds' investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If the vendors are not prepared, there could be delays in
settlements and additional costs to the Funds.
* exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Funds' contracts could pose extra costs
to the Funds.
The Investment Manager is upgrading its computer and bookkeeping systems to deal
with the conversion. The Funds' custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Funds' investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Funds' holdings and increase its operational costs.
EMERGING MARKETS -- Global Fund and International Fund may invest in securities
of developing countries or emerging markets. All of the risks of investing in
foreign securities are heightened by investing in developing countries and
emerging markets. The markets of developing countries historically have been
more volatile than the markets of developed countries with mature economies.
These markets often have provided higher rates of return, and greater risks, to
investors.
OPTIONS AND FUTURES -- Global Fund, Enhanced Index Fund and International Fund
may invest some of their assets in options and futures. Ultra Fund also may
invest some of its assets in futures. These practices are used primarily to
hedge a Fund's portfolio or to increase returns. However, there is the risk that
such practices sometimes may reduce returns or increase volatility. These
practices also entail transactional expenses.
FIXED-INCOME SECURITIES -- Growth and Income Fund may invest a significant
portion of its assets in fixed-income securities. Fixed-income investing may
present risks because the market value of fixed-income investments generally are
affected by changes in interest rates. When interest rates rise, the market
value of a fixed-income security declines. Generally, the longer a bond's
maturity, the greater the risk. A bond's value can also be affected by changes
in the credit rating or financial condition of its issuer. Investments in higher
yielding, high risk debt securities may present additional risk because these
securities may be less liquid than investment grade bonds. They also tend to be
more susceptible to high interest rates and to real or perceived adverse
economic and competitive industry conditions. Because bond values fluctuate, an
investor may receive more or less money than originally invested.
DIVERSIFICATION -- Select 25 Fund may invest in the securities of a limited
number of issuers. The use of a focused investment strategy may increase the
volatility of the Fund's investment performance, as the Fund may be more
susceptible to risks associated with a single economic, political or regulatory
event than a more diversified portfolio. If the securities in which the Fund
invests perform poorly, the Fund could incur greater losses than it would have
had it been invested in a greater number of securities.
INVESTMENT IN INVESTMENT COMPANIES -- Because International Fund may invest in
other investment companies in order to gain exposure to a foreign securities
market, it will incur its pro rata share of the underlying investment companies'
expenses to the extent it pursues its investment objective in this manner. In
addition, the Fund will be subject to the effects of business and regulatory
developments that affect an underlying investment company or the investment
company industry generally. The Small Company Fund also may invest in other
investment companies.
ACTIVE TRADING -- The Growth and Income, Global, Small Company and Ultra Funds
may engage in active trading, which will increase the costs the Funds incur. It
may also increase the amount of capital gains tax an investor pays on the Funds'
returns.
PAST PERFORMANCE
The charts and tables below give an indication of certain of the Funds' risks
and performance by showing changes in the Funds' Class A share performance from
year to year. The Enhanced Index, International, and Select 25 Funds and all of
the Funds' Class C shares are new and do not have performance records. The
tables also show how the Funds' average annual total returns for the periods
indicated compare to those of broad measures of market performance. In addition,
some Funds may make a comparison to a narrower index that more closely mirrors
that Fund. As with all mutual funds, past performance is not a prediction of
future results.
The bar charts below do not reflect the sales charges applicable to Class A
shares which, if reflected, would lower the returns shown. Average annual total
returns for each Fund's Class A shares include deduction of the 5.75% front-end
sales charge and for Class B shares include the appropriate deferred sales
charge, which is 5% in the first year declining to 0% in the sixth and later
years. The average annual total returns also assume that Class B shareholders
redeem all their shares at the end of the period indicated.
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SECURITY GROWTH AND INCOME FUND - CLASS A
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[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1989 20.5%
1990 -3.0%
1991 21.8%
1992 4.8%
1993 8.2%
1994 -7.9%
1995 27.8%
1996 12.0%
1997 31.7%
1998 -0.3%
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HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
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QUARTER ENDED
Highest 15.50% September 30, 1997
Lowest -12.32% September 30, 1998
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AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
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PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Class A -6.06% 11.67% 10.86%
Class B -6.32% 11.59% 10.98%*
S&P 500 28.58% 24.06% 19.19%*
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*For the period beginning October 19, 1993 (date of inception)
to December 31, 1998. The S&P 500 average annual total return
for this period was 23.33%.
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SECURITY EQUITY FUND - CLASS A
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[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1989 30.7%
1990 -4.6%
1991 35.2%
1992 10.7%
1993 14.6%
1994 -2.5%
1995 38.4%
1996 22.7%
1997 29.6%
1998 26.5%
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HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
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QUARTER ENDED
Highest 25.04% September 30, 1989
Lowest -15.29% September 30, 1990
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AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
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PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Class A 19.15% 20.65% 18.53%
Class B 20.06% 20.69% 20.52%*
S&P 500 28.58% 24.06% 19.19%*
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*For the period beginning October 19, 1993 (date of inception)
to December 31, 1998. The S&P 500 average annual total return
for this period was 23.33%.
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SECURITY GLOBAL FUND - CLASS A
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[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1994 1.3%
1995 10.4%
1996 17.1%
1997 6.9%
1998 19.2%
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HIGHEST AND LOWEST RETURNS
(QUARTERLY 1994-1998)
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QUARTER ENDED
Highest 19.31% December 31, 1998
Lowest -11.44% September 30, 1998
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AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
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LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 10/1/93)
Class A 12.31% 9.46% 9.66%
Class B 12.91% 9.38% 9.92%*
MSCI 24.80% 16.19% 15.74%*
- ---------------------------------------------------------------
*For the period beginning October 19, 1993 (date of inception)
to December 31, 1998. The MSCI average annual total return for
this period was _______%.
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY VALUE FUND - CLASS A
- --------------------------------------------------------------------------------
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1998 16.1%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1998)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 21.34% December 31, 1998
Lowest -16.06% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR (SINCE 5/1/97)
Class A 9.46% 23.20%
Class B 9.82% 24.32%
S&P 500 28.58% 31.43%
BARRA Value Index 14.67% 22.98%
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY SMALL COMPANY FUND - CLASS A
- --------------------------------------------------------------------------------
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1998 10.4%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1998)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 21.95% December 31, 1998
Lowest -17.30% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR (SINCE 10/15/97)
Class A 4.02% 0.05%
Class B 4.16% -0.08%
Russell 2000 Index -2.55% -4.68%
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITY ULTRA FUND - CLASS A
- --------------------------------------------------------------------------------
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1989 11.9%
1990 -27.4%
1991 59.7%
1992 7.7%
1993 9.9%
1994 -6.6%
1995 19.3%
1996 18.0%
1997 17.8%
1998 16.7%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 36.65% March 31, 1991
Lowest -41.16% September 30, 1990
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Class A 10.01% 11.24% 10.10%
Class B 10.61% 11.38% 11.28%*
S&P Midcap 400 19.12% 18.85% 19.29%*
- ---------------------------------------------------------------
*For the period beginning October 19, 1993 (date of inception)
to December 31, 1998. The S&P Midcap 400 average annual total
return for this period was 18.47%.
- ---------------------------------------------------------------
<PAGE>
FEES AND EXPENSES OF THE FUNDS
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES (ALL FUNDS) (fees paid directly from your investment)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES(1) SHARES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) None(2) 5%(3) 1%(4)
- --------------------------------------------------------------------------------
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 deferred sales charge of 1% is imposed
in the event of redemption within one year of purchase.
3 5% during the first year, decreasing to 0% in the sixth and following years.
4 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund Assets)
- --------------------------------------------------------------------------------
Class A
--------------------------------------------------------
Total
Annual Fund
Management Distribution Other Operating
Fees (12b-1) Fees(5) Expenses(6) Expenses
Growth and Income Fund 1.21% None 0.00% 1.21%
Equity Fund 1.02% None 0.00% 1.02%
Global Fund 2.00% None 0.00% 2.00%
Value Fund 1.00% None 0.51% 1.51%
Small Company Fund 1.00% 0.25% 1.40% 2.65%
Enhanced Index Fund 0.75% 0.25% 0.52% 1.52%
International Fund 1.10% 0.25% 0.57% 1.92%
Select 25 Fund 0.75% 0.25% 0.79% 1.79%
Ultra Fund 1.23% None 0.00% 1.23%
- --------------------------------------------------------------------------------
5 Long-term holders of shares that are subject to a 12b-1 distribution fee may
pay more than the equivalent of the maximum front-end sales charge otherwise
permitted by National Association of Securities Dealers Rules.
6 The amount of "Other Expenses" of Enhanced Index Fund, International Fund and
Select 25 Fund is based on estimated amounts for the period ending September
30, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund Assets)
- --------------------------------------------------------------------------------
Class B
---------------------------------------------------------
Total
Annual Fund
Management Distribution Other Operating
Fees (12b-1) Fees(5) Expenses(6) Expenses
Growth and Income Fund 1.21% 1.00% 0.00% 2.21%
Equity Fund 1.02% 1.00% 0.00% 2.02%
Global Fund 2.00% 1.00% 0.00% 3.00%
Value Fund 1.00% 1.00% 0.59% 2.59%
Small Company Fund 1.00% 1.00% 1.38% 3.38%
Enhanced Index Fund 0.75% 1.00% 0.52% 2.27%
International Fund 1.10% 1.00% 0.57% 2.67%
Select 25 Fund 0.75% 1.00% 0.79% 2.54%
Ultra Fund 1.23% 1.00% 0.00% 2.23%
- --------------------------------------------------------------------------------
5 Long-term holders of shares that are subject to a 12b-1 distribution fee may
pay more than the equivalent of the maximum front-end sales charge otherwise
permitted by National Association of Securities Dealers Rules.
6 The amount of "Other Expenses" of Enhanced Index Fund, International Fund and
Select 25 Fund is based on estimated amounts for the period ending September
30, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund Assets)
- --------------------------------------------------------------------------------
Class C
---------------------------------------------------------
Total
Annual Fund
Management Distribution Other Operating
Fees (12b-1) Fees(5) Expenses(6) Expenses
Growth and Income Fund 1.21% 1.00% 0.00% 2.21%
Equity Fund 1.02% 1.00% 0.00% 2.02%
Global Fund 2.00% 1.00% 0.00% 3.00%
Value Fund 1.00% 1.00% 0.59% 2.59%
Small Company Fund 1.00% 1.00% 1.38% 3.38%
Enhanced Index Fund 0.75% 1.00% 0.52% 2.27%
International Fund 1.10% 1.00% 0.57% 2.67%
Select 25 Fund 0.75% 1.00% 0.79% 2.54%
Ultra Fund 1.23% 1.00% 0.00% 2.23%
- --------------------------------------------------------------------------------
5 Long-term holders of shares that are subject to a 12b-1 distribution fee may
pay more than the equivalent of the maximum front-end sales charge otherwise
permitted by National Association of Securities Dealers Rules.
6 The amount of "Other Expenses" of Enhanced Index Fund, International Fund and
Select 25 Fund is based on estimated amounts for the period ending September
30, 1999.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
Each Example assumes that you invest $10,000 in a Fund for the time periods
indicated. Each Example also assumes that your investment has a 5% return each
year and that the Funds' operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
You would pay the following expenses if you redeemed your shares at the end of
each period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------- ------------------------- ------------------------- -------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund $691 $724 $324 $ 937 $ 991 $ 691 $1,202 $1,385 $1,185 $1,957 $2,544 $2,544
Equity Fund 673 705 305 881 934 634 1,106 1,288 1,088 1,751 2,348 2,348
Global Fund 766 803 403 1,166 1,227 927 1,591 1,777 1,577 2,768 3,318 3,318
Value Fund 720 762 362 1,025 1,105 805 1,351 1,575 1,375 2,273 2,925 2,925
Small Company Fund 828 841 441 1,351 1,339 1,039 1,899 1,960 1,760 3,387 3,667 3,667
Enhanced Index Fund 721 730 330 1,028 1,009 709 --- --- --- --- --- ---
International Fund 759 770 370 1,143 1,129 829 --- --- --- --- --- ---
Select 25 Fund 746 757 357 1,106 1,091 791 --- --- --- --- --- ---
Ultra Fund 693 730 330 943 997 697 1,212 1,395 1,195 1,978 2,565 2,565
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------- ------------------------- ------------------------- -------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Fund $691 $224 $224 $ 937 $ 691 $ 691 $1,202 $1,185 $1,185 $1,957 $2,544 $2,544
Equity Fund 673 205 205 881 634 634 1,106 1,088 1,088 1,751 2,348 2,348
Global Fund 766 303 303 1,166 927 927 1,591 1,577 1,577 2,768 3,318 3,318
Value Fund 720 262 262 1,025 805 805 1,351 1,375 1,375 2,273 2,925 2,925
Small Company Fund 828 341 341 1,351 1,039 1,039 1,899 1,760 1,760 3,387 3,667 3,667
Enhanced Index Fund 721 230 230 1,028 709 709 --- --- --- --- --- ---
International Fund 759 270 270 1,143 829 829 --- --- --- --- --- ---
Select 25 Fund 746 257 257 1,106 791 791 --- --- --- --- --- ---
Ultra Fund 693 226 226 943 697 697 1,212 1,195 1,195 1,978 2,565 2,565
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT MANAGER
Security Management Company, LLC (the "Investment Manager"), 700 SW Harrison
Street, Topeka, Kansas 66636, is the Funds' investment manager. On September 30,
1998, the aggregate assets of all of the mutual funds under the investment
management of the Investment Manager were approximately $4.7 billion.
The Investment Manager has engaged OppenheimerFunds, Inc., Two World Trade
Center, New York, New York 10048, to provide investment advisory services to
Global Fund. OppenheimerFunds and its subsdiaries currently manage investment
companies, including Oppenheimer funds, with assets of more than $95 billion as
of December 31, 1998, and with more than 4 million shareholder accounts.
OppenheimerFunds became the Global Fund's Sub-Adviser on November 1, 1998,
replacing Lexington Management Corporation which served as Sub-Adviser of the
Fund from its inception in October 1993 to November 1, 1998.
The Investment Manager has engaged Strong Capital Management, Inc., 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051, to provide investment advisory
services to the Small Company Fund. Strong was established in 1974 and as of
September 30, 1998, manages over $30 billion in assets.
The Investment Manager has also engaged Bankers Trust Company, One Bankers Trust
Plaza, New York, New York 10006, to provide investment advisory services to the
Enhanced Index Fund and International Fund. Bankers Trust was founded in 1903
and manages over $300 billion in assets.
MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Fund during the last fiscal year, except as otherwise indicated.
-------------------------------------------------------
MANAGEMENT FEES
(expressed as a percentage of average net assets)
-------------------------------------------------------
Growth and Income Fund....................... 1.21%
Equity Fund.................................. 1.02%
Global Fund.................................. 2.00%
Value Fund................................... 1.00%
Small Company Fund........................... 1.00%
Enhanced Index Fund*......................... 0.75%
International Fund*.......................... 1.10%
Select 25 Fund*.............................. 0.75%
Ultra Fund................................... 1.23%
-------------------------------------------------------
*These Funds were not available until January 31, 1999.
-------------------------------------------------------
The Investment Manager may waive some or all of its management fee to limit the
total operating expenses of a Fund to a specified level. The Investment Manager
also may reimburse expenses of the Fund from time to time to help it maintain
competitive expense ratios. These arrangements are voluntary and may be
terminated at any time. The fees without waivers or reimbursements are shown in
the fee table on page 11.
PORTFOLIO MANAGERS -- SIDNEY F. HOOTs, Managing Director of Bankers Trust, has
been the manager of Enhanced Index Fund since its inception in January 1999. He
is the Senior Portfolio Manager for the Structured Equity Group at Bankers
Trust. He has responsibility for a variety of funds ranging from an enhanced
index fund using quantitative stock selection to an equity-based relative value
hedge fund which combines traditional hedge fund trading with quantitative
techniques. In addition, he is responsible for a tax-advantaged equity product.
Mr. Hoots also directs the quantitative equity research effort for Bankers
Trust. Mr. Hoots joined Bankers Trust in 1983 and has 15 years of investment
experience. He has a B.S. degree from Duke University and an M.B.A. from the
University of Chicago. He is also a Member of the American Finance Association.
MICHAEL LEVY, Managing Director of Bankers Trust, has been co-lead manager of
International Fund since its inception in January 1999. He has been a portfolio
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1993. Mr. Levy is Bankers Trust's International Equity
Strategist and is head of the international equity team. He has served in each
of these capacities since 1993. The international equity team is responsible for
the day-to-day management of the Fund as well as other international equity
portfolios managed by Bankers Trust. Mr. Levy's experience prior to joining
Bankers Trust includes senior equity analyst with Oppenheimer & Company, as well
as positions in investment banking, technology and manufacturing enterprises. He
has 27 years of business experience, of which seventeen years have been in the
investment industry.
TERRY A. MILBERGER, Senior Portfolio Manager of the Investment Manager, has been
the manager of Equity Fund since 1981. He has been the manager of Select 25 Fund
since its inception in January 1999. He 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 an M.B.A. from the University of Kansas and is a Chartered Financial
Analyst.
RONALD C. OGNAR, Portfolio Manager of Strong, has been the manager of Small
Company Fund since its inception in 1997. He 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. For approximately 3 years 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.
MICHAEL A. PETERSEN, Senior Portfolio Manager of the Investment Manager, has
been the manager of Growth and Income Fund since January 1998. He has 15 years
of investment experience. Prior to joining the Investment Manager in 1997, he
was Director of Equity Research and Fund Management at Old Kent Bank and Trust
Corporation from 1988 to 1997. Prior to 1988, he was an Investment Officer at
First Asset Management. Mr. Petersen earned a Bachelor of Science degree in
Accounting from the University of Minnesota. He is a Chartered Financial
Analyst.
ROBERT REINER, Principal at Bankers Trust, has been co-lead manager of
International Fund since its inception in January 1999. He has been a portfolio
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1994. At Bankers Trust, he has been involved in
developing analytical and investment tools for the group's international equity
team. His primary focus has been on Japanese and European markets. Prior to
joining Bankers Trust, he was an equity analyst and also provided macroeconomic
coverage for Scudder, Stevens & Clark from 1993 to 1994. He previously served as
Senior Analyst at Sanford C. Bernstein & Co. from 1991 to 1992, and was
instrumental in the development of Bernstein's International Value Fund. Mr.
Reiner spent more than nine years at Standard & Poor's Corporation, where he was
a member of its international ratings group. His tenure included managing the
day-to-day operations of the Standard & Poor's Corporation Tokyo office for
three years.
JAMES P. SCHIER, Portfolio Manager of the Investment Manager, has been the
manager of Value Fund since its inception in 1997 and has managed Ultra Fund
since January 1998. He 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 1993 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.
JULIE WANG, Principal at Bankers Trust, has been co-manager of International
Fund since its inception in January 1999. She has been a manager of other
investment products with similar investment objectives since joining Bankers
Trust in 1994. Ms. Wang has primary focus on the Asia-Pacific region and the
Fund's emerging market exposure. Prior to joining Bankers Trust, Ms. Wang was an
investment manager at American International Group, where she assisted in the
management of $7 billion of assets in Southeast Asia, including private and
listed equities, bonds, loans and structured products. Ms. Wang received her
B.A. (economics) from Yale University and her M.B.A. from the Wharton School.
WILLIAM L. WILBY, Senior Vice President and Director of International Equities
of Oppenheimer, became the manager of Global Fund in November 1998. Prior to
joining Oppenheimer in 1991, he was an international investment strategist at
Brown Brothers Harriman & Co. Prior to Brown Brothers, Mr. Wilby was a managing
director and portfolio manager at AIG Global Investors. He joined AIG from
Northern Trust Bank in Chicago, where he was an international pension manager.
Before starting his career in portfolio management, Mr. Wilby was an
international financial economist at Northern Trust Bank and at the Federal
Reserve Bank in Chicago. Mr. Wilby is a graduate of the United States Military
Academy and holds an M.A. and a Ph.D. in International Monetary Economics from
the University of Colorado. He is a Chartered Financial Analyst.
YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Funds could be adversely affected
if the computer systems used by the Investment Manager, and other service
providers, in performing their management and administrative functions do not
properly process and calculate date-related information and data before, during
and after January 1, 2000. Some computer software and hardware systems currently
cannot distinguish between the year 2000 and the year 1900 or some other date
because of the way date fields were encoded. This is commonly known as the "Year
2000 Problem." If not addressed, the Year 2000 Problem could impact the
management services provided to the Funds by the Investment Manager and
Sub-Advisers, as well as transfer agency, accounting, custody, distribution and
other services provided to the Funds and their shareholders.
The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Investment Manager considers a system "Year 2000
Compliant" when it is able to correctly process, provide and/or receive data
before, during and after the Year 2000. The Investment Manager's overall
approach to addressing the Year 2000 Problem is as follows: (1) to inventory its
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure of any such system would have on its business operations;
(2) to modify or replace its internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test its systems for
Year 2000 compliance. The Investment Manager has completed the inventory of its
internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems, as well as
towards obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing is scheduled to commence in December 1998 and is
scheduled to extend into the first six months of 1999.
Although the Investment Manager has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Funds and the Investment
Manager.
The Year 2000 Problem is also expected to impact operating companies, which may
include issuers of portfolio securities held by the Funds, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. The Funds and the
Investment Manager are unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held by the Funds and,
indirectly, on the value of the Funds' shares.
BUYING SHARES
Shares of the Funds are available through broker/dealers, banks, and other
financial intermediaries that have an agreement with the Funds' Distributor,
Security Distributors, Inc.
There are three different ways to buy shares of the Funds--Class A shares, Class
B shares or Class C shares. The different classes of a Fund differ primarily
with respect to the sales charges and Rule 12b-1 distribution fees to which they
are subject. The minimum initial investment is $100. Subsequent investments must
be $100 (or $20 under an Accumulation Plan). The Funds reserve the right to
reject any order to purchase shares.
CLASS A SHARES -- Class A shares are subject to a sales charge at the time of
purchase. An order for Class A shares will be priced at a Fund's net asset value
per share (NAV), plus the sales charge set forth below. The NAV, plus the sales
charge, is the "offering price." A Fund's NAV is generally calculated as of the
close of trading on every day the New York Stock Exchange is open. An order for
Class A shares is priced at the NAV next calculated after the order is accepted
by the Fund, plus the sales charge.
- --------------------------------------------------------------------------------
SALES CHARGE
------------------------------------
AS A PERCENTAGE
AS A PERCENTAGE OF NET AMOUNT
AMOUNT OF ORDER OF OFFERING PRICE INVESTED
Less than $50,000 ........................ 5.75% 6.10%
$50,000 to $99,999 ....................... 4.75% 4.99%
$100,000 to $249,999 ..................... 3.75% 3.90%
$250,000 to $499,999 ..................... 2.75% 2.83%
$500,000 to $999,999 ..................... 2.00% 2.04%
$1,000,000 or more* ...................... None None
- --------------------------------------------------------------------------------
*Purchases of $1,000,000 or more are not subject to a sales charge at the time
of purchase, but are subject to a deferred sales charge of 1.00% if redeemed
within one year following purchase. The deferred sales charge is a percentage
of the lesser of the NAV of the shares redeemed or the net cost of such shares.
Shares that are not subject to a deferred sales charge are redeemed first.
- --------------------------------------------------------------------------------
Please see Appendix A for options that are available for reducing the sales
charge applicable to purchases of Class A shares.
CLASS A DISTRIBUTION PLAN -- The Small Company, International, Enhanced Index
and Select 25 Funds have adopted Class A Distribution Plans that allow each of
these Funds to pay distribution fees to the Funds' Distributor. The Distributor
uses the fees to pay for activities related to the sale of Class A shares and
services provided to shareholders. The distribution fee is equal to 0.25% of the
average daily net assets of the Fund's Class A shares. Because the distribution
fees are paid out of the Fund's assets on an ongoing basis, over time these fees
will increase the cost of a shareholder's investment and may cost an investor
more than paying other types of sales charges.
CLASS B SHARES -- Class B shares are not subject to a sales charge at the time
of purchase. An order for Class B shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. A Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class B shares are subject to a deferred sales charge if redeemed within 5 years
from the date of purchase. The deferred sales charge is a percentage of the NAV
of the shares at the time they are redeemed or the original purchase price,
whichever is less. Shares that are not subject to the deferred sales charge are
redeemed first. Then, shares held the longest will be the first to be redeemed.
The amount of the deferred sales charge is based upon the number of years since
the shares were purchased, as follows:
--------------------------------
NUMBER OF YEARS DEFERRED
SINCE PURCHASE SALES CHARGE
--------------------------------
1 5%
2 4%
3 3%
4 3%
5 2%
6 and more 0%
--------------------------------
The Distributor will waive the deferred sales charge under certain
circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS B DISTRIBUTION PLAN -- The Funds have adopted Class B Distribution Plans
that allow each of the Funds to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class B
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class B shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
Class B shares automatically convert to Class A shares on the eighth anniversary
of purchase. This is advantageous to shareholders because Class A shares are
subject to a lower distribution fee than Class B shares (or in some cases, no
distribution fee). A pro rata amount of Class B shares purchased through the
reinvestment of dividends or other distributions is also converted to Class A
shares each time that shares purchased directly are converted.
CLASS C SHARES -- Class C shares are not subject to a sales charge at the time
of purchase. An order for Class C shares will be priced at a Fund's NAV next
calculated after the order is accepted by the Fund. A Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class C shares are subject to a deferred sales charge of 1.00% if redeemed
within one year from the date of purchase. The deferred sales charge is a
percentage of the NAV of the shares at the time they are redeemed or the
original purchase price, whichever is less. Shares that are not subject to the
deferred sales charge are redeemed first. Then, shares held the longest will be
the first to be redeemed. The Distributor will waive the deferred sales charge
under certain circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS C DISTRIBUTION PLAN -- The Funds have adopted Class C Distribution Plans
that allow each of the Funds to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class C
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class C shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
WAIVER OF DEFERRED SALES CHARGE -- The Distributor will waive the deferred sales
charge under the following circumstances:
* Upon the death of the shareholder if shares are redeemed within one year of
the shareholder's death
* Upon the disability of the shareholder prior to age 65 if shares are redeemed
within one year of the shareholder becoming disabled and the shareholder was
not disabled when the shares were purchased
* In connection with required minimum distributions from a retirement plan
qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal Revenue
Code
* In connection with distributions from retirement plans qualified under
Section 401(a) or 401(k) of the Internal Revenue Code for:
- returns of excess contributions to the plan
- retirement of a participant in the plan
- a loan from the plan (loan repayments are treated as new sales for
purposes of the deferred sales charge)
* Upon the financial hardship (as defined in regulations under the Code) of a
participant in a plan
* Upon termination of employment of a participant in a plan
* Upon any other permissible withdrawal under the terms of the plan.
CONFIRMATIONS AND STATEMENTS -- Certain transactions may be confirmed on a
quarterly basis including systematic withdrawals, automatic purchases and
reinvested dividends.
SELLING SHARES
Selling your shares of a Fund is called a "redemption," because the Fund buys
back its shares. A shareholder may sell shares at any time. Shares will be
redeemed at the NAV next determined after the order is accepted by the Fund's
transfer agent, less any applicable deferred sales charge. A Fund's NAV is
generally calculated as of the close of trading on every day the New York Stock
Exchange is open. Any share certificates representing Fund shares being sold
must be returned with a request to sell the shares.
When redeeming recently purchased shares, if the Fund has not collected payment
for the shares, it may delay sending the proceeds until it has collected
payment, which may take up to 15 days.
BY MAIL -- To sell shares by mail, send a letter of instruction that includes:
* The name and signature of the account owner(s)
* The name of the Fund
* The dollar amount or number of shares to sell
* Where to send the proceeds
* A signature guarantee if
- The check will be mailed to a payee or address different than that of the
account owner, or
- The sale of shares is more than $10,000.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. Banks, brokers, credit
unions, national securities exchanges and savings associations provide signature
guarantees. A notary public is not an eligible signature guarantor. For joint
accounts, both signatures must be guaranteed.
- --------------------------------------------------------------------------------
Mail your request to:
Security Management Company, LLC
P.O. Box 750525
Topeka, KS 66675-9135
Signature requirements vary based on the type of account you have:
* INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an
individual shareholder, or in the case of joint accounts, all of the
shareholders, exactly as the name(s) appears on the account.
* UGMA or UTMA: Written instructions must be signed by the custodian as it
appears on the account.
* SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by an
authorized individual as it appears on the account.
* CORPORATION OR ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified resolution dated
within six months of the date of receipt, authorizing the signer to act, must
accompany the request if not on file with the Funds.
* TRUST: Written instructions must be signed by the trustee(s). If the name of
the current trustee(s) does not appear on the account, a certified
certificate of incumbency dated within 60 days must also be submitted.
* RETIREMENT: Written instructions must be signed by the account owner.
BY TELEPHONE -- If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-888-2461, extension 3127, on
weekdays (except holidays) between 7:00 a.m. and 6:00 p.m. Central time. The
Funds require that requests for redemptions over $10,000 be in writing with
signatures guaranteed. You may not close your account by telephone or redeem
shares for which a certificate has been issued. If you would like to establish
this option on an existing account, please call 1-800-888-2461, extension 3127.
Shareholders may not redeem shares held in an IRA or 403(b)(7) account by
telephone.
BY BROKER -- You may redeem your shares through your broker. Brokers may charge
a commission upon the redemption of shares.
PAYMENT OF REDEMPTION PROCEEDS -- Payments may be made by check, wire transfer
or electronic transfer.
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.
BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record at
the address on our records generally within seven days after receipt of a valid
redemption request. For a charge of $15 deducted from redemption proceeds, the
Investment Manager will provide a certified or cashier's check, or send the
redemption proceeds by express mail, upon the shareholder's request.
DIVIDENDS AND TAXES
Each Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized, at least annually. Your
dividends and distributions will be reinvested in the Fund, unless you instruct
the Investment Manager otherwise. There are no fees or sales charges on
reinvestments.
TAX ON DISTRIBUTIONS -- Fund dividends and distributions are taxable to
shareholders (unless your investment is in an Individual Retirement Account
("IRA") or other tax-advantaged retirement account) whether you reinvest your
dividends or distributions or take them in cash.
In addition to federal tax, dividends and distributions may be subject to state
and local taxes. If a Fund declares a dividend or distribution in October,
November or December but pays it in January, you may be taxed on that dividend
or distribution as if you received it in the previous year. In general,
dividends and distributions from the Funds are taxable as follows:
--------------------------------------------------
TYPE OF TAX RATE FOR TAX RATE FOR 28%
DISTRIBUTION 15% BRACKET BRACKET OR ABOVE
--------------------------------------------------
Income Ordinary Ordinary
dividends Income rate Income rate
Short-term Ordinary Ordinary
capital gains Income rate Income rate
Long-term
capital gains 10% 20%
--------------------------------------------------
Tax-deferred retirement accounts generally do not generate a tax liability
unless you are taking a distribution or making a withdrawal.
The Fund has "short-term capital gains" when it sells shares within 12 months
after buying them. The Fund has "long-term capital gains" when it sells shares
that it has owned for more than 12 months. The Funds expect that their
distributions will consist primarily of net long-term capital gains.
The Fund will mail you information concerning the tax status of the
distributions for each calendar year on or before January 31 of the following
year.
TAXES ON SALES OR EXCHANGES -- You may be taxed on any sale or exchange of Fund
shares. The amount of gain or loss will depend primarily upon how much you pay
for the shares, how much you sell them for, and how long you hold them.
The table above can provide a guide for your potential tax liability when
selling or exchanging Fund shares. "Short-term capital gains" applies to Fund
shares sold or exchanged up to one year after buying them. "Long-term capital
gains" applies to shares held for more than one year.
BACKUP WITHHOLDING -- As with all mutual funds, a Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all taxable distributions
payable to you if you fail to provide the Fund with your correct taxpayer
identification number or to make required certifications, or if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the Internal Revenue Service ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.
You should consult your tax professional about federal, state and local tax
consequences to you of an investment in the Fund. Please see the Statement of
Additional Information for additional tax information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (NAV) 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 Exchange is open Monday through
Friday, except on observation of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Each Fund's NAV is generally based upon the market value of securities held in
the Fund's portfolio. If market prices are not available, the fair value of
securities is determined using procedures approved by each Fund's Board of
Directors.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the NAV of Funds holding foreign securities may change on
days when shareholders will not be able to buy or sell shares of the Funds.
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 also choose to use "Secur-O-Matic" (automatic bank draft) to make
Fund purchases. There is no additional charge for choosing to use Secur-O-Matic.
Withdrawals from your bank account may occur up to 3 business days before the
date scheduled to purchase Fund shares. An application for Secur-O-Matic may be
obtained from the Funds.
SYSTEMATIC WITHDRAWAL PROGRAM -- Shareholders who wish to receive regular
monthly, quarterly, semiannual, or annual payments of $25 or more may establish
a Systematic Withdrawal Program. A shareholder 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 aggregate net asset value of $5,000 or more are deposited with
the Investment Manager, which will act as agent for the shareholder 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 redeemed from the account.
A shareholder may establish a Systematic Withdrawal Program with respect to
Class B and Class C 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 or Class C 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 or Class C shares requested while Free
Systematic Withdrawals are being made will be calculated as described under
"Waiver of Deferred Sales Charges," page 16. A Systematic Withdrawal form may be
obtained from the Funds.
EXCHANGE PRIVILEGE -- Shareholders 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 per share. The other funds currently distributed by the Distributor
include Security Asset Allocation, Social Awareness, Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield, Emerging Markets Total Return,
Global Asset Allocation, Global High Yield and Municipal Bond 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 or sales charge is
presently imposed on such an exchange. Shares of a particular class of the Funds
may be exchanged only for shares of the same class 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. At present, Corporate Bond, Limited Maturity
Bond, U.S. Government, High Yield, Emerging Markets Total Return, Global Asset
Allocation and Municipal Bond Funds do not offer Class C 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 shareholder exercising this
privilege.
To exchange shares by telephone, a shareholder 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 shareholder 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. 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 shareholders.
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
SHAREHOLDER INQUIRIES -- Shareholders 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand certain of the
Funds' financial performance for their Class A shares and Class B shares during
the past five years or, the period since commencement of a Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund assuming reinvestment of all dividends and
distributions. This information has been audited by Ernst & Young LLP, whose
report, along with the Funds' financial statements, are included in their annual
reports, which are available upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND (CLASS A)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(D)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $11.14 $ 9.05 $ 7.93 $ 6.96 $ 7.84
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.13 0.144 0.18 0.16 0.13
Net gain (loss) on securities (realized & unrealized)....... (0.87) 2.813 1.373 1.183 (0.713)
----- ------ ------ ------ ------
Total from investment operations............................ (0.74) 2.957 1.553 1.343 (0.583)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.13) (0.155) (0.158) (0.158) (0.128)
Distributions (from capital gains).......................... (2.59) (0.708) (0.275) (0.215) (0.169)
----- ------ ------ ------ ------
Total distributions......................................... (2.72) (0.863) (0.433) (0.373) (0.297)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 7.68 $11.14 $ 9.05 $ 7.93 $ 6.96
===== ====== ====== ====== ======
Total return (a)............................................ (7.95)% 35.31% 20.31% 20.25% (7.6)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $76,371 $91,252 $73,273 $67,430 $65,328
Ratio of expenses to average net assets..................... 1.21% 1.24% 1.29% 1.31% 1.28%
Ratio of net investment income to average net assets........ 1.49% 1.53% 2.09% 2.21% 1.70%
Portfolio turnover rate..................................... 144% 124% 69% 130% 163%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND (CLASS B)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(B)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $10.99 $ 8.94 $ 7.85 $ 6.90 $ 7.83
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.05 0.048 0.09 0.08 0.05
Net gain (loss) on securities (realized & unrealized)....... (0.88) 2.776 1.353 1.179 (0.694)
----- ------ ------ ------ ------
Total from investment operations............................ (0.83) 2.824 1.443 1.259 (0.644)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.03) (0.063) (0.078) (0.094) (0.117)
Distributions (from capital gains).......................... (2.59) (0.708) (0.275) (0.215) (0.169)
----- ------ ------ ------ ------
Total distributions......................................... (2.62) (0.771) (0.353) (0.309) (0.286)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 7.54 $10.99 $ 8.94 $ 7.85 $ 6.90
===== ====== ====== ====== =====
Total return (a)............................................ (8.95)% 34.01% 19.01% 19.07% (8.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $9,257 $6,737 $2,247 $1,130 $668
Ratio of expenses to average net assets..................... 2.21% 2.24% 2.29% 2.31% 2.27%
Ratio of net investment income to average net assets........ 0.59% 0.53% 1.09% 1.21% 1.03%
Portfolio turnover rate..................................... 144% 124% 69% 130% 178%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY EQUITY FUND (CLASS A)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(D)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $ 9.09 $ 7.54 $ 6.55 $ 5.54 $ 6.73
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... 0.04 0.04 0.05 0.04 0.05
Net gain (loss) on securities (realized & unrealized)....... 0.56 2.199 1.482 1.377 0.085
----- ------ ------ ------ ------
Total from investment operations............................ 0.60 2.239 1.532 1.417 0.135
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.03) (0.041) (0.060) --- (0.120)
Distributions (from capital gains).......................... (0.80) (0.648) (0.482) (0.407) (1.205)
----- ------ ------ ------ ------
Total distributions......................................... (0.83) (0.689) (0.542) (0.407) (1.325)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 8.86 $ 9.09 $ 7.54 $ 6.55 $ 5.54
===== ====== ====== ====== ======
Total return (a)............................................ 7.38% 32.08% 24.90% 27.77% 1.95%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $773,606 $757,520 $575,680 $440,339 $358,237
Ratio of expenses to average net assets..................... 1.02% 1.03% 1.04% 1.05% 1.06%
Ratio of net investment income to average net assets........ 0.39% 0.46% 0.75% 0.87% 0.86%
Portfolio turnover rate..................................... 47% 66% 64% 95% 79%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY EQUITY FUND (CLASS B)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(B)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $ 8.82 $ 7.36 $ 6.43 $ 5.49 $ 6.81
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.05) (0.04) (0.02) (0.01) 0.01
Net gain (loss) on securities (realized & unrealized)....... 0.55 2.148 1.449 1.357 (0.005)
----- ------ ------ ------ ------
Total from investment operations............................ 0.50 2.108 1.429 1.347 0.005
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... --- --- (0.017) --- (0.12)
Distributions (from capital gains).......................... (0.80) (0.648) (0.482) (0.407) (1.205)
----- ------ ------ ------ ------
Total distributions......................................... (0.80) (0.648) (0.499) (0.407) (1.325)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 8.52 $ 8.82 $ 7.36 $ 6.43 $ 5.49
===== ====== ====== ====== ======
Total return (a)............................................ 6.38% 30.85% 23.57% 26.69% (0.15)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $112,978 $89,336 $38,822 $19,288 $7,452
Ratio of expenses to average net assets..................... 2.02% 2.03% 2.04% 2.05% 2.07%
Ratio of net investment loss to average net assets.......... (0.61)% (0.54)% (0.13)% (0.01)% (0.01)%
Portfolio turnover rate..................................... 47% 66% 64% 95% 80%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY GLOBAL FUND (CLASS A)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(C)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $13.56 $12.42 $10.94 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ 0.02 0.01 0.01 (0.02) (0.03)
Net gain on securities (realized & unrealized).............. (1.19) 2.289 1.874 0.31 0.87
----- ------ ------ ----- -----
Total from investment operations............................ (1.17) 2.299 1.884 0.29 0.84
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.09) (0.376) (0.248) --- ---
Distributions (from capital gains).......................... (1.07) (0.783) (0.156) (0.19) ---
----- ------ ------ ----- -----
Total distributions......................................... (1.16) (1.159) (0.404) (0.19) ---
----- ------ ------ ----- -----
Net asset value end of period............................... $11.23 $13.56 $12.42 $10.94 $10.84
===== ====== ====== ===== =====
Total return (a)............................................ (8.47)% 20.22% 17.73% 2.80% 8.40%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $18,941 $24,193 $19,644 $16,261 $20,128
Ratio of expenses to average net assets..................... 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of net investment income (loss) to average net assets. 0.15% (0.07)% 0.07% (0.17)% (0.01)%
Portfolio turnover rate..................................... 122% 132% 142% 141% 73%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SECURITY GLOBAL FUND (CLASS B)
- --------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(B)(C)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $13.22 $12.18 $10.74 $10.75 $ 9.96
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss......................................... (0.10) (0.11) (0.10) (0.12) (0.12)
Net gain on securities (realized & unrealized).............. (1.16) 2.237 1.841 0.30 0.91
----- ------ ------ ----- -----
Total from investment operations............................ (1.26) 2.127 1.741 0.18 0.79
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... --- (0.304) (0.145) --- ---
Distributions (from capital gains).......................... (1.07) (0.783) (0.156) (0.19) ---
----- ------ ------ ----- -----
Total distributions......................................... (1.07) (1.087) (0.301) (0.19) ---
----- ------ ------ ----- -----
Net asset value end of period............................... $10.89 $13.22 $12.18 $10.74 $10.75
====== ====== ===== =====
Total return (a)............................................ (9.43)% 19.01% 16.57% 1.79% 7.90%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $12,619 $13,061 $7,285 $5,433 $3,960
Ratio of expenses to average net assets..................... 3.00% 3.00% 3.00% 3.00% 3.00%
Ratio of net investment loss to average net assets.......... (0.85)% (0.93)% (0.93)% (1.17)% (0.01)%
Portfolio turnover rate..................................... 122% 132% 142% 141% 73%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SECURITY VALUE FUND (CLASS A)
- ----------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(D)(G) 1997(D)(E)(F)(G)
---------- ----------------
<S> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $12.95 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.02) 0.05
Net gain (loss) on securities (realized & unrealized)....... (0.53) 2.90
----- -----
Total from investment operations............................ (0.55) 2.95
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.05) ---
Distributions (from capital gains).......................... (0.28) ---
----- -----
Total distributions......................................... (0.33) ---
----- -----
Net asset value end of period............................... $12.07 $12.95
===== =====
Total return (a)............................................ (4.31)% 29.50%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $10,901 $4,631
Ratio of expenses to average net assets..................... 1.27% 1.10%
Ratio of net investment income (loss) to average net assets. (0.13)% 1.43%
Portfolio turnover rate..................................... 98% 35%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SECURITY VALUE FUND (CLASS B)
- ----------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(D)(G) 1997(D)(E)(F)(G)
---------- ----------------
<S> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $12.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.15) 0.01
Net gain (loss) on securities (realized & unrealized)....... (0.54) 2.90
----- -----
Total from investment operations............................ (0.69) 2.91
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... --- ---
Distributions (from capital gains).......................... (0.28) ---
----- -----
Total distributions......................................... (0.28) ---
----- -----
Net asset value end of period............................... $11.94 $12.91
===== =====
Total return (a)............................................ (5.38)% 29.10%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $6,615 $3,572
Ratio of expenses to average net assets .................... 2.33% 2.26%
Ratio of net investment income (loss) to average net assets. (1.19)% 0.27%
Portfolio turnover rate..................................... 98% 35%
</TABLE>
- --------------------------------------------------------------------------------
SECURITY SMALL COMPANY FUND (CLASS A)
- --------------------------------------------------------------------------------
FISCAL PERIOD
ENDED
SEPTEMBER 30
-------------
1998(D)(G)(H)
-------------
PER SHARE DATA
Net asset value beginning of period......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.03)
Net gain (loss) on securities (realized & unrealized)....... (1.26)
-----
Total from investment operations............................ (1.29)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (0.01)
Distributions (from capital gains).......................... ---
-----
Total distributions......................................... (0.01)
-----
Net asset value end of period............................... $ 8.70
=====
Total return (a)............................................ (12.95)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $2,677
Ratio of expenses to average net assets .................... 1.39%
Ratio of net investment income (loss) to average net assets. (0.35)%
Portfolio turnover rate..................................... 366%
- --------------------------------------------------------------------------------
SECURITY SMALL COMPANY FUND (CLASS B)
- --------------------------------------------------------------------------------
FISCAL PERIOD
ENDED
SEPTEMBER 30
-------------
1998(D)(G)(H)
-------------
PER SHARE DATA
Net asset value beginning of period......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.13)
Net gain (loss) on securities (realized & unrealized)....... (1.24)
-----
Total from investment operations............................ (1.37)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... ---
Distributions (from capital gains).......................... ---
-----
Total distributions......................................... ---
-----
Net asset value end of period............................... $ 8.63
=====
Total return (a)............................................ (13.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $1,504
Ratio of expenses to average net assets .................... 2.38%
Ratio of net investment income (loss) to average net assets. (1.34)%
Portfolio turnover rate..................................... 366%
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY ULTRA FUND (CLASS A)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(D)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $ 9.24 $ 8.25 $ 8.20 $ 6.82 $ 8.13
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.06) (0.08) (0.05) (0.02) (0.056)
Net gain (loss) on securities (realized & unrealized)....... (1.06) 1.649 1.096 1.535 (0.188)
----- ------ ------ ------ ------
Total from investment operations............................ (1.12) 1.569 1.046 1.515 (0.244)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... --- --- --- --- ---
Distributions (from capital gains).......................... (0.47) (0.579) (0.996) (0.135) (1.066)
----- ------ ------ ------ ------
Total distributions......................................... (0.47) (0.579) (0.996) (0.135) (1.066)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 7.65 $ 9.24 $ 8.25 $ 8.20 $ 6.82
===== ====== ====== ====== ======
Total return (a)............................................ (12.45)% 20.57% 15.36% 22.69% (3.60)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $67,554 $84,504 $74,230 $66,052 $60,695
Ratio of expenses to average net assets..................... 1.23% 1.71% 1.31% 1.32% 1.33%
Ratio of net investment income (loss) to average net assets. (0.64)% (1.01)% (0.61)% (0.31)% (0.80)%
Portfolio turnover rate..................................... 116% 68% 161% 180% 111%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SECURITY ULTRA FUND (CLASS B)
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------
1998(D) 1997(D) 1996(D) 1995(D) 1994(B)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period......................... $ 8.90 $ 8.03 $ 8.11 $ 6.81 $ 8.30
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................ (0.14) (0.15) (0.13) (0.09) (0.103)
Net gain (loss) on securities (realized & unrealized)....... (1.01) 1.599 1.046 1.525 (0.321)
----- ------ ------ ------ ------
Total from investment operations............................ (1.15) 1.449 0.916 1.435 (0.424)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... --- --- --- --- ---
Distributions (from capital gains).......................... (0.47) (0.579) (0.996) (0.135) (1.066)
----- ------ ------ ------ ------
Total distributions......................................... (0.47) (0.579) (0.996) (0.135) (1.066)
----- ------ ------ ------ ------
Net asset value end of period............................... $ 7.28 $ 8.90 $ 8.03 $ 8.11 $ 6.81
===== ====== ====== ====== ======
Total return (a)............................................ (13.30)% 19.58% 13.81% 21.53% (5.70)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $5,610 $5,964 $2,698 $5,428 $1,254
Ratio of expenses to average net assets..................... 2.23% 2.71% 2.31% 2.32% 2.36%
Ratio of net investment income (loss) to average net assets. (1.64)% (2.01)% (1.61)% (1.32)% (1.76)%
Portfolio turnover rate..................................... 116% 68% 161% 180% 110%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total return information does not take into account any sales charge at
time of purchase for Class A shares or upon redemption for Class B shares.
(b) 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.
(c) Security Global Fund was initially capitalized on October 1, 1993, with a
net asset value of $10 per share.
(d) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(e) Figures for the period May 1, 1997 (date of inception) to September 30,
1997. Percentage amounts have been annualized, except for total return.
(f) Security Value Fund was initially capitalized on May 1, 1997, with a net
asset value of $10 per share.
(g) Fund expenses were reduced by the Investment Manager during the period, and
expense ratios absent such reimbursement would have been as follows:
-----------------------------------------------------------
1997 1998
----------------- -----------------
CLASS A CLASS B CLASS A CLASS B
Value Fund 1.90% 2.80% 1.51% 2.59%
Small Company Fund 2.10% 3.16% 2.40% 3.38%
-----------------------------------------------------------
(h) Security Small Company Fund was initially capitalized on October 15, 1997,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized, except for total return.
<PAGE>
APPENDIX A
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 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. Shares equal to five percent (5%) of the amount specified in the
Statement of Intention will be held in escrow 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 -- Shareholders 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 shareholder must provide written notice
and a check in the amount of the reinvestment within thirty days after the
redemption request; the reinstatement will be made at the net asset value on the
date received by the Fund or the Security Funds, as appropriate.
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
BY TELEPHONE -- Call 1-800-888-2461.
BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001
ON THE INTERNET -- Reports and other information about the Funds can be viewed
online or downloaded from:
SEC: http://www.sec.gov
SMC, LLC: http://www.securitybenefit.com
Additional information about the Funds (including the statement of additional
information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, DC
20549-6009.
- --------------------------------------------------------------------------------
ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Funds' investments
is available in the Funds' annual and semi-annual reports to shareholders. In
the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Funds' performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION -- The Funds' statement of additional
information and the Funds' annual or semi-annual report are available, without
charge upon request by calling the Funds' toll-free telephone number
1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the
Funds' toll-free telephone number listed above. The Funds' Statement of
Additional Information is incorporated into this prospectus by reference.
Each Fund's Investment Company Act file number is listed below:
Security Equity Fund...................... 811-1136
Security Growth and Income Fund........... 811-0487
Security Ultra Fund....................... 811-1316
<PAGE>
SECURITY
FUNDS
===============================================================================
PROSPECTUS
FEBRUARY 1, 1999
- Security Asset
Allocation Fund
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
OBJECTIVE.................................. 2
PRINCIPAL INVESTMENT STRATEGIES............ 2
MAIN RISKS................................. 3
Market Risk............................ 3
Fixed-Income Securities................ 3
Foreign Securities..................... 3
Gold Stocks............................ 4
PAST PERFORMANCE........................... 5
FEES AND EXPENSES OF THE FUND.............. 6
INVESTMENT MANAGER......................... 7
Management Fees........................ 7
Portfolio Managers..................... 7
Year 2000 Compliance................... 8
BUYING SHARES.............................. 9
Class A Shares......................... 9
Class B Shares......................... 9
Class B Distribution Plan.............. 10
Class C Shares......................... 10
Class C Distribution Plan.............. 10
Waiver of Deferred Sales Charge........ 10
Confirmations and Statements........... 11
SELLING SHARES............................. 11
By Mail................................ 11
By Telephone........................... 12
By Broker.............................. 12
Payment of Redemption Proceeds......... 12
DIVIDENDS AND TAXES........................ 12
Tax on Distributions................... 12
Taxes on Sales or Exchanges............ 13
Backup Withholding..................... 13
DETERMINATION OF NET ASSET VALUE........... 13
SHAREHOLDER SERVICES....................... 14
Accumulation Plan...................... 14
Systematic Withdrawal Program.......... 14
Exchange Privilege..................... 15
Retirement Plans....................... 15
GENERAL INFORMATION........................ 15
Shareholder Inquiries.................. 15
FINANCIAL HIGHLIGHTS....................... 16
APPENDIX A -
REDUCED SALES CHARGES...................... 18
Class A Shares......................... 18
Rights of Accumulation................. 18
Statement of Intention................. 18
Reinstatement Privilege................ 18
<PAGE>
OBJECTIVE
Described below is the investment objective for Security Asset Allocation Fund.
The Fund's Board of Directors may change its investment objective without
shareholder approval.
As with any investment, there can be no guarantee the Fund will achieve its
investment objective.
The Security Asset Allocation Fund seeks high total return, consisting of
capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by following an asset allocation strategy that
contemplates shifts among a wide range of investment categories and market
sectors. The Fund's Sub-Adviser, Meridian Investment Management Corporation,
decides what percentage of the Fund's assets will be invested in the various
investment categories. The Fund expects that normally:
* A minimum of 35% of its assets will be invested in equity securities; and
* A minimum of 10% of its assets will be invested in debt securities.
The Fund may invest:
* Up to 55% of its assets in money market instruments;
* Up to 80% of its assets in foreign securities; and
* Up to 20% of its assets in gold stocks.
Meridian uses a quantitative asset allocation model to strategically allocate
the Fund's assets among the investment categories. In choosing equity
securities, the model analyzes equity securities based on the following factors:
(1) current earnings; (2) earnings history; (3) long-term earnings projections;
(4) current-price; and (5) risk.
When selecting equity securities for the Fund, Meridian uses a "top-down"
approach, first determining a sector and/or country, and then identifying which
equity securities to purchase within that sector/country.
- --------------------------------------------------------------------------------
TOP-DOWN APPROACH means that the Sub-Adviser looks first at broad market
factors, and on the basis of those market factors, chooses certain sectors or
industries within the overall market. The Sub-Adviser then looks at individual
companies within those sectors or industries.
- --------------------------------------------------------------------------------
When selecting debt securities for the Fund, Meridian's asset allocation model
analyzes the prices of commodities and finished goods to arrive at an interest
rate projection. The Investment Manager, Security Management Company, LLC, then
determines the portion of the portfolio to allocate to debt securities and the
duration of those securities based on the model's interest rate projection.
The Fund also may invest a portion of its assets in options and futures, which
are primarily used to hedge the Fund's portfolio but may be used to increase
returns.
The Fund typically sells an investment when the company or issuer begins to show
deteriorating fundamentals or poor relative performance.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash or money market securities. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
MAIN RISKS
- --------------------------------------------------------------------------------
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The value of an investment in the Fund will go up and down,
which means investors could lose money.
- --------------------------------------------------------------------------------
MARKET RISK -- While stocks have historically been a leading choice of long-term
investors, they do fluctuate in price. Their prices tend to fluctuate more
dramatically over the shorter term than do the prices of other asset classes.
These movements may result from factors affecting individual companies, or from
broader influences like changes in interest rates, market conditions, investor
confidence or announcements of economic, political or financial information.
FIXED-INCOME SECURITIES -- Fixed-income investing may present risks because the
market value of fixed-income investments generally are affected by changes in
interest rates. When interest rates rise, the market value of a fixed-income
security declines. Generally, the longer a bond's maturity, the greater the
risk. A bond's value can also be affected by changes in the credit rating or
financial condition of its issuer. Because bond values fluctuate, an investor
may receive more or less money than originally invested.
FOREIGN SECURITIES -- Investing in foreign securities involves additional risks
such as currency fluctuations, differences in financial reporting standards, a
lack of adequate company information and political instability. These risks may
be particularly acute in underdeveloped capital markets.
RISKS OF CONVERSION TO EURO. On January 1, 1999, eleven countries in the
European Monetary Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
provide some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Fund operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
* issuers in which the Fund invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress stock values.
* vendors the Fund depends on to carry out their business, such as the custodian
bank (which holds the foreign securities the Fund buys), the Investment
Manager (which prices the Fund's investments to deal with the conversion to
the euro) and brokers, foreign markets and securities depositories. If the
vendors are not prepared, there could be delays in settlements and additional
costs to the Fund.
* exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Fund's contracts could pose extra costs
to the Fund.
The Investment Manager is upgrading its computer and bookkeeping systems to deal
with the conversion. The Fund's custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Fund's investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Fund's holdings and increase its operational costs.
GOLD STOCKS -- The Fund may invest a portion of its assets in equity securities
of companies involved in the exploration, mining, development, production and
distribution of gold. Investing in gold stocks presents risks because the prices
of gold can fluctuate 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.
OPTIONS AND FUTURES -- The Fund may invest some of its assets in options and
futures. These practices are used primarily to hedge the Fund's portfolio or to
increase returns. However, there is the risk that such practices sometimes may
reduce returns or increase volatility. These practices also entail transactional
expenses.
<PAGE>
PAST PERFORMANCE
The chart and table below give an indication of the Fund's risks and performance
by showing changes in the Fund's Class A share performance from year to year.
The Fund's Class C shares are new and do not have a performance record. The
table shows how the Fund's average annual total returns for the periods
indicated compare to those of broad measures of market performance. As with all
mutual funds, past performance is not a prediction of future results.
The bar chart does not reflect the sales charge applicable to Class A shares
which, if reflected, would lower the returns shown. Average annual total returns
for the Fund's Class A shares include deduction of the 5.75% front-end sales
charge and for Class B shares include the appropriate deferred sales charge,
which is 5% in the first year declining to 0% in the sixth and later years. The
average annual total returns also assume that Class B shareholders redeem all
their shares at the end of the period indicated.
- ---------------------------------------------------
SECURITY ASSET ALLOCATION FUND - CLASS A
- ---------------------------------------------------
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1996 13.2%
1997 6.1%
1998 12.1%
- ---------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1996-1998)
- ---------------------------------------------------
QUARTER ENDED
Highest 13.20% December 31, 1998
Lowest -11.47% September 30, 1998
- ---------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------
PAST LIFE OF FUND
1 YEAR (SINCE JUNE 1, 1995)
Class A 5.61% 9.10%
Class B 5.97% 9.20%
S&P 500 28.58% 9.20%
- ---------------------------------------------------
<PAGE>
FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES (fees paid directly from your investment)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES(1) SHARES
Maximum Sales Charge Imposed on Purchases 5.75% None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (as a percentage of None(2) 5%(3) 1%(4)
original purchase price or redemption proceeds,
whichever is lower)
- --------------------------------------------------------------------------------
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 deferred sales charge of 1% is imposed in
the event of redemption within one year of purchase.
3 5% during the first year, decreasing to 0% in the sixth and following years.
4 A deferred sales charge of 1% is imposed in the event of redemption within one
year of purchase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------------
Total
Annual Fund
Management Distribution Other Operating
Fees (12b-1) Fees(5) Expenses Expenses
Class A 1.00% None 1.50% 2.50%
Class B 1.00% 1.00% 1.44% 3.44%
Class C 1.00% 1.00% 1.44% 3.44%
- -------------------------------------------------------------------------------
5 Long-term holders of shares that are subject to a 12b-1 distribution fee may
pay more than the equivalent of the maximum front-end sales charge otherwise
permitted by National Association of Securities Dealers, Inc. Rules.
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
You would pay the following expenses if you redeemed your shares at the end of
each period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ----------------------- ------------------------ --------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$814 $847 $447 $1,309 $1,356 $1,056 $1,829 $1,988 $1,788 $3,248 $3,721 $3,721
- ---------------------------------------------------------------------------------------------------------
You would pay the following expenses if you did not redeem your shares.
- ---------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ----------------------- ------------------------ --------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
$814 $347 $347 $1,309 $1,056 $1,056 $1,829 $1,788 $1,788 $3,248 $3,721 $3,721
- ---------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT MANAGER
Security Management Company, LLC (the "Investment Manager"), 700 SW Harrison
Street, Topeka, Kansas 66636, is the Fund's investment manager. On September 30,
1998, the aggregate assets of all of the Funds under the investment management
of the Investment Manager were approximately $4.7 billion.
The Investment Manager has engaged Meridian Investment Management Corporation,
12835 East Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112 to
provide investment advisory services to Asset Allocation Fund. Meridian provides
investment advice to individuals, pension and profit sharing plans, public
retirement systems and registered investment companies and currently manages
over $500 million in assets.
MANAGEMENT FEES -- The investment management fees paid by the Fund during the
last fiscal year were equal to 1.00% of the Fund's average net assets.
The Investment Manager may waive some or all of its management fee to limit the
total operating expenses of a Fund to a specified level. The Investment Manager
also may reimburse expenses of the Fund from time to time to help it maintain
competitive expense ratios. These arrangements are voluntary and may be
terminated at any time. The fees without waivers or reimbursements are shown in
the fee table on page ___.
PORTFOLIO MANAGERS -- STEVE BOWSER, Second Vice President and Portfolio Manager
of the Investment Manager, has co-managed the fixed-income portion of the Fund's
portfolio since January 1998. He joined the Investment Manager in 1992. Prior to
joining the Investment Manager, he was Assistant Vice President and Portfolio
Manager with the Federal Home Loan Bank of Topeka from 1989 to 1992. He was
employed at the Federal Reserve Bank of Kansas City in 1988 and began his career
with the Farm Credit System from 1982 to 1987, serving as a Senior Financial
Analyst and Assistant Controller. He graduated with a bachelor of science degree
from Kansas State University in 1982. He is a Chartered Financial Analyst.
PAT BOYLE, Portfolio Manager of Meridian, has managed the equity portion of the
Fund's portfolio since August 1997. He is a research analyst and portfolio
manager of the Sub-Adviser. Prior to joining Meridian, Mr. Boyle was employed at
Citicorp as an Operations Analyst. He has five 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 and a M.S. degree.
DAVID ESHNAUR, Assistant Vice President and Portfolio Manager of the Investment
Manager, has co-managed the fixed-income portion of the Fund's portfolio since
January 1998. Mr. Eshnaur has 15 years of investment experience. Prior to
joining the Investment Manager in 1997, he worked at Waddell & Reed in the
positions of Assistant Vice President, Assistant Portfolio Manager, Senior
Analyst, Industry Analyst and Account Administrator. Mr. Eshnaur earned a
bachelor of arts degree in Business Administration from Coe College and an
M.B.A. degree in Finance from the University of Missouri - Kansas City.
YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Fund could be adversely affected if
the computer systems used by the Investment Manager, and other service
providers, in performing their management and administrative functions do not
properly process and calculate date-related information and data before, during
and after January 1, 2000. Some computer software and hardware systems currently
cannot distinguish between the year 2000 and the year 1900 or some other date
because of the way date fields were encoded. This is commonly known as the "Year
2000 Problem." If not addressed, the Year 2000 Problem could impact the
management services provided to the Fund by the Investment Manager and
Sub-Adviser, as well as transfer agency, accounting, custody, distribution and
other services provided to the Fund and its shareholders.
The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Investment Manager considers a system "Year 2000
Compliant" when it is able to correctly process, provide and/or receive data
before, during and after the Year 2000. The Investment Manager's overall
approach to addressing the Year 2000 Problem is as follows: (1) to inventory its
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure of any such system would have on its business operations;
(2) to modify or replace its internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test its systems for
Year 2000 compliance. The Investment Manager has completed the inventory of its
internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems, as well as
towards obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing commenced in December 1998 and is scheduled to extend
into the first six months of 1999.
Although the Investment Manager has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Fund and the Investment
Manager.
The Year 2000 Problem is also expected to impact operating companies, which may
include issuers of portfolio securities held by the Fund, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. The Fund and the
Investment Manager are unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held by the Fund and
indirectly, on the value of the Fund's shares.
BUYING SHARES
Shares of the Fund are available through broker/dealers, banks, and other
financial intermediaries that have an agreement with the Fund's Distributor,
Security Distributors, Inc.
There are three different ways to buy shares of the Fund--Class A shares, Class
B shares or Class C shares. The different classes of a Fund differ primarily
with respect to the sales charges and Rule 12b-1 distribution fees to which they
are subject. The minimum initial investment is $100. Subsequent investments must
be $100 (or $20 under an Accumulation Plan). The Fund reserves the right to
reject any order to purchase shares.
CLASS A SHARES -- Class A shares are subject to a sales charge at the time of
purchase. An order for Class A shares will be priced at the Fund's net asset
value per share (NAV), plus the sales charge, set forth below. The NAV, plus the
sales charge is the "offering price." The Fund's NAV is generally calculated as
of the close of trading on every day the New York Stock Exchange is open. An
order for Class A shares is priced at the NAV next calculated after the order is
accepted by the Fund, plus the sales charge.
- ---------------------------------------------------
SALES CHARGE
--------------------------
AS A AS A
PERCENTAGE PERCENTAGE
OF OF NET
AMOUNT OF ORDER OFFERING AMOUNT
PRICE INVESTED
- ---------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.75% 4.99%
$100,000 to $249,999 3.75% 3.90%
$250,000 to $499,999 2.75% 2.83%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 or more* None None
- ---------------------------------------------------
*Purchases of $1,000,000 or more are not subject
to a sales charge at the time of purchase, but
are subject to a deferred sales charge of 1.00%
if redeemed within one year following purchase.
The deferred sales charge is a percentage of
the lesser of the NAV of the shares redeemed or
the net cost of such shares. Shares that are
not subject to a deferred sales charge are
redeemed first.
- ---------------------------------------------------
Please see Appendix A for options that are available for reducing the sales
charge applicable to purchases of Class A shares.
CLASS B SHARES -- Class B shares are not subject to a sales charge at the time
of purchase. An order for Class B shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. The Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class B shares are subject to a deferred sales charge if redeemed within 5 years
from the date of purchase. The deferred sales charge is a percentage of the NAV
of the shares at the time they are redeemed or the original purchase price,
whichever is less. Shares that are not subject to the deferred sales charge are
redeemed first. Then, shares held the longest will be the first to be redeemed.
The amount of the deferred sales charge is based upon the number of years since
the shares were purchased, as follows:
- ------------------------------------------
NUMBER OF YEARS SINCE DEFERRED
PURCHASE SALES CHARGE
- ------------------------------------------
1 5%
2 4%
3 3%
4 3%
5 2%
6 and more 0%
- ------------------------------------------
The Distributor will waive the deferred sales charge under certain
circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS B DISTRIBUTION PLAN -- The Fund has adopted a Class B Distribution Plan
that allows the Fund to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class B
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class B shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
Class B shares automatically convert to Class A shares on the eighth anniversary
of purchase. This is advantageous to such shareholders because Class A shares
are subject to a lower distribution fee than Class B shares. A pro rata amount
of Class B shares purchased through the reinvestment of dividends or other
distributions is also converted to Class A shares each time that shares
purchased directly are converted.
CLASS C SHARES -- Class C shares are not subject to a sales charge at the time
of purchase. An order for Class C shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. The Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class C shares are subject to a deferred sales charge of 1.00% if redeemed
within one year from the date of purchase. The deferred sales charge is a
percentage of the NAV of the shares at the time they are redeemed or the
original purchase price, whichever is less. Shares that are not subject to the
deferred sales charge are redeemed first. Then, shares held the longest will be
the first to be redeemed. The Distributor will waive the deferred sales charge
under certain circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS C DISTRIBUTION PLAN -- The Fund has adopted a Class C Distribution Plan
that allows the Fund to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class C
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class C shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
WAIVER OF DEFERRED SALES CHARGE -- The Distributor will waive the deferred sales
charge under the following circumstances:
* Upon the death of the shareholder if shares are redeemed within one year of
the shareholder's death
* Upon the disability of the shareholder prior to age 65 if shares are redeemed
within one year of the shareholder becoming disabled and the shareholder was
not disabled when the shares were purchased
* In connection with required minimum distributions from a retirement plan
qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal Revenue
Code
* In connection with distributions from retirement plans qualified under Section
401(a) or 401(k) of the Internal Revenue Code for:
- returns of excess contributions to the plan
- retirement of a participant in the plan
- a loan from the plan (loan repayments are treated as new sales for purposes
of the deferred sales charge)
* Upon the financial hardship (as defined in regulations under the Code) of a
participant in a plan
* Upon termination of employment of a participant in a plan
* Upon any other permissible withdrawal under the terms of the plan
CONFIRMATIONS AND STATEMENTS -- The Fund will send you a confirmation statement
after every transaction that affects your account balance or registration.
Certain automatic transactions may be confirmed on a quarterly basis including
systematic withdrawals, automatic purchases and reinvested dividends. Each
shareholder will receive a quarterly statement setting forth a summary of the
transactions that occurred during the preceding quarter.
SELLING SHARES
Selling your shares of a Fund is called a "redemption," because the Fund buys
back its shares. A shareholder may sell shares at any time. Shares will be
redeemed at the NAV next determined after the order is accepted by the Fund's
transfer agent, less any applicable deferred sales charge. A Fund's NAV is
generally calculated as of the close of trading on every day the New York Stock
Exchange is open. Any share certificates representing Fund shares being sold
must be returned with a request to sell the shares.
When redeeming recently purchased shares, if the Fund has not collected payment
for the shares, it may delay sending the proceeds until it has collected
payment, which may take up to 15 days.
BY MAIL -- To sell shares by mail, send a letter of instruction that includes:
* The name and signature of the account owner(s)
* The name of the Fund
* The dollar amount or number of shares to sell
* Where to send the proceeds
* A signature guarantee if
- The check will be mailed to a payee or address different than that of the
account owner, or
- The sale of shares is more than $10,000.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. Banks, brokers, credit
unions, national securities exchanges and savings associations provide signature
guarantees. A notary public is not an eligible signature guarantor. For joint
accounts, both signatures must be guaranteed.
- --------------------------------------------------------------------------------
Mail your request to:
Security Management Company, LLC
P.O. Box 750525
Topeka, KS 66675-9135
Signature requirements vary based on the type of account you have:
* INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an
individual shareholder, or in the case of joint accounts, all of the
shareholders, exactly as the name(s) appears on the account.
* UGMA OR UTMA: Written instructions must be signed by the custodian as it
appears on the account.
* SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by an
authorized individual as it appears on the account.
* CORPORATION OR ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified resolution dated
within six months of the date of receipt, authorizing the signer to act, must
accompany the request if not on file with the Fund.
* TRUST: Written instructions must be signed by the trustee(s). If the name of
the current trustee(s) does not appear on the account, a certified certificate
of incumbency dated within 60 days must also be submitted.
* RETIREMENT: Written instructions must be signed by the account owner.
BY TELEPHONE -- If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-888-2461, extension 3127, on
weekdays (except holidays) between 7:00 a.m. and 6:00 p.m. Central time. The
Fund requires that requests for redemptions over $10,000 be in writing with
signatures guaranteed. You may not close your account by telephone or redeem
shares for which a certificate has been issued. If you would like to establish
this option on an existing account, please call 1-800-888-2461, extension 3127.
Shareholders may not redeem shares held in an IRA or 403(b)(7) account by
telephone.
BY BROKER -- You may redeem your shares through your broker. Brokers may charge
a commission upon the redemption of shares.
PAYMENT OF REDMPTION PROCEEDS -- Payments may be made by check, wire transfer or
electronic transfer.
The Fund 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 weekend or holidays, or any emergency is deemed to exist by the Securities
and Exchange Commission.
BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record at
the address on our records generally within seven days after receipt of a valid
redemption request. For a charge of $15 deducted from redemption proceeds, the
Investment Manager will provide a certified or cashier's check, or send the
redemption proceeds by express mail, upon the shareholder's request.
DIVIDENDS AND TAXES
Each Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized, at least annually. Your
dividends and distributions will be reinvested in the Fund, unless you instruct
the Investment Manager otherwise. There are no fees or sales charges on
reinvestments.
TAX ON DISTRIBUTIONS -- Fund dividends and distributions are taxable to
shareholders (unless your investment is in an Individual Retirement Account
("IRA") or other tax-advantaged retirement account) whether you reinvest your
dividends or distributions or take them in cash.
In addition to federal tax, dividends and distributions may be subject to state
and local taxes. If the Fund declares a dividend or distribution in October,
November, or December but pays it in January, you may be taxed on that dividend
or distribution as if you received it in the previous year. In general,
distributions from the Fund are taxable as follows:
- ---------------------------------------------------
TYPE OF TAX RATE FOR TAX RATE FOR 28%
DISTRIBUTION 15% BRACKET BRACKET OR ABOVE
- ---------------------------------------------------
Income Ordinary Ordinary
dividends Income rate Income rate
Short-term Ordinary Ordinary
capital gains Income rate Income rate
Long-term
capital gains 10% 20%
- ---------------------------------------------------
Tax-deferred retirement accounts do not generate a tax liability unless you are
taking a distribution or making a withdrawal.
The Fund has "short-term capital gains" when it sells shares within 12 months
after buying them. The Fund has "long-term capital gains" when it sells shares
that it has owned for more than 12 months. The Fund expects that its
distributions will consist primarily of net long-term capital gains.
The Fund will mail you information concerning the tax status of the
distributions for each calendar year on or before January 31 of the following
year.
TAXES ON SALES OR EXCHANGES -- You may be taxed on any sale or exchange of Fund
shares. The amount of gain or loss will depend primarily upon how much you pay
for the shares, how much you sell them for, and how long you hold them.
The table above can provide a guide for your potential tax liability when
selling or exchanging Fund shares. "Short-term capital gains" applies to Fund
shares sold or exchanged up to one year after buying them. "Long-term capital
gains" applies to shares held for more than one year.
BACKUP WITHHOLDING -- As with all mutual funds, a Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all taxable distributions
payable to you if you fail to provide the Fund with your correct taxpayer
identification number or to make required certifications, or if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the Internal Revenue Service ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.
You should consult your tax professional about federal, state and local tax
consequences to you of an investment in the Fund. Please see the Statement of
Additional Information for additional tax information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (NAV) of the Fund is computed as of the close of
regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on days when the Exchange is open. The Exchange is open Monday through
Friday, except on observation of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's NAV is generally based upon the market value of securities held in
the Fund's portfolio. If market prices are not available, the fair value of
securities is determined using procedures approved by the Fund's Board of
Directors.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the NAV of a Fund holding foreign securities may change on
days when shareholders will not be able to buy or sell shares of the Fund.
SHAREHOLDER SERVICES
ACCUMULATION PLAN -- An investor may choose to invest in the Fund through a
voluntary Accumulation Plan. This allows for an initial investment of $100
minimum and subsequent investments of $20 minimum at any time. An Accumulation
Plan involves no obligation to make periodic investments, and is terminable at
will.
Payments are made by sending a check to the Distributor who (acting as an agent
for the dealer) will purchase whole and fractional shares of the Fund as of the
close of business on such day as the payment is received. The investor will
receive a confirmation and statement after each investment.
Investors may also choose to use "Secur-O-Matic" (automatic bank draft) to make
Fund purchases. There is no additional charge for choosing to use Secur-O-Matic.
Withdrawals from your bank account may occur up to 3 business days before the
date scheduled to purchase Fund shares. An application for Secur-O-Matic may be
obtained from the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM -- Shareholders who wish to receive regular
monthly, quarterly, semiannual, or annual payments of $25 or more may establish
a Systematic Withdrawal Program. A shareholder 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 aggregate net asset value of $5,000 or more are deposited with
the Investment Manager, which will act as agent for the shareholder 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 redeemed from the account.
A shareholder may establish a Systematic Withdrawal Program with respect to
Class B and Class C 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 or Class C 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 or Class C shares requested while Free
Systematic Withdrawals are being made will be calculated as described under
"Waiver of Deferred Sales Charges," page 10. A Systematic Withdrawal form may be
obtained from the Fund.
EXCHANGE PRIVILEGE -- Shareholders who own shares of the Fund may exchange those
shares for shares of another series of Security Equity Fund, Security Ultra
Fund, Security Growth and Income Fund, Security Income Fund, Security Municipal
Bond Fund, or Security Cash Fund (the "Security Funds") at net asset value per
share. 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 or sales
charge is presently imposed on such an exchange. Shares of a particular class of
the Fund may be exchanged only for shares of the same class 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. At present, Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield, Global High Yield, Emerging
Markets Total Return, Global Asset Allocation, and Municipal Bond Funds do not
offer Class C 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 shareholder exercising this privilege.
To exchange shares by telephone, a shareholder 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 shareholder may exchange shares by telephone by
calling the Fund at (800) 888-2461, extension 3127, on weekdays (except
holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange
requests received by telephone after the close of the New York Stock Exchange
(normally 3 p.m. Central time) will be treated as if received on the next
business day on which the Exchange is open. The exchange privilege, including
telephone exchanges, may be changed or discontinued at any time by either the
Investment Manager or the Fund upon 60 days' notice to shareholders.
RETIREMENT PLANS -- The Fund has available tax-qualified retirement plans for
individuals, prototype plans for the self-employed, pension and profit sharing
plans for corporations and custodial accounts for employees of public school
systems and organizations meeting the requirements of Section 501(c)(3) of the
Internal Revenue Code. Further information concerning these plans is contained
in the Fund's Statement of Additional Information.
GENERAL INFORMATION
SHAREHOLDER INQUIRIES -- Shareholders who have questions concerning their
account or wish to obtain additional information, may call the Fund (see back
cover for address and telephone numbers), or contact their securities dealer.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for its Class A shares and Class B shares during the past
five years or, the period since commencement of the Fund. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund assuming reinvestment of all dividends and distributions.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's financial statements, are included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SECURITY ASSET ALLOCATION FUND (CLASS A)
- --------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------------------
1998(C)(D) 1997(C)(D)(E) 1996(C)(D) 1995(B)(C)(D)
PER SHARE DATA
Net asset value beginning of period....... $12.58 $11.06 $10.54 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. 0.08 0.17 0.25 0.04
Net gain (loss) on securities
(realized & unrealized)................ (0.98) 1.862 0.765 0.50
------- ------- ------- ------
Total from investment operations.......... (0.90) 2.032 1.015 0.54
LESS DISTRIBUTIONS
Dividends (from net investment income).... (0.20) (0.260) (0.328) ---
Distributions (from capital gains)........ (0.75) (0.252) (0.167) ---
------- ------- ------- --------
Total distributions....................... (0.95) (0.512) (0.495) ---
------- ------- ------- --------
Net asset value end of period............. $10.73 $12.58 $11.06 $10.54
======= ======== ======== ========
Total return (a).......................... (7.19)% 19.00% 10.01% 5.40%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...... $3,294 $3,906 $2,449 $1,906
Ratio of expenses to average net assets... 2.00% 1.68% 2.00% 2.00%
Ratio of net investment income
(loss) to average net assets........... 0.65% 1.52% 2.32% 1.33%
Portfolio turnover rate................... 45% 79% 75% 129%
- --------------------------------------------------------------------------------------------
SECURITY ASSET ALLOCATION FUND (CLASS B)
- --------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------------------
1998(C)(D) 1997(C)(D)(E) 1996(C)(D) 1995(B)(C)(D)
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....... $12.45 $10.97 $10.50 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. (0.03) 0.07 0.14 0.01
Net gain (loss) on securities
(realized & unrealized)................ (0.96) 1.843 0.77 0.49
------- -------- -------- --------
Total from investment operations.......... (0.99) 1.913 0.91 0.50
LESS DISTRIBUTIONS
Dividends (from net investment income).... (0.09) (0.181) (0.273) ---
Distributions (from capital gains)........ (0.75) (0.252) (0.167) ---
------- -------- -------- --------
Total distributions....................... (0.84) (0.433) (0.44) ---
------- -------- -------- --------
Net asset value end of period............. $10.62 $12.45 $10.97 $10.50
======= ======== ======== ========
Total return (a).......................... (7.99)% 17.95% 8.97% 5.00%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...... $3,304 $3,851 $2,781 $1,529
Ratio of expenses to average net assets .. 2.94% 2.58% 3.00% 3.00%
Ratio of net investment income
(loss) to average net assets........... (0.29)% 0.61% 1.32% 0.31%
Portfolio turnover rate................... 45% 79% 75% 129%
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.
(b) Security Asset Allocation Fund was initially capitalized on June 1, 1995,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized, except for total return.
(c) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows:
---------------------------------------------
1995 1996 1997 1998
---------------------------------------------
Class A 3.6% 3.1% 2.4% 2.5%
Class B 4.7% 3.9% 3.3% 3.4%
--------------------------------------------
(d) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(e) Meridian Investment Management Corporation ("Meridian") was added as a
sub-adviser to the Fund effective August 1, 1997.
<PAGE>
APPENDIX A
REDUCED SALES CHARGES
CLASS A SHARES -- Initial sales charges may be reduced or eliminated for persons
or organizations purchasing Class A shares of the Fund alone or in combination
with Class A shares of 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, the term "Purchaser"
includes the following persons: an individual, his or her spouse and children
under the age of 21; a trustee or other fiduciary of a single trust estate or
single fiduciary account established for their benefit; an organization exempt
from federal income tax under Section 501(c)(3) or (13) of the Internal Revenue
Code; or a pension, profit-sharing or other employee benefit plan whether or not
qualified under Section 401 of the Internal Revenue Code.
RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Class A shares
of the Fund, a Purchaser may combine all previous purchases of the Fund with a
contemplated current purchase and receive the reduced applicable front-end sales
charge. The Distributor must be notified when a sale takes place which might
qualify for the reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination of the
Class A shares of the Fund and other Security Funds, except Security Cash Fund,
in those states where shares of the fund being purchased are qualified for sale.
STATEMENT OF INTENTION -- A Purchaser may choose to sign a Statement of
Intention within 90 days after the first purchase to be included thereunder,
which will cover future purchases of Class A shares of the Fund and other
Security Funds, except Security Cash Fund. The amount of these future purchases
shall be specified and must be made within a 13-month period (or 36-month period
for purchases of $1 million or more) to become eligible for the reduced
front-end sales charge applicable to the actual amount purchased under the
Statement. Shares equal to five percent (5%) of the amount specified in the
Statement of Intention will be held in escrow 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 Fund.
REINSTATEMENT PRIVILEGE -- Shareholders who redeem their Class A shares of the
Fund have a one-time privilege (1) to reinstate their accounts by purchasing
Class A shares without a sales charge up to the dollar amount of the redemption
proceeds; or (2) to the extent the redeemed shares would have been eligible for
the exchange privilege, to purchase Class A shares of another of the Security
Funds without a sales charge up to the dollar amount of the redemption proceeds.
To exercise this privilege, a shareholder must provide written notice and a
check in the amount of the reinvestment within thirty days after the redemption
request; the reinstatement will be made at the net asset value per share on the
date received by the Fund or the Security Funds, as appropriate.
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
BY TELEPHONE -- Call 1-800-888-2461.
BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001
ON THE INTERNET -- Reports and other information about the Fund can be viewed
online or downloaded from:
SEC: http://www.sec.gov
SMC, LLC: http://www.securitybenefit.com
Additional information about the Fund (including the Statement of Additional
Information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, DC
20549-6009.
ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION -- The Fund's Statement of Additional
Information and the Fund's annual or semi-annual report are available, without
charge upon request by calling the Fund's toll-free telephone number
1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the
Fund's toll-free telephone number listed above. The Fund's Statement of
Additional Information is incorporated into this prospectus by reference.
The Fund's Investment Company Act file number is listed below:
Security Equity Fund.............. 811-1136
<PAGE>
SECURITY
FUNDS
===============================================================================
PROSPECTUS
FEBRUARY 1, 1999
- Security Social
Awareness Fund
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
OBJECTIVE.................................. 2
PRINCIPAL INVESTMENT STRATEGIES............ 2
MAIN RISKS................................. 3
Market Risk............................ 3
Social Investing....................... 3
Value Stocks........................... 3
Growth Stocks.......................... 3
PAST PERFORMANCE........................... 3
FEES AND EXPENSES OF THE FUND.............. 5
INVESTMENT MANAGER......................... 6
Management Fees........................ 6
Portfolio Managers..................... 6
Year 2000 Compliance................... 6
BUYING SHARES.............................. 7
Class A Shares......................... 7
Class B Shares......................... 8
Class B Distribution Plan.............. 8
Class C Shares......................... 8
Class C Distribution Plan.............. 9
Waiver of Deferred Sales Charge........ 9
Confirmations and Statements........... 9
SELLING SHARES............................. 9
By Mail................................ 10
By Telephone........................... 10
By Broker.............................. 11
Payment of Redemption Proceeds......... 11
DIVIDENDS AND TAXES........................ 11
Tax on Distributions................... 11
Taxes on Sales or Exchanges............ 11
Backup Withholding..................... 12
DETERMINATION OF NET ASSET VALUE........... 12
SHAREHOLDER SERVICES....................... 12
Accumulation Plan...................... 12
Systematic Withdrawal Program.......... 13
Exchange Privilege..................... 13
Retirement Plans....................... 14
GENERAL INFORMATION........................ 14
Shareholder Inquiries.................. 14
FINANCIAL HIGHLIGHTS....................... 15
APPENDIX A - REDUCED SALES CHARGES......... 17
Class A Shares......................... 17
Rights of Accumulation................. 17
Statement of Intention................. 17
Reinstatement Privilege................ 17
<PAGE>
OBJECTIVE
Described below is the investment objective for Security Social Awareness Fund.
The Fund's Board of Directors may change its investment objective without
shareholder approval. As with any investment, there can be no guarantee the Fund
will achieve its investment objective.
The Security Social Awareness Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal circumstances, in a
well-diversified portfolio of stocks that the Investment Manager, Security
Management Company, LLC, believes have above-average earnings potential and
which meet certain established social criteria. The Fund may also invest in
fixed-income securities.
The Investment Manager uses a "bottom-up" approach when selecting
growth-oriented and value-oriented stocks. The Fund typically invests in the
common stock of companies whose total market value is $1 billion or greater at
the time of purchase.
- --------------------------------------------------------------------------------
BOTTOM-UP APPROACH means that the Investment Manager primarily analyzes the
fundamentals of individual companies rather than focusing on broader market or
sector themes. Some of the things which the Investment Manager looks at when
analyzing individual companies include relative earnings growth, profitability
trends, the company's financial strength, valuation analysis and strength of
management.
GROWTH-ORIENTED STOCKS are stocks of established companies that typically have
a record of consistent growth.
VALUE-ORIENTED STOCKS are stocks of companies that are believed to be
undervalued in terms of price or other financial measurements and that have
above average growth potential.
- --------------------------------------------------------------------------------
After identifying potential investments, the Investment Manager determines if
the securities meet the Fund's established social criteria. The Fund does not
invest in securities of companies that engage in the production of:
* Nuclear energy
* Alcoholic beverages
* Tobacco products
Additionally, the Fund does not invest in companies that significantly engage
in:
* The manufacture of weapons
* Practices that have a detrimental effect on the environment
* The gambling industry
The Fund seeks out companies that:
* Contribute substantially to the communities in which they operate
* Demonstrate a positive record on employment relations
* Demonstrate substantial progress in the promotion of women and minorities or
in the implementation of benefit policies that support working parents
* Take notably positive steps in addressing environmental challenges
The Investment Manager continues to evaluate an issuer's activities to determine
whether it engages in any practices prohibited by the Fund's social criteria. If
the Investment Manager determines that a security held by the Fund does not
comply with its social criteria, the security is sold within a reasonable time.
Under adverse market conditions, the Fund could invest some or all of its assets
in cash and money market instruments. Although the Fund would do this only in
seeking to avoid losses, the Fund may be unable to pursue its investment
objective during that time, and it could reduce the benefit from any upswing in
the market.
MAIN RISKS
- --------------------------------------------------------------------------------
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The value of an investment in the Fund will go up and down, which means
investors could lose money.
- --------------------------------------------------------------------------------
MARKET RISK -- While stocks have historically been a leading choice of long-term
investors, they do fluctuate in price. Their prices tend to fluctuate more
dramatically over the shorter term than do the prices of other asset classes.
These movements may result from factors affecting individual companies, or from
broader influences like changes in interest rates, market conditions, investor
confidence or announcements of economic, political or financial information.
SOCIAL INVESTING -- Investment in companies that must meet the Fund's
established social criteria may present additional risks because it will limit
the availability of investment opportunities compared to those of similar funds
which do not impose such restrictions on investment. In addition, if the
Investment Manager determines that securities held by the Fund do not comply
with its social criteria, the Fund must sell the security at a time when it may
be disadvantageous to do so.
VALUE STOCKS -- Investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, or that their prices may
go down. While the Fund's investments in value stocks may limit downside risk
over time, the Fund may, as a trade-off, produce more modest gains than riskier
stock funds.
GROWTH STOCKS -- While potentially offering greater or more rapid capital
appreciation potential than value stocks, investments in growth stocks may lack
the dividend yield that can cushion stock prices in market downturns. Growth
companies often are expected to increase their earnings at a certain rate. If
expectations are not met, investors can punish the stocks inordinately, even if
earnings do increase.
PAST PERFORMANCE
The chart and table below give an indication of the Fund's risks and performance
by showing changes in the Fund's Class A share performance from year to year.
The Fund's Class C shares are new and do not have a performance record. The
table also shows how the Fund's average annual total returns for the periods
indicated compare to those of broad measures of market performance. As with all
mutual funds, past performance is not a prediction of future results.
The bar chart does not reflect the sales charge applicable to Class A shares,
which if reflected, would lower the returns shown. Average annual total returns
for the Fund's Class A shares include deduction of the 5.75% front-end sales
charge and for Class B shares include the appropriate deferred sales charge,
which is 5% in the first year declining to 0% in the sixth and later years. The
average annual total returns also assume that Class B shareholders redeem all
their shares at the end of the period indicated.
- --------------------------------------------------
SECURITY SOCIAL AWARENESS FUND - CLASS A
- --------------------------------------------------
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1997 22.3%
1998 30.4%
- ---------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1996-1998)
- ---------------------------------------------------
QUARTER ENDED
Highest 23.50% December 31, 1998
Lowest -8.59% September 30, 1998
- ---------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------
PAST LIFE OF FUND
1 YEAR (SINCE 11/4/96)
Class A 22.93% 20.78%
Class B 24.06% 21.34%
S&P 500 28.58% 31.46%
Domini Social Index 7.50% 23.10%
- ---------------------------------------------------
<PAGE>
FEES AND EXPENSES OF THE FUND
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUND.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES (Fees Paid Directly From Your Investment)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES(1) SHARES
Maximum Sales Charge Imposed on Purchases 5.75% None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (as a percentage of None(2) 5%(3) 1%(4)
original purchase price or redemption proceeds,
whichever is lower)
- --------------------------------------------------------------------------------
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 deferred sales charge of 1% is imposed in
the event of redemption within one year of purchase.
3 5% during the first year, decreasing to 0% in the sixth and following years
4 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund Assets)
- --------------------------------------------------------------------------------
Total
Annual Fund
Management Distribution Other Operating
Fees (12b-1) Fees(5) Expenses Expenses
Class A 1.00% None 0.51% 1.51%
Class B 1.00% 1.00% 0.48% 2.48%
Class C 1.00% 1.00% 0.48% 2.48%
- --------------------------------------------------------------------------------
5 Long-term holders of shares that are subject to a 12b-1 distribution fee may
pay more than the equivalent of the maximum front-end sales charge otherwise
permitted by National Association of Securities Dealers, Inc. Rules.
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
You would pay the following expenses if you redeemed your shares at the end of
each period.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------- ------------------------- ------------------------- -------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$720 $751 $351 $1,025 $1,073 $773 $1,351 $1,521 $1,321 $2,273 $2,816 $2,816
- -------------------------------------------------------------------------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------- ------------------------- ------------------------ -------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$720 $251 $251 $1,025 $773 $773 $1,351 $1,321 $1,321 $2,273 $2,826 $2,816
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTMENT MANAGER
Security Management Company, LLC (the "Investment Manager"), 700 SW Harrison
Street, Topeka, Kansas 66636, is the Fund's investment manager. On September 30,
1998, the aggregate assets of all of the Funds under the investment management
of the Investment Manager were approximately $4.7 billion.
MANAGEMENT FEES -- The investment management fees paid by the Fund during the
last fiscal year were equal to 1.00% of the Fund's average net assets.
The Investment Manager may waive some or all of its management fee to limit the
total operating expenses of a Fund to a specified level. The Investment Manager
also may reimburse expenses of the Fund from time to time to help it maintain
competitive expense ratios. These arrangements are voluntary and may be
terminated at any time. The fees without waivers or reimbursements are shown in
the fee table on page 6.
PORTFOLIO MANAGER -- CINDY SHIELDs, Assistant Vice President and Portfolio
Manager of the Investment Manager, has managed the Social Awareness Fund since
its inception in 1996. She joined the Investment Manager in 1989. Ms. Shields
graduated from Washburn University with a bachelor of business administration
degree, majoring in finance and economics. She is a Chartered Financial Analyst
with ten years of investment experience.
YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Fund could be adversely affected if
the computer systems used by the Investment Manager, and other service
providers, in performing their management and administrative functions do not
properly process and calculate date-related information and data before, during
and after January 1, 2000. Some computer software and hardware systems currently
cannot distinguish between the year 2000 and the year 1900 or some other date
because of the way date fields were encoded. This is commonly known as the "Year
2000 Problem." If not addressed, the Year 2000 Problem could impact the
management services provided to the Fund by the Investment Manager, as well as
transfer agency, accounting, custody, distribution and other services provided
to the Fund and its shareholders.
The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Investment Manager considers a system "Year 2000
Compliant" when it is able to correctly process, provide and/or receive data
before, during and after the Year 2000. The Investment Manager's overall
approach to addressing the Year 2000 Problem is as follows: (1) to inventory its
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure of any such system would have on its business operations;
(2) to modify or replace its internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test its systems for
Year 2000 compliance. The Investment Manager has completed the inventory of its
internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems, as well as
towards obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing commenced in December 1998 and is scheduled to extend
into the first six months of 1999.
Although the Investment Manager has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Fund and the Investment
Manager.
The Year 2000 Problem is also expected to impact operating companies, which may
include issuers of portfolio securities held by the Fund, to varying degrees
based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. The Fund and the
Investment Manager are unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held by the Fund and,
indirectly, on the value of the Fund's shares.
BUYING SHARES
Shares of the Fund are available through broker/dealers, banks, and other
financial intermediaries that have an agreement with the Fund's Distributor,
Security Distributors, Inc.
There are three different ways to buy shares of the Fund--Class A shares, Class
B shares or Class C shares. The different classes of a Fund differ primarily
with respect to the sales charges and Rule 12b-1 distribution fees to which they
are subject. The minimum initial investment is $100. Subsequent investments must
be $100 (or $20 under an Accumulation Plan). The Fund reserves the right to
reject any order to purchase shares.
CLASS A SHARES -- Class A shares are subject to a sales charge at the time of
purchase. An order for Class A shares will be priced at the Fund's net asset
value per share (NAV), plus the sales charge, set forth below. The NAV, plus the
sales charge is the "offering price." The Fund's NAV is generally calculated as
of the close of trading on every day the New York Stock Exchange is open. An
order for Class A shares is priced at the NAV next calculated after the order is
accepted by the Fund, plus the sales charge.
- ---------------------------------------------------
SALES CHARGE
--------------------------
AS A AS A
PERCENTAGE PERCENTAGE
OF OF NET
AMOUNT OF ORDER OFFERING AMOUNT
PRICE INVESTED
- ---------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.75% 4.99%
$100,000 to $249,999 3.75% 3.90%
$250,000 to $499,999 2.75% 2.83%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 or more* None None
------------------------------------------------------------------------------
* Purchases of $1,000,000 or more are not subject to a sales charge at the
time of purchase, but are subject to a deferred sale charge of 1.00% if
redeemed within one year following purchase. The deferred sales charge is a
percentage of the lesser of the NAV of the shares redeemed orthe net cost of
such shares. Shares that are not subject to a deferred sales charge are
redeemed first.
------------------------------------------------------------------------------
Please see Appendix A for options that are available for reducing the sales
charge applicable to purchases of Class A shares.
CLASS B SHARES -- Class B shares are not subject to a sales charge at the time
of purchase. An order for Class B shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. The Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class B shares are subject to a deferred sales charge if redeemed within 5 years
from the date of purchase. The deferred sales charge is a percentage of the NAV
of the shares at the time they are redeemed or the original purchase price,
whichever is less. Shares that are not subject to the deferred sales charge are
redeemed first. Then, shares held the longest will be the first to be redeemed.
The amount of the deferred sales charge is based upon the number of years since
the shares were purchased, as follows:
- --------------------------------------------
NUMBER OF YEARS SINCE DEFERRED
PURCHASE SALES CHARGE
- --------------------------------------------
1 5%
2 4%
3 3%
4 3%
5 2%
6 and more 0%
- --------------------------------------------
The Distributor will waive the deferred sales charge under certain
circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS B DISTRIBUTION PLAN -- The Fund has adopted a Class B Distribution Plan
that allows the Fund to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class B
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class B shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
Class B shares automatically convert to Class A shares on the eighth anniversary
of purchase. This is advantageous to such shareholders because Class A shares
are subject to a lower distribution fee than Class B shares. A pro rata amount
of Class B shares purchased through the reinvestment of dividends or other
distributions is also converted to Class A shares each time that shares
purchased directly are converted.
CLASS C SHARES -- Class C shares are not subject to a sales charge at the time
of purchase. An order for Class C shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. The Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
Class C shares are subject to a deferred sales charge of 1.00% if redeemed
within one year from the date of purchase. The deferred sales charge is a
percentage of the NAV of the shares at the time they are redeemed or the
original purchase price, whichever is less. Shares that are not subject to the
deferred sales charge are redeemed first. Then, shares held the longest will be
the first to be redeemed. The Distributor will waive the deferred sales charge
under certain circumstances. See "Waiver of the Deferred Sales Charge" below.
CLASS C DISTRIBUTION PLAN -- The Fund has adopted a Class C Distribution Plan
that allows the Fund to pay distribution fees to the Distributor. The
Distributor uses the fees to finance activities related to the sale of Class C
shares and services to shareholders. The distribution fee is equal to 1.00% of
the average daily net assets of the Fund's Class C shares. Because the
distribution fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of a shareholder's investment and may
cost an investor more than paying other types of sales charges.
WAIVER OF DEFERRED SALES CHARGE -- The Distributor will waive the deferred sales
charge under the following circumstances:
* Upon the death of the shareholder if shares are redeemed within one year of
the shareholder's death
* Upon the disability of the shareholder prior to age 65 if shares are redeemed
within one year of the shareholder becoming disabled and the shareholder was
not disabled when the shares were purchased
* In connection with required minimum distributions from a retirement plan
qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal Revenue
Code
* In connection with distributions from retirement plans qualified under Section
401(a) or 401(k) of the Internal Revenue Code for:
- returns of excess contributions to the plan
- retirement of a participant in the plan
- a loan from the plan (loan repayments are treated as new sales for purposes
of the deferred sales charge)
* Upon the financial hardship (as defined in regulations under the Code) of a
participant in a plan
* Upon termination of employment of a participant in a plan
* Upon any other permissible withdrawal under the terms of the plan
CONFIRMATIONS AND STATEMENTS -- The Fund will send you a confirmation statement
after every transaction that affects your account balance or registration.
Certain automatic transactions may be confirmed on a quarterly basis including
systematic withdrawals, automatic purchases and reinvested dividends. Each
shareholder will receive a quarterly statement setting forth a summary of the
transactions that occurred during the preceding quarter.
SELLING SHARES
Selling your shares of a Fund is called a "redemption," because the Fund buys
back its shares. A shareholder may sell shares at any time. Shares will be
redeemed at the NAV next determined after the order is accepted by the Fund's
transfer agent, less any applicable deferred sales charge. A Fund's NAV is
generally calculated as of the close of trading on every day the New York Stock
Exchange is open. Any share certificates representing Fund shares being sold
must be returned with a request to sell the shares.
When redeeming recently purchased shares, if the Fund has not collected payment
for the shares, it may delay sending the proceeds until it has collected
payment, which may take up to 15 days.
BY MAIL -- To sell shares by mail, send a letter of instruction that includes:
* The name and signature of the account owner(s)
* The name of the Fund
* The dollar amount or number of shares to sell
* Where to send the proceeds
* A signature guarantee if
- The check will be mailed to a payee or address different than that of the
account owner, or
- The sale of shares is more than $10,000.
- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. Banks, brokers, credit
unions, national securities exchanges and savings associations provide signature
guarantees. A notary public is not an eligible signature guarantor. For joint
accounts, both signatures must be guaranteed.
- --------------------------------------------------------------------------------
Mail your request to:
Security Management Company, LLC
P.O. Box 750525
Topeka, KS 66675-9135
Signature requirements vary based on the type of account you have:
* INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an
individual shareholder, or in the case of joint accounts, all of the
shareholders, exactly as the name(s) appears on the account.
* UGMA OR UTMA: Written instructions must be signed by the custodian as it
appears on the account.
* SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by an
authorized individual as it appears on the account.
* CORPORATION OR ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified resolution dated
within six months of the date of receipt, authorizing the signer to act, must
accompany the request if not on file with the Fund.
* TRUST: Written instructions must be signed by the trustee(s). If the name of
the current trustee(s) does not appear on the account, a certified certificate
of incumbency dated within 60 days must also be submitted.
* RETIREMENT: Written instructions must be signed by the account owner.
BY TELEPHONE -- If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-888-2461, extension 3127, on
weekdays (except holidays) between 7:00 a.m. and 6:00 p.m. Central time. The
Fund requires that requests for redemptions over $10,000 be in writing with
signatures guaranteed. You may not close your account by telephone or redeem
shares for which a certificate has been issued. If you would like to establish
this option on an existing account, please call 1-800-888-2461, extension 3127.
Shareholders may not redeem shares held in an IRA or 403(b)(7) account by
telephone.
BY BROKER -- You may redeem your shares through your broker. Brokers may charge
a commission upon the redemption of shares.
PAYMENT OF REDEMPTION PROCEEDS -- Payments may be made by check, wire transfer
or electronic transfer.
The Fund 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.
BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record at
the address on our records generally within seven days after receipt of a valid
redemption request. For a charge of $15 deducted from redemption proceeds, the
Investment Manager will provide a certified or cashier's check, or send the
redemption proceeds by express mail, upon the shareholder's request.
DIVIDENDS AND TAXES
Each Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized, at least annually. Your
dividends and distributions will be reinvested in the Fund, unless you instruct
the Investment Manager otherwise. There are no fees or sales charges on
reinvestments.
TAX ON DISTRIBUTIONS -- Fund dividends and distributions are taxable to
shareholders (unless your investment is in an Individual Retirement Account
("IRA") or other tax-advantaged retirement account) whether you reinvest your
dividends or distributions or take them in cash.
In addition to federal tax, dividends and distributions may be subject to state
and local taxes. If the Fund declares a dividend or distribution in October,
November or December but pays it in January, you may be taxed on that dividend
or distribution as if you received it in the previous year. In general,
distributions from the Fund are taxable as follows:
- ---------------------------------------------------
TYPE OF TAX RATE FOR TAX RATE FOR 28%
DISTRIBUTION 15% BRACKET BRACKET OR ABOVE
- ---------------------------------------------------
Income Ordinary Ordinary
dividends Income rate Income rate
Short-term Ordinary Ordinary
capital gains Income rate Income rate
Long-term
capital gains 10% 20%
- ---------------------------------------------------
Tax-deferred retirement accounts generally do not generate a tax liability
unless you are taking a distribution or making a withdrawal.
The Fund has "short-term capital gains" when it sells shares within 12 months
after buying them. The Fund has "long-term capital gains" when it sells shares
that it has owned for more than 12 months. The Fund expects that its
distributions will consist primarily of net long-term capital gains.
The Fund will mail you information concerning the tax status of the
distributions for each calendar year on or before January 31 of the following
year.
TAXES ON SALES OR EXCHANGES -- You may be taxed on any sale or exchange of Fund
shares. The amount of gain or loss will depend primarily upon how much you pay
for the shares, how much you sell them for, and how long you hold them.
The table above can provide a guide for your potential tax liability when
selling or exchanging Fund shares. "Short-term capital gains" applies to Fund
shares sold or exchanged up to one year after buying them. "Long-term capital
gains" applies to shares held for more than one year.
BACKUP WITHHOLDING -- As with all mutual funds, a Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all taxable distributions
payable to you if you fail to provide the Fund with your correct taxpayer
identification number or to make required certifications, or if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the Internal Revenue Service ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.
You should consult your tax professional about federal, state and local tax
consequences to you of an investment in the Fund. Please see the Statement of
Additional Information for additional tax information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (NAV) of the Fund is computed as of the close of
regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on days when the Exchange is open. The Exchange is open Monday through
Friday, except on observation of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund's NAV is generally based upon the market value of securities held in
the Fund's portfolio. If market prices are not available, the fair value of
securities is determined using procedures approved by the Fund's Board of
Directors.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Fund does not price its
shares. Therefore, the NAV of a Fund holding foreign securities may change on
days when shareholders will not be able to buy or sell shares of the Fund.
SHAREHOLDER SERVICES
ACCUMULATION PLAN -- An investor may choose to invest in the Fund through a
voluntary Accumulation Plan. This allows for an initial investment of $100
minimum and subsequent investments of $20 minimum at any time. An Accumulation
Plan involves no obligation to make periodic investments, and is terminable at
will.
Payments are made by sending a check to the Distributor who (acting as an agent
for the dealer) will purchase whole and fractional shares of the Fund as of the
close of business on such day as the payment is received. The investor will
receive a confirmation and statement after each investment.
Investors may also choose to use "Secur-O-Matic" (automatic bank draft) to make
Fund purchases. There is no additional charge for choosing to use Secur-O-Matic.
Withdrawals from your bank account may occur up to 3 business days before the
date scheduled to purchase Fund shares. An application for Secur-O-Matic may be
obtained from the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM -- Shareholders who wish to receive regular
monthly, quarterly, semiannual, or annual payments of $25 or more may establish
a Systematic Withdrawal Program. A shareholder 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 aggregate net asset value of $5,000 or more are deposited with
the Investment Manager, which will act as agent for the shareholder 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 redeemed from the account.
A shareholder may establish a Systematic Withdrawal Program with respect to
Class B and Class C 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 or Class C 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 or Class C shares requested while Free
Systematic Withdrawals are being made will be calculated as described under
"Waiver of Deferred Sales Charge," page 9. A Systematic Withdrawal form may be
obtained from the Fund.
EXCHANGE PRIVILEGE -- Shareholders who own shares of the Fund may exchange those
shares for shares of the other mutual funds distributed by the Distributor or
for shares of Security Cash Fund at net asset value per share. The other mutual
funds currently distributed by the Distributor include Security Equity, Ultra,
Growth and Income, Asset Allocation, Global, Value, Small Company, Enhanced
Index, International, Select 25, Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield, Emerging Markets Total Return, Global Asset Allocation,
Global High Yield and Municipal Bond 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 or sales charge is presently imposed on such
an exchange. Shares of a particular class of the Fund may be exchanged only for
shares of the same class 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. At present, Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield, Global High Yield, Emerging Markets Total Return, Global Asset
Allocation, and Municipal Bond Funds do not offer Class C 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 shareholder exercising this
privilege.
To exchange shares by telephone, a shareholder 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 shareholder may exchange shares by telephone by
calling the Fund at (800) 888-2461, extension 3127, on weekdays (except
holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange
requests received by telephone after the close of the New York Stock Exchange
(normally 3 p.m. Central time) will be treated as if received on the next
business day. The exchange privilege, including telephone exchanges, may be
changed or discontinued at any time by either the Investment Manager or the Fund
upon 60 days' notice to shareholders.
RETIREMENT PLANS -- The Fund has available tax-qualified retirement plans for
individuals, prototype plans for the self-employed, pension and profit sharing
plans for corporations and custodial accounts for employees of public school
systems and organizations meeting the requirements of Section 501(c)(3) of the
Internal Revenue Code. Further information concerning these plans is contained
in the Fund's Statement of Additional Information.
GENERAL INFORMATION
SHAREHOLDER INQUIRIES -- Shareholders who have questions concerning their
account or wish to obtain additional information, may call the Fund (see back
cover for address and telephone numbers), or contact their securities dealer.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for its Class A shares and Class B shares during the past
five years or, the period since commencement of the Fund. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund assuming reinvestment of all dividends and distributions.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's financial statements, are included in the annual report, which is
available upon request.
- --------------------------------------------------------------------------------
SECURITY SOCIAL AWARENESS FUND (CLASS A)
- --------------------------------------------------------------------------------
FISCAL PERIOD ENDED
SEPTEMBER 30
--------------------------
1998(B)(C) 1997(B)(C)(D)
PER SHARE DATA
Net asset value beginning of period....... $17.99 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. --- 0.08
Net gain (loss) on securities
(realized & unrealized)................ 1.42 2.91
------ -----
Total from investment operations.......... 1.42 2.99
LESS DISTRIBUTIONS
Dividends (from net investment income).... (0.04) ---
Distributions (from capital gains)........ --- ---
--------- --------
Total distributions....................... (0.04) ---
------- --------
Net asset value end of period............. $19.37 $17.99
===== =====
Total return (a).......................... 7.89% 19.93%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...... $7,619 $6,209
Ratio of expenses to average net assets... 1.22% 0.67%
Ratio of net investment income
(loss) to average net assets........... ---% 0.57%
Portfolio turnover rate................... 41% 38%
- --------------------------------------------------------------------------------
SECURITY SOCIAL AWARENESS FUND (CLASS B)
- --------------------------------------------------------------------------------
FISCAL PERIOD ENDED
SEPTEMBER 30
--------------------------
1998(B)(C) 1997(B)(C)(D)
PER SHARE DATA
Net asset value beginning of period....... $17.81 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............. (0.19) (0.08)
Net gain (loss) on securities
(realized & unrealized)................ 1.39 2.89
------ ------
Total from investment operations.......... 1.20 2.81
LESS DISTRIBUTIONS
Dividends (from net investment income).... --- ---
Distributions (from capital gains)........ --- ---
-------- --------
Total distributions....................... --- ---
-------- --------
Net asset value end of period............. $19.01 $17.81
===== =====
Total return (a).......................... 6.74% 18.73%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...... $5,245 $3,641
Ratio of expenses to average net assets .. 2.20% 1.84%
Ratio of net investment income
(loss) to average net assets........... (0.98)% (0.60)%
Portfolio turnover rate................... 41% 38%
(a) Total return information does not reflect deduction of any sales charge
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.
(b) Fund expenses were reduced by the Investment Manager during the period, and
expense ratios absent such reimbursement would have been as follows:
- ------------ ---------- -------
1997 1998
- ------------ ---------- -------
Class A 1.70% 1.51%
Class B 2.80% 2.48%
- ------------ ---------- -------
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Social Awareness Fund was initially capitalized on November 4,1996, with a
net asset value of $15 per share. Percentage amounts for the period have
been annualized, except for total return.
<PAGE>
APPENDIX A
REDUCED SALES CHARGES
CLASS A SHARES -- Initial sales charges may be reduced or eliminated for persons
or organizations purchasing Class A shares of the Fund alone or in combination
with Class A shares of other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made pursuant
to Rights of Accumulation or a Statement of Intention, the term "Purchaser"
includes the following persons: an individual, his or her spouse and children
under the age of 21; a trustee or other fiduciary of a single trust estate or
single fiduciary account established for their benefit; an organization exempt
from federal income tax under Section 501(c)(3) or (13) of the Internal Revenue
Code; or a pension, profit-sharing or other employee benefit plan whether or not
qualified under Section 401 of the Internal Revenue Code.
RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Class A shares
of the Fund, a Purchaser may combine all previous purchases of the Fund with a
contemplated current purchase and receive the reduced applicable front-end sales
charge. The Distributor must be notified when a sale takes place which might
qualify for the reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination of the
Class A shares of the Fund, and other Security Funds, except Security Cash Fund,
in those states where shares of the fund being purchased are qualified for sale.
STATEMENT OF INTENTION -- A Purchaser may choose to sign a Statement of
Intention within 90 days after the first purchase to be included thereunder,
which will cover future purchases of Class A shares of the Fund, and other
Security Funds, except Security Cash Fund. The amount of these future purchases
shall be specified and must be made within a 13-month period (or 36-month period
for purchases of $1 million or more) to become eligible for the reduced
front-end sales charge applicable to the actual amount purchased under the
Statement. Shares equal to five percent (5%) of the amount specified in the
Statement of Intention will be held in escrow 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 Fund.
REINSTATEMENT PRIVILEGE -- Shareholders who redeem their Class A shares of the
Fund have a one-time privilege (1) to reinstate their accounts by purchasing
Class A shares without a sales charge up to the dollar amount of the redemption
proceeds; or (2) to the extent the redeemed shares would have been eligible for
the exchange privilege, to purchase Class A shares of another of the Security
Funds, without a sales charge up to the dollar amount of the redemption
proceeds. To exercise this privilege, a shareholder must provide written notice
and a check in the amount of the reinvestment within thirty days after the
redemption request; the reinstatement will be made at the net asset value per
share on the date received by the Fund or the Security Funds, as appropriate.
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
BY TELEPHONE -- Call 1-800-888-2461.
BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001
ON THE INTERNET -- Reports and other information about the Fund can be viewed
online or downloaded from:
SEC: HTTP://WWW.SEC.GOV
SMC, LLC: HTTP://WWW.SECURITYBENEFIT.COM
Additional information about the Fund (including the Statement of Additional
Information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
operation of the public reference room may be obtained by calling the
Commission at 1-800-SEC-0330. Copies may be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the Commission,
Washington, DC 20549-6009.
ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION -- The Fund's Statement of Additional
Information and the Fund's annual or semi-annual report are available, without
charge upon request by calling the Funds' toll-free telephone number
1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the
Fund's toll-free telephone number listed above. The Fund's Statement of
Additional Information is incorporated into this prospectus by reference.
The Fund's Investment Company Act file number is listed below:
Security Equity Fund.............. 811-1136
<PAGE>
- --------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND
SECURITY EQUITY FUND
*EQUITY SERIES
*GLOBAL SERIES
*ASSET ALLOCATION SERIES
*SOCIAL AWARENESS SERIES
*VALUE SERIES
*SMALL COMPANY SERIES
*ENHANCED INDEX SERIES
*INTERNATIONAL SERIES
*SELECT 25 SERIES
SECURITY ULTRA FUND
Members of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
(785) 431-3127
(800) 888-2461
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus dated January 31, 1999 as it may be
supplemented from time to time. A Prospectus may be obtained by writing Security
Distributors, Inc., 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by
calling (785) 431-3127 or (800) 888-2461, ext. 3127. The Funds' September 30,
1998 Annual Report is incorporated herein by reference.
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 31, 1999
RELATING TO THE PROSPECTUS DATED JANUARY 31, 1999,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
- --------------------------------------------------------------------------------
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
CUSTODIANS
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>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION..................................... 3
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS.......... 4
Security Growth and Income Fund...................... 4
Security Equity Fund................................. 6
Security Ultra Fund.................................. 17
INVESTMENT METHODS AND RISK FACTORS..................... 18
Shares of Other Investment Companies................. 18
Repurchase Agreements................................ 18
When Issued and Forward Commitment Securities........ 19
American Depositary Receipts......................... 19
Restricted Securities................................ 19
Real Estate Securities............................... 20
Zero Coupon Securities............................... 20
Foreign Investment Risks............................. 20
Risks of Conversion to Euro.......................... 21
Brady Bonds.......................................... 21
Emerging Countries................................... 22
Political and Economic Risks......................... 22
Religious and Ethnic Instability..................... 22
Foreign Investment Restrictions...................... 22
Non-Uniform Corporate Disclosure Standards
and Governmental Regulation........................ 22
Adverse Market Characteristics....................... 23
Non-U.S. Withholding Taxes........................... 23
Currency Risk........................................ 23
Put and Call Options................................. 23
INVESTMENT POLICY LIMITATIONS........................... 35
Security Growth and Income Fund's
Fundamental Policies............................... 35
Security Equity Fund's Fundamental Policies.......... 36
Security Ultra Fund's Fundamental Policies........... 39
OFFICERS AND DIRECTORS.................................. 39
REMUNERATION OF DIRECTORS AND OTHERS.................... 41
HOW TO PURCHASE SHARES.................................. 42
Alternative Purchase Options......................... 42
Class A Shares....................................... 43
Security Equity Fund's Class A Distribution Plan..... 43
Class B Shares....................................... 44
Class B Distribution Plan............................ 44
Class C Shares....................................... 45
Class C Distribution Plan............................ 45
Calculation and Waiver of
Contingent Deferred Sales Charges.................. 45
Arrangements With Broker-Dealers and Others.......... 46
Purchases at Net Asset Value......................... 46
ACCUMULATION PLAN....................................... 47
SYSTEMATIC WITHDRAWAL PROGRAM........................... 47
INVESTMENT MANAGEMENT................................... 47
Portfolio Management................................. 52
Code of Ethics....................................... 53
DISTRIBUTOR............................................. 53
ALLOCATION OF PORTFOLIO BROKERAGE....................... 54
HOW NET ASSET VALUE IS DETERMINED....................... 56
HOW TO REDEEM SHARES.................................... 57
Telephone Redemptions................................ 58
HOW TO EXCHANGE SHARES.................................. 58
Exchange by Telephone................................ 59
DIVIDENDS AND TAXES..................................... 59
Passive Foreign Investment Companies................. 61
Options, Futures and Forward Contracts
and Swap Agreements................................ 62
Market Discount...................................... 62
Original Issue Discount.............................. 62
Constructive Sales................................... 63
Foreign Taxation..................................... 63
Foreign Currency Transactions........................ 63
Other Taxes.......................................... 63
ORGANIZATION............................................ 63
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT..... 64
INDEPENDENT AUDITORS.................................... 64
PERFORMANCE INFORMATION................................. 64
RETIREMENT PLANS........................................ 65
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) .................. 66
ROTH IRAS............................................... 66
EDUCATION IRAS.......................................... 67
SIMPLE IRAS............................................. 67
PENSION AND PROFIT-SHARING PLANS........................ 67
403(B) RETIREMENT PLANS................................. 67
SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPS) .............. 67
FINANCIAL STATEMENTS.................................... 67
APPENDIX A.............................................. 68
APPENDIX B.............................................. 69
<PAGE>
GENERAL INFORMATION
Security Growth and Income 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 57.)
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"), Small Company Series ("Small Company Fund"),
Enhanced Index Series ("Enhanced Index Fund"), International Series
("International Fund") and Select 25 Series ("Select 25 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," beginning on page 35. 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 59.)
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 and Class C Shares"). (See "How to
Purchase Shares," page 42.)
Professional investment advice is provided to each Fund by Security Management
Company, LLC (the "Investment Manager"). The Investment Manager has engaged
OppenheimerFunds, Inc. ("Oppenheimer") to provide 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, Strong Capital Management, Inc. ("Strong) to provide
investment advisory services to Small Company Fund and Bankers Trust Company
("Bankers Trust") to provide investment advisory services to Enhanced Index Fund
and International 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, Small
Company, Enhanced Index, International and Select 25 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 investment
advisory fee for Enhanced Index and Select 25 Funds is equal to .75% of the
average daily net assets of each Fund, calculated daily and payable monthly. The
investment advisory fee for International Fund is equal to 1.10% of the average
daily net assets of the Fund, calculated daily and payable monthly. The
administrative fee for Asset Allocation Fund on an annual basis is equal to
.045% of the average daily net assets of the Fund plus the greater of .10% of
its average net assets or $60,000. The administrative fee for the Social
Awareness, Value, Small Company, Enhanced Index and Select 25 Funds on an annual
basis is equal to .09% of the average daily net assets of each respective Fund.
The administrative fee for International Fund on an annual basis is equal to
.045% of the average daily net assets of the Fund plus the greater of .10% of
its average net assets or (i) $30,000 in the year ending January 31, 2000; (ii)
$45,000 in the year ending January 31, 2001; or (iii) $60,000 in the year ending
January 31, 2002 and thereafter. The transfer agency fee for the Asset
Allocation, Social Awareness, Value, Small Company, Enhanced Index,
International and Select 25 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, Small Company, Enhanced Index, International and Select
25 Funds) except for its fees and the expenses of brokerage commissions,
interest, taxes, Class B and Class C distribution fees, and extraordinary
expenses approved by the Board of Directors of the Funds. The Asset Allocation,
Social Awareness, Value, Small Company, Enhanced Index, International and Select
25 Funds pay all of their expenses not assumed by the Investment Manager or
Security Distributors, Inc. (the "Distributor") as described under "Investment
Management," page 47.
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 and
Class C distribution fees) will not exceed any expense limitation imposed by any
state. See "Investment Management," page 47 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, Enhanced Index, International and Select 25 Funds, pursuant to Rule
12b-1 under the Investment Company Act of 1940, each such Fund is authorized to
pay the Distributor an annual fee of .25% of the average daily net assets of the
Class A shares of the respective Funds to finance various distribution-related
activities. Under Distribution Plans adopted with respect to the Class B shares
and Class C 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 and Class C shares, respectively, of the Funds to finance
various distribution-related activities. (See "Class A Distribution Plan," page
43, "Class B Distribution Plan," page 44 and "Class C Distribution Plan," page
45.)
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 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 enter into futures contracts (a type of derivative) 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.
The Fund 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 also 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 for Class A and Class B shares of the
Fund for the fiscal years ended September 30, 1998, 1997 and 1996 was as
follows: 1998 - 144%, 1997 - 124% and 1996 - 69%. 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 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 nine
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"), Small Company Series ("Small
Company Fund"), Enhanced Index Series ("Enhanced Index Fund"), International
Series ("International Fund") and Select 25 Series ("Select 25 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 for Class A and Class B shares of Equity Fund for
the fiscal years ended September 30, 1998, 1997 and 1996 was as follows: 1998 -
47%, 1997 - 66% and 1996 - 64%. 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 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,
OppenheimerFunds, Inc. ("OppenheimerFunds"), 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 OppenheimerFunds 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 OppenheimerFunds. 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
OppenheimerFunds 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
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 which are not eligible for resale pursuant to
Rule 144A. 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 Class A and Class B shares of Global Fund for the
fiscal years ended September 30, 1998, 1997 and 1996 were 122%, 132% and 142%,
respectively. 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.
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 Class
A and Class B shares of Asset Allocation Fund, for the fiscal years ended
September 30, 1998, 1997 and 1996 was 45%, 79% and 75%, respectively. 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.
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 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 portfolio turnover rate for Class A
and Class B shares of Social Awareness Fund for the fiscal year ended September
30, 1998, was 41%. The annualized portfolio turnover rate for Class A and Class
B shares for the period November 4, 1996 (date of inception) to September 30,
1997, was 38% 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 portfolio turnover rate for Class A and Class B shares of Value Fund for the
fiscal year ended September 30, 1998, was 98%. The annualized portfolio turnover
rate for Class A and Class B shares for the period May 1, 1997 (date of
inception) to September 30, 1997, was 35% 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 $1.2 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
$1.2 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 $1.2 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 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 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 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 than 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 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.
The annualized portfolio turnover rate for Class A and Class B shares for the
period October 15, 1997 (date of inception) to September 30, 1998 was 366% for
Small Company Fund. Portfolio turnover is the percentage of the lower of
securities 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.
SECURITY ENHANCED INDEX FUND. The investment objective of the Security Enhanced
Index Fund (the "Fund") is to outperform the Standard & Poor's 500 Composite
Stock Price index (the "S&P 500(R) Index") through stock selection resulting in
different weightings of common stocks relative to the index.
The Fund will include the common stock of companies included in the S&P 500. The
S&P 500 is an index of 500 common stocks, most of which trade on the New York
Stock Exchange Inc. (the "NYSE"). The Sub-Adviser, Bankers Trust Company,
believes that the S&P 500 is representative of the performance of publicly
traded common stocks in the U.S. in general.
In seeking to outperform the S&P 500, the Sub-Adviser starts with a portfolio of
stocks representative of the holdings of the index. It then uses a set of
quantitative criteria that are designed to indicate whether a particular stock
will predictably generate returns that will exceed or be less than the
performance of the S&P 500. Based on these criteria, the Sub-Adviser determines
whether the Fund should overweight, underweight or hold a neutral position in
the stock relative to the proportion of the S&P 500 that the stock represents.
While the majority of the issues held by the Fund will have neutral weightings
to the S&P 500, approximately 100 will be over or underweighted relative to the
index. In addition, the Sub-Adviser may determine based on the quantitative
criteria that certain S&P 500 stocks should not be held by the Fund in any
amount. The Sub-Adviser believes that the various quantitative criteria used to
determine which issues to over or underweight will balance each other so that
the overall risk of the Fund will not be materially different than risk of the
S&P 500 itself.
The Sub-Adviser will not purchase the stock of its parent company, Bankers Trust
New York Corporation, which is included in the S&P 500.
ABOUT THE S&P 500. The S&P 500 is well-known stock market index that includes
common stocks of 500 companies from several industrial sectors representing a
significant portion of the market value of all common stocks publicly traded in
the United States, most of which are listed on the NYSE. Stocks in the S&P 500
are weighted according to their market capitalization (i.e., the number of
shares outstanding multiplied by the stock's current price). The composition of
the S&P 500 is determined by S&P and is based on such factors as the market
capitalization and trading activity of each stock and its adequacy as a
representation of stocks in a particular industry group, and may be changed from
time to time. "Standard & Poor's(R)", "S&P 500(R)", "Standard & Poor's 500", and
"500" are trademarks of the McGraw-Hill Companies, Inc.
The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation
or warranty, express or implied, to the shareholders of the Fund or any member
of the public regarding the advisability of investing in securities generally or
in the Fund particularly or the ability of the S&P 500 to track general stock
market performance. S&P has no obligation to take the needs of the Investment
Manger, Bankers Trust or the shareholders of the Fund into consideration in
determining, composing or calculating the S&P 500. S&P is not responsible for
and has not participated in the determination of the prices and amount of the
Fund or the timing of the issuance or sale of the Fund, or in the determination
or calculation of the Fund's net asset value. S&P has no obligation or liability
in connection with the administration, marketing or trading of the Fund.
INVESTMENT CONSIDERATIONS. The Fund may be appropriate for investors who are
willing to endure stock market fluctuations in pursuit of potentially higher
long-term returns. The Fund invests primarily for growth. The Fund is intended
to be a long-term investment vehicle and is not designed to provide investors
with a means of speculating on short-term market movements.
As a mutual fund investing primarily in common stocks, the Fund is subject to
market risk--i.e., the possibility that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods when stock prices generally rise and periods when prices generally
decline.
As a diversified mutual fund, no more than 5% of the assets of the Fund may be
invested in the securities of one issuer (other than U.S. Government
Securities), except that up to 25% of the Fund's assets may be invested without
regard to this limitation. The Fund will not invest more than 25% of its assets
in the securities of issuers in any one industry. In the unlikely event that the
S&P 500 should concentrate to an extent greater than that amount, the Fund's
ability to achieve its objective may be impaired. No more than 15% of the
Portfolio's net assets may be invested in illiquid or not readily marketable
securities (including repurchase agreements and time deposits with maturities of
more than seven days).
The Fund may maintain up to 25% of its assets in short-term debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the S&P 500. Securities index futures contracts and related
options, warrants and convertible securities may be used for several reasons: to
simulate full investment in the S&P 500 while retaining a cash fund for
management purposes, to facilitate trading, to reduce transaction costs or to
seek higher investment returns when a futures contract, option, warrant or
convertible security is priced more attractively than the underlying equity
security or S&P 500. These instruments may be considered derivatives. See
"Investment Methods and Risk Factors" for more information about futures,
options and warrants.
The following discussion contains more detailed information about types of
instruments in which the Fund may invest and strategies the Sub-Adviser may
employ in pursuit of the Fund's investment objective.
OTHER EQUITY SECURITIES. As part of one of the strategies used to outperform the
S&P 500, the Fund may invest in the equity securities of companies that are not
included in the S&P 500. These equity securities may include securities of
companies that are the subject of publicly announced acquisitions or other major
corporate transactions. Securities of some of these companies may perform much
like a fixed income investment because the market anticipates that the
transaction will likely be consummated, resulting in a cash payment for the
securities. In such cases, the Fund may enter into securities index futures
contracts and/or related options as described in this statement of additional
information in order to maintain its exposure to the equity markets when
investing in these companies. While this strategy is intended to generate
additional gains for the Fund without materially increasing the risk to which
the Fund is subject, there can be no assurance that the strategy will achieve
its intended results. The Fund will not invest more than 25% of its total assets
in equity securities of companies not included in the S&P 500.
SHORT-TERM INSTRUMENTS. When the Fund experiences large cash inflows through the
sale of securities and desirable equity securities that are consistent with the
Fund's investment objective are unavailable in sufficient quantities or at
attractive prices, the Fund may hold short-term investments for a limited time
pending availability of such equity securities. Short-term instruments consist
of: (i) short-term obligations issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities or by any of the states; (ii) other
short-term debt securities rated AA or higher by S&P or Aa or higher by Moody's
or, if unrated, of comparable quality in the opinion of the Sub-Adviser; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and bankers' acceptances; and (v) repurchase agreements.
At the time the Fund invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the instrument must be of comparable quality in the
opinion of the Sub-Adviser.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations issued or
guaranteed by U.S. Government, its agencies or instrumentalities. These
obligations may or may not be backed by the "full faith and credit" of the
United States. In the case of securities not backed by the full faith and credit
of the United States, the Fund must look principally to the federal agency
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitments. Securities in which the Fund
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley Authority,
the Federal Home Loan Mortgage Corporation and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations,
and obligations of the Federal Farm Credit System and the Federal Home Loan
Banks, both of whose obligations may be satisfied only by the individual credits
of each issuing agency. Securities which are backed by the full faith and credit
of the United States include obligations of the Government National Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Funds may purchase securities
on a when-issued or delayed delivery basis. For example, delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to the Portfolio until settlement takes
place. See "Investment Methods and Risk Factors" - "When Issued Securities" for
more information.
EQUITY INVESTMENTS. The Fund may invest in equity securities listed on any
domestic securities exchange or traded in the over-the-counter market as well as
certain restricted or unlisted securities. They may or may not pay dividends or
carry voting rights. Common stock occupies the most junior position in a
company's capital structure.
REVERSE REPURCHASE AGREEMENTS. The Fund may borrow funds for temporary or
emergency purposes, such as meeting larger than anticipated redemption requests,
and not for leverage, by among other things, agreeing to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Fund enters into a reverse repurchase agreement it
will place in a segregated custodial account cash or other liquid assets having
a value equal to the repurchase price, including accrued interest. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by the Fund.
CONVERTIBLE SECURITIES. Convertible securities may be debt securities or
preferred stocks that may be converted into common stock or that carry the right
to purchase common stock. Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of preferred stock, the holders' claims on assets and earnings are
subordinated to the claims of all creditors and are senior to the claims of
common shareholders.
DERIVATIVES. The Fund may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency exchange
rates and as a low cost method of gaining exposure to a particular securities
market without investing directly in those securities.
The Fund will only use derivatives for hedging purposes. While derivatives can
be used as leveraged investments, the Fund may not use them to leverage its net
assets. Derivatives will not be used to increase portfolio risk above the level
that would be achieved using only traditional investment securities or to
acquire exposure to changes in the value of assets or indices that by themselves
would not be purchased for the Fund. The Fund will not invest in such
instruments as part of a temporary defensive strategy (in anticipation of
declining stock prices) to protect against potential market declines. See
"Investment Methods and Risk Factors" for more information about options and
futures.
The portfolio turnover rate is not yet available for Enhanced Index Fund as it
did not begin operations until January 1999.
SECURITY INTERNATIONAL FUND. The investment objective of the Fund is long-term
capital appreciation from investment in foreign equity securities (or other
securities with equity characteristics); the production of any current income is
incidental to this objective. The Fund invests primarily in established
companies based in developed countries outside the United States, but may also
invest in emerging market securities. There can be no assurance that the
investment objective of the Fund will be achieved.
The Fund is designed for investors who are willing to accept short-term domestic
and/or foreign stock market fluctuations in pursuit of potentially higher
long-term returns.
The Fund is not itself a balanced investment plan. Investors should consider
their investment objective and tolerance for risk when making an investment
decision.
The value of the Fund's investments varies based upon many factors. Stock values
fluctuate, sometimes dramatically, in response to the activities of individual
companies and general market and economic conditions. Over time, however, stocks
have shown greater long-term growth potential than other types of securities.
Lower quality securities offer higher yields, but also carry more risk. Because
many foreign investments are denominated in foreign currencies, changes in the
value of these currencies can significantly affect the Fund's share price.
General economic factors in the various world markets can also impact the value
of an investor's investment. When an investor sells his or her shares, they may
be worth more or less than what the investor paid for them.
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in "Investment Methods and Risk Factors" herein.
Under normal circumstances, the Fund will invest at least 65% of the value of
its total assets in the equity securities of foreign issuers, consisting of
common stock and other securities with equity characteristics. These issuers are
primarily established companies based in developed countries outside the United
States. However the Fund may also invest in securities of issuers in
underdeveloped countries. Investments in these countries will be based upon what
the Sub-Adviser, Bankers Trust Company ("Bankers Trust"), believes to be an
acceptable degree of risk in anticipation of superior returns. The Fund will at
all times be invested in the securities of issuers based in a least three
countries other than the United States. For further discussion of the unique
risks associated with investing in foreign securities in both developed and
underdeveloped countries, see "Investment Objectives and Risk Factors" -
"Certain Risks of Foreign Investing".
The Fund's investment will generally be diversified among several geographic
regions and countries. Criteria for determining the appropriate distribution of
investments among various countries and regions include the prospects for
relative growth among foreign countries, expected levels of inflation,
government policies influencing business conditions, the outlook for currency
relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Fund. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, management
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Fund may invest in securities of companies having
various levels of net worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies with higher levels of
net worth.
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Fund may choose to
invest only at the market level. Here the Fund may seek to achieve country
exposure through use of options or futures based upon an established index of
securities issued by local issuers. Similarly, country exposure may also be
achieved through investments in other registered investment companies.
Restrictions on both these types of investment are more fully described below.
The remainder of the Fund's assets will be invested in dollar and non-dollar
denominated short-term instruments. These investments are subject to the
conditions discussed in more detail below.
The Fund invests primarily in common stocks and other securities with equity
characteristics. For purposes of the Fund's policy of investing at least 65% of
the value of its total assets in the equity securities of foreign issuers,
"equity securities" are defined as common stock, preferred stock, trust or
limited partnership interests, rights and warrants, and convertible securities
(consisting of debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock). The Fund invests
in securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets and may invest in
restricted or unlisted securities.
The Fund may also utilize the following investments and investment techniques
and practices: American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRS"), European Depositary Receipts ("EDRs"), Rule 144A securities,
when-issued and delayed delivery securities, securities lending, repurchase
agreements, foreign currency exchange transactions, options on stocks, options
on foreign stock indices, futures contracts on foreign stock indices, and
options on futures contracts. See "Investment Methods and Risk Factors" for
further information.
The Fund intends to stay invested in the securities described above to the
extent practical in light of its objective and long-term investment perspective.
However the Fund assets may be invested in short-term instruments with remaining
maturities of 397 days or less (or in money market mutual funds) to meet
anticipated redemptions and expenses or for day-to-day operating purposes and
when, in the Sub-Adviser's opinion, it is advisable to adopt a temporary
defensive position because of unusual or adverse conditions affecting the equity
markets. In addition, when the Fund experiences large cash inflows through the
sale of securities, and desirable equity securities that are consistent with the
Fund's investment objective are unavailable in sufficient quantities or at
attractive prices, the Fund may hold short-term investments for a limited time
pending availability of such equity securities. Short-term instruments consist
of foreign and domestic: (i) short-term obligations of sovereign governments,
their agencies, instrumentalities, authorities or political subdivisions; (ii)
other short-term debt securities rated Aa or higher by Moody's Investors
Service, Inc. ("Moody's") or AA or higher by Standard & Poor's Ratings Services
("S&P") or, if unrated, of comparable quality in the opinion of the Sub-Adviser;
(iii) commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. At the time the Fund invests in commercial paper, bank obligations
or repurchase agreements, the issuer or the issuer's parent must have
outstanding commercial paper or bank obligations rated Prime-1 by Moody's or A-1
by S&P; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of the Sub-Adviser. These instruments may be
denominated in U.S. dollars or in foreign currencies that have been determined
to be of high quality by a nationally recognized statistical rating
organization, or if unrated, by the Sub-Adviser. For more information on these
rating categories see "Appendix A".
As a diversified mutual fund, no more than 5% of the assets of the Fund may be
invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Fund's assets may be invested without
regard to this limitation. The Fund will not invest more than 25% of its assets
in the securities of issuers in any one industry. No more than 15% of the Fund's
net assets may be invested in illiquid or not readily marketable securities
(including repurchase agreements and time deposits maturing in more than seven
calendar days).
The portfolio turnover rate is not yet available for International Fund as it
did not begin operations until January 1999.
SECURITY SELECT 25 FUND. The investment objective of the Select 25 Fund is to
seek long-term growth of capital. It is a diversified fund that pursues its
objective by normally concentrating its investments in a core position of 20-30
common stocks of growth companies which have exhibited consistent above average
earnings growth. The Investment Manager selects as the core position for the
Fund, what it believes to be the premier growth companies. The Investment
Manager uses a "bottom-up" approach in selecting growth stocks. Portfolio
holdings will be replaced when one or more of the companies' fundamentals have
changed and, in the opinion of the Investment Manager, it is no longer a premier
growth company. There can be no assurance that the Fund's objective will be
achieved.
The Select 25 Fund may invest in (i) common stocks; (ii) preferred stocks; (iii)
foreign securities (including ADRs); and (iv) investment grade debt securities
(or unrated securities of comparable quality). The 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,
including securities that 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 Select 25 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 foreign
securities, when issued securities, restricted securities and repurchase
agreements under "Investment Methods and Risk Factors."
The portfolio turnover rate is not yet available for the Select 25 Fund as it
did not begin operations until January of 1999.
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 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 for Class A
and Class B shares of Ultra Fund for the fiscal years ended September 30, 1998,
1997 and 1996 was as follows: 1998 - 116%, 1997 - 68% and 1996 - 161%.
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% of the Fund's
total assets and no more than 5% 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, Small Company, Enhanced Index and International 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. Although each of the Funds 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 intention of each Fund, except
Small Company, Enhanced Index and International Funds 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,
except the Enhanced Index and International 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. The Enhanced Index and International Funds may enter
into repurchase agreements only with issuers who, individually or with the
issuer's parent, have outstanding debt rated AA or higher by S&P or Aa or higher
by Moody's or outstanding commercial paper or bank obligations rated A-1 by S&P
or Prime-1 by Moody's; or if no such ratings are available, the instrument must
be of comparable quality in the opinion of Bankers Trust. 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, 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, European Depositary Receipts ("EDRs") and Global Depository
Receipts (GDRs) 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. In 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. GDRs
are global receipts evidencing a similar arrangement. For purposes of the Fund's
investment policies, ADRs, EDRs and GDRs are deemed to have the same
classification as the underlying securities they represent. Thus, an ADR, EDR or
GDR 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.
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 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.
RISKS OF CONVERSION TO EURO -- On January 1, 1999, eleven countries in the
European Monetary Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lire) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
provide some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Funds operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
o issuers in which the Funds invest, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress stock values.
o vendors the Funds depend on to carry out their business, such as the
custodian bank (which holds the foreign securities the Funds buy), the
Investment Manager (which prices the Funds' investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If vendors are not prepared, there could be delays in
settlements and additional costs to the Funds.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between the
affected currencies and the need to update the Funds' contracts could pose
extra costs to the Funds.
The Investment Manager is upgrading its computer and bookkeeping systems to deal
with the conversion. The Funds' custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Funds' investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Funds' holdings and increase its operational costs.
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.
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 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 will not be registered with the SEC or in
some cases 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 Funds that
invest in foreign securities 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 or the
applicable Sub-Adviser 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 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.
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 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.
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, 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 Fund 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.
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 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 Fund 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 Fund 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 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 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 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 Fund 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 Fund of options), in which event the
secondary market on that exchange (or in the class or Fund 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 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, 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 Fund' 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 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.
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.
(This policy shall not prevent the Fund 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 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,
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.
5. With respect to Equity 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, there is no present intention to invest any of the Fund's assets
in puts, calls, straddles, spreads, or any combination thereof.)
18. Not to invest in limited partnerships or similar interests in oil, gas,
mineral leases or other mineral exploration development programs; provided,
however, that the Funds may invest in the securities of other corporations whose
activities include such exploration and development 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 Equity Fund's fundamental policy limitations, which are applicable to
Global Fund, Enhanced Index Fund, International Fund and Select 25 Fund, are:
1. Not to invest more than 5% of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities); provided that this limitation applies only with
respect to 75% of the Fund's 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 act as underwriter of securities issued by others, except to the
extent that the Fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities.
5. Not to borrow in excess of 33 1/3% of its total assets.
6. Not to lend any security or make any other loan if, as a result, more than
33 1/3% of the Fund's total assets would be lent to other parties, except (i)
through the purchase of a portion of an issue of debt securities in accordance
with its investment objective and policies, or (ii) by engaging in repurchase
agreements with respect to portfolio securities.
7. Not to issue senior securities, except as permitted under the Investment
Company Act of 1940.
8. Not to purchase or sell physical commodities, except that the Fund may
enter into futures contracts and options thereon.
9. Not to allow officers or directors of the Fund, the Underwriter or the
Investment Manager to purchase shares of the Fund except for investment at
current net asset value.
10. Not to invest 25% or more of the Fund's total assets in a particular
industry.
11. Not to purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
The following operating policies of Global Fund are not fundamental policies and
may be changed by a vote of a majority of the Fund's Board of Directors without
shareholder approval.
1. The Fund may not borrow money or securities for any purposes except that
borrowing up to 10% of the Fund's total assets from commercial banks is
permitted for emergency or temporary purposes.
2. The Fund does not currently intend to lend assets other than securities to
other parties. (This limitation does not apply to purchases of debt securities
or to repurchase agreements).
3. The Fund does not currently intend to sell securities short, unless it owns
or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short. In addition, the
Fund does not currently intend to purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
4. The Fund may not, except in connection with a merger, consolidation,
acquisition, or reorganization, invest in the securities of other investment
companies, including investment companies advised by the Investment Manager, if,
immediately after such purchase or acquisition, more than 10% of the value of
the Fund's total assets would be invested in such securities, more than 5% of
the value of the Fund's total assets would be invested in the securities of any
one investment company, or the Fund would own more than 3% of the total
outstanding stock of another investment company.
5. The Fund may not invest in securities of an issuer, that together with any
predecessor, has been in operation for less than three years, if, as a result,
more than 5% of the total assets of the Fund would then be invested in such
securities.
6. The Fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 10% of the Fund's net assets. Included in
that amount but not to exceed 2% of net assets, are warrants of which the
underlying securities are not traded on principal domestic or foreign exchanges.
Warrants acquired by the Fund in units or attached to securities are not subject
to these restrictions.
7. The Fund may not invest more than 10% of its total assets in securities
which are restricted as to disposition under the federal securities laws, except
that the Fund may purchase without regard to this limitation restricted
securities which are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act").
8. The Fund may buy and sell exchange-traded and over-the-counter put and call
options, including index options, securities options, currency options and
options on futures, provided that a call or put may be purchased only if after
such purchase, the value of all call and put options held by the Fund will not
exceed 5% of the Fund's total assets. The Fund may write only covered put and
call options. The Fund does not currently intend to engage in spread or straddle
transactions.
9. The Fund does not currently intend to invest in oil, gas, mineral leases or
other mineral exploration or development programs.
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.
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.
NAME, ADDRESS, POSITIONS HELD WITH THE FUNDS AND PRINCIPAL OCCUPATIONS DURING
THE PAST FIVE YEARS
JOHN D. CLELAND*
- ----------------
POSITION HELD WITH THE FUND--President and Director
PRINCIPAL OCCUPATIONS--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.**
- ----------------------
2222 SW 29th Street, Topeka, Kansas 66611
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Business broker, Griffith & Blair Realtors. Prior to
1997, President, Neon Tube Light Company, Inc.
PENNY A. LUMPKIN**
- ------------------
3616 Canterbury Town Road, Topeka, Kansas 66610
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Vice President, Palmer Companies (Wholesalers, Retailers
and Developers) and Bellairre Shopping Center (Leasing and Shopping Center
Management); President, Vivian's (Corporate Sales).
MARK L. MORRIS, JR.**
- ---------------------
5500 SW 7th Street, Topeka, Kansas 66606
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Retired. Former General Partner, Mark Morris Associates
(Veterinary Research and Education).
MAYNARD F. OLIVERIUS
- --------------------
1500 SW 10th Avenue, Topeka, Kansas 66604 POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--President and Chief Executive Officer, Stormont-Vail
Health Care.
JAMES R. SCHMANK*
- -----------------
POSITION HELD WITH THE FUND--Vice President and Director
PRINCIPAL OCCUPATIONS--President and Managing Member Representative, Security
Management Company, LLC; Senior Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.
MARK E. YOUNG
- -------------
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL OCCUPATIONS--Vice President, Security Management Company, LLC;
Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
JANE A. TEDDER
- --------------
POSITION HELD WITH THE FUND--Vice President (Equity Fund only)
PRINCIPAL OCCUPATIONS--Vice President and Senior Economist, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc. and Security Benefit
Life Insurance Company.
TERRY A. MILBERGER
- ------------------
POSITION HELD WITH THE FUND--Vice President (Equity Fund only)
PRINCIPAL OCCUPATIONS--Senior Vice President and Senior Portfolio Manager,
Security Management Company, LLC; Senior Vice President, Security Benefit Group,
Inc. and Security Benefit Life Insurance Company.
MICHAEL A. PETERSEN
- -------------------
POSITION HELD WITH THE FUND--Vice President (Growth and Income Fund only)
PRINCIPAL OCCUPATIONS--Vice President and Senior Portfolio Manager, Security
Management Company, LLC; Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company. Prior to November 1997, Director of
Equity Research and Fund Management, Old Kent Bank and Trust Corporation.
AMY J. LEE
- ----------
POSITION HELD WITH THE FUND--Secretary
PRINCIPAL OCCUPATIONS--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
- -----------------
POSITION HELD WITH THE FUND--Treasurer
PRINCIPAL OCCUPATIONS--Assistant Vice President and Treasurer, Security
Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
CINDY L. SHIELDS
- ----------------
POSITION HELD WITH THE FUND--Vice President (Equity Fund only)
PRINCIPAL OCCUPATIONS--Assistant Vice President and Portfolio Manager, Security
Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
JAMES P. SCHIER
- ---------------
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL OCCUPATIONS--Assistant Vice President and Portfolio Manager, Security
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.
DAVID ESHNAUR
- -------------
POSITION HELD WITH THE FUND--Vice President (Equity Fund only)
PRINCIPAL OCCUPATIONS--Assistant Vice President and Portfolio Manager, Security
Management Company, LLC. Prior to July 1997, Assistant Vice President and
Assistant Portfolio Manager, Waddell & Reed.
STEVEN M. BOWSER
- ----------------
POSITION HELD WITH THE FUND--Vice President (Equity Fund only)
PRINCIPAL OCCUPATIONS--Second Vice President and Portfolio Manager, Security
Management Company, LLC; Second Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.
CHRISTOPHER D. SWICKARD
- -----------------------
POSITION HELD WITH THE FUND--Assistant Secretary
PRINCIPAL OCCUPATIONS--Assistant Secretary, Security Management Company, LLC;
Assistant Vice President and Assistant Counsel, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.
*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, Messrs. Milberger and Petersen
who are also Vice Presidents of SBL Fund, Ms. Shields who is also Assistant Vice
President of SBL Fund and Messrs. Swank and Schier who are Assistant Vice
Presidents of SBL Fund. (See the table under "Investment Management," page 47,
for positions held by such persons with the Investment Manager.) Ms. Lee holds
identical offices for the Funds' distributor, Security Distributors, Inc., and
Messrs. Cleland, Schmank and Young serve as Vice President and Director, while
Ms. Harwood serves as Director and 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 $1,667 and a fee of $1,000
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 $1,000 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, Social
Awareness, Value, Small Company, Enhanced Index, International and Select 25
Funds, 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 and Class
C distribution fees. Asset Allocation, Social Awareness, Value, Small Company,
Enhanced Index, International and Select 25 Funds pay their respective share of
directors' fees, audit committee fees and travel costs based on relative net
assets. (See page 47, "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,
1998, and the aggregate compensation paid to each of the directors during
calendar year 1998 by all seven of the registered investment companies to which
the Investment Manager provides investment advisory services (collectively, the
"Security Fund Complex"), are set forth below. Each of the directors is a
director of each of the other registered investment companies in the Security
Fund Complex.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION
--------------------------------------------- ESTIMATED ANNUAL TOTAL COMPENSATION FROM
NAME OF DIRECTOR SECURITY GROWTH SECURITY SECURITY BENEFITS UPON THE SECURITY FUND COMPLEX,
OF THE FUND AND INCOME FUND EQUITY FUND ULTRA FUND RETIREMENT INCLUDING THE FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Donald A. Chubb, Jr. $2,273 $2,273 $2,273 $0 $27,275
John D. Cleland 0 0 0 0 0
Donald L. Hardesty* 1,106 1,106 1,106 0 13,275
Penny A. Lumpkin 2,273 2,273 2,273 0 27,275
Mark L. Morris, Jr. 2,273 2,273 2,273 0 27,275
Maynard Oliverius 1,000 1,000 1,000 0 12,000
James R. Schmank 0 0 0 0 0
Hugh Thompson* 1,106 1,106 1,106 0 13,275
Harold G. Worswick** 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
*Mr. Hardesty resigned as a fund director April 1998. Mr. Thompson resigned as a fund director February 1998.
**Mr. Worswick retired as a fund director February 1996. The amount of deferred compensation accrued for Mr. Worswick as
of September 30, 1998 was $8,386. Mr. Worswick received deferred compensation in the amount of $15,266 during the
fiscal-year ended September 30, 1998.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Manager compensates its officers and directors who may also serve
as officers or directors of the Funds. On December 31, 1998, the Funds' officers
and directors (as a group) beneficially owned less than one percent of the total
outstanding Class A and Class B 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 47.) 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 three 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.
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.
CLASS C SHARES - LEVEL LOAD OPTION. Class C shares are sold without a sales
charge at the time of purchase, but are subject to a contingent deferred sales
charge if they are redeemed within one year of the date of 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 or Class C 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 NET AMOUNT REALLOWABLE
AT OFFERING PRICE OFFERING INVESTED TO DEALERS
PRICE
- -----------------------------------------------------------
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, Enhanced Index Fund, International Fund and
Select 25 Fund have a Distribution Plan for their Class A shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Plan authorizes each
such 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 for Small Company Fund and January
28, 1999 for Enhanced Index, International and Select 25 Funds. 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 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 Messrs. Cleland and Schmank and Ms. Harwood (directors of the Fund),
Messrs. Young, Swickard, Milberger, Petersen, Schier, Eshnaur and Bowser, Ms.
Tedder, Ms. Lee and Ms. Shields (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 net assets of
Small Company, Enhanced Index, International and Select 25 Funds from sales
pursuant to their respective Distribution Plans and Agreements may benefit
shareholders by reducing per share expenses, permitting increased investment
flexibility and diversification of such Funds' assets, and facilitating
economies of scale (e.g., block purchases) in the Funds' 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 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.
CLASS C SHARES -- Class C 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 one year 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.
CLASS C DISTRIBUTION PLAN -- Each Fund bears some of the costs of selling its
Class C shares under a Distribution Plan adopted with respect to its Class C
shares ("Class C Distribution Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("1940 Act"). This Plan provides for payments at an annual
rate of 1.00% of the average daily net asset value of Class C shares. Amounts
paid by the Funds are currently used to pay dealers and other firms that make
Class C shares available to their customers (1) a commission at the time of
purchase normally equal to 0.75% 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 C
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 C shares to 6.25% of gross sales of Class C 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 C
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 C 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.
The Fund's Class C 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 C shares. In the event the
Class C Distribution Plan is terminated by the Class C stockholders or the
Fund's Board of Directors, the payments made to the Distributor pursuant to the
Plan up to that time would be retained by the Distributor. Any expenses incurred
by the Distributor in excess of those payments would be absorbed by the
Distributor. The Fund makes no payments in connection with the 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), Class B shares and Class C 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) or Class C shares held for more than one year or Class B and Class C
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 47.)
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 or Class C 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, Class B and Class C shares during
that year. The applicable marketing allowance factors are set forth below.
- --------------------------------------------------------
APPLICABLE
MARKETING
ALLOWANCE
AGGREGATE NEW SALES 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 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 or Class C 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 or Class C 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 and Class C shares requested while Free Systematic
Withdrawals are being made will be calculated as described under "Calculation
and Waiver of Contingent Deferred Sales Charges," page 45.
The stockholder receives confirmation of each transaction showing the source of
the payment and the share balance remaining in the Program. A Program may be
terminated on written notice by the stockholder or by the Fund, and it will
terminate automatically if all shares are liquidated or withdrawn from the
account.
INVESTMENT MANAGEMENT
Security Management Company, 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 Municipal Bond
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 stock life insurance company
and incorporated under the laws of Kansas, is controlled by Security Benefit
Corp. ("SBC"). SBC is wholly-owned by Security Benefit Mutual Holding Company,
which is in turn controlled by Security Benefit Life policyholders. Security
Benefit Life together with its subsidiaries, has over $4.7 billion of assets
under management.
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.
Security Equity Fund's Agreement was also amended by the Board of Directors at a
meeting held on November 6, 1998, to provide for the Investment Manager to serve
as investment adviser to Enhanced Index, International and Select 25 Funds. The
Agreements were last renewed by the Funds' Board of Directors at a regular
meeting held on November 6, 1998.
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 entered into a sub-advisory agreement with
OppenheimerFunds, Inc. ("OppenheimerFunds"), Two World Trade Center, New York,
NY 10048-0203, to provide investment advisory services to Global Fund. Pursuant
to this agreement, OppenheimerFunds 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 Fund's Board of Directors and the
Investment Manager. For such services, the Investment Manager pays
OppenheimerFunds an annual fee equal to a percentage of the average daily
closing value of the combined net assets of Global Fund and another Fund managed
by the Investment Manager, SBL Fund, Series D, computed on a daily basis as
follows: 0.35% of the combined average daily net assets up to $300 million, plus
0.30% of such assets over $300 million up to $750 million and 0.25% of such
assets over $750 million.
OppenheimerFunds is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of Oppenheimer and controlled by
Massachusetts Mutual Life Insurance Company. Oppenheimer has been providing
investment advice since 1959. In addition, OppenheimerFunds and its subsidiaries
currently manage investment companies with assets of more than $95 billion, and
more than 4 million shareholder accounts.
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:
- ----------------------------------------------------------
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. Strong is a privately held
corporation which is controlled by Richard S. Strong. Strong was established in
1974 and as of September 30, 1998, manages over $30 billion in assets.
The Investment Manager has retained Bankers Trust Company, One Bankers Trust
Plaza, New York, New York 10006, to provide investment advisory services to
Enhanced Index Fund and International Fund. Pursuant to the agreement, Bankers
Trust furnishes investment advisory, statistical and research facilities,
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
such investment advisory services, subject to the control and supervision of the
Fund's Board of Directors and the Investment Manager. For such services to
Enhanced Index Fund, the Investment Manager pays Bankers Trust an annual fee
equal to a percentage of the average daily closing value of the combined net
assets of Enhanced Index Fund and another fund, computed on a daily basis as
follows: 0.20% of the combined average daily net assets of $100 million or less;
and 0.15% of the combined average daily net assets of more than $100 million but
less than $300 million; and 0.13% of the combined average daily net assets of
more than $300 million. The Investment Manager also will pay Bankers Trust the
following minimum fees with respect to the Enhanced Index Fund: (i) no minimum
fee in the first year the Enhanced Index Fund begins operations; (ii) $100,000
in the Fund's second year of operations; and (iii) $200,000 in the third and
following years of the Fund's operations. For the services provided to the
International Fund, the Investment Manager pays Bankers Trust an annual fee
equal to a percentage of the average daily closing value of the combined net
assets of International Fund and another fund managed by the Investment Manager,
computed on a daily basis as follows: 0.60% of the combined average daily net
assets of $200 million or less and 0.55% of the combined average daily net
assets of more than $200 million.
Bankers Trust is wholly owned by Bankers Trust New York Corporation. As of March
31, 1998, Bankers Trust New York Corporation was the seventh largest bank
holding company in the United States with total assets of over $150 billion.
Bankers Trust is dedicated to servicing the needs of corporations, with over 90
offices in more than 50 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with over $300 billion in assets under
management globally.
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, Small
Company, Enhanced Index, International and Select 25 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, Small Company Enhanced Index, International
and Select 25 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 A,
Class B and Class C distribution fees.
Asset Allocation, Social Awareness, Value, Small Company, Enhanced Index,
International and Select 25 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 A, Class B and Class C distribution fees; and legal,
auditing and accounting expenses. Asset Allocation, Social Awareness, Value,
Small Company, Enhanced Index, International and Select 25 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, Small Company,
Enhanced Index, International and Select 25 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 A, Class B and Class C
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.) The Investment Manager, as part of the
investment advisory agreement with Security Equity Fund, has agreed to cap the
total annual expenses of Enhanced Index Fund and Select 25 Fund to 1.75% and
International Fund to 2.25%, in each case exclusive of interest, taxes,
extraordinary expenses, brokerage fees and commissions and 12b-1 fees.
As compensation for its services, the Investment Manager receives with respect
to Growth and Income, Equity and Ultra Funds, on an annual basis, 2% of the
first $10 million of the average net assets, 1 1/2% of the next $20 million of
the average net assets and 1% of the remaining average net assets of the Funds,
determined daily and payable monthly. The Investment Manager receives with
respect to the Global Fund, on an annual basis, 2% of the first $70 million of
the average net assets and 1 1/2% of the remaining average net assets,
determined daily and payable monthly.
Separate fees are paid by Asset Allocation, Social Awareness, Value, Small
Company, Enhanced Index, International and Select 25 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
advisory fee for Enhanced Index and Select 25 Funds is equal to 0.75% of the
average daily net assets of each Fund, calculated daily and payable monthly. The
investment advisory fee for International Fund is equal to 1.10% 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 .09% of the average daily net assets of the Social Awareness, Value,
Small Company, Enhanced Index and Select 25 Funds. The Investment manager
receives, on an annual basis, an administrative fee equal to 0.045% of the
average daily net assets of International Fund plus the greater of 0.10% of its
average net assets or (i) $30,000 in the year ending January 31, 2000; (ii)
$45,000 in the year ending January 31, 2001; or $60,000 in the year ending
January 31, 2002 and thereafter. For transfer agency services provided to each
of the Asset Allocation, Social Awareness, Value, Small Company, Enhanced Index,
International and Select 25 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, 1998, 1997 and 1996, the Funds paid
the following amounts to the Investment Manager for its services:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT ADMINISTRATIVE TRANSFER AGENCY
ADVISORY ADVISORY FEES SERVICE FEES SERVICE FEES
FEES PAID TO WAIVED BY PAID TO PAID TO TOTAL EXPENSE RATIO
INVESTMENT INVESTMENT INVESTMENT INVESTMENT -----------------------
FUND YEAR MANAGER MANAGER MANAGER MANAGER CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 $1,168,375 $0 $0 $0 1.21% 2.21%
Growth and Income Fund 1997 1,024,369 0 0 0 --- ---
1996 919,674 0 0 0 --- ---
1998 9,261,209 0 0 0 1.02% 2.02%
Equity Fund 1997 7,375,751 0 0 0 --- ---
1996 5,528,818 0 0 0 --- ---
1998 670,488 0 0 0 2.00% 3.00%
Equity Fund 1997 642,585 0 0 0 --- ---
1996 470,077 0 0 0 --- ---
1998(1) 72,662 36,703 63,270 12,372 2.00% 2.94%
Asset Allocation Fund 1997 62,322 45,581 53,010 7,611 --- ---
1996(1) 39,560 24,236 36,957 5,571 --- ---
1998 120,016 34,388 10,801 14,440 1.22% 2.20%
Social Awareness Fund 1997(2) 0 50,880 4,579 3,925 --- ---
Value Fund 1998 144,005 35,151 19,523 12,984 1.27% 2.33%
1997(3) 0 17,003 1,530 1,345 --- ---
Small Company Fund 1998(4) 0 33,554 3,020 4,672 1.39% 2.38%
1998 1,068,177 0 0 0 1.23% 2.23%
Ultra Fund 1997 985,285 0 0 0 --- ---
1996 862,190 0 0 0 --- ---
- ----------------------------------------------------------------------------------------------------------------------------
1 For the fiscal years ended September 30, 1998 and 1996, the Investment Manager reimbursed the Asset Allocation Fund
$21,941 and $19,620, respectively, of the Fund's administrative and transfer agency fees.
2 Social Awareness Fund's figures are based on the period November 4, 1996 (date of inception) to September 30, 1997.
3 Value Fund's figures are based on the period May 1, 1997 (date of inception) to September 30, 1997.
4 Small Company Fund's figures are based on the period October 15, 1997 (date of inception) to September 30, 1998.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Funds' Investment Management and Services Agreements are renewable annually
by the Funds' Board of Directors or by a vote of a majority of the individual
Fund's outstanding securities and, in either event, by a majority of the board
who are not parties to the Agreement or interested persons of any such party.
The Agreements provide that they may be terminated without penalty at any time
by either party on 60 days' notice and are automatically terminated in the event
of assignment.
The following persons are affiliated with the Funds and also with the Funds'
investment adviser, Security Management Company, LLC, in these capacities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NAME POSITION(S) WITH THE FUNDS POSITION(S) WITH SECURITY MANAGEMENT COMPANY, LLC
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James R. Schmank Vice President and Director President and Managing Member Representative
John D. Cleland President and Director Senior Vice President and Managing Member
Representative
Jane A. Tedder Vice President (Equity Fund only) Vice President and Senior Economist
Terry A. Milberger Vice President (Equity Fund only) Senior Vice President and Senior Portfolio Manager
Michael A. Petersen Vice President Vice President and Senior Portfolio Manager
(Growth and Income Fund only)
Mark E. Young Vice President Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer Assistant Vice President and Treasurer
Cindy L. Shields Vice President (Equity Fund only) Assistant Vice President and Portfolio Manager
David Eshnaur Vice President (Equity Fund only) Assistant Vice President and Portfolio Manager
Steven M. Bowser Vice President (Equity Fund only) Second Vice President and Portfolio Manager
Christopher D. Swickard Assistant Secretary Assistant Secretary
James P. Schier Vice President Assistant Vice President and Portfolio Manager
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO MANAGEMENT -- STEVEN M. BOWSER, Portfolio Manager of the Investment
Manager, has co-managed the fixed-income portion of Asset Allocation Fund's
portfolio since January 1998. He joined the Investment Manager in 1992. Prior to
joining the Investment Manager, he was Assistant Vice President and Portfolio
Manager with the Federal Home Loan Bank of Topeka from 1989 to 1992. He was
employed at the Federal Reserve Bank of Kansas City in 1988 and began his career
with the Farm Credit System from 1982 to 1987, serving as a Senior Financial
Analyst and Assistant Controller. He graduated with a bachelor of science degree
from Kansas State University in 1982.
PAT BOYLE, Portfolio Manager of Meridian, has managed the equity portion of
Asset Allocation Fund's portfolio since August 1997. Prior to joining Meridian,
Mr. Boyle was employed at Citicorp as an Operations Analyst. He has five 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 and an M.S.
degree in Finance.
DAVID ESHNAUR, Portfolio Manager of the Investment Manager, has co-managed the
fixed-income portion of Asset Allocation Fund's portfolio since January 1998.
Mr. Eshnaur has 15 years of investment experience. Prior to joining the
Investment Manager in 1997, he worked at Waddell & Reed in the positions of
Assistant Vice President, Assistant Portfolio Manager, Senior Analyst, Industry
Analyst and Account Administrator. Mr. Eshnaur earned a bachelor of arts degree
in Business Administration from Coe College and an M.B.A. degree in Finance from
the University of Missouri - Kansas City.
SIDNEY F. HOOTS, Managing Director of Bankers Trust, has been the manager of
Enhanced Index Fund since its inception in January 1999. He is the Senior
Portfolio Manager for the Structured Equity Group at Bankers Trust. He has
responsibility for a variety of funds ranging from an enhanced index fund using
quantitative stock selection to an equity-based relative value hedge fund which
combines traditional hedge fund trading with quantitative techniques. In
addition, he is responsible for a tax-advantaged equity product. Mr. Hoots also
directs the quantitative equity research effort for Bankers Trust. Mr. Hoots
joined Bankers Trust in 1983 and has 15 years of investment experience. He has a
B.S. degree from Duke University and a M.B.A. from the University of Chicago. He
is also a Member of the American Finance Association.
MICHAEL LEVY, Managing Director of Bankers Trust, has been co-lead manager of
the International Fund since its inception in January 1999. He has been a
portfolio manager of other investment products with similar investment
objectives since joining Bankers Trust in 1993. Mr. Levy is Bankers Trust's
International Equity Strategist and is head of the international equity team. He
has served in each of these capacities since 1993. The international equity team
is responsible for the day-to-day management of the Fund as well as other
international equity portfolios managed by Bankers Trust. Mr. Levy's experience
prior to joining Bankers Trust includes serving as senior equity analyst with
Oppenheimer & Company, as well as positions in investment banking, technology
and manufacturing enterprises. He has 27 years of business experience, of which
seventeen years have been in the investment industry.
TERRY A. MILBERGER, Senior Portfolio Manager of the Investment Manager, has
managed Equity Fund since 1981. He has been the manager of Select 25 Fund since
its inception in 1999. He 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 an M.B.A. from
the University of Kansas and is a Chartered Financial Analyst.
RONALD C. OGNAR, Portfolio Manager of Strong, has managed Small Company Fund
since its inception in 1997. He 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. For
approximately 3 years 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.
MICHAEL A. PETERSEN, Senior Portfolio Manager of the Investment Manager, has
managed Growth and Income Fund since January 1998. He has 15 years of investment
experience. Prior to joining the Investment Manager in 1997, he was Director of
Equity Research and Fund Management at Old Kent Bank and Trust Corporation from
1988 to 1997. Prior to 1988, he was an Investment Officer at First Asset
Management. Mr. Petersen earned a bachelor of science degree in Accounting from
the University of Minnesota. He is a Chartered Financial Analyst.
ROBERT REINER, Principal at Bankers Trust, has been co-lead manager of the
International Fund since its inception in January 1999. He has been a portfolio
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1994. At Bankers Trust, he has been involved in
developing analytical and investment tools for the group's international equity
team. His primary focus has been on Japanese and European markets. Prior to
joining Bankers Trust, he was an equity analyst and also provided macroeconomic
coverage for Scudder, Stevens & Clark from 1993 to 1994. He previously served as
Senior Analyst at Sanford C. Bernstein & Co. from 1991 to 1992, and was
instrumental in the development of Bernstein's International Value Fund. Mr.
Reiner spent more than nine years at Standard & Poor's Corporation, where he was
a member of its international ratings group. His tenure included managing the
day-to-day operations of the Standard & Poor's Corporation Tokyo office for
three years.
JAMES P. SCHIER, Portfolio Manager of the Investment Manager, has managed Value
Fund since its inception in 1997 and Ultra Fund since January 1998. He has 13
years experience in the investment field and is a Chartered Financial Analyst.
While employed by the Investment Manager, he also served as 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, Portfolio Manager of the Investment Manager, has managed
Social Awareness Fund since its inception in 1996. 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.
JULIE WANG, Principal at Bankers Trust, has been co-lead manager of the
International Fund since its inception in January 1999. She has been a manager
of other investment products with similar investment objectives since joining
Bankers Trust in 1994. Ms. Wang has primary focus on the Asia-Pacific region and
the Fund's emerging market exposure. Prior to joining Bankers Trust, Ms. Wang
was an investment manager at American International Group, where she advised in
the management of $7 billion of assets in Southeast Asia, including private and
listed equities, bonds, loans and structured products. Ms. Wang received her
B.A. degree in economics from Yale University and her M.B.A. from the Wharton
School.
WILLIAM L. WILBY, Senior Vice President of Oppenheimer, became the manager of
Global Fund in November 1998. Prior to joining Oppenheimer in 1991, he was an
international investment strategist at Brown Brothers Hamman & Co. Prior to
Brown Brothers, Mr. Wilby was a managing director and portfolio manager at AIG
Global Investors. He joined AIG from Northern Trust Bank in Chicago, where he
was an international pension manager. Before starting his career in portfolio
management, Mr. Wilby was an international financial economist at Northern Trust
Bank and at the Federal Reserve Bank in Chicago. Mr. Wilby is a graduate of the
United States Military Academy and holds an M.A. and a Ph.D. in International
Monetary Economics from the University of Colorado. He is a Chartered Financial
Analyst.
CODE OF ETHICS -- The Funds, the Investment Manager and the Distributor have a
written code of ethics (the "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. Portfolio managers are also
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. In addition, each Sub-Adviser must have its own code of ethics to which
its portfolio managers and other access persons are subject.
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, Value Fund, Small Company Fund,
Enhanced Index Fund, International Fund, Select 25 Fund and Ultra Fund pursuant
to Distribution Agreements with the Funds. The Distributor also acts as
principal underwriter for Security Income Fund and Security Municipal Bond 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, 1997 and September 30, 1998, the
Distributor (i) received gross underwriting commissions on Class A shares, (ii)
retained net underwriting commissions on Class A shares, and (iii) received
contingent deferred sales charges on redemptions of Class B shares in the
amounts set forth in the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
GROSS UNDERWRITING NET UNDERWRITING COMPENSATION ON
COMMISSIONS COMMISSIONS REDEMPTION
- -----------------------------------------------------------------------------------------------------
1997 1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund $ 62,437 $ 161,083 $ 6,497 $ 11,930 $ 1,741 $ 12,982
Equity Fund 799,937 1,586,589 21,344 137,516 31,015 123,648
Ultra Fund 34,612 51,626 5,388 3,908 20,208 19,376
Global Fund 29,789 16,810 2,930 66 13,291 24,076
Asset Allocation Fund 28,996 14,300 3,114 728 1,692 7,197
Social Awareness Fund(1) 61,945 73,830 7,639 4,310 267 4,833
Value Fund(2) 74,602 176,512 2,015 4,530 2 5,438
Small Company Fund(3) --- 29,790 --- 28 --- 2,250
- -----------------------------------------------------------------------------------------------------
1 For the period November 4, 1996 (date of inception) to September 30, 1997.
2 For the period May 1, 1997 (date of inception) to September 30, 1997.
3 For the period October 15, 1997 (date of inception) to September 30, 1998.
- -----------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal year ended September 30, 1996, the Distributor received gross
underwriting commissions on the sale of Class A shares of the Funds of: $38,156
for Growth and Income Fund; $869,310 for Equity Fund; $42,335 for Ultra Fund;
and $29,472 for Global Fund. For that same year, the Distributor retained net
underwriting commissions as follows: $7,615 for Growth and Income Fund; $107,976
for Equity Fund; $9,163 for Ultra Fund; and $3,907 for Global Fund. For the
fiscal year ended September 30, 1996, the Distributor received gross
underwriting commissions on the sale of Class A shares of $7,393 for Asset
Allocation Fund and retained net underwriting commissions of $911.
The Distributor, on behalf of the Funds, may act as a broker in the purchase and
sale of securities not effected on a securities exchange, provided that any such
transactions and any commissions shall comply with requirements of the
Investment Company Act of 1940 and all rules and regulations of the SEC. The
Distributor has not acted as a broker.
The Funds' Distribution Agreements are renewable annually either by the Board of
Directors or by the vote of a majority of the Fund's outstanding securities,
and, in either event, by a majority of the board who are not parties to the
contract or interested persons of any such party. The contract may be terminated
by either party upon 60 days' written notice.
ALLOCATION OF PORTFOLIO BROKERAGE
Transactions in portfolio securities shall be effected in such manner as deemed
to be in the best interests of the respective Funds. In reaching a judgment
relative to the qualifications of a broker-dealer ("broker") to obtain the best
execution of a particular transaction, all relevant factors and circumstances
will be taken into account by the Investment Manager or relevant Sub-Adviser,
including the overall reasonableness of commissions paid to a 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. Portfolio transactions, including options, futures contracts and
options on futures transactions and the purchase or sale of underlying
securities upon the exercise of options, for Enhanced Index Fund and
International Fund may also be executed through Bankers Trust or any subsidiary
or affiliate to the extent and in the manner permitted by applicable law.
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's Conduct Rules, 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. 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 TO AND
COMMISSIONS PAID TO BROKER-DEALERS
FUND BROKERAGE COMMISSIONS WHO ALSO PERFORMED SERVICES
FUND TOTAL PAID TO -------------------------------------
BROKERAGE SECURITY DISTRIBUTORS, BROKERAGE
FUND YEAR COMMISSIONS PAID INC., THE UNDERWRITER TRANSACTIONS COMMISSIONS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $ 332,718 $0 $ 68,503,622 $105,204
Security Growth and Income 1997 251,945 0 26,335,380 40,539
Fund 1996 98,516 0 15,375,167 22,566
1998 1,099,219 0 263,017,019 359,314
Security Equity Fund - 1997 1,111,928 0 234,139,342 301,670
Equity Fund 1996 919,879 0 181,146,205 227,747
1998 218,464 0 21,465,232 59,626
Security Equity Fund - 1997 270,065 0 14,817,527 39,165
Global Fund 1996 194,768 0 11,476,297 20,493
1998 9,871 0 3,474,334 7,670
Security Equity Fund - 1997 18,571 0 6,075,844 15,313
Asset Allocation Fund 1996 10,674 0 259,602 724
Security Equity Fund - 1998 10,661 1,418,953 1,722
Social Awareness Fund 1997(1) 12,365 0 6,419,564 8,327
Security Equity Fund - 1998 64,157 8,264,311 14,947
Value Fund 1997(2) 15,192 0 3,606,587 7,392
Security Equity Fund - 1998(3) 22,215 0 3,087,031 6,947
Small Company Fund
1998 268,722 0 39,308,363 69,536
Security Ultra Fund 1997 83,841 0 22,060,304 41,217
1996 200,614 0 45,866,810 76,520
- -------------------------------------------------------------------------------------------------------------------------
1 Social Awareness Fund's figures are based on the period November 4, 1996 (date of inception) to September 30, 1997.
2 Value Fund's figures are based on the period May 1, 1997 (date of inception) to September 30, 1997.
3 Small Company Fund's figures are based on the period October 15, 1997 (date of inception) to September 30, 1998.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
HOW NET ASSET VALUE IS DETERMINED
The per share net asset value of each Fund is determined by dividing the total
value of its securities and other assets, less liabilities, by the total number
of shares outstanding. The public offering price for each Fund is its net asset
value per share plus, in the case of Class A shares, the applicable sales
charge. The net asset value and offering price are computed once daily as of the
close of regular trading hours on the New York Stock Exchange (normally 3:00
p.m. Central time) on each day the Exchange is open for trading, which is Monday
through Friday, except for the following dates when the exchange is closed in
observance of federal holidays: New Year's Day, 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 and Class C 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 and
Class C 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 and Class C
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, B and C shares by approximately the amount of the different
distribution expenses attributable to Class A, B and C shares.
HOW TO REDEEM SHARES
Stockholders may turn in their shares directly to the Investment Manager for
redemption at net asset value (which may be more or less than the investor's
cost, depending upon the market value of the portfolio securities at the time of
redemption). The redemption price in cash will be the net asset value next
determined after the time when such shares are tendered for redemption.
Shares will be redeemed on request of the stockholder in proper order to the
Investment Manager, which serves as the Funds' transfer agent. A request is made
in proper order by submitting the following items to the Investment Manager: (1)
a written request for redemption signed by all registered owners exactly as the
account is registered, including fiduciary titles, if any, and specifying the
account number and the dollar amount or number of shares to be redeemed; (2) a
guarantee of all signatures on the written request or on the share certificate
or accompanying stock power; (3) any share certificates issued for any of the
shares to be redeemed; and (4) any additional documents which may be required by
the Investment Manager for redemption by corporations or other organizations,
executors, administrators, trustees, custodians or the like. Transfers of shares
are subject to the same requirements. A signature guarantee is not required for
redemptions of $10,000 or less, requested by and payable to all stockholders of
record for an account, to be sent to the address of record. The signature
guarantee must be provided by an eligible guarantor institution, such as a bank,
broker, credit union, national securities exchange or savings association. The
Investment Manager reserves the right to reject any signature guarantee pursuant
to its written procedures which may be revised in the future. To avoid delay in
redemption or transfer, stockholders having questions should contact the
Investment Manager.
The Articles of Incorporation of Security Equity Fund provide that the Board of
Directors, without the vote or consent of the stockholders, may adopt a plan to
redeem at net asset value all shares in any stockholder account in which there
has been no investment (other than the reinvestment of income dividends or
capital gains distributions) for the last six months and in which there are
fewer than 25 shares or such fewer number of shares as may be specified by the
Board of Directors. Any plan of involuntary redemption adopted by the Board of
Directors shall provide that the plan is in the economic best interests of the
Fund or is necessary to reduce disproportionately burdensome expenses in
servicing stockholder accounts. Such plan shall further provide that prior
notice of at least six months shall be given to a stockholder before involuntary
redemption, and that the stockholder will have at least six months from the date
of the notice to avoid redemption by increasing his or her account to at least
the minimum number of shares established in the Articles of Incorporation, or
such fewer shares as are specified in the plan.
When investing in the Funds, stockholders are required to furnish their tax
identification number and to state whether or not they are subject to
withholding for prior underreporting, certified under penalties of perjury as
prescribed by the Internal Revenue Code. To the extent permitted by law, the
redemption proceeds of stockholders who fail to furnish this information will be
reduced by $50 to reimburse for the IRS penalty imposed for failure to report
the tax identification number on information reports.
Payment in cash of the amount due on redemption, less any applicable deferred
sales charge, for shares redeemed will be made within seven days after tender,
except that the Funds may suspend the right of redemption 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 65.)
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.
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 57.
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 Maturity Bond, U.S. Government, High Yield, Emerging Markets Total
Return, Global Asset Allocation, Global High Yield and Municipal Bond 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, Class B and Class C shares of the Funds may be exchanged for Class A,
Class B and Class C 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. No exchanges are allowed with a Fund that does not
offer Class C shares, except that a stockholder may exchange Class C shares for
shares of Security Cash Fund. 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 57.)
This privilege may be changed or discontinued at any time at the discretion of
the management of the Funds upon 60 days' notice to stockholders. It is
contemplated, however, that the privilege will be extended in the absence of
objection by regulatory authorities and provided shares of the respective
companies are available and may be legally sold in the jurisdiction in which the
stockholder resides. A current prospectus of the Fund into which an exchange is
made will be given each stockholder exercising this privilege.
EXCHANGE BY TELEPHONE -- To exchange shares by telephone, a shareholder must
have completed either the Telephone Exchange section of the application or a
Telephone Transfer Authorization form which may be obtained from the Investment
Manager. Authorization must be on file with the Investment Manager before
exchanges may be made by telephone. Once authorization has been received by the
Investment Manager, a stockholder may exchange shares by telephone by calling
the Funds at (800) 888-2461, extension 3127 on weekdays (except holidays)
between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests
received after the close of the New York Stock Exchange (normally 3:00 p.m.
Central time) will be treated as if received on the next business day. Shares
which are held in certificate form may not be exchanged by telephone.
The telephone exchange privilege is only permitted between accounts with
identical registration. The Investment Manager has established procedures to
confirm that instructions communicated by telephone are genuine and may be
liable for any losses due to fraudulent or unauthorized instructions if it fails
to comply with its procedures. The Investment Manager's procedures require that
any person requesting an exchange by telephone provide the account registration
and number, the tax identification number, the dollar amount or number of shares
to be exchanged, and the names of the Security Funds from which and into which
the exchange is to be made, and such instructions must be received on a recorded
line. Neither the Funds, the Investment Manager nor the Distributor will be
liable for any loss, liability, cost or expense arising out of any request,
including any fraudulent request provided the Investment Manager complied with
its procedures. Thus, a stockholder who authorizes telephone exchanges may bear
the risk of loss in the event of a fraudulent or unauthorized request. This
telephone exchange privilege may be changed or discontinued at any time at the
discretion of the management of the Funds. In particular, the Funds may set
limits on the amount and frequency of such exchanges, in general or as to any
individual who abuses such privilege.
DIVIDENDS AND TAXES
It is each Fund's policy to pay dividends from net investment income as from
time to time declared by the Board of Directors, and to distribute realized
capital gains (if any) in excess of any capital losses and capital loss
carryovers, at least once a year. Because Class A shares of the Funds bear most
of the costs of distribution of such shares through payment of a front-end sales
charge, while Class B and Class C shares of the Funds bear such costs through a
higher distribution fee, expenses attributable to Class B and Class C shares,
generally, will be higher and as a result, income distributions paid by the
Funds with respect to Class B and Class C 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.
The following summarizes certain federal income tax considerations generally
affecting the Funds and their stockholders. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their stockholders,
and the discussion here is not intended as a substitute for careful tax
planning. The discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial and administrative ruling authorities, all of which are
subject to change, which change may be retroactive. Prospective investors should
consult their own tax advisors with regard to the federal tax consequences of
the purchase, ownership, and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.
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.
The excess of net long-term capital gains over short-term capital losses
realized and distributed by the Funds or reinvested in Fund shares will
generally be taxable to shareholders as long-term gain. Net capital gains from
assets held for one year or less will be taxed as ordinary income. Distributions
will be subject to these capital gains rates regardless of how long a
shareholder has held Fund shares. Advice as to the tax status of each year's
dividends and distributions will be mailed annually. At September 30, 1998,
Small Company Fund had accumulated net realized losses on sales of investments
of $642,351.
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) diversify
its holdings so that, at the end of each quarter of the taxable year, (a) at
least 50% of the market value of the Fund's assets is represented by cash, cash
items, U.S. Government securities, the securities of other regulated investment
companies, and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or of two or more issuers which the Fund controls (as that term is
defined in the relevant provisions of the Code) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (iii) 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 Fund 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 was 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 taxable to stockholders as long-term capital gains if the shares had
been held for more than one year at the time of sale or redemption. Net capital
gains on shares held for less than one year will be taxable to shareholders as
ordinary income. Investors should be aware that any loss realized upon the sale
or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of any distribution of long-term capital
gain to the shareholder with respect to such shares. In addition, any loss
realized on a sale or exchange of shares will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days, beginning 30 days
before and ending 30 days after the date the shares are disposed of, such as
pursuant to the reinvestment of dividends. In such case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Under certain circumstances, the sales charge incurred in acquiring Class A
shares of the Funds may not be taken into account in determining the gain or
loss on the disposition of those shares. This rule applies in circumstances when
shares of the Fund are exchanged within 90 days after the date they were
purchased and new shares in a regulated investment company are acquired without
a sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred the sales charge initially. Instead, the portion of the sales
charge affected by this rule will be treated as an amount paid for the new
shares.
The Funds are required by law to withhold 31% of taxable dividends and
distributions to shareholders who do not furnish their correct taxpayer
identification numbers, or are otherwise subject to the backup withholding
provisions of the Internal Revenue Code.
Each Series of Security Equity Fund will be treated separately in determining
the amounts of income and capital gains distributions. For this purpose, each
Fund will reflect only the income and gains, net of losses of that Fund.
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 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.
MARKET DISCOUNT -- If a Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase amount is "market discount". If the amount of
market discount is more than a DE MINIMIS amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to a portion of the market discount on the
debt security that has accrued but has not previously been includable in income.
In general, the amount of market discount that must be included for each period
is equal to the lesser of (i) the amount of market discount accruing during such
period (plus any accrued market discount for prior periods not previously taken
into account) or (ii) the amount of the principal payment with respect to such
period. Generally, market discount accrues on a daily basis for each day the
debt security is held by a Fund at a constant rate over the time remaining to
the debt security's maturity or, at the election of the Fund, at a constant
yield to maturity which takes into account the semi-annual compounding of
interest, Gain realized on the disposition of a market discount obligation must
be recognized as ordinary interest income (not capital gain) to the extent of
the "accrued market discount."
ORIGINAL ISSUE DISCOUNT -- Certain debt securities acquired by the Funds may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.
Some debt securities may be purchased by the Funds at a discount that exceeds
the original issue discount on such debt securities, if any. This additional
discount represents market discount for federal income tax purposes (see above).
CONSTRUCTIVE SALES -- Recently enacted rules may affect timing and character of
gain if a Fund engages in transactions that reduce or eliminate its risk of loss
with respect to appreciated financial positions. If the Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
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.
The payment of such taxes will reduce the amount of dividends and distributions
paid to the Fund's stockholders. So long as a Fund qualifies as a regulated
investment company, certain distribution requirements are satisfied, and more
than 50% of such Fund's assets at the close of the taxable year consists of
securities of foreign corporations, the Fund may elect, subject to limitation,
to pass through its foreign tax credits to its stockholders.
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 Fund.
Security Equity Fund has authorized capital stock of $.25 par value and
currently issues its shares in nine Funds, Equity Fund, Global Fund, Asset
Allocation Fund, Social Awareness Fund, Value Fund, Small Company Fund, Enhanced
Index Fund, International Fund and Select 25 Fund. The shares of each Fund of
Security Equity Fund represent a pro rata beneficial interest in that Fund's 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 fund 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 three classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(i) expenses related to the distribution of each class of shares or other
expenses that the Board of Directors may designate as class expenses from time
to time, are borne solely by each class; (ii) each class of shares has exclusive
voting rights with respect to any Distribution Plan adopted for that class;
(iii) each class has different exchange privileges; and (iv) each class has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Funds. Shares may be exchanged as described under "How
to Exchange Shares," page 58, 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 Fund of
Security Equity Fund, Equity Fund, Global Fund, Asset Allocation Fund, Social
Awareness Fund, Value Fund, Small Company Fund, Enhanced Index Fund,
International Fund and Select 25 Fund, vote together, with each share having one
vote. On other matters affecting a particular Fund, such as the investment
advisory contract or the fundamental policies, only shares of that Fund are
entitled to vote, and a majority vote of the shares of that Fund 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.
CUSTODIANS, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106, acts as the
custodian for the portfolio securities of Growth and Income Fund, Equity Fund,
Social Awareness Fund, Value Fund, Small Company Fund, Enhanced Index Fund,
Select 25 Fund and Ultra Fund. Chase Manhattan Bank, 4 Chase MetroTech Center,
Brooklyn, New York 11245 acts as custodian for the portfolio securities of
Global, Asset Allocation and International 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 64105-2143, has been selected by the Funds' Board of Directors to
serve as the Funds' independent auditors, and as such, will perform the annual
audit of the Funds' financial statements.
PERFORMANCE INFORMATION
The Funds may, from time to time, include performance information in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information in advertisements or sales literature may be
expressed as average annual total return or aggregate total return.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Funds over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P(1 + T)^n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum initial sales load of
5.75% in the case of quotations of performance of Class A shares or the
applicable contingent deferred sales charge in the case of quotations of
performance of Class B and Class C 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, 1998, the average annual
total return for each Fund was the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
----------------------- ----------------------- -----------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund 13.24% -13.50% 9.42% 9.41%(1) 10.24% ---
Equity Fund 1.25% 1.38% 16.81% 16.67%(1) 16.73% ---
Global Fund -13.75% -13.96% 6.35%(2) 6.26%(1) --- ---
Ultra Fund -17.45% -17.64% 6.29% 5.80%(1) 7.68% ---
Asset Allocation Fund -12.52% -12.59% 5.81%(3) 5.93%(3) --- ---
Social Awareness Fund 1.67% 1.74% 10.90%(4) 11.29%(4) --- ---
Value Fund -9.81% -10.11% 11.56%(5) 12.47%(5) --- ---
Small Company Fund -17.95%(6) -18.02%(6) --- --- --- ---
- ------------------------------------------------------------------------------------------------------------
1 From October 19, 1993 (date of inception) to September 30, 1998
2 From October 5, 1993 (date of inception) to September 30, 1998
3 From June 1, 1995 (date of inception) to September 30, 1998
4 From November 4, 1996 (date of inception) to September 30, 1998
5 From May 1, 1997 (date of inception) to September 30, 1998
6 From October 15, 1997 (date of inception) to September 30, 1998
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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.
For the periods ended September 30, 1998, the aggregate total return on an
investment for each Fund calculated as described above was the following:
- --------------------------------------------------------
CLASS A CLASS B
- --------------------------------------------------------
Growth and Income Fund 165.17%(1) 56.12%(2)
Equity Fund 369.52%(1) 114.57%(2)
Global Fund 36.07%(3) 35.05%(2)
Ultra Fund 109.52%(1) 32.21%(2)
Asset Allocation Fund 20.71%(4) 21.17%(4)
Social Awareness Fund 21.92%(5) 22.73%(5)
Value Fund 16.80%(6) 18.15%(6)
Small Company Fund -17.95%(7) -18.02%(7)
- --------------------------------------------------------
1 From October 1, 1988
2 From October 19, 1993
3 From October 1, 1993
4 From June 1, 1995
5 From November 4, 1996 (date of inception)
6 From May 1, 1997 (date of inception)
7 From October 15, 1997 (date of inception)
- --------------------------------------------------------
These figures reflect deduction of the maximum sales load. Fee waivers for the
Asset Allocation, Social Awareness, Value and Small Company Funds reduced Fund
expenses and in the absence of such waiver, the average annual total return and
aggregate total return would be reduced.
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. 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,
but are not limited to, 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, Roth IRAs, Education 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.
An individual may make a contribution to a traditional IRA each year of up to
the lesser of $2,000 or 100% of earned income under current tax law. The IRAs
described in this paragraph are called "traditional IRAs" to distinguish them
from the "Roth IRAs" which became available in 1998. Roth IRAs are described
below. 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.
Generally if a taxpayer is not covered by an employer-sponsored retirement plan,
the amount the taxpayer may deduct for federal income tax purposes in a year for
contributions to an IRA is the lesser of $2,000 or the taxpayer's compensation
for the year. If the taxpayer is covered by an employer-sponsored retirement
plan, the amount of IRA contributions the taxpayer may deduct in a year may be
reduced or eliminated based on the taxpayer's adjusted gross income for the
year. The adjusted gross income level at which a single taxpayer's deduction for
1999 is affected, $31,000, will increase annually to $50,000 in the year 2005.
The adjusted gross income level at which the deduction for 1999 for a married
taxpayer (who does not file a separate return) is affected, $51,000, will
increase annually to $80,000 in the year 2007. If the taxpayer is married, files
a separate tax return, and is covered by a qualified retirement plan, the
taxpayer may not make a deductible contribution to an IRA if the taxpayer's
income exceeds $10,000. If the taxpayer is not covered by an employer-sponsored
retirement plan, but the taxpayer's spouse is, the amount the taxpayer may
deduct for IRA contributions will be phased out if the taxpayer's adjusted gross
income is between $150,000 and $160,000.
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 a traditional 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.
ROTH IRAS
Section 408A of the Code permits eligible individuals to establish a Roth IRA, a
new type of IRA which became available in 1998. Contributions to a Roth IRA are
not deductible, but withdrawals that meet certain requirements are not subject
to federal income tax. The maximum annual contribution amount of $2,000 is
phased out if the individual is single and has an adjusted gross income between
$95,000 and $110,000, or if the individual is married and the couple has a
combined adjusted gross income between $150,000 and $160,000. In general, Roth
IRAs are subject to certain required distribution requirements. Unlike a
traditional IRA, Roth IRAs are not subject to minimum required distribution
rules during the owner's lifetime. Generally, however, the amount in a remaining
Roth IRA must be distributed by the end of the fifth year after the death of the
owner.
Beginning in 1998 the owner of a traditional IRA may convert the traditional IRA
into a Roth IRA under certain circumstances. The conversion of a traditional IRA
to a Roth IRA will subject the amount of the converted traditional IRA to
federal income tax. If a traditional IRA is converted to a Roth IRA, the taxable
amount of the owner's traditional IRA will be considered taxable income for
federal income tax purposes for the year of conversion. Generally, all amounts
in a traditional IRA are taxable except for the owner's prior non-deductible
contributions to the traditional IRA.
EDUCATION IRAS
Section 530 of the Code permits eligible individuals to establish an Education
IRA on behalf of a beneficiary for tax years beginning in 1998. Contributions to
an Education IRA are not deductible, but qualified distributions to the
beneficiary are not subject to federal income tax. The maximum annual
contribution amount of $500 is phased out if the individual is single and has an
adjusted gross income between $95,000 and $110,000, or if the individual is
married and the couple has a combined adjusted gross income between $150,000 and
$160,000. Education IRAs are subject to certain required distribution
requirements. Generally, the amount remaining in an Education IRA must be
distributed by the beneficiary's 30th birthday or rolled into a new Education
IRA for another eligible beneficiary.
SIMPLE IRAS
The Small Business Job Protection Act of 1996 created a retirement plan, the
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE Plans) for
tax years beginning in 1997. 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.
FINANCIAL STATEMENTS
The audited financial statement of the Funds, which are contained in the Funds'
September 30, 1998 Annual Report are incorporated herein by reference. Copies of
the Annual Report are provided to every person requesting a Statement of
Additional Information.
<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.
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.
<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
Municipal Bond 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 Municipal Bond 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 Municipal Bond 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 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.
<PAGE> 1
SECURITY
FUNDS
===============================================================================
ANNUAL
REPORT
SEPTEMBER 30, 1998
- Security
Growth and
Income Fund
- Security Equity
Fund
-Equity Series
-Global Series
-Asset
Allocation
Series
-Social
Awareness
Series
-Value
Series
-Small
Company
Series
- Security Ultra
Fund
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE> 2
PRESIDENT'S COMMENTARY
...............................................................................
NOVEMBER 15, 1998
To Our Shareholders:
The twelve months ended September 30, 1998 reintroduced an element of reality to
the financial markets. The total return of 9.05% from the large-cap Standard &
Poor's 500 Stock Index more closely approximates historical rates of return than
the unrealistic 20% to 30% gains of the previous three years. Most other equity
markets produced negative returns for the year. The small cap and midcap markets
were adversely impacted as investors moved to the larger stocks in a search for
quality and liquidity, perceiving that the world is still a troubled place.
[John Cleland PHOTO]
THE EXOGENOUS SHOCKS FINALLY ARRIVE
The meltdown in Russia, followed in short order by the collapse of the Long Term
Capital Management Fund, proved to be the exogenous shocks to the system that
changed the psychological climate in the equity markets dramatically. We do not
believe, however, that the current climate of gloom and doom is any more
warranted than the excessive euphoria that prevailed a year ago. There are still
some strong positive factors at work that should favorably impact the markets
once the global climate quiets.
The U.S. economy, while clearly slowing its growth rate, remains an enormously
powerful engine driven by the consumer. Consumer confidence and disposable
income continue to be at high levels because inflationary pressures have largely
disappeared and unemployment remains low. We expect further cuts by the Federal
Reserve Bank in short term interest rates over the coming months, which should
allow long term rates to continue to decline.
VOLATILITY WILL REMAIN HIGH, BUT MARKETS WILL FINALLY STABILIZE
While we believe market volatility will continue at historically high levels,
once global events settle down and the political uncertainty in our nation's
capital is resolved investors' psychological attitudes should improve
dramatically and the equity markets can resume their upward climb. We continue
to encourage the ratcheting down of return expectations to levels closer to
their historical norms for holders of equities as we expect markets in coming
years to perform closer to those averages.
In the following pages our portfolio managers discuss the performance of their
respective funds as well as their outlooks for the months ahead. As always, we
appreciate your continuing investments in Security products. We invite your
questions and comments at any time.
Sincerely,
/s/ John Cleland
- -----------------------
John Cleland, President
The Security Funds
- -------------------------------------------------------------------------------
1
<PAGE> 3
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND
NOVEMBER 15, 1998
To Our Shareholders:
The fiscal year ended September 30, 1998 was a difficult year overall for the
equity markets, and especially so for income oriented stocks in general. A large
portion of the price appreciation over the course of the year occurred in the
large-cap growth names, while those sectors and companies which traditionally
provide the higher dividends that are typical holdings in growth and income
portfolios lagged the markets. Our portfolio was no exception to this trend,
generating a negative 7.95% total return for the year versus the Standard and
Poor's 500 Stock Index return of +9.05%1. The average return for our Lipper peer
group was -1.08%.
[Michael A. Petersen
Portfolio Manager PHOTO]
RESTRUCTURING EARLY IN THE FISCAL YEAR
We entered the fiscal year with a portfolio invested approximately 90% in
equities and 10% in high yield corporate bonds and still maintain that balance.
At the beginning of the period the orientation of the stocks was primarily
midcap value. Over the last nine months, however, we have shifted more toward
the large-cap issues with higher dividend yields that are more typical of growth
and income funds. We have also concentrated on lower risk, more defensive names
and have diversified well across a broad spectrum of sectors. The percentage of
assets invested in the utility and energy sectors, the standard growth and
income havens, has been increased.
During the first half of calendar year 1998 our moves into more defensive stocks
worked against us as the environment at that time favored aggressive growth
companies. In the July through September quarter, however, these same stocks
helped us outperform our peers as the markets turned negative. An underweighting
in the financial sector in this later quarter also was a positive as money
center banks and brokerage houses fell 30% to 60% from their summer highs.
PRICE SWINGS CREATE BUYING OPPORTUNITIES
As a result of the downturn in the stock markets in recent months, a number of
industries have accompanied the financial sector in price declines. These
include many commodity-oriented companies which suffered as demand for
commodities around the world slowed. The prices now appear to have fully
discounted a coming recession, and are looking very attractive at current
levels. We are now looking in the financial, capital goods, consumer cyclicals,
and basic materials sectors for issues which appear to offer excellent
investment opportunities at current prices.
THE GLOBAL SLOWDOWN WILL BE WITH US AWHILE
We expect the global slowdown to continue for several more months. This slowing
could continue to put pressure on corporate earnings for the next two quarters.
We therefore plan to maintain our current defensive posture until earnings
growth appears to be turning positive again. We expect equity total returns in
the coming year to once again be closer to historical norms than in the past
three years. In this environment a high dividend yield becomes a more important
component of total return. We will focus on those companies that exhibit
above-average earnings and dividend growth potential.
/s/ Michael A. Petersen
- -----------------------
Michael A. Petersen
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
- -------------------------------------------------------------------------------
2
<PAGE> 4
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY GROWTH AND INCOME FUND
VS. S&P 500
[GRAPH]
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Growth and Income
Fund on September 30, 1988, and reflects deduction of the 5.75% sales load. On
September 30, 1998, the value of your investment in Class A shares of the fund
(with dividends reinvested) would have grown to $26,515. By comparison, the same
$10,000 investment would have grown to $48,691 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
----------
SBC Communications, Inc. 1.8%
Royal Dutch Petroleum
Company ADR 1.8%
Schlumberger, Ltd. 1.8%
AT&T Corporation 1.8%
Philip Morris Companies, Inc. 1.7%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 year 5 years 10 years
------ ------- --------
A Shares (7.95%) 10.73% 10.90%
A Shares with sales charge (13.24%) 9.42% 10.24%
B Shares (8.95%) 9.84% N/A
(10-19-93)
(since inception)
B Shares with CDSC (13.50%) 9.41% 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.
- -------------------------------------------------------------------------------
3
<PAGE> 5
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - EQUITY SERIES
NOVEMBER 15, 1998
To Our Shareholders:
The fiscal year ended September 30, 1998 was a rewarding one for shareholders in
the Equity Series of Security Equity Fund. The Series returned a positive 7.38%
for the twelve months, outpacing the -1.44% average return of its Lipper peer
group.1
[Terry Milberger
Portfolio Manager PHOTO]
A YEAR CONTAINING TWO DISTINCT MARKET CYCLES
Two distinct market cycles were apparent over the course of the fiscal year. The
first half was strong, with a six-month rise of 17.22% for the Standard and
Poor's 500 Stock Index. The subsequent six months, however, produced a decline
of 6.97% in the index. Our portfolio performance was helped in the early months
by our financial weighting, including such insurance companies as American
International Group, Inc. and Lincoln National Corporation. Our large health
care weighting also contributed to favorable returns during the period. Such
issues as Bristol-Myers Squibb Company and Shering-Plough Corporation did very
well during the up-market cycle, but also declined less than the average stock
during the down months.
Another positive factor in the negative-performance months was our
underweighting versus the benchmark S&P Index in money center banks. These
institutions suffered as their large international exposure hurt their
performance when overseas countries' economies weakened. In general we held a
low percentage of issues which were impacted by the difficulties in Japan,
Southeast Asia, and Latin America. Our orientation toward companies which derive
most of their earnings from domestic operations--companies such as Kroger
Company, Safeway, Inc., and various telephone companies--proved to be a strong
advantage. We held about 10% of our assets in cash through the latter months of
the fiscal year as well, which also lessened the negative impact of weak
markets.
MORE DIVERSIFICATION DURING PERIODS OF TURMOIL
The financial turmoil in Southeast Asia began in the late summer of 1997.
Because we expected the ensuing fiscal year to be a period of higher volatility,
we diversified the portfolio to include more names and smaller positions than
during normal economic conditions. Now as stock markets appear to be bottoming
we must reassess our strategy.
We believe that the recent declines in the markets have created some buying
opportunities. We are examining individual sectors and companies to get a sense
of where earnings risks now lie and how to avoid them. As earnings reports for
the third calendar quarter are released, we will study them carefully for hints
of weakness or strength.
OUR PLANS FOR THE BETTER MARKETS THAT LIE AHEAD
Historically in periods of financial crisis the markets reach their lows for the
cycle. We want to take advantage of the buying opportunities during these
cyclical lows because we have learned that stock markets traditionally begin
their move upward before all the economic problems are resolved. We are, in
fact, trying to take advantage of today's "maximum uncertainty."
Although the risk is not completely out of the picture, in keeping with our
long-term investment horizon we plan to purchase those stocks we believe are
bargains in today's markets and wait for them to prove their worth. We expect
that the Federal Reserve under the able leadership of Alan Greenspan will stand
ready to help stabilize the markets if conditions call for action. We will seek
the rewards that can come from companies with consistent above average earnings
growth and high quality balance sheets.
/s/ Terry Milberger
- ----------------------
Terry Milberger
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
- -------------------------------------------------------------------------------
4
<PAGE> 6
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - EQUITY SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY EQUITY SERIES
VS. S&P 500
[GRAPH]
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1988, and reflects deduction of the 5.75% sales load. On September
30, 1998, the value of your investment in Class A shares of the Series (with
dividends reinvested) would have grown to $46,953. By comparison, the same
$10,000 investment would have grown to $48,691 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
----------
Microsoft Corporation 2.2%
Schering-Plough Corporation 2.2%
General Electric Company 1.8%
Safeway, Inc. 1.8%
Bristol-Myers Squibb Company 1.8%
**At September 30, 1998
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 year 5 years 10 years
------ ------- --------
A Shares 7.38% 18.20% 17.42%
A Shares with sales charge 1.25% 16.81% 16.73%
B Shares 6.38% 17.00% N/A
(10-19-93)
(since inception)
B Shares with CDSC 1.38% 16.67% 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.
- -------------------------------------------------------------------------------
5
<PAGE> 7
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES
NOVEMBER 15, 1998
Subadvisor - LEXINGTON
MANAGEMENT CORPORATION
To Our Shareholders:
For the fiscal year ended September 30, 1998 the Global Equity Series of
Security Equity Fund returned -8.47%.(1) The average global fund fell 7.57% over
the same period, according to Lipper Analytical Services, Inc. The Morgan
Stanley World Index dropped 1.15% in the year.
[Richard Saler
Portfolio Manager PHOTO]
GLOBAL ECONOMIES HEAD TOWARD RECESSION
[Alan Wapnick
Portfolio Manager PHOTO]
The global economic environment continues to head dangerously toward recession.
Although many of the world's economies have been in decline for well over a
year, western financial markets have only now begun to take notice. Interest
rates continue to fall rapidly. The thirty-year U.S. Treasury bond ended 1997
with a yield of 5.93% and by the end of September this year had fallen to 4.98%.
German ten-year bond yields now stand at 3.84%, down from 5.16% just nine months
ago.
Unfortunately, falling interest rates are not enough to propel stocks higher.
Corporate profits are expected to come under increasingly strong negative
pressure. The world faces the greatest economic challenge perhaps since the
Great Depression. Asia is awash with too much debt and excess capacity in
manufacturing and real estate. Making matters worse, much of this debt is U.S.
dollar denominated and Asian currencies have collapsed versus the dollar. A
large portion of an estimated $1.5 trillion in Asian debt is unlikely to be
repaid. Ultimately, western banks and investors to whom this debt is owed may
have to write off a portion and convert some debt to equity. Investors have
rapidly sought safe havens such as U.S. Treasury bonds and cash equivalents.
Equities which provide visible earnings streams even in weak economies will
continue to be favored.
LOOKING FOR POSITIVE LEGISLATIVE EVENTS IN JAPAN
Failure by global leaders to address the world's economic ills could lead to a
more severe economic contraction. Japan, a key player, finds its economy in a
deep recession with a financial system teetering on collapse. Time is running
out on timid government policies: strong action is urgently needed to
recapitalize banks.
Positive events are likely over the next several months to help counter global
doom. Interest rates around the world should continue to move lower. The
International Monetary Fund is likely to gain additional funding and provide
support to countries in need, such as Brazil. Finally, in our view it is
unthinkable that Japan will not get more aggressive in solving its banking
problems.
A TIME TO BE DEFENSIVE
Given this difficult economic outlook, we believe an emphasis on defensive
stocks and sectors is appropriate. Value is developing rapidly, however,
particularly in many emerging markets which have been decimated. These emerging
markets should be the main beneficiaries as global solutions are ultimately
implemented. In effect, a transfer of wealth from developed economies to
emerging countries will have to take place to cure the global economy.
/s/ Richard Saler
- -----------------------
Richard Saler
Portfolio Manager
/s/ Alan Wapnick
- -----------------------
Alan Wapnick
Portfolio Manager
(1) 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.
- -------------------------------------------------------------------------------
6
<PAGE> 8
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - GLOBAL SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY GLOBAL SERIES
VS. MORGAN STANLEY CAPITAL
INTERNATIONAL WORLD INDEX
[GRAPH]
This chart assumes a $10,000 investment in Class A shares of Global Series on
October1, 1993, and reflects deduction of the 5.75% sales load. On September30,
1998, the value of your investment in ClassA shares of the Series (with
dividends reinvested) would have grown to $13,620. By comparison, the same
$10,000 investment would have grown to $17,771 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.
- -------------------------------------------------------------------------------
TOP 5 HOLDINGS**
% of
Net Assets
----------
Elan Corporation PLC ADR 2.6%
Imax Corporation ADR 2.2%
Novartis AG 2.1%
Teva Pharmaceutical,
Industries Ltd. ADR 2.0%
Roche Holdings AG 1.9%
**At September 30, 1998
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 year Since Inception
------ ---------------
A Shares (8.47%) 7.62%
(10-1-93)
A Shares with sales charge (13.75%) 6.35%
(10-1-93)
B Shares (9.43%) 6.73%
(10-19-93)
B Shares with CDSC (13.96%) 6.26%
(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.
- -------------------------------------------------------------------------------
7
<PAGE> 9
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
NOVEMBER 15, 1998
[MERIDIAN LOGO] SUBADVISOR: MERIDIAN INVESTMENT MANAGEMENT CORPORATION
To Our Shareholders:
Recent financial market turmoil has highlighted the importance of a diversified
investment strategy. From their highs, domestic stock indices have fallen nearly
20%, the level which defines a bear market. Many international market returns
have been much worse. The biggest losses, however, have been sustained by
investors in emerging markets and hedge funds. The Asset Allocation Series of
Security Equity Fund returned -7.19% in the fiscal year just completed, compared
with the average -3.96% of the Lipper peer group of similar funds. (1) The
disruption in the advance of world financial markets is an unpleasant reminder
that investing is a long term process.
[Patrick Boyle
Portfolio Manager PHOTO]
MARKET SELLOFFS CREATE BUYING OPPORTUNITIES
We view the recent price declines as a buying opportunity and believe that
emotional overreactions are primarily responsible for the sharp selloff in
equity markets. Global worries have focused on economic troubles in Asia,
Russia, and Latin America. Domestically, investors have been distracted by the
potential impeachment of President Clinton. What started as isolated concern for
Japan and emerging markets has transformed into global pessimism. Despite the
general health of the U.S. and European economies, these stock markets have
experienced sizeable rapid declines.
Our quantitative model, which includes earnings, growth, risk, and interest
rates, currently indicates that the U.S. stock market and many international
markets are extremely undervalued. Our domestic investments have targeted three
sectors: technology, consumer cyclicals, and leisure. As investors' concerns
about the overall level of the stock market increased, they sold technology
stocks. The crisis in Asia has also put downward pressure on these issues. As
value investors we realize that often the best buying opportunities are in an
atmosphere of fear and uncertainty. This certainly characterizes current
investor sentiment toward technology stocks and reinforces our belief in this
sector.
VOLATILITY IN THE INTERNATIONAL MARKETS
International equity markets have been more volatile than the U.S. stock market.
European markets led the global rally in early 1998; however, their recent
declines have erased most gains. Our decision to sell the Italian shares in late
April has thus far proven correct, as that market has fallen more than 30% from
its peak. We continue to hold stocks in Germany, Belgium, Denmark, and Japan.
Our Japanese position was a drag on the portfolio in 1997 and early 1998;
however, during the recent global market volatility Japanese stocks have behaved
defensively. We expect that market's next major move will be higher.
The U.S. bond market has benefited from the global volatility. Investors fearing
a broad bear market have reduced equity holdings and purchased U.S. Treasuries
as a safe haven. This, coupled with a cooling domestic economy, has pushed long
term bond yields to record lows.
STOCK MARKETS LEAD THE ECONOMY
The stock market has a long history of leading the economy by approximately six
to nine months. When markets rally, they do so in advance of an economic
turnaround, while news is still quite pessimistic. The old adage that "markets
climb a wall of worry" is quite appropriate to define current times. We believe
that the current period of uncertainty will likely be followed by a strong
global stock rally.
/s/ Patrick Boyle
- --------------------
Patrick Boyle
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Management fee waivers reduced Fund expenses and in the
absence of such waivers the performance quoted would be reduced.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
- -------------------------------------------------------------------------------
8
<PAGE> 10
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY ASSET ALLOCATION SERIES
VS. S&P 500 MERIDIAN BLENDED INDEX
[GRAPH]
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
September30, 1998, the value of your investment in Class A shares of the Series
(with dividends reinvested) would have grown to $12,071. By comparison, the same
$10,000 investment would have grown to $20,138, 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 $15,307.
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.
- --------------------------------------------------------------------------------
TOP 5 EQUITY HOLDINGS**
% of
Net Assets
----------
Tele-Communications, Inc. 1.4%
MediaOne Group, Inc. 1.3%
Cisco Systems, Inc. 1.1%
EMC Corporation 0.9%
Lexmark International Group, Inc. 0.8%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 year Since Inception
------ ---------------
A Shares (7.19%) 7.70% (6-1-95)
A Shares with sales charge (12.52%) 5.81% (6-1-95)
B Shares (7.99%) 6.71% (6-1-95)
B Shares with CDSC (12.59%) 5.93% (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 waived a portion of the
management fee for the Series for the period ended January 31, 1998 and began
charging management fees February 1, 1998. Performance figures would be lower if
the maximum sales charge and advisory fee were deducted.
- --------------------------------------------------------------------------------
9
<PAGE> 11
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
NOVEMBER 15, 1998
To Our Shareholders:
The Social Awareness Series had an excellent year, returning 7.89% versus the
Lipper peer group average of -3.57% in the twelve months ended September 30,
1998. (1) The benchmark Domini Social Index, which is highly concentrated in
large cap stocks such as Microsoft Corporation, Coca-Cola Company, Merck &
Company, Inc., and Johnson & Johnson, increased 12.54% over the same period.
[Cindy Shields
Portfolio Manager PHOTO]
ELEMENTS OF A STRONG PERFORMANCE
The key element to our positive results over the past twelve months was the
timing of our move to more defensive stocks early in the calendar year. In
assuming a defensive posture we focused on large cap companies, adding to
sectors such as food companies, cable providers, long distance phone companies,
and regional Bell telephone operating companies.
Our technology sector was a strong contributor to the positive total return.
Microsoft Corporation, our largest holding at approximately 3.6% of the total
portfolio, climbed 67% during the fiscal year. Our general practice is to hold
much smaller positions, restricting block size in most names to about 1.5% of
assets in times when the markets seem confused. This is in contrast to the
benchmark Domini Social Index. As noted above, it is highly concentrated in
large cap stocks, with the top ten in size making up about 28% of the total
index.
A DEFENSIVE POSTURE IS APPROPRIATE AWHILE LONGER
We plan to maintain our defensive orientation while the market continues to be
concerned about global economic conditions. We believe that excellent valuations
are developing in many small-cap and midcap companies and economically sensitive
stocks. When we sense that a market recovery is in sight we plan to move
cautiously into some of these companies. Currently we believe analysts'
estimates for 1999 earnings are too high. We are hesitant to shift the portfolio
holdings until these estimates have been adjusted downward.
WHEN THE GLOBAL ECONOMY STARTS TO IMPROVE
When world conditions begin to improve, investors will be willing to move back
into the cyclical sectors. History has proven that the best time to own these
cyclicals, as well as small-cap and midcap stocks, is when the economy begins
its climb out of an economic downturn.
Stock selection for social awareness portfolios can become more difficult as
markets rise. In the cyclical industries which are expected to perform well
after an economic slowdown, many companies can find themselves facing
environmental and other problems. Traditional cyclical companies in industries
such as chemicals, machinery, manufacturing, and auto parts and equipment as
well as others require careful screening before being included in portfolios
such as ours.
We take seriously our obligations to the shareholders in the Social Awareness
Series. As usual, our stock selection process will focus first on financial
soundness. We realize, however, that the next step, the social screening
process, is of prime importance to you. We appreciate your trust and will use
utmost care in choosing the companies in which we invest.
/s/ Cindy Shields
- --------------------
Cindy Shields
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge. Management fee waivers reduced fund expenses and
in the absence of such waiver the performance quoted would be reduced.
- -------------------------------------------------------------------------------
10
<PAGE> 12
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY SOCIAL AWARENESS SERIES
VS. S&P 500 AND DOMINI SOCIAL INDEX
[GRAPH]
This chart assumes a $10,000 investment in Class A shares of Social Awareness
Series on November 1, 1996, and reflects deduction of the 5.75% sales load. On
September30, 1998, the value of your investment in Class A shares of the Series
(with dividends reinvested) would have grown to $12,192. By comparison, the same
$10,000 investment would have grown to $14,743 based on the S&P 500 Index's
performance and $15,687 based on the Domini Social Index.
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.
- -------------------------------------------------------------------------------
TOP 5 HOLDINGS**
% of
Net Assets
----------
Microsoft Corporation 3.6%
Intel Corporation 3.1%
International Business
Machines Corporation 2.6%
Merck & Company, Inc. 2.5%
Schering-Plough Corporation 2.4%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 Year Since Inception
------ ---------------
A Shares 7.89% 14.40% (11-1-96)
A Shares with sales charge 1.67% 10.90% (11-1-96)
B Shares 6.74% 13.17% (11-1-96)
B Shares with CDSC 1.74% 11.29% (11-1-96)
- -------------------------------------------------------------------------------
The performance data above represents past performance which is not predictive
of future results. The returns have been calculated from November 1, 1996 (date
of inception) to September 30, 1998 and are not annualized. 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 waived the management fee for the Series for the period
ended January 31, 1998 and began charging management fees February 1, 1998.
Performance figures would be lower if the maximum sales charge and advisory fee
were deducted.
- -------------------------------------------------------------------------------
11
<PAGE> 13
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - VALUE SERIES
NOVEMBER 15, 1998
To Our Shareholders:
In the fiscal year ended September 30, 1998 the Value Series of Security Equity
Fund produced a -4.31% return, underperforming its Lipper peer group average of
- -1.08% and the S&P Barra Value Index return of -0.27% (1) The midcap
orientation of the fund which distinguishes it from the larger-cap average of
the peer group has been the most significant negative factor. To illustrate, the
S&P 400 Midcap Stock Index returned -6.33% for the twelve-month period.
[Jim Schier
Portfolio Manager PHOTO]
MIDCAP STOCKS SUFFER IN THE FLIGHT TO SAFETY AND LIQUIDITY
The portfolio performed reasonably well, given its midcap characteristics. The
recent preference on the part of investors for recession-resistant stocks has
driven them away from the midcaps to the larger issues perceived to have a
higher degree of safety and liquidity. This was perhaps most evident in the
energy sector where the large multinational oil companies were perceived as safe
havens. The smaller issues which we held fared much worse. For example,
Tuboscope, Inc., which provides pipeline and technical services and engineered
products to the oil and gas industry, declined nearly 60% over the twelve
months. Oil exploration and development company Apache Corporation fell 33% in
the same period. Consumer staples and consumer cyclicals sectors were also
punished in the midcap area of the market.
THERE WERE POSITIVES ALSO DURING THE YEAR
There were positives in the portfolio during the year, however. We held some
health care issues which performed extremely well. Mylan Laboratories, Inc., a
generic drug manufacturer, rose 41.5% during the time we owned it as generic
drug prices rebounded and the company reported strong earnings. Allegiance
Corporation, a company that provides health care products and services to
hospitals and other health care providers, also exhibited favorable earnings and
rose over 70% during our holding period.
Our underweighting in the financial sector versus the benchmark index was also a
positive as this group suffered under a cloud of weakening international
conditions. We held about a 5.5% weighting, while the index contains 26.4% in
financial stocks. We also received good performance from three software and
technology services companies which we purchased early in the fund's existence.
These were Computer Sciences Corporation, Rational Software Corporation, and
American Management Systems, Inc.
OPPORTUNITIES ABOUND IN DEPRESSED MARKETS
Much has changed in the stock markets over the last year. The perception of
midcaps as more value-oriented than their large cap counterparts continues to
grow. It is now easy to find midcap stocks with valuation levels not seen since
the mid-1980s, despite the fact that interest rates are about half of what they
were at that time.
We continue to seek attractively priced stocks that should be only minimally
negatively impacted by a barrage of Asian and emerging market imports, such as
computer service companies and other industries with high entry barriers. We
also believe there are excellent bargains in less well-known names that have
been undeservedly depressed by investors' preference for defensive issues.
/s/ Jim Schier
- -----------------------
Jim Schier
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Management fee waivers reduced fund expenses and in the
absence of such waiver the performance quoted would be reduced.
- -------------------------------------------------------------------------------
12
<PAGE> 14
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - VALUE SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY VALUE SERIES VS. S&P 500
AND S&P500/BARRA VALUE INDEX
[GRAPH]
This chart assumes a $10,000 investment in Class A shares of Value Series on May
1, 1997, and reflects deduction of the 5.75% sales load. On September 30, 1998,
the value of your investment in Class A shares of the Series (with dividends
reinvested) would have been $11,680. By comparison, the same $10,000 investment
would have been $12,853, based on the S&P 500 Index performance. Comparison is
also made to the S&P 500/BARRA Value Index. The same $10,000 investment in the
S&P 500/BARRA Value Index would have been $11,668.
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.
- -------------------------------------------------------------------------------
TOP 5 HOLDINGS**
% of
Net Assets
Mylan Laboratories, Inc. 4.4%
Comverse Technology, Inc. 3.7%
Equitable Resources, Inc. 3.2%
Angelica Corporation 2.9%
RailAmerica, Inc. 2.9%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 Year Since Inception
------ ---------------
A Shares (4.31%) 16.31% (5-1-97)
A Shares with sales charge (9.81%) 11.56% (5-1-97)
B Shares (5.38%) 15.14% (5-1-97)
B Shares with CDSC (10.11%) 12.47% (5-1-97)
- -------------------------------------------------------------------------------
The performance data above represents past performance which is not predictive
of future results. The returns have been calculated from May 1, 1997 (date of
inception) to September 30, 1998. 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 waived the
management fee for the Series for the period ended January 31, 1998, and began
charging management fees February 1, 1998. Performance figures would be lower if
the maximum sales charge and advisory fee were deducted.
- -------------------------------------------------------------------------------
13
<PAGE> 15
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - SMALL COMPANY SERIES
NOVEMBER 15, 1998
[STRONG LOGO]
To Our Shareholders:
The quarter from July 1, 1998 through September 30, 1998 was witness to some of
the most turbulent markets in recent history. Many of the concerns existing
since the beginning of the Asian crisis last year have come to the forefront.
What appeared at first to be confined to Asia spread throughout the world's
financial markets. Many global economies are now in recession, and others are
teetering on the brink. In financial markets investors are fleeing from risk,
triggering a credit crunch that further threatens growth.
[Ronald C. Ognar
Portfolio Manager PHOTO]
SMALL CAP STOCKS SUFFERED MORE THAN THEIR LARGE CAP COUNTERPARTS
U.S. equities fell sharply as investors lowered earnings expectations. Many
stocks, both large and small, have experienced declines in excess of 20% from
their 1998 highs. The declines in the average stock resemble those that occurred
in 1987 and 1990. While the declines in the large-cap stocks have been severe,
mid- and small-caps have suffered greater losses in the flight to quality.
For the period from inception of the fund, October 15, 1997, through September
30 of this year, the Small Company Series of Security Equity Fund returned
- -12.95% (1) As bad as this sounds, it was really quite favorable when compared
with the benchmark Russell 2000 Index which declined 20.49% over the same
period. The portfolio outperformed its benchmark primarily because of its
larger-than-normal cash position and advantageous stock selection in commercial
services and retail sectors of the market.
SECTOR SHIFTS BASED ON INCREASED RISK
During the fourth quarter of the fiscal year (the third calendar quarter) we
shifted away from the most cyclical issues, particularly retailers and other
consumer cyclicals, as high valuations and recession fears increased the risk in
those groups. We also reduced our holdings in financials. A portion of the
proceeds from these sales went into stocks with more dependable earnings, and we
raised cash reserves with the remainder. Health care exposure was significantly
increased as we sought safe havens where consumer spending will likely remain
stable during an economic slowdown. Later in the quarter we began cautiously to
redeploy cash reserves into technology and health care issues that had been
severely depressed.
VOLATILITY AND INTERNATIONAL INSTABILITY EXPECTED TO CONTINUE
Looking ahead, we expect continued volatility in equities. A great deal of
negative news has been priced into the market so far, but more may be
forthcoming. We are especially concerned about earnings reductions over the next
several months, additional negative news regarding President Clinton, and
continued international instability. Because of their relatively low current
valuations, we believe small cap stocks may do better in the months ahead.
The Federal Reserve now seems willing to lower interest rates in an effort to
maintain healthy economic growth in the U.S. It may take several more Fed rate
cuts and a coordinated effort by the G7 countries before the market will be in
the position to start a new up phase. We will continue to invest in the highest
quality growth companies with capable managements, selling at reasonable
valuations.
/s/ Ronald C. Ognar
- ------------------------
Ronald C. Ognar
Portfolio Manager
(1) Performance figures are based on Class A shares, are not annualized and do
not reflect deduction of the sales charge. The Investment Manager waived the
Fund's management fee for the fiscal period ended September 30, 1998 and in the
absence of such waiver the performance quoted would be reduced.
- -------------------------------------------------------------------------------
14
<PAGE> 16
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY EQUITY FUND - SMALL COMPANY SERIES
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SMALL COMPANY SERIES
VS. RUSSELL 2000 INDEX, AND
RUSSELL 2000 GROWTH INDEX
[GRAPH]
This chart assumes a $10,000 investment in Class A shares of Small Company
Series on October 15, 1997, and reflects deduction of the 5.75% sales load. On
September 30, 1998, the value of your investment in Class A shares of the Series
(with dividends reinvested) would have been $8,205. By comparison, the same
$10,000 investment would have been $7,912, based on the Russell 2000 index
performance. Comparison is also made to the S&P Russell 2000 Growth Index. The
same $10,000 investment in the Russell 2000 Growth Index would have been $7,342
over the same period.
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.
- -------------------------------------------------------------------------------
TOP 5 HOLDINGS**
% of
Net Assets
----------
Lason, Inc. 3.7%
Profit Recovery Group
International, Inc. 3.0%
99 Cents Only Stores 2.8%
ResMed, Inc. 2.5%
Province Healthcare Company 2.4%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
Since Inception
---------------
A Shares (12.95%) (10-15-97)
A Shares with sales charge (17.95%) (10-15-97)
B Shares (13.70%) (10-15-97)
B Shares with CDSC (18.02%) (10-15-97)
- -------------------------------------------------------------------------------
The performance data above represents past performance which is not predictive
of future results. The returns have been calculated from October 15, 1997 (date
of inception) to September 30, 1998. 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 waived the
management fee for the Series for the period ended September 30, 1998.
Performance figures would be lower if the maximum sales charge and advisory fee
were deducted.
- -------------------------------------------------------------------------------
15
<PAGE> 17
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
SECURITY ULTRA FUND
NOVEMBER 15, 1998
To Our Shareholders:
The year ended September 30, 1998 was difficult for all but the largest stocks.
Security Ultra Fund generated a -12.45% total return for the fiscal year, while
the Lipper peer group average dropped 11.95% (1) The benchmark Standard &
Poor's Midcap 400 Index returned -6.1% while the small-cap Russell 2000 Index
lost 18.9%.
SOME BRIGHT SPOTS IN AN OTHERWISE GLOOMY PICTURE
Despite the weak markets, there were some positive factors in the portfolio. Our
overweightings versus the benchmark S&P Midcap 400 Index in the technology and
health care sectors, two sectors which performed favorably versus the overall
index results, lent some stability. A strong stock selection in the financial
industry allowed that sector of the portfolio to generate a slightly positive
return while the parallel sector in the benchmark was down nearly 8%.
In the health care arena we also benefited from takeovers in three stocks in the
portfolio. R.P. Scherer Corporation, a developer and producer of drug delivery
systems, agreed to merge with Cardinal Health, Inc. ATL Ultrasound, Inc., which
develops, manufactures, and markets diagnostic medical ultrasound systems and
supplies, was acquired by Philips Electronics NV. Depuy, Inc., a manufacturer of
orthopedic devices and supplies, was purchased by Johnson & Johnson.
Among the financial stocks in the portfolio the strongest performer was AFLAC
Inc., whose principal subsidiary is American Family Life Assurance Company. The
stock rose 11.77% over the fiscal year as it generated strong growth despite the
difficult economic conditions in Japan, one of the primary countries in which it
does business.
AREAS WHICH FARED LESS WELL
Even though the decision to overweight the technology sector helped overall
performance, some names among the portfolio holdings underperformed their peers
in the benchmark index. Chief among these was the stock of Transcrypt
International, Inc., which designs and manufactures information security
products and wireless communications equipment. Transcrypt suffered under the
cloud of alleged irregularities in accounting practices. Three other tech
issues, ADC Telecommunications, Inc., Cambridge Technology, Inc., and Sawtek,
Inc., all lost ground because of investors' fears of slowing earnings growth in
the companies.
In the portfolio our utility sector weighting was low at about 1% compared with
the benchmark index's 11%. This sector turned in a strong performance after
mid-July because these companies' operations and earnings are largely
U.S.-oriented. When the developing global economic crisis began to weigh heavily
on companies with international exposure, those firms such as the utilities with
domestic orientations outperformed.
COMPANIES WITH LITTLE INTERNATIONAL EXPOSURE SHOULD PERFORM FAVORABLY
We believe that the midcap sector of the stock market is poised for a powerful
rally once market participants begin to believe that 1999 earnings will not
decline precipitously. We are acutely aware that the world is a much different
place today than a year ago, and we seek to emphasize companies with unique
products and competitive strengths that are not directly negatively influenced
by a more competitive international marketplace. We expect that the technology
service, health care, and media companies will be among this group and plan to
emphasize them in the coming months.
/s/ Jim Schier
- --------------------------
Jim Schier
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
- -------------------------------------------------------------------------------
16
<PAGE> 18
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
SECURITY ULTRA FUND
NOVEMBER 15, 1998
- -------------------------------------------------------------PERFORMANCE-------
SECURITY ULTRA FUND
VS.S&P MIDCAP 400
[GRAPH]
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Ultra Fund on
September 30, 1988, and reflects deduction of the 5.75% sales load. On September
30, 1998, the value of your investment in Class A shares of the fund (with
dividends reinvested) would have grown to $20,952. In comparison, the same
$10,000 investment would have grown to $46,759 based on the S&P Midcap 400'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
----------
Mylan Laboratories, Inc. 6.5%
Comverse Technology, Inc. 5.0%
Rational Software Corporation 3.2%
AFLAC, Inc. 3.2%
American Management Systems, Inc. 3.1%
**At September 30, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
As of September 30, 1998
1 year 5 years 10 years
------ ------- --------
A Shares (12.45%) 7.57% 8.32%
A Shares with sales charge (17.45%) 6.29% 7.68%
B Shares (13.30%) 6.28% N/A
(10-19-93)
(since inception)
B Shares with CDSC (17.64%) 5.80% 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.
- -------------------------------------------------------------------------------
17
<PAGE> 19
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY GROWTH AND INCOME FUND
PRINCIPAL
AMOUNT OR
NUMBER MARKET
PREFERRED STOCKS OF SHARES VALUE
- ----------------------------------------------------------------------------
BANKING - 0.2%
California Federal Bank.......................... 7,000 $178,938
CONSUMER CYCLICAL - 0.5%
CSC Holdings, Inc................................ 1,888 202,498
Primedia, Inc.................................... 2,500 255,000
------------
457,498
------------
Total preferred stocks - 0.7%............................ 636,436
CORPORATE BONDS
- ---------------
AEROSPACE - 0.2%
Burke Industries, Inc., 10.00% - 2007............ $175,000 174,563
BANKING - 0.4%
Bay View Capital Corporation, 9.125% - 2007...... $100,000 97,875
BF Saul REIT, 9.75% - 2008....................... $100,000 87,500
Homeside, Inc., 11.25% - 2003.................... $121,000 140,511
------------
325,886
BEVERAGE - 0.2%
Delta Beverage Group, 9.75% - 2003............... $200,000 200,000
BROKERAGE - 0.2%
SI Financing Trust I, 9.50% - 2026(1)............ 7,500 200,625
BUILDING MATERIALS - 0.2%
Nortek, Inc., 8.875% - 2008...................... $150,000 144,750
CHEMICALS - 0.0%
Envirodyne Industries, Inc., 12.00% - 2000....... $34,000 34,128
CONSTRUCTION MACHINERY - 0.3%
AGCO Corporation, 8.50% - 2006................... $150,000 146,625
Columbus McKinnon Corporation, 8.50% - 2008...... $150,000 143,437
------------
290,062
CONSUMER CYCLICAL - OTHER - 0.1%
American ECO Corporation, 9.625% - 2008.......... $125,000 108,125
CONSUMER PRODUCTS - 0.2%
Revlon Consumer Products, 8.125% - 2006.......... $175,000 172,813
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- ----------------------------------------------------------------------------
ELECTRIC UTILITY - 0.4%
AES Corporation, 10.25% - 2006................... $200,000 $207,500
Cal Energy Company, Inc., 9.50% - 2006........... 100,000 109,000
------------
316,500
ENERGY - OTHER - 0.1%
P&L Coal Holdings Corporation, 8.875% - 2008..... 75,000 76,125
ENERGY - REFINING - 0.3%
Crown Central Petroleum, 10.875% - 2005.......... 200,000 206,750
ENTERTAINMENT - 0.1%
Empress Entertainment, Inc., 8.125% - 2006....... 75,000 74,625
FINANCE - 0.4%
Dollar Financial Group, Inc., 10.875% - 2006..... 300,000 294,750
FOOD - 0.6%
Carrolls Corporation, 11.50% - 2003.............. 425,000 444,125
Nash Finch Company, 8.50% - 2008................. 100,000 94,000
------------
538,125
GAMING - 0.3%
MGM Grand, Inc., 6.95% - 2005.................... 125,000 127,812
Mirage Resorts, Inc., 6.625% - 2005.............. 125,000 126,094
------------
253,906
HEALTH CARE - 0.4%
Multicare Companies, Inc., 9.00% - 2007.......... 200,000 188,500
Prime Medical Services, Inc., 8.75% - 2008....... 75,000 69,000
Tenet Healthcare Corporation, 8.125% - 2008...... 100,000 102,375
------------
359,875
HOME CONSTRUCTION - 0.2%
Hovnanian Enterprise, 9.75% - 2005............... 100,000 91,750
Toll Corporation, 7.75% - 2007................... 100,000 98,750
------------
190,500
INSURANCE - 0.1%
General American Life Insurance
Company, 8.525% - 2027........................ 75,000 83,906
See accompanying notes.
- -----------------------------------------------------------------------------
18
<PAGE> 20
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY GROWTH AND INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
LODGING - 0.2%
Properties, 7.875% - 2008 $175,000 $ 172,812
MEDIA - CABLE - 1.6%
Adelphia Communication Corporation,
8.125% - 2003 175,000 175,875
Century Communications Corporation,
9.50% - 2005 100,000 108,500
8.375% - 2007 100,000 103,000
CF Cable T.V., Inc.,
11.625% - 2005 150,000 166,312
CSC Holdings, Ltd.,
7.625% - 2018 75,000 72,375
7.875% - 2018 25,000 24,688
Diamond Holdings, Inc.,
9.125% - 2008 125,000 122,187
Jones Intercable, Inc.,
7.625% - 2008 100,000 103,000
Lenfest Communications, Inc.,
10.50% - 2006 125,000 141,875
Rogers Cablesystems, Inc.,
9.625% - 2002 175,000 184,844
Rogers Communications, Inc.,
9.125% - 2006 200,000 199,500
------------
1,402,156
MEDIA - NONCABLE - 0.6%
Albritton Communications Company,
9.75% - 2007 125,000 128,438
Golden Books Publishing, Inc.,
7.65% - 2002 200,000 62,500
Heritage Media Corporation,
8.75% - 2006 100,000 104,500
Hollinger International, Inc.,
9.25% - 2006 200,000 208,000
------------
503,438
METALS - 0.4%
Ameristeel Corporation,
8.75% - 2008 100,000 96,875
Simcala, Inc., 9.625% - 2006 75,000 59,813
Wheeling-Pittsburgh Corporation,
9.25% - 2007 100,000 92,500
WHX Corporation,
10.50% - 2005 75,000 68,812
------------
318,000
PACKAGING - 0.2%
Indesco International, Inc.,
9.75% - 2008 175,000 162,750
RETAILERS - 0.3%
Specialty Retailers, Inc.,
8.50% - 2005 $125,000 $ 115,938
Zale Corporation, 8.50% - 2007 $100,000 97,750
------------
213,688
SERVICES - 0.3%
Loewen Group, Inc.,
6.70% - 1999 $75,000 73,781
Protection One, Inc.,
7.375% - 2005 $200,000 209,000
------------
282,781
TELECOMMUNICATIONS - 1.1%
Comcast Cellular Holdings, Inc.,
9.50% - 2007 $200,000 205,250
Mastec, Inc., 7.75% - 2008 $75,000 69,844
Mcleodusa, Inc., 8.375% - 2008 $175,000 172,375
MJD Communications, Inc.,
9.50% - 2008 $175,000 175,875
RCN Corporation, 10.00% - 2007 $225,000 210,937
Satelites Mexicanos, Inc.,
10.125% - 2004 $200,000 135,500
------------
969,781
TEXTILES - 0.2%
Delta Mills, Inc., 9.625% - 2007 $100,000 92,250
Westpoint Stevens, Inc.,
7.875% - 2008 $75,000 76,312
------------
168,562
------------
Total corporate bonds - 9.6% 8,239,982
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 1.4%
Boeing Company 20,000 686,250
Precision Castparts Corporation 12,000 495,000
------------
1,181,250
AUTOMOBILES - 0.8%
General Motors Corporation 13,000 710,937
AUTO PARTS & EQUIPMENT - 1.7%
Genuine Parts Company 20,000 601,250
TRW, Inc. 20,000 887,500
------------
1,488,750
BANKS - MAJOR REGIONAL - 2.6%
Banc One Corporation 16,000 682,000
Bankers Trust Corporation 12,000 708,000
J.P. Morgan & Company, Inc. 10,000 846,250
------------
2,236,250
</TABLE>
See accompanying notes.
- -------------------------------------------------------------------------------
19
<PAGE> 21
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY GROWTH AND INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCK (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
BEVERAGES - ALCOHOLIC - 1.1%
Anheuser-Busch Companies, Inc........... 18,000 $ 972,000
BEVERAGES - SOFT DRINK - 0.5%
PepsiCo, Inc............................ 14,000 412,125
CHEMICALS - BASIC - 1.4%
E.I. du Pont de Nemours & Company 12,000 673,500
Praxair, Inc............................ 16,000 523,000
------------
1,196,500
COMMUNICATION EQUIPMENT - 0.6%
Motorola, Inc........................... 12,000 512,250
CONTAINERS & PACKAGING - 1.8%
Bemis Company, Inc...................... 20,000 701,250
Crown Cork & Seal Company, Inc. 16,000 428,000
Union Camp Corporation.................. 10,000 393,750
------------
1,523,000
ELECTRICAL EQUIPMENT - 1.1%
Emerson Electric Company................ 6,000 373,500
Hubbell, Inc. (Cl.B).................... 15,000 532,500
------------
906,000
ELECTRIC COMPANIES - 6.5%
Allegheny Energy, Inc................... 13,000 410,313
Baltimore Gas & Electric Company........ 10,000 333,750
Cinergy Corporation..................... 20,000 765,000
Kansas City Power & Light Company....... 30,000 913,125
LG&E Energy Corporation................. 10,000 278,750
Northern States Power Company........... 16,000 449,000
Peco Energy Company..................... 24,000 877,500
Potomac Electric Power Company.......... 20,000 530,000
Public Service Enterprise Group, Inc.... 13,000 511,062
Texas Utilities Company................. 10,000 465,625
------------
5,534,125
ELECTRONICS - DEFENSE - 1.3%
Raytheon Company (Cl.B)................. 20,200 1,089,537
ELECTRONICS - DISTRIBUTION - 0.5%
W.W. Grainger, Inc...................... 10,000 421,250
ELECTRONICS - INSTRUMENTATION - 0.3%
Tektronix, Inc.......................... 15,000 232,500
FOODS - 2.2%
ConAgra, Inc............................ 10,000 269,375
General Mills, Inc...................... 12,700 889,000
Tyson Foods, Inc. (Cl.A)................ 34,700 689,662
------------
1,848,037
FOOTWEAR - 0.2%
Nike, Inc. (Cl.B)....................... 4,000 147,250
GAMING & LOTTERY - 0.4%
Mirage Resorts, Inc..................... 20,000 $ 335,000
HEALTH CARE - DRUGS (MAJOR) - 1.3%
Mylan Laboratories, Inc................. 8,000 236,000
Teva Pharmaceutical
Industries, Ltd. ADR................. 22,200 840,825
------------
1,076,825
HEALTH CARE - LONG TERM CARE - 0.6%
Integrated Health Services, Inc......... 30,500 512,781
HEALTH CARE - MANAGED CARE - 1.8%
Humana, Inc.*........................... 44,600 730,325
United Healthcare Corporation........... 22,800 798,000
------------
1,528,325
HEALTH CARE - SPECIALIZED SERVICES - 0.4%
Alza Corporation*....................... 8,000 347,000
HOUSEHOLD FURNISHINGS & APPLIANCES - 0.5%
Whirlpool Corporation................... 9,000 423,000
HOUSEHOLD PRODUCTS - 0.9%
Kimberly-Clark Corporation.............. 18,000 729,000
INSURANCE - LIFE/HEALTH - 0.6%
Aetna, Inc.............................. 8,000 556,000
INSURANCE - PROPERTY & CASUALTY - 3.5%
Chubb Corporation....................... 10,000 630,000
Leucadia National Corporation........... 30,000 879,375
SAFECO Corporation...................... 15,000 625,313
St. Paul Companies, Inc................. 26,700 867,750
------------
3,002,438
MACHINERY - DIVERSE - 1.4%
Deere & Company......................... 20,000 605,000
Ingersoll-Rand Company.................. 16,000 607,000
------------
1,212,000
MANUFACTURING - DIVERSIFIED - 1.1%
Tenneco, Inc............................ 28,000 920,500
MEDICAL PRODUCTS & SUPPLIES - 2.5%
Baxter International, Inc............... 20,000 1,190,000
Dentsply International, Inc............. 8,000 179,000
St. Jude Medical, Inc.*................. 32,000 740,000
------------
2,109,000
METALS - MINING - 1.3%
Asarco, Inc............................. 60,000 1,147,500
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
20
<PAGE> 22
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY GROWTH AND INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
NATURAL GAS - 2.8%
Consolidated Natural Gas Company....... 15,000 $ 817,500
Equitable Resources, Inc............... 20,000 508,750
People's Energy Corporation............ 30,000 1,080,000
------------
2,406,250
OFFICE EQUIPMENT & SUPPLIES - 1.4%
Corporate Express, Inc.*............. 100,000 1,193,750
OIL - DOMESTIC - 0.6%
Unocal Corporation................... 15,000 543,750
OIL - INTERNATIONAL - 2.7%
Mobil Corporation.................... 10,000 759,375
Royal Dutch Petroleum Company ADR.... 32,600 1,552,575
------------
2,311,950
OIL & GAS - DRILLING & EQUIPMENT - 2.8%
Halliburton Company.................... 32,000 914,000
Schlumberger, Ltd...................... 30,300 1,524,469
------------
2,438,469
OIL & GAS - EXPLORATION & PRODUCTION - 3.6%
Apache Corporation..................... 25,000 670,313
Burlington Resources, Inc.............. 19,000 710,125
Kerr-McGee Corporation................. 18,000 819,000
Phillips Petroleum Company............. 19,000 857,375
------------
3,056,813
OIL & GAS - REFINING & MARKETING - 0.8%
Ultramar Diamond Shamrock Corporation.. 30,000 682,500
PAPER & FOREST PRODUCTS - 2.3%
Boise Cascade Corporation.............. 20,000 506,250
Champion International Corporation..... 10,000 313,125
International Paper Company............ 8,000 373,000
Louisiana-Pacific Corporation.......... 40,000 815,000
------------
2,007,375
PERSONAL CARE - 0.5%
Alberto-Culver Company................. 20,000 467,500
PHOTOGRAPHY - IMAGING - 0.9%
Eastman Kodak Company.................. 10,000 773,125
PUBLISHING - 0.9%
Dow Jones & Company, Inc............... 16,000 744,000
RAILROADS - 2.2%
Burlington Northern Santa Fe
Corporation......................... 21,000 672,000
Norfolk Southern Corporation........... 18,000 523,125
Union Pacific Corporation.............. 16,000 682,000
------------
1,877,125
REAL ESTATE INVESTMENT TRUSTS - 3.5%
Camden Property Trust.................. 20,000 $ 558,750
HRPT Properties Trust.................. 20,000 322,500
Highwoods Properties, Inc.............. 10,000 277,500
Hospitality Properties Trust........... 20,000 595,000
Liberty Property Trust................. 24,000 571,500
Simon Property Group, Inc.............. 12,000 357,000
United Dominion Realty Trust, Inc...... 30,000 341,250
------------
3,023,500
RESTAURANTS - 1.8%
Landry's Seafood Restaurants, Inc.*.... 60,000 405,000
McDonald's Corporation................. 8,000 477,500
Wendy's International, Inc............. 30,000 665,625
------------
1,548,125
RETAIL - DEPARTMENT STORES - 0.7%
Dillard's Inc.......................... 20,000 566,250
RETAIL - FOOD CHAINS - 1.0%
Giant Food, Inc........................ 20,000 863,750
RETAIL - SPECIALTY - 0.4%
Toys "R" Us, Inc.*..................... 20,000 323,750
SERVICES - COMMERCIAL & CONSUMER - 1.4%
Angelica Corporation................... 43,800 703,538
Laidlaw, Inc........................... 49,000 462,437
------------
1,165,975
SERVICES - DATA PROCESSING - 1.6%
Electronic Data System Corporation..... 20,000 663,750
First Data Corporation................. 30,000 705,000
------------
1,368,750
TELECOMMUNICATION - 6.1%
Alltel Corporation..................... 24,000 1,137,000
Bell Atlantic Corporation.............. 26,000 1,259,375
GTE Corporation........................ 24,000 1,320,000
SBC Communications, Inc................ 35,000 1,555,312
------------
5,271,687
TELECOMMUNICATION - LONG DISTANCE - 1.8%
AT&T Corporation....................... 26,000 1,519,375
TEXTILES - APPAREL - 0.5%
The Warnaco Group, Inc................. 20,000 462,500
TOBACCO - 2.5%
Philip Morris Companies, Inc........... 31,000 1,427,938
UST, Inc............................... 24,000 709,500
------------
2,137,438
</TABLE>
See accompanying notes
- -----------------------------------------------------------------------------
21
<PAGE> 23
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY GROWTH AND INCOME FUND (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMON STOCK (CONTINUED) AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
TRUCKING - 0.4%
Werner Enterprises, Inc................ 24,000 $ 378,000
WASTE MANAGEMENT - 0.8%
Browning-Ferris Industries, Inc........ 23,000 695,750
------------
Total common stocks - 84.3%................... 72,138,587
------------
Total investments - 94.6%..................... 81,015,005
Cash and other assets, less liabilities - 5.4% 4,613,119
------------
Total net assets - 100.0%..................... $85,628,124
============
<CAPTION>
SECURITY EQUITY FUND-EQUITY SERIES
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS
AEROSPACE/DEFENSE - 1.0%
Lockheed Martin Corporation. . . . . . . 85,000 $ 8,569,062
AUTOMOBILES - 0.5%
Chrysler Corporation. . . . . . . . . . 90,000 4,308,750
BANKS - MAJOR REGIONAL - 3.7%
Bank of New York Company, Inc.. . . . . 400,000 10,950,000
Northern Trust Corporation. . . . . . . 200,000 13,650,000
Norwest Corporation . . . . . . . . . . 240,000 8,595,000
------------
33,195,000
BANKS - MONEY CENTER - 0.9%
Chase Manhattan Corporation . . . . . . 190,000 8,217,500
BEVERAGES - SOFT DRINK - 0.7%
Whitman Corporation . . . . . . . . . . 400,000 6,375,000
BROADCAST MEDIA - 0.6%
Chancellor Media Corporation* . . . . . 150,000 5,006,250
BUILDING MATERIALS - 0.4%
Masco Corporation . . . . . . . . . . . 150,000 3,693,750
CHEMICALS - BASIC - 0.6%
Praxair, Inc. . . . . . . . . . . . . . 80,000 2,615,000
Solutia, Inc. . . . . . . . . . . . . . 120,000 2,707,500
------------
5,322,500
COMPUTER HARDWARE - 2.2%
Compaq Computer Corporation . . . . . . 200,000 6,325,000
International Business Machines
Corporation. . . . . . . . . . . . . 60,000 7,680,000
Sun Microsystems, Inc.* . . . . . . . . 120,000 5,977,500
------------
19,982,500
COMPUTERS - NETWORKING - 1.0%
Cisco Systems, Inc.* . . . . . . . . . 150,000 $ 9,271,875
COMPUTER SOFTWARE/SERVICES - 4.7%
BMC Software, Inc.* . . . . . . . . . . 250,000 15,015,625
Computer Sciences Corporation* . . . . 120,000 6,540,000
Microsoft Corporation* . . . . . . . . 180,000 19,811,250
Wang Laboratories, Inc. Warrants* . . . 2,369 12,807
------------
41,379,682
ELECTRICAL EQUIPMENT - 2.8%
Emerson Electric Company . . . . . . . 150,000 9,337,500
General Electric Company . . . . . . . 200,000 15,912,500
------------
25,250,000
ELECTRONICS - SEMICONDUCTORS - 0.6%
Intel Corporation . . . . . . . . . . . 60,000 5,145,000
ENTERTAINMENT - 0.8%
Time Warner, Inc. . . . . . . . . . . . 80,000 7,005,000
FINANCIAL - DIVERSE - 4.3%
American General Corporation . . . . . 150,000 9,581,250
Fannie Mae . . . . . . . . . . . . . . 230,000 14,777,500
Freddie Mac. . . . . . . . . . . . . . 270,000 13,348,125
------------
37,706,875
FOODS - 3.1%
Bestfoods . . . . . . . . . . . . . . 240,000 11,625,000
ConAgra, Inc. . . . . . . . . . . . . 320,000 8,620,000
Ralston-Ralston Purina Group. . . . . 255,000 7,458,750
------------
27,703,750
HEALTH CARE - DIVERSE - 4.2%
American Home Products Corporation . . 260,000 13,617,500
Bristol-Myers Squibb Company . . . . . 150,000 15,581,250
Johnson & Johnson. . . . . . . . . . . 100,000 7,825,000
------------
37,023,750
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.1%
Leggett & Platt, Inc.. . . . . . . . . 461,000 9,565,750
HOUSEHOLD PRODUCTS - 3.0%
Colgate-Palmolive Company. . . . . . . 100,000 6,850,000
Fort James Corporation . . . . . . . . 280,000 9,187,500
Procter & Gamble Company, The. . . . . 150,000 10,640,625
------------
26,678,125
INSURANCE - LIFE/HEALTH - 1.4%
Protective Life Corporation. . . . . . 130,000 4,680,000
Unum Corporation . . . . . . . . . . . 150,000 7,453,125
------------
12,133,125
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
22
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SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
INSURANCE - MULTI-LINE - 3.6%
American International Group, Inc...... 150,000 $11,550,000
Hartford Financial Services
Group, Inc.......................... 200,000 9,487,500
Lincoln National Corporation........... 135,000 11,103,750
------------
32,141,250
INSURANCE - PROPERTY & CASUALTY - 1.3%
Allstate Corporation.................. 270,000 11,255,625
LODGING - HOTELS - 1.3%
Carnival Corporation (Cl. A).......... 370,000 11,770,625
MANUFACTURING - DIVERSIFIED - 6.1%
AlliedSignal, Inc..................... 320,000 11,320,000
Crane Company......................... 300,000 7,050,000
Textron, Inc.......................... 105,000 6,365,625
Tyco International, Ltd............... 240,000 13,260,000
U.S. Industries, Inc.................. 470,000 7,079,375
United Technologies Corporation....... 115,000 8,790,312
------------
53,865,312
MEDICAL PRODUCTS & SUPPLIES - 4.0%
Baxter International, Inc............. 200,000 11,900,000
Becton, Dickinson & Company........... 300,000 12,337,500
Medtronic, Inc........................ 200,000 11,575,000
------------
35,812,500
NATURAL GAS - 1.3%
Coastal Corporation................... 340,000 11,475,000
OIL - DOMESTIC - 0.6%
USX - Marathon Group.................. 155,000 5,492,812
OIL - INTERNATIONAL - 4.4%
Chevron Corporation................... 90,000 7,565,625
Mobil Corporation..................... 140,000 10,631,250
Royal Dutch Petroleum Company ADR..... 200,000 9,525,000
Texaco, Inc........................... 180,000 11,283,750
------------
39,005,625
OIL & GAS - REFINING & MARKETING - 1.0%
Williams Companies, Inc., The.......... 300,000 8,625,000
PHARMACEUTICALS - 3.4%
Schering-Plough Corporation............ 185,000 19,159,063
SmithKline Beecham PLC ADR............. 200,000 10,950,000
------------
30,109,063
PHOTOGRAPHY/IMAGING - 1.0%
Xerox Corporation...................... 100,000 8,475,000
PUBLISHING - 1.0%
McGraw-Hill Companies, Inc............ 110,000 8,717,500
PUBLISHING - NEWSPAPER - 1.9%
Gannett Company, Inc.................. 160,000 $ 8,570,000
Tribune Company....................... 165,000 8,301,563
------------
16,871,563
RETAIL - APPAREL - 0.9%
TJX Companies, Inc..................... 440,000 7,837,500
RETAIL - BUILDING SUPPLIES - 1.3%
Lowes Companies, Inc.................. 125,000 3,976,563
Sherwin-Williams Company.............. 350,000 7,568,750
------------
11,545,313
RETAIL - DEPARTMENT STORES - 1.6%
Federated Department Stores, Inc.*.... 200,000 7,275,000
Saks, Inc.*........................... 300,000 6,731,250
------------
14,006,250
RETAIL - DRUG STORES - 2.6%
Rite Aid Corporation.................. 340,000 12,070,000
Walgreen Company...................... 250,000 11,015,625
------------
23,085,625
RETAIL - FOOD CHAINS - 2.8%
Kroger Company*....................... 175,000 8,750,000
Safeway, Inc.*........................ 340,000 15,767,500
------------
24,517,500
RETAIL - GENERAL MERCHANDISE - 0.6%
Dayton Hudson Corporation.............. 160,000 5,720,000
RETAIL - SPECIALTY - 1.0%
Payless ShoeSource, Inc.*.............. 225,000 9,309,375
SERVICES - ADVERTISING/MARKETING - 1.2%
Omnicom Group, Inc..................... 240,000 10,800,000
SERVICES - COMMERCIAL & CONSUMER - 1.4%
Viad Corporation....................... 450,000 12,065,625
TELECOMMUNICATIONS - 2.6%
GTE Corporation........................ 100,000 5,500,000
MCI Worldcom, Inc.*.................... 250,000 12,218,750
SBC Communications, Inc................ 125,000 5,554,688
------------
23,273,438
TELECOMMUNICATIONS - LONG DISTANCE - 1.4%
Sprint Corporation.................... 170,000 12,240,000
WASTE MANAGEMENT - 0.9%
Waste Management, Inc................. 160,000 7,690,000
------------
Total common stocks - 86.8%.................... 769,240,745
Cash and other assets,
less liabilities - 13.2%..................... 117,343,812
------------
Total net assets - 100.0%...................... $886,584,557
============
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
23
<PAGE> 25
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
AUSTRALIA - 1.1%
Telestra Corporation....................119,600 $ 334,856
BRAZIL - 0.5%
Telecomunicacoes Brasileiras S.A.*...... 2,500 176,094
CANADA - 2.8%
Imax Corporation ADR*................... 34,500 690,000
Lowen Group, Inc., The.................. 4,300 63,425
Yogen Fruz World-Wide, Inc.*............ 27,830 119,438
------------
872,863
DENMARK - 1.3%
Tele Danmark A/S........................ 4,100 407,097
FRANCE - 6.9%
Alcatel Alsthom......................... 1,420 126,170
AXA-UAP................................. 2,840 259,941
Banque Nationale De Paris............... 2,400 128,461
Elf Aquitaine S.A. ADR.................. 6,900 429,094
SEITA................................... 6,000 346,846
Sidel S.A............................... 4,720 323,380
Vivendi................................. 2,760 549,558
------------
2,163,450
GERMANY - 2.5%
Allianz AG............................. 960 296,949
Kamps AG*.............................. 700 36,646
Rhoen-Klinikum AG...................... 5,050 453,213
------------
786,808
GREECE - 2.1%
Aktor S.A.*............................ 14,700 132,196
Commercial Bank of Greece S.A.......... 4,200 328,119
Ergo Bank S.A.......................... 2,600 209,441
------------
669,756
HONG KONG - 0.2%
JCG Holdings, Ltd...................... 320,000 57,818
IRELAND - 3.8%
Allied Irish Banks PLC................. 19,500 285,599
Elan Corporation PLC ADR............... 11,500 828,719
Ryanair Holdings PLC................... 13,640 75,832
------------
1,190,150
ITALY - 3.2%
Banca Nazionale del Lavoro*........... 89,000 226,210
Instituto Nazionale delle
Assicurazioni...................... 88,300 224,430
Mediolanum SpA........................ 9,000 206,421
Telecom Italia SpA.................... 52,900 364,149
------------
1,021,210
JAPAN - 7.7%
Amway Japan, Ltd...................... 13,300 $ 97,708
Asahi Diamond Industry
Company, Ltd....................... 49,000 196,907
Benesse Corporation................... 2,000 79,929
Bunka Shutter Company, Ltd............ 24,000 49,368
Doutor Coffee Company, Ltd............ 7,000 194,902
House Foods Corporation............... 12,000 150,749
Mos Food Service, Inc................. 18,000 218,190
National House Industrial
Company, Ltd....................... 46,000 324,420
Nippon Flour Mills.................... 65,000 138,481
Nisshin Flour Milling Company, Ltd.... 23,000 167,448
Paris Miki, Inc....................... 3,600 48,398
Rinnai Corporation.................... 9,500 149,353
Snow Brand Milk Products
Company, Ltd....................... 70,000 212,386
Sumitomo Forestry Company............. 33,000 162,188
Tiemco, Ltd........................... 3,300 20,607
York-Benimaru Company, Ltd............ 9,900 232,736
------------
2,443,770
LUXEMBOURG - 0.6%
Espirito Santo Financial Group ADR.... 12,900 200,756
NETHERLANDS - 2.4%
Koninklijke Ahold NV.................. 18,600 555,504
Koninklijke KPN LV.................... 6,600 203,766
------------
759,270
NORWAY - 1.9%
Saga Petroleum ASA "A"................ 30,300 311,109
Storebrand ASA*....................... 41,200 283,873
------------
594,982
PHILIPPINES - 0.0%
C&P Homes, Inc........................1,397,450 7,506
SINGAPORE - 1.8%
Keppel Fels, Ltd...................... 21,000 23,310
Mandarin Oriental International, Ltd.. 60,000 28,200
Singapore Press Holdings, Ltd......... 21,000 174,512
Singapore Telecommunications, Ltd..... 203,000 339,799
------------
565,821
SPAIN - 2.2%
Mapfre Vida Seguros................... 4,949 191,599
Tabacalera S.A........................ 22,500 493,348
------------
684,947
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
24
<PAGE> 26
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - GLOBAL SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
SWEDEN - 2.6%
Castellum AB*........................... 55,000 $ 544,068
Swedish Match AB........................ 87,224 271,653
------------
815,721
SWITZERLAND - 5.8%
Nestle S.A.............................. 202 401,870
Novartis AG............................. 414 663,632
Roche Holdings AB....................... 56 602,759
Schweizerische Lebensversicherungs-
und Rentenstalt...................... 342 153,422
------------
1,821,683
UNITED KINGDOM - 13.1%
Aegis Group PLC.........................339,000 486,802
BritishTelecommunications PLC........... 20,500 273,824
Cadbury Schweppes PLC................... 22,300 289,909
Capita Group PLC........................ 35,900 369,711
D.F.S. Furniture Company PLC............ 55,800 188,705
George Wimpey PLC.......................108,000 177,112
Glaxo Wellcome PLC...................... 12,600 371,078
Oriflame International S.A.............. 12,000 27,224
Polypipe PLC............................ 65,500 114,650
Provident Financial PLC................. 32,161 431,223
Regent Inns PLC......................... 72,700 174,200
Rio Tinto PLC........................... 25,600 307,578
Royal Bank of Scotland Group PLC........ 11,400 131,738
SmithKline Beecham PLC.................. 47,800 527,597
Vodafone Group PLC...................... 22,900 266,966
------------
4,138,317
UNITED STATES - 24.1%
Ace, Ltd................................ 3,900 117,000
Adaptec, Inc.*.......................... 11,800 112,100
BJ Services Company*.................... 8,800 143,000
Bristol-Myers Squibb Company............ 1,700 176,588
Caribiner International, Inc.*.......... 5,400 45,900
Chevron Corporation..................... 2,100 176,531
Comcast Corporation..................... 2,700 126,731
Consolidated Edison, Inc................ 2,700 140,738
Costco Companies, Inc.*................. 2,300 108,963
Cymer, Inc.*............................ 10,500 95,812
Data General Corporation*............... 14,900 162,037
Dominion Resources, Inc................. 2,900 129,412
EMC Corporation*........................ 2,300 131,531
Emerson Electric Company................ 2,900 180,525
EXEL, Ltd............................... 1,800 113,400
Fannie Mae.............................. 2,700 173,475
Federal-Mogul Corporation............... 3,000 140,250
Fort James Corporation.................. 5,600 183,750
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Gap, Inc................................ 1,950 $ 102,863
General Electric Company................ 1,900 151,169
GTE Corporation......................... 2,600 143,000
Hershey Foods Corporation............... 2,700 184,781
Home Depot, Inc......................... 2,600 102,700
Johnson & Johnson....................... 2,000 156,500
Lucent Technologies, Inc................ 1,400 96,688
Marsh & Mclennan
Companies, Inc....................... 2,250 111,937
Martin Marietta Materials, Inc.......... 3,700 159,794
Merrill Lynch & Company, Inc............ 1,200 56,850
Millennium Chemicals, Inc............... 7,100 132,237
Mobil Corporation....................... 2,600 197,438
Motorola, Inc........................... 2,300 98,181
NationsBank Corporation................. 1,900 101,650
Network Associates, Inc.*............... 3,000 106,500
Newell Company.......................... 2,800 128,975
Pfizer, Inc............................. 1,200 127,125
Pharmacia & Upjohn, Inc................. 4,200 210,788
Philip Morris Companies, Inc............ 3,300 152,006
Procter & Gamble Company, The........... 2,000 141,875
Rite Aid Corporation.................... 4,200 149,100
Rubbermaid, Inc......................... 5,900 141,231
Safeway, Inc.*.......................... 3,400 157,675
Structural Dynamics
Research Corporation*................ 14,400 162,000
Sungard Data Systems, Inc.*............. 4,800 151,200
Teva Pharmaceutical
Industries, Ltd. ADR................. 17,000 643,875
Texaco, Inc............................. 2,800 175,525
Time Warner, Inc........................ 1,100 96,319
TJX Companies, Inc...................... 5,200 92,625
Tyco International, Ltd................. 1,500 82,875
U.S. Foodservice, Inc.*................. 4,700 195,638
Warner-Lambert Company.................. 2,400 181,200
Williams Companies, Inc., The........... 5,300 152,375
Zale Corporation*....................... 4,500 115,312
------------
7,617,750
------------
Total common stocks - 86.6%................. 27,330,625
PREFERRED STOCKS
- ----------------
GERMANY - 1.5%
Fielman AG.............................. 7,400 285,569
Sto Ag Vorzug........................... 578 186,742
------------
Total preferred stocks - 1.5% 472,311
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
25
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SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
U.S. GOVERNMENT SECURITIES AMOUNT VALUE
- ---------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Strip,
0.00% - 2023..................... $1,915,000 $ 530,090
U.S. Treasury Strip,
0.00% - 2023..................... 4,337,000 1,184,825
------------
Total U.S. government securities - 5.4%..... 1,714,915
------------
Total investments - 93.5%................... 29,517,851
Cash and other assets,
less liabilities - 6.5%................... 2,042,095
------------
Total net assets - 100.0%................... $31,559,946
============
<CAPTION>
INVESTMENT CONCENTRATION
- ------------------------
<S> <C>
At September 30, 1998, Global Series' investment concentration,
by industry, was as follows:
Banking.............................................. 5.9%
Building Materials................................... 5.0%
Electric Equipment................................... 2.4%
Chemicals............................................ 0.5%
Computer Software/Services........................... 3.4%
Entertainment........................................ 3.7%
Financial Services................................... 11.4%
Foods/Beverages...................................... 7.7%
Government........................................... 5.4%
Health Care/Drugs.................................... 15.8%
Household Products................................... 6.3%
Machinery............................................ 1.1%
Manufacturing........................................ 4.0%
Oil & Gas............................................ 4.1%
Retail............................................... 5.5%
Services............................................. 3.4%
Telecommunications................................... 7.6%
Transportation....................................... 0.3%
Cash, short-term instruments
and other assets, less liabilities................ 6.5%
---------
100.0%
=========
<CAPTION>
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
BANKING - 0.8%
Bank of New York Co., Inc.,
6.50% - 2003........................ $25,000 $ 26,375
Washington Mutual Capital I,
8.375% - 2027(1).................... $25,000 27,469
------------
53,844
BROKERAGE - 0.8%
Merrill Lynch & Company, Inc.,
8.00% - 2007........................ $25,000 28,625
SI Financing Trust I, 9.50% - 2026(1).. 910 24,342
------------
52,967
CAPITAL GOODS - 0.4%
Lafarge Corporation,
6.375% - 2005....................... $25,000 26,094
CONSUMER CYCLICAL - 3.1%
Lowe's Companies, Inc.,
6.70% - 2007........................ $25,000 26,625
MGM Grand, Inc., 6.95% - 2005.......... $10,000 10,225
Mirage Resorts, Inc.,
6.625% - 2005....................... $10,000 10,087
NewsAmerican Holdings,
8.625% - 2003....................... $25,000 27,969
Rite Aid Corporation, 6.70% - 2001.....$125,000 129,688
------------
204,594
CONSUMER NONCYCLICAL - 0.9%
Archer-Daniels-Midland Company,
8.875% - 2011....................... $25,000 32,344
Cargill, Inc., 6.15% - 2008............ $25,000 26,687
------------
59,031
INSURANCE - 0.4%
Hartford Life, Inc., 7.10% - 2007...... $25,000 27,594
NATURAL GAS - 0.4%
MCN Investment Corporation,
6.32% - 2003........................ $25,000 26,000
TECHNOLOGY - 0.4%
Dell Computer Corporation,
6.55% - 2008........................ $25,000 26,500
TELECOMMUNICATIONS.- 0.8%
SBC Communications, Inc.,
6.625% - 2007....................... $25,000 27,281
MCI Worldcom, Inc.,
6.4% - 2005......................... $25,000 26,375
------------
53,656
</TABLE>
See accompanying notes.
- ----------------------------------------------------------------------------
26
<PAGE> 28
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - 2.5%
Hertz Corporation, 7.00% - 2004....... $150,000 $162,000
YANKEE - CORPORATES - 0.4%
Abbey National PLC, 6.69% - 2005...... $25,000 26,281
------------
Total corporate bonds - 10.9%............... 718,561
COMMON STOCKS
BROADCAST MEDIA - 2.8%
MediaOne Group, Inc.*................. 2,000 88,875
TCI Satellite Entertainment, Inc.*.... 240 690
Tele-Communications, Inc.*............ 2,400 93,900
------------
183,465
COMMUNICATION EQUIPMENT - 2.2%
ADC Telecommunications, Inc.*......... 800 16,900
Allen Telecom, Inc.*.................. 900 6,019
Andrew Corporation*................... 700 9,275
Leap Wireless International, Inc.*.... 75 351
Lucent Technologies, Inc.............. 400 27,625
Motorola, Inc......................... 400 17,075
Northern Telecom, Ltd................. 1,300 41,600
QUALCOMM, Inc.*....................... 300 14,381
Tellabs, Inc.*........................ 300 11,944
------------
145,170
COMPUTERS - NETWORKING - 1.8%
Cabletron Systems, Inc.*.............. 1,500 16,875
Cisco Systems, Inc.*.................. 1,125 69,539
3Com Corporation*..................... 1,000 30,063
------------
116,477
COMPUTERS - PERIPHERALS - 2.9%
EMC Corporation*...................... 1,000 57,188
Iomega Corporation*................... 2,000 7,500
Lexmark International Group, Inc.*.... 800 55,450
Quantum Corporation*.................. 800 12,700
Read-Rite Corporation*................ 700 5,469
Seagate Technology, Inc.*............. 800 20,050
Storage Technology Corporation*....... 1,200 30,525
------------
188,882
CONSUMER FINANCE - 1.2%
Capital One Financial Corporation..... 200 20,700
ContiFinancial Corporation*........... 800 6,000
Household International, Inc.......... 600 22,500
MBNA Corporation...................... 900 25,763
------------
74,963
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT - 1.5%
Time Warner, Inc...................... 600 $ 52,537
Viacom, Inc. (CI.A)*.................. 600 34,500
Walt Disney Company, The.............. 600 15,187
------------
102,224
EQUIPMENT - SEMICONDUCTORS - 0.9%
Applied Materials, Inc.*.............. 700 17,675
KLA-Tencor Corporation*............... 600 14,925
Novellus Systems, Inc.*............... 700 18,375
Teradyne, Inc.*....................... 600 10,950
------------
61,925
FOOTWEAR - 2.0%
Nike, Inc. (CI.B)..................... 1,500 55,219
Nine West Group, Inc.*................ 2,400 22,950
Reebok International, Ltd.*........... 2,300 31,194
Wolverine World Wide, Inc............. 2,300 25,012
------------
134,375
GAMING & LOTTERY - 1.2%
Circus Circus Enterprises, Inc.*...... 1,400 13,212
Harrah's Entertainment, Inc.*......... 1,400 18,638
International Game Technology, Inc.... 1,300 24,131
Mirage Resorts, Inc.*................. 1,550 25,963
------------
81,944
GOLD COMPANIES - 3.2%
Barrick Gold Corporation.............. 1,700 34,000
Battle Mountain Gold Company.......... 5,700 34,556
Hecla Mining Company*................. 3,600 18,225
Homestake Mining Company.............. 3,100 37,587
Newmont Mining Corporation............ 1,100 26,675
Placer Dome, Inc...................... 2,800 38,675
Stillwater Mining Company*............ 700 22,094
------------
211,812
LONG TERM HEALTH CARE - 1.1%
Beverly Enterprises, Inc.*............ 1,100 8,800
Genesis Health Ventures, Inc.*........ 1,000 12,250
HCR Manor Care, Inc.*................. 500 14,656
HEALTHSOUTH Corporation*.............. 1,551 16,382
Integrated Health Services, Inc....... 700 11,769
Mariner Post-Acute Network, Inc.*..... 1,450 7,431
------------
71,288
INSURANCE - PROPERTY & CASUALTY - 1.8%
Allstate Corporation.................. 700 29,181
Chubb Corporation..................... 500 31,500
Cincinnati Financial Corporation...... 1,000 30,750
St. Paul Companies, Inc............... 900 29,250
------------
120,681
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
27
<PAGE> 29
SCHEDULE OF INVESTMENTS
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
MEDICAL PRODUCTS & SUPPLIES - 2.3%
Baxter International, Inc.............. 600 $ 35,700
Becton, Dickinson & Company............ 800 32,900
Boston Scientific Corporation*......... 400 20,550
Guidant Corporation.................... 400 29,700
Medtronic, Inc......................... 500 28,938
------------
147,788
OIL & GAS - DRILLING & EQUIPMENT - 1.2%
Baker Hughes, Inc...................... 800 16,750
Halliburton Company.................... 700 19,994
Schlumberger, Ltd...................... 400 20,125
Transocean Offshore, Inc............... 700 24,281
------------
81,150
RESTAURANTS - 1.7%
Applebee's International, Inc.......... 600 12,525
Brinker International, Inc.*........... 900 16,875
CKE Restaurants, Inc................... 470 13,983
Cracker Barrel Old Country Store, Inc.. 600 13,650
McDonald's Corporation................. 400 23,875
Outback Steakhouse, Inc.*.............. 400 10,550
Wendy's International, Inc............. 1,000 22,187
------------
113,645
RETAIL - BUILDING SUPPLIES - 1.3%
Fastenal Company....................... 700 17,500
Hughes Supply, Inc..................... 900 25,650
Lowe's Companies, Inc.................. 700 22,269
Sherwin-Williams Company............... 1,000 21,625
------------
87,044
RETAIL - SPECIALTY - 3.1%
AutoZone, Inc.*........................ 1,100 27,088
Claire's Stores........................ 1,600 28,800
Home Depot, Inc........................ 700 27,650
Office Depot, Inc.*.................... 1,000 22,438
OfficeMax, Inc.*....................... 2,100 20,606
The Pep Boys - Manny, Moe & Jack....... 1,200 16,050
Staples, Inc.*......................... 1,550 45,531
Toys "R" Us, Inc.*..................... 900 14,569
------------
202,732
SERVICES - ADVERTISING/MARKETING - 2.0%
Acxiom Corporation*.................... 1,200 29,775
Gartner Group, Inc.*................... 1,000 20,875
Interpublic Group of Companies, Inc.... 500 26,969
Omnicom Group, Inc..................... 600 27,000
True North Communications, Inc......... 1,100 24,406
------------
129,025
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <S>
TELECOMMUNICATIONS - 1.1%
Ameritech Corporation.................. 300 $ 14,212
Bell Atlantic Corporation.............. 214 10,366
BellSouth Corporation.................. 200 15,050
GTE Corporation........................ 200 11,000
SBC Communications, Inc................ 384 17,064
U S West, Inc.......................... 54 2,832
------------
70,524
TOBACCO - 1.9%
Philip Morris Companies, Inc........... 1,000 46,063
RJR Nabisco Holdings Corporation....... 1,500 37,781
UST, Inc............................... 1,500 44,344
------------
128,188
TRUCKING - 1.2%
Rollins Truck Leasing Corporation...... 2,250 25,171
Ryder System, Inc...................... 650 16,169
USFreightways Corporation.............. 800 15,900
Werner Enterprises, Inc................ 1,375 21,656
------------
78,896
------------
Total common stocks - 38.4%......... 2,532,198
U.S. GOVERNMENT & GOVERNMENT AGENCIES
- ---------------------------------------
FEDERAL HOME LOAN MORTGAGES - 2.1%
7.00% - 2020........................ $100,000 100,954
7.00% - 2021........................ $39,685 40,370
------------
141,324
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.3%
6.50% - 2018........................ $48,451 48,560
6.95% - 2020........................ $130,000 135,839
7.50% - 2020........................ $32,750 33,793
------------
218,192
U.S. TREASURY NOTES - 6.5%
6.50% - 2006........................ $375,000 425,415
U.S. TREASURY BONDS - 1.7%
6.00% - 2026........................ $100,000 111,697
------------
Total U.S. government & government
agencies - 13.6%.................. 896,628
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
28
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SEPTEMBER 30, 1998
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
REAL ESTATE INVESTMENT TRUSTS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
American Health Properties, Inc.......... 700 $ 16,450
Archstone Communities Trust.............. 800 16,300
Avalon Bay Communities, Inc.............. 460 15,669
CBL & Associates Properties, Inc......... 700 18,025
Duke Realty Investments, Inc............. 900 20,869
Equity Residential Properties Trust...... 400 16,875
Federal Realty Investment Trust.......... 650 14,706
General Growth Properties, Inc........... 550 19,594
Glimcher Realty Trust.................... 850 14,556
Health Care Property Investors, Inc...... 500 16,500
Kimco Realty Corporation................. 600 22,800
Merry Land & Investment Company.......... 800 17,900
New Plan Excel Realty Trust.............. 800 18,650
Post Properties, Inc..................... 450 17,353
Public Storage, Inc...................... 600 16,087
Simon Property Group, Inc................ 600 17,850
Spieker Properties, Inc.................. 500 18,375
United Realty Trust Dominion............. 1,200 13,650
Washington Real Estate Investment
Trust................................. 1,000 16,188
Weingarten Realty Investors.............. 400 16,400
------------
Total real estate investment
trusts - 5.2%....................... 344,797
FOREIGN STOCKS
- --------------
BELGIUM - 4.1%
Cementbedrijven Cimenteries.............. 200 15,396
Delhaize - Le Lion....................... 300 22,659
Electrabel SA............................ 150 59,147
Fortis AG................................ 200 49,290
Gevaert NV............................... 200 12,409
Petrofina SA............................. 150 55,016
Solvay SA................................ 800 53,349
------------
267,266
DENMARK - 3.8%
A/S Dampskibsselskabet Svendborg......... 5 48,781
A/S Forsikringsselskabet Codan........... 45 5,671
Akieselskabet Potagua.................... 140 3,179
Bang & Olufsen Holding A/S............... 82 5,548
BG Bank A/S.............................. 133 6,906
Carlsberg A/S............................ 197 11,458
Cheminova Holding A/S.................... 214 4,041
D/S Norden A/S........................... 35 3,194
Danisco A/S.............................. 244 16,510
Danske Traelast.......................... 54 4,674
Den Danske Bank.......................... 245 27,758
<CAPTION>
NUMBER MARKET
FOREIGN STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
DENMARK (CONTINUED)
Finansierings Institutte for Industri
og Handvaerk A/S...................... 189 $ 4,035
Finansieringsselskabet Gefion A/S ....... 240 3,985
FLS Industries A/S....................... 212 4,470
ISS International Service
System A/S*........................... 148 7,802
J. Lauritzen Holdings A/S*............... 89 7,563
Jyske Bank A/S........................... 61 4,991
Korn-OG Foderstof
Kompagniet A/S........................ 153 3,491
Novo Nordisk A/S......................... 263 31,659
Radiometer A/S........................... 94 4,148
Ratin A/S*............................... 88 15,301
Sophus Berendsen A/S*.................... 88 3,407
Sydbank A/S.............................. 108 4,928
Tele Danmark A/S......................... 94 9,333
Topdanmark A/S*.......................... 30 4,390
Tryg-Baltica Forsikring A/S.............. 128 3,323
------------
250,546
GERMANY - 10.4%
Allianz AG............................... 360 111,356
BASF AG.................................. 1,081 41,781
Bayer AG................................. 735 29,067
Bayerische Motoren Werke
(BMW) AG.............................. 100 66,411
Bayerische Motoren Werke
(Bonus Issue)......................... 20 13,103
Continental AG........................... 202 4,895
Daimler-Benz AG.......................... 450 38,231
Degussa AG............................... 140 6,031
Deutsche Bank AG......................... 692 36,724
Deutsche Telekom AG...................... 2,900 90,050
Dresdner Bank AG......................... 611 23,213
Friedrich Grohe AG-Vorzugsak............. 7 1,927
Heidelberger Zement AG................... 86 5,686
Hochtief AG.............................. 180 5,277
Linde AG................................. 14 8,326
Merck KGAA............................... 187 7,664
Muenchener Rueckversicherungs-
Gesellschaft AG....................... 70 30,573
Preussag AG.............................. 72 25,330
SAP AG................................... 122 54,306
Siemens AG............................... 1,038 56,701
Veba AG.................................. 634 32,849
------------
689,501
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
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SECURITY EQUITY FUND - ASSET ALLOCATION SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
FOREIGN STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
JAPAN - 8.8%
All Nippon Airways Company, Ltd......... 2,000 $ 6,465
Asahi Glass Company, Ltd................ 2,000 9,697
Bank of Tokyo-Mitsubishi, Ltd........... 3,000 19,285
Chubu Electric Power Company, Inc....... 400 6,421
Fuji Bank, Ltd.......................... 1,000 2,020
Fujitsu, Ltd............................ 2,000 17,338
Hitachi, Ltd............................ 3,000 13,224
Industrial Bank of Japan, Ltd........... 2,000 7,347
Kansai Electric Power Company........... 1,400 24,221
Kawasaki Heavy Industries............... 4,000 8,081
Kawasaki Steel Corporation.............. 5,000 5,877
Kinki Nippon Railway
Company, Ltd......................... 2,000 8,684
Kirin Brewery Company, Ltd.............. 1,000 8,022
Kyocera Corporation..................... 100 4,379
Marubeni Corporation.................... 3,000 3,548
Marui Company, Ltd...................... 1,000 14,546
Matsushita Electric Industrial
Company, Ltd......................... 2,000 27,255
Mitsubishi Corporation.................. 4,000 19,395
Mitsubishi Estate Company, Ltd.......... 1,000 6,560
Mitsubishi Heavy Industrial, Ltd........ 4,000 13,723
Mitsubishi Motors Corporation........... 2,000 3,306
Mitsubishi Trust & Banking
Corporation.......................... 1,000 3,526
Mitsui Fudosan Company, Ltd............. 1,000 5,135
NEC Corporation......................... 2,000 13,003
Nippon Steel Corporation................ 6,000 8,640
Nissan Motor Company, Ltd............... 2,000 5,583
Nomura Securities Company, Ltd.......... 2,000 14,399
NSK Ltd................................. 4,000 13,811
Sekisui House, Ltd...................... 4,000 32,589
Sharp Corporation....................... 2,000 11,945
Shin-Etsu Chemical Company.............. 1,000 15,905
Sony Corporation........................ 100 6,972
Sumitomo Bank, Ltd...................... 4,000 27,917
Sumitomo Chemical Company............... 6,000 17,940
Tokio Marine & Fire Insurance
Company.............................. 2,000 17,925
Tokyo Electric Power Company............ 2,700 51,771
Tokyu Corporation....................... 4,000 8,933
Toshiba Corporation..................... 3,000 10,821
Toyoda Automatic Loom Works, Ltd........ 1,000 15,428
Toyota Motor Corporation................ 3,000 67,220
------------
578,857
------------
Total foreign stocks - 27.1%................ 1,786,170
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
TEMPORARY CASH INVESTMENTS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
MONEY MARKET FUND - 3.8%
Chase Master Note Program........ $ 253,700 $ 253,700
------------
Total temporary cash investments - 3.8%... 253,700
------------
Total investments - 99.0%................. 6,532,054
Cash and other assets,
less liabilities - 1.0%................. 66,431
------------
Total net assets - 100%................... $6,598,485
============
<CAPTION>
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
COMMON STOCKS
- -------------
<S> <C> <C>
AIRLINES - 0.5%
AMR Corporation*........................ 1,100 $ 60,981
AUTO PARTS & EQUIPMENT - 0.7%
Snap-On, Inc............................ 2,900 89,356
BANKS - MAJOR REGIONAL - 5.1%
Banc One Corporation.................... 2,640 112,530
Bank of New York Company, Inc........... 5,800 158,775
First Chicago NBD Corporation........... 1,500 102,750
Northern Trust Corporation.............. 2,600 177,450
Wachovia Corporation.................... 1,300 110,825
------------
662,330
BANKS - MONEY CENTER - 0.7%
Chase Manhattan Corporation............. 2,000 86,500
BEVERAGES - SOFT DRINK - 2.1%
Coca-Cola Company....................... 4,800 276,600
BROADCAST MEDIA - 3.0%
Comcast Corporation (CI.A).............. 2,500 117,344
Tele-Communications, Inc.*.............. 2,900 113,463
Viacom, Inc., (CI.B)*................... 2,600 150,800
------------
381,607
CHEMICALS - SPECIALTY - 0.5%
Fuller (H.B.) Company................... 900 34,087
Nalco Chemical Company.................. 1,200 35,400
------------
69,487
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
30
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SEPTEMBER 30, 1998
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS - EQUIPMENT - 1.2%
ADC Telecommunications, Inc.*........... 1,900 $ 40,137
Tellabs, Inc.*.......................... 1,200 47,775
Scientific-Atlanta, Inc................. 3,100 65,487
------------
153,399
COMPUTER SOFTWARE/SERVICES - 7.1%
Affiliated Computer
Services, Inc. (Cl.A)*............... 3,100 94,550
American Management Systems, Inc.*...... 4,600 125,925
BMC Software, Inc.*..................... 3,800 228,237
Microsoft Corporation*.................. 4,200 462,262
------------
910,974
COMPUTER HARDWARE - 4.4%
Compaq Computer Corporation............. 4,200 132,825
Hewlett-Packard Company................. 2,000 105,875
International Business Machines
Corporation.......................... 2,600 332,800
------------
571,500
COMPUTERS - NETWORKING - 2.0%
Ascend Communications, Inc.*........... 600 27,300
Cisco Systems, Inc.*................... 3,825 236,433
------------
263,733
DISTRIBUTION - FOOD & HEALTH - 0.5%
Cardinal Health, Inc.................. 650 67,112
ELECTRIC COMPANIES - 0.4%
New Century Energies, Inc............. 1,000 48,687
ELECTRICAL EQUIPMENT - 0.4%
Hubbell, Inc. (CI.B).................. 1,500 53,250
ELECTRONICS - DISTRIBUTION - 0.5%
W.W. Grainger, Inc.................... 1,600 67,400
ELECTRONICS - SEMICONDUCTORS - 3.5%
Analog Devices, Inc.*................. 3,200 51,400
Intel Corporation..................... 4,700 403,025
------------
454,425
ENTERTAINMENT - 1.1%
Time Warner, Inc...................... 1,700 148,856
FINANCIAL - DIVERSE - 7.4%
American Express Company.............. 1,600 124,200
American General Corporation.......... 2,500 159,687
Fannie Mae............................ 2,600 167,050
Freddie Mac........................... 3,500 173,031
Finova Group, Inc..................... 2,800 139,825
SunAmerica, Inc....................... 3,000 183,000
------------
946,793
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
FOODS - 2.6%
General Mills, Inc.................... 1,500 $105,000
Interstate Bakeries Corporation....... 4,000 124,000
Ralston-Ralston Purina Group.......... 3,600 105,300
------------
334,300
HARDWARE & TOOLS - 0.4%
Black & Decker Corporation.............. 1,200 49,950
HEALTH CARE - DIVERSE - 2.3%
Johnson & Johnson....................... 3,700 289,525
HEALTH CARE - MANAGED CARE - 0.5%
Wellpoint Health Networks, Inc.*........ 1,200 67,275
HEALTH CARE - SPECIALIZED SERVICES - 0.5%
ALZA Corporation*....................... 1,400 60,725
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.1%
Leggett & Platt, Inc.................... 6,800 141,100
HOUSEHOLD PRODUCTS - 4.4%
Clorox Company.......................... 1,800 148,500
Colgate-Palmolive Company............... 1,800 123,300
Kimberly-Clark Corporation.............. 2,000 81,000
Procter & Gamble Company, The........... 3,000 212,812
------------
565,612
INSURANCE - LIFE/HEALTH - 1.1%
UNUM Corporation........................ 2,800 139,125
INSURANCE - MULTI-LINE - 1.6%
American International Group, Inc....... 2,700 207,900
INSURANCE - PROPERTY & CASUALTY - 1.0%
Chubb Corporation....................... 2,000 126,000
LEISURE TIME PRODUCTS - 0.6%
Mattel, Inc............................. 2,700 75,600
MANUFACTURING - DIVERSIFIED - 0.8%
Illinois Tool Works, Inc................ 1,900 103,550
MANUFACTURING - SPECIALIZED - 0.2%
Avery Dennison Corporation.............. 600 26,213
MEDICAL PRODUCTS & SUPPLIES - 0.5%
Guidant Corporation..................... 800 59,400
NATURAL GAS - 0.5%
Consolidated Natural Gas Company........ 1,100 59,950
OFFICE EQUIPMENT & SUPPLIES - 0.8%
Pitney Bowes, Inc....................... 1,800 98,213
OIL - INTERNATIONAL - 1.6%
Amoco Corporation....................... 3,800 204,725
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
31
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SEPTEMBER 30, 1998
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
OIL & GAS - DRILLING & EQUIPMENT - 0.2%
ENSCO International, Inc................ 1,100 $ 11,894
Smith International, Inc.*.............. 600 16,463
------------
28,357
OIL & GAS - EXPLORATION PRODUCTION - 1.4%
Anadarko Petroleum Corporation.......... 2,800 110,075
Apache Corporation...................... 2,600 69,713
------------
179,788
PAPER & FOREST PRODUCTS - 0.2%
Mead Corporation........................ 800 23,550
PHARMACEUTICALS - 5.4%
Forest Laboratories, Inc.*.............. 1,800 61,875
Merck & Company, Inc.................... 2,500 323,906
Schering-Plough Corporation............. 3,000 310,688
------------
696,469
PHOTOGRAPHY/IMAGING - 0.8%
Xerox Corporation...................... 1,200 101,700
PUBLISHING - 0.6%
McGraw-Hill Companies, Inc............. 900 71,325
RAILROADS - 0.4%
Norfolk Southern Corporation........... 1,700 49,406
RESTAURANTS - 0.8%
McDonald's Corporation................. 1,800 107,438
RETAIL - APPAREL - 1.4%
TJX Companies, Inc..................... 6,800 121,125
Talbots, Inc........................... 3,000 53,625
------------
174,750
RETAIL - BUILDING SUPPLIES - 0.6%
Lowes Companies, Inc................... 2,600 82,713
RETAIL - DEPARTMENT STORES - 1.3%
Kohl's Corporation*.................... 1,600 62,400
Saks, Inc.*............................ 4,400 98,725
------------
161,125
RETAIL - DRUG STORES - 1.5%
Rite Aid Corporation................... 5,600 198,800
RETAIL - FOOD CHAINS - 1.2%
Kroger Company*........................ 3,000 150,000
RETAIL - GENERAL MERCHANDISE - 1.3%
Dayton Hudson Corporation.............. 4,800 171,600
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
SAVINGS & LOAN - 0.4%
Ahmanson (H.F.) & Company.............. 1,000 $ 55,500
SERVICES - ADVERTISING/MARKETING - 1.4%
Omnicom Group, Inc..................... 4,000 180,000
SERVICES - COMMERCIAL & CONSUMER - 0.5%
Service Corporation International...... 1,900 60,563
SERVICES - COMPUTER SYSTEMS - 0.8%
Sungard Data Systems, Inc.*............ 3,500 110,250
TELECOMMUNICATIONS - 7.4%
Ameritech Corporation.................. 3,000 142,125
Bell Atlantic Corporation.............. 4,200 203,438
BellSouth Corporation.................. 2,700 203,175
MCI Worldcom, Inc.*.................... 4,000 195,500
SBC Communications, Inc................ 4,600 204,413
------------
948,651
TELECOMMUNICATIONS - LONG DISTANCE - 2.7%
AT&T Corporation....................... 4,600 268,813
Sprint Corporation..................... 1,100 79,200
------------
348,013
TRUCKING - 0.2%
FDX Corporation*....................... 500 22,562
------------
Total common stocks - 92.1%................. 11,844,713
Cash and other assets,
less liabilities - 7.9%................... 1,019,107
------------
Total net assets - 100.0%................... $12,863,820
============
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
32
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- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY FUND - VALUE SERIES
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
AUTO PARTS & EQUIPMENT - 1.3%
Motorcar Parts & Accessories, Inc.*.. 19,000 $ 220,875
BANKS - MAJOR REGIONAL - 2.0%
Banc One Corporation................. 5,700 242,962
Northern Trust Corporation........... 1,600 109,200
------------
352,162
BIOTECHNOLOGY - 1.4%
Ligand Pharmaceuticals, Inc. (CI.B)*.. 26,000 237,250
CHEMICALS - SPECIALTY - 4.0%
Bush Boake Allen, Inc.*............... 5,200 139,100
M.A. Hanna Company.................... 26,600 299,250
Material Sciences Corporation*........ 30,000 262,500
------------
700,850
COMMUNICATION EQUIPMENT - 7.1%
ANTEC Corporation*.................... 24,300 373,613
Comverse Technology, Inc.*............ 15,800 645,825
Motorola, Inc......................... 3,800 162,213
Transcrypt International, Inc.*....... 25,000 65,500
------------
1,247,151
COMPUTER HARDWARE - 1.0%
CHS Electronics, Inc.*................ 15,400 167,475
COMPUTER SOFTWARE/SERVICES - 8.9%
American Management Systems, Inc.*.... 12,000 328,500
Computer Sciences Corporation*........ 8,800 479,600
DST Systems, Inc.*.................... 5,400 284,850
Rational Software Corporation*........ 28,000 470,750
------------
1,563,700
ELECTRICAL EQUIPMENT - 6.7%
Benchmark Electronics, Inc.*.......... 19,000 433,437
Cooper Cameron Corporation*........... 5,000 140,625
Maxwell International
Corporation*....................... 16,000 336,000
Rockwell International
Corporation........................ 7,200 260,100
------------
1,170,162
ELECTRONICS - INSTRUMENTATION - 3.8%
E G & G, Inc.......................... 9,700 219,463
Perkin-Elmer Corporation.............. 6,400 439,600
------------
659,063
ENTERTAINMENT - 0.6%
Metromedia International Group, Inc.*. 26,000 100,750
HEALTH CARE - LONG TERM CARE - 1.9%
Integrated Health Services, Inc....... 20,000 336,250
<CAPTION>
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
HOUSEHOLD FURNISHINGS & APPLIANCES - 2.5%
Meadowcraft, Inc.*.................... 11,000 $ 110,687
O'Sullivan Industries Holdings, Inc.*. 33,000 319,688
------------
430,375
INSURANCE - LIFE/HEALTH - 4.0%
AFLAC, Inc............................ 12,000 342,750
UNUM Corporation...................... 7,400 367,688
------------
710,438
INSURANCE - PROPERTY & CASUALTY - 1.5%
Horace Mann Educators Corporation..... 9,000 270,000
IRON & STEEL - 1.1%
Cleveland-Cliffs, Inc................. 5,000 195,000
LEISURE TIME PRODUCTS - 2.2%
Hasbro, Inc........................... 13,000 383,500
MANUFACTURING - DIVERSIFIED - 1.2%
AEP Industries, Inc.*................. 10,200 214,200
MEDICAL PRODUCTS & SUPPLIES - 3.4%
Dentsply International, Inc........... 7,200 161,100
Sunrise Medical, Inc.*................ 43,600 436,000
------------
597,100
NATURAL GAS - 3.2%
Equitable Resources, Inc.............. 22,000 559,625
OIL - INTERNATIONAL - 1.7%
Tesoro Petroleum Corporation*......... 23,000 300,438
OIL & GAS - EXPLORATION & PRODUCTION - 6.9%
Chieftain International, Inc.*........ 18,000 307,125
Forcenergy, Inc.*..................... 35,000 203,438
Kerr-McGee Corporation................ 4,000 182,000
MCN Energy Group, Inc................. 7,200 122,850
Ocean Energy, Inc.*................... 30,000 393,750
------------
1,209,163
PHARMACEUTICALS - 7.5%
Dura Pharmaceuticals, Inc.*........... 19,000 207,812
Mylan Laboratories, Inc............... 26,000 767,000
Teva Pharmaceutical Industries,
Ltd. ADR........................... 8,900 337,087
------------
1,311,899
PUBLISHING - NEWSPAPER - 3.2%
E.W. Scripps Company (Cl.A)........... 7,000 304,500
News Corporation, Ltd. ADR............ 10,000 256,250
------------
560,750
RAILROADS - 2.9%
RailAmerica, Inc.*.................... 86,100 505,837
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
33
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SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - VALUE SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCK (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
RESTAURANTS - 6.0%
The Cheesecake Factory*............... 16,500 $ 255,750
Morrison Health Care, Inc............. 21,000 372,750
Sonic Corporation*.................... 24,000 420,000
------------
1,048,500
RETAIL - APPAREL - 2.2%
Stage Stores, Inc.*................... 16,000 195,000
Talbots, Inc.......................... 11,000 196,625
------------
391,625
RETAIL - DEPARTMENT STORES - 1.5%
Elder-Beerman Stores Corporation, Inc.* 15,400 267,575
RETAIL - SPECIALTY - 1.2%
Keystone Automotive Industries, Inc.* 10,500 207,375
SERVICES - COMMERCIAL & CONSUMER - 6.1%
Angelica Corporation.................. 32,000 514,000
FTI Consulting, Inc.*................. 20,000 103,750
Pinkerton's, Inc.*.................... 32,500 448,906
------------
1,066,656
------------
Total common stocks - 97.0%................. 16,985,744
Cash and other assets,
less liabilities - 3.0%................... 529,838
------------
Total net assets - 100.0%................... $17,515,582
============
<CAPTION>
SECURITY EQUITY FUND - SMALL COMPANY SERIES
COMMON STOCKS
- -------------
<S> <C> <C>
AIRLINES - 1.5%
Midwest Express Holdings, Inc.*.......... 1,900 $ 63,650
BEVERAGES - ALCOHOLIC - 1.2%
Adolph Coors Company..................... 400 18,375
Beringer Wine Estates Holdings,
Inc. (CI.B)*.......................... 800 30,650
------------
49,025
BIOTECHNOLOGY - 1.1%
IDEXX Laboratories, Inc.*................ 2,000 47,750
COMMUNICATION EQUIPMENT - 3.6%
Cellular Communication
International, Inc.*.................. 1,200 65,100
GeoTel Communications
Corporation*.......................... 1,500 40,312
L-3 Communication Holdings, Inc.*........ 1,000 39,687
------------
145,099
SECURITY EQUITY FUND - SMALL COMPANY SERIES
(CONTINUED)
<CAPTION>
NUMBER MARKET
COMMON STOCK (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMPUTER HARDWARE - 1.7%
Cybex Computer Products
Corporation*......................... 700 $ 17,587
Jack Henry & Associates, Inc............ 100 4,776
Network Appliance, Inc.*................ 1,000 50,625
------------
72,988
COMPUTER SOFTWARE/SERVICES - 12.5%
Advantage Learning Systems, Inc.*....... 600 22,800
Best Software, Inc.*.................... 600 14,400
Concord Communications, Inc.*........... 2,500 99,375
Dendrite International, Inc.*........... 2,500 59,687
Inktomi Corporation*.................... 600 45,150
Insight Enterprises, Inc.*.............. 600 16,950
Legato Systems, Inc.*................... 400 20,550
Mercury Interactive Corporation*........ 1,500 59,531
Nova Corporation*....................... 400 12,275
Peregrine Systems, Inc.*................ 600 24,150
PSINet, Inc.*........................... 3,200 44,600
TSI International Software, Ltd.*....... 1,000 34,625
Visio Corporation*...................... 800 19,250
Wind River Systems*..................... 1,000 47,250
------------
520,593
COMPUTERS - NETWORKING - 0.6%
International Network Services*......... 600 24,900
COMPUTERS - PERIPHERALS - 1.1%
Xircom, Inc.*........................... 1,800 44,100
DISTRIBUTION - FOOD & HEALTH - 1.1%
Hain Food Group, Inc.".................. 2,200 33,000
Patterson Dental Company................ 400 14,800
------------
47,800
ELECTRIC COMPANIES - 2.8%
Montana Power Company................... 200 8,938
Philadelphia Suburban Corporation....... 1,000 26,812
WPS Resources Corporation............... 2,300 82,225
------------
117,975
ELECTRICAL EQUIPMENT - 1.7%
QLogic Corporation*...................... 1,100 71,775
ELECTRONICS - DEFENSE - 0.4%
Symbol Technologies, Inc................. 300 15,394
ELECTRONICS - DISTRIBUTION - 1.6%
Power Integrations, Inc.*................ 4,000 54,250
Superior Telecom, Inc.................... 300 14,512
------------
68,762
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
34
<PAGE> 36
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
SECURITY EQUITY FUND - SMALL COMPANY SERIES
(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT - 0.4%
Gemstar International Group, Ltd.*..... 400 $ 18,550
FINANCIAL - DIVERSE - 2.0%
LandAmerica Financial Group, Inc....... 1,600 82,000
FOODS - 0.4%
American Italian Pasta Company (CI.A)*.... 500 13,125
Worthington Foods, Inc.................... 200 3,875
------------
17,000
HEALTH CARE - LONG TERM CARE - 1.3%
Hanger Orthopedic Group, Inc.*........... 3,000 55,875
HEALTH CARE - MANAGED CARE - 1.2%
Express Scripts, Inc.*................... 600 49,350
HEALTH CARE - SPECIALIZED SERVICES - 4.5%
Clark/Bardes Holdings, Inc.*............. 1,100 9,350
Covance, Inc.*........................... 900 23,344
Parexel International*................... 1,700 66,300
Pediatrix Medical Group, Inc.*........... 1,500 67,313
Pharmaceutical Product
Development, Inc.*.................... 800 22,400
------------
188,707
HOSPITAL MANAGEMENT - 2.4%
Province Healthcare Company*............. 3,000 102,188
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.0%
La-Z-Boy, Inc............................ 2,200 43,175
INSURANCE - PROPERTY & CASUALTY - 0.5%
Fidelity National Financial, Inc......... 600 20,287
LODGING - HOTELS - 0.7%
ResortQuest International, Inc.*......... 3,400 29,963
MEDICAL PRODUCTS & SUPPLIES - 5.2%
ADAC Laboratories........................ 2,500 60,000
MiniMed, Inc.*........................... 800 52,800
ResMed, Inc.*............................ 2,000 104,000
------------
216,800
MISCELLANEOUS BUSINESS SERVICES - 1.6%
META Group, Inc.*........................ 2,000 65,375
OFFICE EQUIPMENT & SUPPLIES - 0.5%
National Computer Systems, Inc........... 700 20,650
OIL & GAS - DRILLING & EQUIPMENT - 0.8%
BJ Services Company*..................... 1,100 17,875
Smith International, Inc.*............... 500 13,719
------------
31,594
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
OIL & GAS - EXPLORATION & PRODUCTION - 1.2%
Cross Timbers Oil Company................ 700 $ 10,544
Devon Energy Corporation................. 300 9,881
Houston Exploration Company*............. 600 11,700
Newfield Exploration Company*............ 400 9,000
Snyder Oil Corporation................... 600 9,562
------------
50,687
PHARMACEUTICALS - 1.8%
Alpharma, Inc............................ 900 23,625
Amerisource Health Corporation*.......... 700 38,106
Sepracor, Inc.*.......................... 200 13,150
------------
74,881
RESTAURANTS - 1.2%
Ryan's Family Steak House, Inc.*......... 4,200 50,138
RETAIL - BUILDING SUPPLIES - 0.1%
Rental Service Corporation*.............. 300 5,400
RETAIL - DEPARTMENT STORES - 2.8%
99 Cents Only Stores*.................... 3,000 118,688
RETAIL - DRUG STORES - 2.2%
CVS Trust Automatic Common
Exchange Securities................... 200 16,300
Duane Reade, Inc.*....................... 1,000 37,937
Longs Drug Stores Corporation............ 900 36,169
------------
90,406
RETAIL - FOOD CHAINS - 0.7%
Dominick's Supermarkets, Inc.*........... 700 29,925
RETAIL - GENERAL MERCHANDISE - 1.0%
Linens `N Things, Inc.*.................. 1,500 41,250
RETAIL - SPECIALTY - 1.5%
School Specialty, Inc.*.................. 2,500 38,437
United Auto Group, Inc*.................. 1,700 24,119
------------
62,556
SERVICES - ADVERTISING/MARKETING - 3.8%
Acxiom Corporation*..................... 1,500 37,219
Boron, Lepore & Associates, Inc.*....... 1,700 64,387
Lamar Advertising Company*.............. 2,000 56,000
------------
157,606
SERVICES - COMMERCIAL & CONSUMER - 7.5%
Century Business Services, Inc.*........ 1,500 30,563
International Telecommunication
Data Systems, Inc.*.................. 1,100 31,900
Market Facts, Inc.*..................... 800 22,200
Profit Recovery Group International,Inc.* 4,000 125,000
Rent-Way, Inc.*......................... 1,000 24,625
Romac International, Inc.*.............. 4,500 81,000
------------
315,288
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
35
<PAGE> 37
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - SMALL COMPANY SERIES
(CONTINUED)
NUMBER MARKET
COMMON STOCK (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
SERVICES - DATA PROCESSING - 3.7%
Lason, Inc.*............................. 3,000 $ 153,750
SERVICES - FACILITIES/ENVIRONMENTAL - 1.4%
Metzler Group, Inc.*..................... 1,700 58,225
TELECOMMUNICATIONS - CELLULAR - 0.3%
COMSAT Corporation....................... 300 10,575
TELECOMMUNICATIONS - LONG DISTANCE - 1.1%
Excite, Inc.*............................ 400 16,325
Lycos, Inc.*............................. 900 30,431
------------
46,756
TEXTILES - APPAREL - 0.2%
OshKosh B'Gosh, Inc...................... 400 8,300
WASTE MANAGEMENT - 1.2%
Eastern Environmental Services, Inc.*.... 1,700 51,425
------------
Total common stocks - 85.1%................. 3,557,181
Cash and other assets,
less liabilities - 14.9%.................. 623,776
------------
Total net assets - 100.0%................... $4,180,957
============
<CAPTION>
SECURITY ULTRA FUND
COMMON STOCKS
- ---------------------------------------------------------------
<S> <C> <C>
AIR FREIGHT - 1.3%
Expeditors International of
Washington, Inc...................... 34,000 $ 943,500
BANKS - MAJOR REGIONAL - 4.7%
Northern Trust Corporation.............. 26,000 1,774,500
State Street Corporation................ 31,000 1,691,437
------------
3,465,937
BIOTECHNOLOGY - 3.9%
Ligand Pharmaceuticals, Inc., (CI.B)*.. 180,000 1,642,500
Millennium Pharmaceutical*............. 70,000 1,216,250
------------
2,858,750
CHEMICALS - SPECIALTY - 2.4%
Bush Boake Allen, Inc.*................ 32,000 856,000
Material Sciences Corporation*......... 105,200 920,500
------------
1,776,500
SECURITY ULTRA FUND
(CONTINUED)
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
COMMUNICATION EQUIPMENT - 7.0%
Comverse Technology, Inc.*............. 90,000 $3,678,750
General Instrument Corporation*........ 45,000 973,125
Transcrypt International, Inc.*........ 166,500 436,230
------------
....................................... 5,088,105
COMPUTER HARDWARE - 1.0%
CHS Electronics, Inc.*................. 68,500 744,938
COMPUTER SOFTWARE/SERVICES - 13.5%
American Management Systems, Inc.*..... 83,000 2,272,125
Cambridge Technology, Inc.*............ 60,000 1,338,750
Computer Sciences Corporation*......... 22,000 1,199,000
Electronic Processing, Inc.*........... 35,000 402,500
Electronics for Imaging, Inc.*......... 18,000 380,250
Network Associates, Inc.*.............. 34,500 1,224,750
Rational Software Corporation*......... 140,000 2,353,750
USCS International, Inc.*.............. 22,000 706,750
------------
9,877,875
DISTRIBUTION - FOOD & HEALTH - 0.3%
Cardinal Health, Inc................... 2,000 206,500
ELECTRICAL EQUIPMENT - 4.1%
Cooper Cameron Corporation*............ 28,000 787,500
Maxwell Technologies, Inc.*............ 103,300 2,169,300
------------
2,956,800
ELECTRONICS - INSTRUMENTATION - 4.0%
E G & G, Inc........................... 44,000 995,500
Perkin-Elmer Corporation............... 28,000 1,923,250
------------
2,918,750
ELECTRONICS - SEMI-CONDUCTORS - 0.6%
Uniphase Corporation*.................. 11,100 455,100
ENTERTAINMENT - 0.6%
Metromedia International Group, Inc.*.. 120,000 465,000
FOODS - 2.0%
Chiquita Brands International, Inc..... 132,000 1,394,250
HEALTH CARE - LONG TERM CARE - 1.1%
Integrated Health Services, Inc........ 46,000 773,375
HEALTH CARE - SPECIALIZED SERVICES - 6.1%
ALZA Corporation*...................... 36,000 1,561,500
CryoLife, Inc.*........................ 31,000 488,250
Quintiles Transnational Corporation*... 22,200 971,250
Shire Pharmaceuticals Group, PLC*...... 65,000 1,421,875
------------
4,442,875
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
36
<PAGE> 38
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY ULTRA FUND
(CONTINUED)
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
HOUSEHOLD FURNISHINGS & APPLIANCES - 3.0%
Leggett & Platt, Inc.................... 39,800 $ 825,850
Meadowcraft, Inc.*...................... 70,000 704,375
O'Sullivan Industries Holdings, Inc.*... 70,000 678,125
------------
2,208,350
INSURANCE - LIFE & HEALTH - 3.2%
AFLAC, Inc............................. 82,000 2,342,125
LEISURE TIME PRODUCTS - 1.5%
Hasbro, Inc............................ 38,000 1,121,000
MANUFACTURING - SPECIALIZED - 0.8%
Ionics, Inc.*.......................... 21,000 556,500
MEDICAL PRODUCTS & SUPPLIES - 3.4%
Dentsply International, Inc............ 32,000 716,000
Stryker Corporation.................... 22,000 748,000
Sunrise Medical, Inc.*................. 100,000 1,000,000
------------
....................................... 2,464,000
OFFICE EQUIPMENT & SUPPLIES - 1.8%
Corporate Express, Inc.*............... 110,000 1,313,125
OIL - INTERNATIONAL - 1.4%
Tesoro Petroleum Corporation*.......... 80,100 1,046,306
OIL & GAS - EXPLORATION & PRODUCTION - 3.6%
ForceEnergy, Inc.*..................... 100,000 581,250
Kerr-McGee Corporation................. 17,000 773,500
MCN Energy Group, Inc.................. 35,000 597,188
Ocean Energy, Inc.*.................... 54,000 708,750
------------
2,660,688
PHARMACEUTICALS - 9.6%
Dura Pharmaceuticals, Inc.*............ 85,000 929,688
Mylan Laboratories, Inc................ 160,000 4,720,000
Teva Pharmaceutical
Industries, Ltd. ADR ............... 36,500 1,382,438
------------
7,032,126
PUBLISHING - NEWSPAPER - 2.0%
E.W. Scripps Company, (CI.A)........... 34,000 1,479,000
RAILROADS - 1.2%
RailAmerica, Inc.*..................... 150,000 881,250
RESTAURANTS - 0.9%
The Cheesecake Factory*................ 42,000 651,000
RETAIL - APPAREL - 0.8%
Stage Stores, Inc.*.................... 49,000 597,187
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------
<S> <C> <C>
RETAIL - DEPARTMENT STORES - 0.5%
Family Dollar Stores, Inc.............. 21,000 $ 330,750
RETAIL - GENERAL MERCHANDISE - 0.6%
Consolidated Stores Corporation*....... 24,000 471,000
RETAIL - SPECIALTY - 0.5%
Keystone Automotive Industries, Inc.*.. 20,000 395,000
SERVICES - ADVERTISING/MARKETING - 7.1%
Acxiom Corporation*.................... 70,000 1,736,875
CKS Group, Inc.*....................... 27,100 479,331
DoubleClick, Inc.*..................... 10,800 257,850
Omnicom Group, Inc..................... 38,000 1,710,000
True North Communications, Inc......... 45,000 998,437
------------
5,182,493
SERVICES - COMMERCIAL & CONSUMER - 1.7%
Angelica Corporation................... 20,000 321,250
FTI Consulting, Inc.*.................. 53,500 277,531
Pinkerton's, Inc.*..................... 46,000 635,375
------------
1,234,156
SERVICES - COMPUTER SYSTEMS - 0.7%
Sungard Data Systems, Inc.*........... 17,000 535,500
------------
Total common stocks - 96.9%................. 70,869,811
Cash and other assets,
less liabilities - 3.1%................... 2,294,710
------------
Total net assets - 100.0%................... $73,164,521
============
</TABLE>
The identified cost of investments owned at September 30, 1998 was the same for
book and tax purposes, except for Growth and Income Fund, Global Series, Asset
Allocation Series, and Ultra Fund for which the identified cost for federal
income tax purposes was $87,565,358, $30,410,442, $6,875,143, and $72,249,937,
respectively.
* Securities on which no cash dividend was paid during the preceding twelve
months.
ADR (American Depositary Receipt)
(1) Trust preferred securities - Securities issued by financial institutions to
augment their Tier 1 capital base. Issued on a subordinate basis relative to
senior notes or debentures. Institutions may defer cash payments for up to 10
pay periods.
See accompanying notes.
- -----------------------------------------------------------------------------
37
<PAGE> 39
BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
----------------------------------------------------
SECURITY ASSET
GROWTH AND EQUITY GLOBAL ALLOCATION
INCOME FUND SERIES SERIES SERIES
<S> <C> <C> <C> <C>
Assets
Investments, at value (identified cost: $87,392,841,
$489,769,337, $30,315,512 and $6,875,073,
respectively)............................................ $81,015,005 $769,240,745 $29,517,851 $6,532,054
Cash....................................................... 3,707,875 119,661,583 2,111,570 37
Receivables:
Fund shares sold......................................... 101,350 658,349 2,378 33,037
Securities sold.......................................... 557,079 320,939 -- 1,339
Forward foreign exchange contracts....................... -- -- 32,513 --
Interest................................................. 215,137 436,055 7,316 27,208
Dividends................................................ 200,017 731,737 51,108 8,108
Foreign taxes recoverable................................ -- -- 33,184 1,684
Security Management Company.............................. -- -- -- 6,539
Prepaid expenses........................................... -- -- -- 8,878
----------- ------------ ----------- ----------
Total assets........................................... $85,796,463 $891,049,408 $31,755,920 $6,618,884
=========== ============ =========== ==========
Liabilities and Net Assets
Liabilities:
Payable for:
Securities purchased..................................... $ -- $ 3,401,906 $ 109,107 $ --
Fund shares redeemed..................................... 74,470 232,171 24,221 --
Other liabilities:
Management fees.......................................... 86,387 740,546 52,277 5,403
Custodian fees........................................... -- -- -- 173
Transfer and administration fees......................... -- -- -- 6,124
Professional fees........................................ -- -- -- 5,000
12b-1 distribution plan fees............................. 7,482 90,228 10,369 2,726
Other payables........................................... -- -- -- 973
----------- ------------ ----------- ----------
Total liabilities...................................... 168,339 4,464,851 195,974 20,399
Net Assets:
Paid in capital............................................ 77,362,763 539,625,718 29,921,708 6,427,676
Undistributed net investment income (loss) ................ 160,376 2,411,996 (122,744) 61,017
Accumulated undistributed net realized gain
on sale of investments and foreign
currency transactions.................................... 14,482,821 65,075,435 2,524,727 452,729
Net unrealized appreciation (depreciation)
in value of investments and translation
of assets and liabilities in foreign currency............ (6,377,836) 279,471,408 (763,745) (342,937)
----------- ------------ ----------- ----------
Net assets............................................. 85,628,124 886,584,557 31,559,946 6,598,485
----------- ------------ ----------- ----------
Total liabilities and net assets..................... $85,796,463 $891,049,408 $31,755,920 $6,618,884
=========== ============ =========== ==========
Class "A" Shares
Capital shares outstanding................................. 9,948,830 87,294,217 1,687,311 306,981
Net assets................................................. $76,370,950 $773,606,316 $18,940,723 $3,294,479
Net asset value per share (net assets divided by
shares outstanding)...................................... $7.68 $8.86 $11.23 $10.73
Add: Selling commission (5.75% of the
offering price).......................................... 0.47 0.54 0.69 0.65
----------- ------------ ----------- ----------
Offering price per share (net asset value
divided by 94.25%)....................................... $8.15 $9.40 $11.92 $11.38
=========== ============ =========== ==========
Class "B" Shares
Capital shares outstanding................................. 1,228,069 13,267,776 1,158,945 311,145
Net assets................................................. $9,257,174 $112,978,241 $12,619,223 $3,304,006
Net asset value per share (net assets divided by
shares outstanding)...................................... $7.54 $8.52 $10.89 $10.62
=========== ============ =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
38
<PAGE> 40
BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------
SOCIAL SMALL SECURITY
AWARENESS VALUE COMPANY ULTRA
SERIES SERIES SERIES FUND
<S> <C> <C> <C> <C>
Assets
Investments, at value (identified cost: $9,958,208,
$17,806,004, $3,418,984 and $72,062,782,
respectively)............................................ $11,844,713 $16,985,744 $3,557,181 $70,869,811
Cash....................................................... 1,011,115 669,232 1,132,601 1,134,507
Receivables:
Fund shares sold......................................... 10,663 54,799 -- 20,457
Securities sold.......................................... -- -- 93,525 1,765,004
Interest................................................. 3,299 690 3,257 5,022
Dividends................................................ 9,984 11,942 28 39,610
Prepaid expenses........................................... 6,168 7,924 5,431 --
----------- ------------ ----------- -----------
Total assets........................................... $12,885,942 $17,730,331 $4,792,023 $73,834,411
=========== ============ =========== ===========
Liabilities and Net Assets
Liabilities:
Payable for:
Securities purchased..................................... $ -- $ 184,350 $ 601,840 $ 565,435
Fund shares redeemed..................................... -- -- -- 23,526
Other liabilities:
Management fees.......................................... 10,614 13,860 -- 76,393
Custodian fees........................................... 680 953 2,435 --
Transfer and administration fees......................... 2,454 3,545 911 --
Professional fees........................................ 2,487 6,000 -- --
12b-1 distribution plan fees............................. 4,222 5,339 1,225 4,536
Other payables........................................... 1,665 702 4,655 --
----------- ------------ ----------- -----------
Total liabilities...................................... 22,122 214,749 611,066 669,890
Net Assets:
Paid in capital............................................ 10,711,122 18,313,385 4,685,111 55,429,438
Undistributed net investment loss ......................... -- -- -- --
Accumulated undistributed net realized gain (loss)
on sale of investments and
foreign currency transactions............................ 266,193 22,457 (642,351) 18,928,054
Net unrealized appreciation (depreciation)
in value of investments and translation
of assets and liabilities in foreign currency............ 1,886,505 (820,260) 138,197 (1,192,971)
----------- ------------ ----------- -----------
Net assets............................................. 12,863,820 17,515,582 4,180,957 73,164,521
----------- ------------ ----------- -----------
Total liabilities and net assets..................... $12,885,942 $17,730,331 $4,792,023 $73,834,411
=========== ============ =========== ===========
Class "A" Shares
Capital shares outstanding................................. 393,357 903,422 307,649 8,831,863
Net assets................................................. $7,618,508 $10,901,036 $2,676,895 $67,554,143
Net asset value per share (net assets divided by
shares outstanding)...................................... $19.37 $12.07 $8.70 $7.65
Add: Selling commission (5.75% of the
offering price).......................................... 1.18 0.74 0.53 0.47
----------- ------------ ----------- -----------
Offering price per share (net asset value
divided by 94.25%)....................................... $20.55 $12.81 $9.23 $8.12
=========== ============ =========== ===========
Class "B" Shares
Capital shares outstanding................................. 275,857 554,061 174,329 770,616
Net assets................................................. $5,245,312 $6,614,546 $1,504,062 $5,610,378
Net asset value per share (net assets divided by
shares outstanding)...................................... $19.01 $11.94 $8.63 $7.28
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
39
<PAGE> 41
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
----------------------------------------------------
SECURITY ASSET
GROWTH AND EQUITY GLOBAL ALLOCATION
INCOME FUND SERIES SERIES SERIES
<S> <C> <C> <C> <C>
Investment Income:
Dividends................................................ $1,764,997 $10,325,189 $ 589,288 $ 78,776
Interest................................................. 856,440 2,453,906 182,467 118,225
----------- ------------ ----------- ----------
2,621,437 12,779,095 771,755 197,001
Less foreign tax expense............................... -- -- (51,034) (4,670)
----------- ------------ ----------- ----------
Total investment income................................ 2,621,437 12,779,095 720,721 192,331
Expenses:
Management fees.......................................... 1,168,375 9,261,209 670,488 72,662
Custodian fees........................................... -- -- -- 4,681
Transfer/maintenance fees................................ -- -- -- 12,372
Administration fees...................................... -- -- -- 63,270
Directors' fees.......................................... -- -- -- 74
Professional fees........................................ -- -- -- 5,837
Reports to shareholders.................................. -- -- -- 590
Registration fees........................................ -- -- -- 19,738
Other expenses........................................... -- -- -- 425
12b-1 distribution plan fees (Class B)................... 88,110 1,026,720 122,163 36,063
----------- ------------ ----------- ----------
1,256,485 10,287,929 792,651 215,712
Less: Reimbursement of expenses........................ -- -- -- (36,703)
----------- ------------ ----------- ----------
Total expenses....................................... 1,256,485 10,287,929 792,651 179,009
----------- ------------ ----------- ----------
Net investment income (loss)......................... 1,364,952 2,491,166 (71,930) 13,322
Net Realized and Unrealized Gain:
Net realized gain (loss) during the period on:
Investments.............................................. 16,026,155 74,934,557 2,543,979 522,251
Foreign currency transactions............................ -- -- (20,654) (706)
----------- ------------ ----------- ----------
Net realized gain ..................................... 16,026,155 74,934,557 2,523,325 521,545
Net change in unrealized appreciation (depreciation) during
the period on:
Investments.............................................. (25,050,350) (19,967,302) (5,346,047) (1,088,938)
Translation of assets and liabilities
in foreign currencies.................................. -- -- (4,541) 165
----------- ------------ ----------- ----------
Net unrealized depreciation ............................. (25,050,350) (19,967,302) (5,350,588) (1,088,773)
----------- ------------ ----------- ----------
Net gain (loss) ....................................... (9,024,195) 54,967,255 (2,827,263) (567,228)
----------- ------------ ----------- ----------
Net increase (decrease) in net assets
resulting from operations.......................... ($7,659,243) $57,458,421 ($2,899,193) ($553,906)
=========== ============ =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
40
<PAGE> 42
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998, EXCEPT AS NOTED.
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------
SOCIAL SMALL SECURITY
AWARENESS VALUE COMPANY ULTRA
SERIES SERIES SERIES* FUND
<S> <C> <C> <C> <C>
Investment Income:
Dividends................................................ $116,364 $ 145,147 $ 7,614 $ 381,759
Interest................................................. 30,903 19,676 27,349 132,043
----------- ------------ ----------- -----------
Total investment income................................ 147,267 164,823 34,963 513,802
Expenses:
Management fees.......................................... 120,016 144,005 33,554 1,068,177
Custodian fees........................................... 3,635 3,873 10,041 --
Transfer/maintenance fees................................ 14,440 19,523 4,672 --
Administration fees...................................... 10,801 12,984 3,020 --
Directors' fees.......................................... 128 183 33 --
Professional fees........................................ 4,887 12,208 5,350 --
Reports to shareholders.................................. 722 954 189 --
Registration fees........................................ 24,117 28,630 22,240 --
Other expenses........................................... 1,291 -- 1,121 --
12b-1 distribution plan fees (Class B)................... 45,580 55,844 14,745 62,235
----------- ------------ ----------- ----------
225,617 278,204 94,965 1,130,412
Less: Reimbursement of expenses........................ (34,388) (35,151) (33,554) --
----------- ------------ ----------- -----------
Total expenses........................................ 191,229 243,053 61,411 1,130,412
----------- ------------ ----------- -----------
Net investment (loss)................................ (43,962) (78,230) (26,448) (616,610)
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) during the
period on investments ........................... 478,803 254,031 (642,351) 21,894,442
Net change in unrealized appreciation (depreciation)
during the period on investments......................... 245,900 (1,677,229) 138,197 (31,503,654)
------------ ------------ ------------ ------------
Net gain (loss) ....................................... 724,703 (1,423,198) (504,154) (9,609,212)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations......................... $680,741 ($1,501,428) ($530,602) ($10,225,822)
=========== ============ =========== ============
</TABLE>
*Period October 15, 1997 (inception) through September 30, 1998.
See accompanying notes.
- --------------------------------------------------------------------------------
41
<PAGE> 43
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
----------------------------------------------------
SECURITY ASSET
GROWTH AND EQUITY GLOBAL ALLOCATION
INCOME FUND SERIES SERIES SERIES
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................. $ 1,364,952 $ 2,491,166 $ (71,930) $ 13,322
Net realized gain ....................................... 16,026,155 74,934,557 2,523,325 521,545
Unrealized depreciation
during the period.................................. (25,050,350) (19,967,302) (5,350,588) (1,088,773)
----------- ------------ ----------- ----------
Net increase (decrease) in net assets
resulting from operations............................ (7,659,243) 57,458,421 (2,899,193) (553,906)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................................ (1,262,953) (2,345,453) (149,975) (58,957)
Class B................................................ (37,978) -- -- (28,111)
Net realized gain
Class A................................................ (20,855,139) (64,378,392) (1,839,513) (224,701)
Class B................................................ (1,779,733) (7,895,986) (1,085,880) (230,756)
----------- ------------ ----------- ----------
Total distributions to shareholders.................. (23,935,803) (74,619,831) (3,075,368) (542,525)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sales of shares
Class A................................................ 8,039,594 136,274,032 6,756,901 477,764
Class B................................................ 6,982,465 87,126,289 7,257,866 273,444
Dividends reinvested
Class A................................................ 20,461,757 62,161,314 1,961,738 281,349
Class B................................................ 1,801,115 7,737,823 1,084,862 257,508
Shares redeemed
Class A................................................ (14,689,087) (169,188,732) (10,210,710) (834,386)
Class B................................................ (3,361,102) (67,220,998) (6,570,649) (518,143)
----------- ------------ ----------- ----------
Net increase (decrease)
from capital share transactions...................... 19,234,742 56,889,728 280,008 (62,464)
----------- ------------ ----------- ----------
Total increase (decrease) in net assets.............. (12,360,304) 39,728,318 (5,694,553) (1,158,895)
NET ASSETS:
Beginning of period...................................... 97,988,428 846,856,239 37,254,499 7,757,380
----------- ------------ ----------- ----------
End of period............................................ $85,628,124 $886,584,557 $31,559,946 $6,598,485
=========== ============ =========== ==========
Undistributed net investment income (loss) at
end of period.......................................... $160,376 $2,411,996 ($122,744) $61,017
=========== ============ =========== ==========
(a) Shares issued and redeemed
Shares sold
Class A................................................ 897,930 14,708,089 550,745 40,767
Class B................................................ 777,100 9,679,948 609,174 23,179
Dividends reinvested
Class A................................................ 2,491,694 7,660,051 178,892 26,301
Class B................................................ 224,071 983,955 101,172 24,152
Shares redeemed
Class A................................................ (1,631,465) (18,384,656) (826,479) (70,566)
Class B................................................ (386,154) (7,521,486) (539,145) (45,400)
----------- ------------ ----------- ----------
Net increase (decrease) ............................... 2,373,176 7,125,901 74,359 (1,567)
=========== ============ =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
42
<PAGE> 44
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1998, EXCEPT AS NOTED.
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
-------------------------------------------
SOCIAL SMALL SECURITY
AWARENESS VALUE COMPANY ULTRA
SERIES SERIES SERIES FUND
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment loss................................... $ (43,962) $ (78,230) $ (26,448) $ (616,610)
Net realized gain (loss)................................. 478,803 254,031 (642,351) 21,894,442
Unrealized appreciation (depreciation)
during the period...................................... 245,900 (1,677,229) 138,197 (31,503,654)
----------- ------------ ---------- -----------
Net increase (decrease) in net assets
resulting from operations............................. 680,741 (1,501,428) (530,602) (10,225,822)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................................ (13,294) (23,776) (1,066) --
Class B................................................ -- -- -- --
Net realized gain
Class A................................................ -- (148,467) -- (4,076,926)
Class B................................................ -- (99,378) -- (303,165)
----------- ------------ ----------- -----------
Total distributions to shareholders.................... (13,294) (271,621) (1,066) (4,380,091)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sales of shares
Class A................................................ 1,947,642 8,620,440 3,335,436 15,549,214
Class B................................................ 1,754,799 4,903,668 1,815,706 5,484,993
Dividends reinvested
Class A................................................ 12,614 169,124 1,049 3,906,218
Class B................................................ -- 87,953 -- 296,771
Shares redeemed
Class A................................................ (1,015,030) (1,448,635) (357,569) (22,820,668)
Class B................................................ (353,596) (1,246,510) (81,997) (5,113,365)
----------- ------------ ----------- -----------
Net increase (decrease)
from capital share transactions....................... 2,346,429 11,086,040 4,712,625 (2,696,837)
----------- ------------ ----------- -----------
Total increase (decrease) in net assets.............. 3,013,876 9,312,991 4,180,957 (17,302,750)
NET ASSETS:
Beginning of period...................................... 9,849,944 8,202,591 -- 90,467,271
----------- ------------ ----------- -----------
End of period............................................ $12,863,820 $17,515,582 $4,180,957 $73,164,521
=========== ============ =========== ===========
Undistributed net investment income at
end of period.......................................... $-- $-- $-- $--
=========== ============ =========== ===========
(a) Shares issued and redeemed
Shares sold
Class A................................................ 99,548 638,717 342,821 1,810,198
Class B................................................ 89,089 368,016 182,081 652,253
Dividends reinvested
Class A................................................ 705 13,847 113 479,762
Class B................................................ -- 7,210 -- 37,989
Shares redeemed
Class A................................................ (52,024) (106,666) (35,285) (2,607,409)
Class B................................................ (17,598) (97,738) (7,752) (589,552)
----------- ------------ ----------- -----------
Net increase (decrease) ............................... 119,720 823,386 481,978 (216,759)
=========== ============ =========== ===========
</TABLE>
*Period October 15, 1997 (inception) through September 30, 1998.
See accompanying notes.
- --------------------------------------------------------------------------------
43
<PAGE> 45
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
----------------------------------------------------
SECURITY ASSET
GROWTH AND EQUITY GLOBAL ALLOCATION
INCOME FUND SERIES SERIES SERIES
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................. $ 1,221,015 $ 2,692,742 $ (77,044) $ 70,250
Net realized gain ....................................... 21,245,450 70,480,807 3,427,527 461,093
Unrealized appreciation during the period................ 3,450,512 126,763,115 2,563,891 619,758
----------- ------------ ----------- ----------
Net increase in net assets
resulting from operations............................ 25,916,977 199,936,664 5,914,374 1,151,101
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................................ (1,278,257) (3,155,322) (597,023) (63,009)
Class B................................................ (29,101) -- (199,976) (52,830)
Net realized gain
Class A................................................ (5,648,284) (49,869,431) (1,243,269) (61,070)
Class B................................................ (232,550) (4,463,901) (515,069) (73,554)
----------- ------------ ----------- ----------
Total distributions to shareholders.................. (7,188,192) (57,488,654) (2,555,337) (250,463)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sales of shares
Class A................................................ 5,721,292 221,241,550 6,304,969 1,478,803
Class B................................................ 3,688,134 110,104,405 6,613,460 1,009,991
Dividends reinvested
Class A................................................ 6,351,214 49,656,213 1,808,607 122,613
Class B................................................ 253,502 4,431,044 714,502 124,004
Shares redeemed
Class A................................................ (11,732,659) (219,339,034) (5,834,526) (595,393)
Class B................................................ (542,134) (76,188,625) (2,640,062) (513,448)
----------- ------------ ----------- ----------
Net increase from capital share transactions........... 3,739,349 89,905,553 6,966,950 1,626,570
----------- ------------ ----------- ----------
Total increase in net assets......................... 22,468,134 232,353,563 10,325,987 2,527,208
NET ASSETS:
Beginning of year........................................ 75,520,294 614,502,676 26,928,512 5,230,172
----------- ------------ ----------- ----------
End of year.............................................. $97,988,428 $846,856,239 $37,254,499 $7,757,380
=========== ============ =========== ==========
Undistributed net investment income at
end of year............................................ $96,355 $2,266,283 $105,784 $67,914
=========== ============ =========== ==========
(a) Shares issued and redeemed
Shares sold
Class A................................................ 602,485 27,937,552 503,842 128,634
Class B................................................ 388,324 14,249,362 537,435 89,049
Dividends reinvested
Class A................................................ 721,721 6,886,178 157,805 11,078
Class B................................................ 29,373 628,340 63,438 11,246
Shares redeemed
Class A................................................ (1,232,959) (27,902,983) (459,717) (50,647)
Class B................................................ (56,091) (10,027,869) (211,371) (44,492)
----------- ------------ ----------- ----------
Net increase........................................... 452,853 11,770,580 591,432 144,868
=========== ============ =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
44
<PAGE> 46
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1997, EXCEPT AS NOTED.
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
----------------------------------
SOCIAL SECURITY
AWARENESS VALUE ULTRA
SERIES* SERIES** FUND
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................. $ 5,542 $ 11,189 $ (832,436)
Net realized gain (loss)................................. (204,858) 107,088 2,802,288
Unrealized appreciation during the period................ 1,640,605 856,969 13,191,840
----------- ------------ -----------
Net increase in net assets
resulting from operations............................. 1,441,289 975,246 15,161,692
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................................ -- -- --
Class B................................................ -- -- --
Net realized gain
Class A................................................ -- -- (5,180,781)
Class B................................................ -- -- (326,156)
----------- ------------ -----------
Total distributions to shareholders.................... -- -- (5,506,937)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sales of shares
Class A................................................ 5,535,748 4,177,778 22,311,821
Class B................................................ 3,185,475 3,087,104 6,072,670
Dividends reinvested
Class A................................................ -- -- 4,973,701
Class B................................................ -- -- 326,142
Shares redeemed
Class A................................................ (306,673) (23,359) (26,312,322)
Class B................................................ (5,895) (14,178) (3,487,931)
----------- ------------ -----------
Net increase from capital share transactions........... 8,408,655 7,227,345 3,884,081
----------- ------------ -----------
Total increase in net assets......................... 9,849,944 8,202,591 13,538,836
NET ASSETS:
Beginning of period...................................... -- -- 76,928,435
----------- ------------ -----------
End of period............................................ $9,849,944 $8,202,591 $90,467,271
=========== ============ ===========
Undistributed net investment income at
end of period.......................................... $5,542 $11,189 $--
=========== ============ ===========
(a) Shares issued and redeemed
Shares sold
Class A................................................ 363,334 359,432 2,872,813
Class B................................................ 204,698 277,836 766,245
Dividends reinvested
Class A................................................ -- -- 656,941
Class B................................................ -- -- 44,428
Shares redeemed
Class A................................................ (18,206) (1,908) (3,375,134)
Class B................................................ (332) (1,263) (476,747)
----------- ------------ -----------
Net increase........................................... 549,494 634,097 488,546
=========== ============ ===========
</TABLE>
*Period November 1, 1996 (inception) through September 30, 1997.
**Period May 1, 1997 (inception) through September 30, 1997.
See accompanying notes.
- --------------------------------------------------------------------------------
45
<PAGE> 47
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY GROWTH AND INCOME FUND (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD $11.14 $9.05 $7.93 $6.96 $7.84
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) 0.13 0.15 0.18 0.16 0.13
Net Gain (Loss) on Securities
(realized and unrealized) (0.87) 2.81 1.37 1.18 (0.71)
------- ------- ------- -------- --------
Total from Investment Operations (0.74) 2.96 1.55 1.34 (0.58)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) (0.13) (0.16) (0.16) (0.16) (0.13)
Distributions (from Capital Gains) (2.59) (0.71) (0.27) (0.21) (0.17)
------- ------- ------- -------- --------
Total Distributions (2.72) (0.87) (0.43) (0.37) (0.30)
------- ------- ------- -------- --------
NET ASSET VALUE END OF PERIOD $7.68 $11.14 $9.05 $7.93 $6.96
======= ======= ======= ======== ========
TOTAL RETURN (a) (7.95%) 35.31% 20.31% 20.25% (7.6%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $76,371 $91,252 $73,273 $67,430 $65,328
Ratio of Expenses to Average Net Assets 1.21% 1.24% 1.29% 1.31% 1.28%
Ratio of Net Investment Income (Loss) to Average
Net Assets 1.49% 1.53% 2.09% 2.21% 1.70%
Portfolio Turnover Rate 144% 124% 69% 130% 163%
<CAPTION>
SECURITY GROWTH AND INCOME FUND (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD $10.99 $8.94 $7.85 $6.90 $7.83
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) 0.05 0.05 0.09 0.08 0.05
Net Gain (Loss) on Securities
(realized and unrealized) (0.88) 2.77 1.35 1.18 (0.69)
-------- -------- -------- -------- --------
Total from Investment Operations (0.83) 2.82 1.44 1.26 (0.64)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) (0.03) (0.06) (0.08) (0.09) (0.12)
Distributions (from Capital Gains) (2.59) (0.71) (0.27) (0.22) (0.17)
-------- -------- -------- -------- --------
Total Distributions (2.62) (0.77) (0.35) (0.31) (0.29)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD $7.54 $10.99 $8.94 $7.85 $6.90
======== ======== ======== ======== ========
TOTAL RETURN (a) (8.95%) 34.01% 19.01% 19.07% (8.0%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $9,257 $6,737 $2,247 $1,130 $668
Ratio of Expenses to Average Net Assets 2.21% 2.24% 2.29% 2.31% 2.27%
Ratio of Net Investment Income (Loss) to Average
Net Assets 0.59% 0.53% 1.09% 1.21% 1.03%
Portfolio Turnover Rate 144% 124% 69% 130% 178%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
46
<PAGE> 48
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - EQUITY SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $9.09 $7.54 $6.55 $5.54 $6.73
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. 0.04 0.04 0.05 0.04 0.05
Net Gain (Loss) on Securities
(realized and unrealized)................................ 0.56 2.20 1.48 1.38 0.09
-------- -------- -------- -------- --------
Total from Investment Operations.......................... 0.60 2.24 1.53 1.42 0.14
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.03) (0.04) (0.06) -- (0.12)
Distributions (from Capital Gains) (0.80) (0.65) (0.48) (0.41) (1.21)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.83) (0.69) (0.54) (0.41) (1.33)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $8.86 $9.09 $7.54 $6.55 $5.54
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... 7.38% 32.08% 24.90% 27.77% 1.95%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $773,606 $757,520 $575,680 $440,339 $358,237
Ratio of Expenses to Average Net Assets................... 1.02% 1.03% 1.04% 1.05% 1.06%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. 0.39% 0.46% 0.75% 0.87% 0.86%
Portfolio Turnover Rate................................... 47% 66% 64% 95% 79%
<CAPTION>
SECURITY EQUITY FUND - EQUITY SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $8.82 $7.36 $6.43 $5.49 $6.81
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.05) (0.04) (0.02) (0.01) 0.01
Net Gain (Loss) on Securities
(realized and unrealized)................................ 0.55 2.15 1.45 1.36 --
-------- -------- -------- -------- --------
Total from Investment Operations.......................... 0.50 2.11 1.43 1.35 0.01
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... -- -- (0.02) -- (0.12)
Distributions (from Capital Gains) (0.80) (0.65) (0.48) (0.41) (1.21)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.80) (0.65) (0.50) (0.41) (1.33)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $8.52 $8.82 $7.36 $6.43 $5.49
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... 6.38% 30.85% 23.57% 26.69% (0.15%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $112,978 $89,336 $38,822 $19,288 $7,452
Ratio of Expenses to Average Net Assets................... 2.02% 2.03% 2.04% 2.05% 2.07%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.61%) (0.54%) (0.25%) (0.13%) (0.01%)
Portfolio Turnover Rate................................... 47% 66% 64% 95% 80%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
47
<PAGE> 49
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - GLOBAL SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(F) 1997(F) 1996(F) 1995(F) 1994(B)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $13.56 $12.42 $10.94 $10.84 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. 0.02 0.01 0.01 (0.02) (0.03)
Net Gain (Loss) on Securities
(realized and unrealized)................................ (1.19) 2.29 1.87 0.31 0.87
-------- -------- -------- -------- --------
Total from Investment Operations.......................... (1.17) 2.30 1.88 0.29 0.84
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.09) (0.38) (0.25) -- --
Distributions (from Capital Gains) (1.07) (0.78) (0.15) (0.19) --
-------- -------- -------- -------- --------
Total Distributions.................................... (1.16) (1.16) (0.40) (0.19) --
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $11.23 $13.56 $12.42 $10.94 $10.84
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... (8.47%) 20.22% 17.73% 2.80% 8.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $18,941 $24,193 $19,644 $16,261 $20,128
Ratio of Expenses to Average Net Assets................... 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. 0.15% 0.07% 0.07% (0.17%) (0.01%)
Portfolio Turnover Rate................................... 122% 132% 142% 141% 73%
<CAPTION>
SECURITY EQUITY FUND - GLOBAL SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $13.22 $12.18 $10.74 $10.75 $9.96
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.10) (0.11) (0.10) (0.12) (0.12)
Net Gain (Loss) on Securities
(realized and unrealized)................................ (1.16) 2.24 1.84 0.30 0.91
-------- -------- -------- -------- --------
Total from Investment Operations.......................... (1.26) 2.13 1.74 0.18 0.79
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... -- (0.31) (0.14) -- --
Distributions (from Capital Gains) (1.07) (0.78) (0.16) (0.19) --
-------- -------- -------- -------- --------
Total Distributions.................................... (1.07) (1.09) (0.30) (0.19) --
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $10.89 $13.22 $12.18 $10.74 $10.75
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... (9.43%) 19.01% 16.57% 1.79% 7.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $12,619 $13,061 $7,285 $5,433 $3,960
Ratio of Expenses to Average Net Assets................... 3.00% 3.00% 3.00% 3.00% 3.00%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.85%) (0.93%) (0.93%) (1.17%) (0.01%)
Portfolio Turnover Rate................................... 122% 132% 142% 141% 73%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
48
<PAGE> 50
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------------
1998(e)(f) 1997(e)(f)(i) 1996(e)(f) 1995(d)(e)(f)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $12.58 $11.06 $10.54 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. 0.08 0.17 0.25 0.04
Net Gain (Loss) on Securities
(realized and unrealized)................................ (0.98) 1.86 0.77 0.50
-------- -------- -------- --------
Total from Investment Operations.......................... (0.90) 2.03 1.02 0.54
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.20) (0.26) (0.33) --
Distributions (from Capital Gains) (0.75) (0.25) (0.17) --
-------- -------- -------- --------
Total Distributions.................................... (0.95) (0.51) (0.50) --
-------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $10.73 $12.58 $11.06 $10.54
======== ======== ======== ========
TOTAL RETURN (a).......................................... (7.19%) 19.00% 10.01% 5.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $3,294 $3,906 $2,449 $1,906
Ratio of Expenses to Average Net Assets................... 2.00% 1.68% 2.00% 2.00%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. 0.65% 1.52% 2.32% 1.33%
Portfolio Turnover Rate................................... 45% 79% 75% 129%
<CAPTION>
SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------------
1998(e)(f) 1997(e)(f)(i) 1996(e)(f) 1995(d)(e)(f)
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $12.45 $10.97 $10.50 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.03) 0.07 0.14 0.01
Net Gain (Loss) on Securities
(realized and unrealized)................................ (0.96) 1.84 0.77 0.49
-------- -------- -------- --------
Total from Investment Operations.......................... (0.99) 1.91 0.91 0.50
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.09) (0.18) (0.27) --
Distributions (from Capital Gains) (0.75) (0.25) (0.17) --
-------- -------- -------- --------
Total Distributions.................................... (0.84) (0.43) (0.44) --
-------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $10.62 $12.45 $10.97 $10.50
======== ======== ======== ========
TOTAL RETURN (a).......................................... (7.99%) 17.95% 8.97% 5.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $3,304 $3,851 $2,781 $1,529
Ratio of Expenses to Average Net Assets................... 2.94% 2.58% 3.00% 3.00%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.29%) 0.61% 1.32% 0.31%
Portfolio Turnover Rate................................... 45% 79% 75% 129%
Portfolio Turnover Rate
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
49
<PAGE> 51
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(e)(f) 1997(e)(f)(g)
------------ ------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $17.99 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. -- 0.08
Net Gain (Loss) on Securities
(realized and unrealized)................................ 1.42 2.91
-------- --------
Total from Investment Operations.......................... 1.42 2.99
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.04) --
Distributions (from Capital Gains) -- .--
-------- --------
Total Distributions.................................... (0.04) --
-------- --------
NET ASSET VALUE END OF PERIOD............................. $19.37 $17.99
======== ========
TOTAL RETURN (a).......................................... 7.89% 19.93%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $7,619 $6,209
Ratio of Expenses to Average Net Assets................... 1.22% 0.67%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. -- 0.57%
Portfolio Turnover Rate................................... 41% 38%
<CAPTION>
SECURITY EQUITY FUND - SOCIAL AWARENESS SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(e)(f) 1997(e)(f)(g)
------------ ------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $17.81 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.19) (0.08)
Net Gain (Loss) on Securities
(realized and unrealized)................................ 1.39 2.89
-------- --------
Total from Investment Operations.......................... 1.20 2.81
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) -- --
Distributions (from Capital Gains) -- --
-------- --------
Total Distributions -- --
-------- --------
NET ASSET VALUE END OF PERIOD............................. $19.01 $17.81
======== ========
TOTAL RETURN (a).......................................... 6.74% 18.73%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $5,245 $3,641
Ratio of Expenses to Average Net Assets................... 2.20% 1.84%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.98%) (0.60%)
Portfolio Turnover Rate................................... 41% 38%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
50
<PAGE> 52
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - VALUE SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(e)(f) 1997(e)(f)(g)
------------ ------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $12.95 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.02) 0.05
Net Gain (Loss) on Securities
(realized and unrealized)................................ (0.53) 2.90
--------- ---------
Total from Investment Operations.......................... (0.55) 2.95
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).................... (0.05) --
Distributions (from Capital Gains)........................ (0.28) --
--------- ---------
Total Distributions.................................... (0.33) --
--------- ---------
NET ASSET VALUE END OF PERIOD............................. $12.07 $12.95
========= =========
TOTAL RETURN (a).......................................... (4.31%) 29.50%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $10,901 $4,631
Ratio of Expenses to Average Net Assets................... 1.27% 1.10%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.13%) 1.43%
Portfolio Turnover Rate................................... 98% 35%
<CAPTION>
SECURITY EQUITY FUND - VALUE SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------
1998(e)(f) 1997(e)(f)(g)
------------ ------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $12.91 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss).............................. (0.15) 0.01
Net Gain (Loss) on Securities
(realized and unrealized)................................ (0.54) 2.90
--------- ---------
Total from Investment Operations.......................... (0.69) 2.91
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) -- --
Distributions (from Capital Gains)........................ (0.28) --
--------- ---------
Total Distributions.................................... (0.28) --
--------- ---------
NET ASSET VALUE END OF PERIOD............................. $11.94 $12.91
========= =========
TOTAL RETURN (a).......................................... (5.38%) 29.10%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $6,615 $3,572
Ratio of Expenses to Average Net Assets................... 2.33% 2.26%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (1.19%) 0.27%
Portfolio Turnover Rate................................... 98% 35%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
51
<PAGE> 53
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY EQUITY FUND - SMALL COMPANY SERIES (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------
1998(e)(f)(j)
------------
<S> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss)................................. (0.03)
Net Gain (Loss) on Securities
(realized and unrealized)................................... (1.26)
--------
Total from Investment Operations............................. (1.29)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)....................... (0.01)
Distributions (from Capital Gains) --
--------
Total Distributions....................................... (0.01)
--------
NET ASSET VALUE END OF PERIOD $8.70
========
TOTAL RETURN (a)............................................. (12.95%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)......................... $2,677
Ratio of Expenses to Average Net Assets...................... 1.39%
Ratio of Net Investment Income (Loss) to Average
Net Assets................................................. (0.35%)
Portfolio Turnover Rate...................................... 366%
<CAPTION>
SECURITY EQUITY FUND - SMALL COMPANY SERIES (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
--------------------------------------
1998(e)(f)(j)
------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss)................................. (0.13)
Net Gain (Loss) on Securities
(realized and unrealized)................................... (1.24)
--------
Total from Investment Operations............................. (1.37)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) --
Distributions (from Capital Gains) --
--------
Total Distributions -
--------
NET ASSET VALUE END OF PERIOD................................ $8.63
========
TOTAL RETURN (a)............................................. (13.70%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)......................... $1,504
Ratio of Expenses to Average Net Assets...................... 2.38%
Ratio of Net Investment Income (Loss) to Average
Net Assets................................................. (1.34%)
Portfolio Turnover Rate...................................... 366%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
52
<PAGE> 54
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY ULTRA FUND (CLASS A)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $9.24 $8.25 $8.20 $6.82 $8.13
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (loss).............................. (0.06) (0.08) (0.05) (0.02) (0.05)
Net Gain (Loss) on Securities
(realized and unrealized)................................ (1.06) 1.65 1.10 1.54 (0.19)
-------- -------- -------- -------- --------
Total from Investment Operations.......................... (1.12) 1.57 1.05 1.52 (0.24)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) -- -- -- -- --
Distributions (from Capital Gains)........................ (0.47) (0.58) (1.00) (0.14) (1.07)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.47) (0.58) (1.00) (0.14) (1.07)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $7.65 $9.24 $8.25 $8.20 $6.82
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... (12.45%) 20.57% 15.36% 22.69% (3.6%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $67,554 $84,504 $74,230 $66,052 $60,695
Ratio of Expenses to Average Net Assets................... 1.23% 1.71% 1.31% 1.32% 1.33%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (0.64%) (1.01%) (0.61%) (0.31%) (0.80%)
Portfolio Turnover Rate................................... 116% 68% 161% 180% 111%
<CAPTION>
SECURITY ULTRA FUND (CLASS B)
FISCAL PERIOD ENDED SEPTEMBER 30
-------------------------------------------------------
1998(f) 1997(f) 1996(f) 1995(f) 1994(b)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD....................... $8.90 $8.03 $8.11 $6.81 $8.30
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (loss).............................. (0.14) (0.15) (0.13) (0.09) (0.10)
Net Gain (Loss) on Securities
(realized and unrealized)................................ (1.01) 1.60 1.05 1.53 (0.32)
-------- -------- -------- -------- --------
Total from Investment Operations.......................... (1.15) 1.45 0.92 1.44 (0.42)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) -- -- -- - --
Distributions (from Capital Gains)........................ (0.47) (0.58) (1.00) (0.14) (1.07)
-------- -------- -------- -------- --------
Total Distributions.................................... (0.47) (0.58) (1.00) (0.14) (1.07)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............................. $7.28 $8.90 $8.03 $8.11 $6.81
======== ======== ======== ======== ========
TOTAL RETURN (a).......................................... (13.30%) 19.58% 13.81% 21.53% (5.70%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)...................... $5,610 $5,964 $2,698 $5,428 $1,254
Ratio of Expenses to Average Net Assets................... 2.23% 2.71% 2.31% 2.32% 2.36%
Ratio of Net Investment Income (Loss) to Average
Net Assets.............................................. (1.64%) (2.01%) (1.61%) (1.31%) (1.76%)
Portfolio Turnover Rate................................... 116% 68% 161% 180% 110%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
53
<PAGE> 55
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
(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) 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.
(c) 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.
(d) 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.
(e) 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 1998
Asset Allocation Series Class A 3.6% 3.1% 2.4% 2.5%
Class B 4.7% 3.9% 3.3% 3.4%
Social Awareness Series Class A N/A N/A 1.7% 1.5%
Class B N/A N/A 2.8% 2.5%
Value Series Class A N/A N/A 1.9% 1.5%
Class B N/A N/A 2.8% 2.6%
Small Company Series Class A N/A N/A N/A 2.4%
Class B N/A N/A N/A 3.4%
(f) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(g) 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.
(h) Security Value Series was initially capitalized on May 1, 1997, with a
net asset value of $10 per share. Percentage amounts for the period, except
for total return, have been annualized.
(i) Meridian Investment Management Corporation (Meridian) became the sub-advisor
of Asset Allocation Series effective August 1, 1997. Prior to August 1, 1997
SMC paid Templeton/Franklin Investment Services, Inc. and Meridian for
research services provided to Asset Allocation Series.
(j) Security Small Company Series was initially capitalized on October 15, 1997,
with a net asset value of $10 per share. Percentage amounts for the period,
except for total return, have been annualized.
- --------------------------------------------------------------------------------
54
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998
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 six Series, the Equity Series, the Global Series, the Asset
Allocation Series, the Social Awareness Series, the Value Series, and the Small
Company Series with each Series, in effect, representing a separate Fund. Class
A shares are sold with a sales charge at the time of purchase. Class A shares
are not subject to a sales charge when they are redeemed. The Funds began
offering an additional class of shares ("B" shares) 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.
A. SECURITY VALUATION - 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 foreign currency risk from purchase or sale of securities denominated in
foreign currency. These funds 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 these funds 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 - Growth & Income Fund, Asset Allocation Series, Social Awareness
Series and Ultra Fund utilize futures contracts to a limited extent, with the
objectives of maintaining full exposure to the underlying stock market,
enhancing returns, maintaining liquidity, and minimizing transaction costs.
These funds 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 Funds 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
- -----------------------------------------------------------------------------
55
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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, 1998.
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, Social
Awareness, Value and Small Company 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, Social Awareness,
Value and Small Company Series, and accordingly receives a fee equal to 1% of
the average net assets of these Series.
SMC also acts as the administrative agent and transfer agent for the Asset
Allocation, Social Awareness, Value and Small Company 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, from Asset Allocation
Series, 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) $60,000.
For administrative services provided to the Social Awareness Series, Value
Series and the Small Company Series, SMC receives an administrative fee equal to
.09% of the average daily net assets of each Series. 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 Meridian Investment Management Corporation for subadvisory
services provided to the Asset Allocation Series, an annual fee equal to the
following schedule:
Average Daily Net Assets of the Series Annual Fees
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%
SMC pays Strong Capital Management, Inc. ("Strong") with respect to Small
Company Series, an annual fee based on the combined average net assets of the
Series and another fund within the Security Funds for which Strong provides
advisory services. The fee is equal to .50% of the combined average net assets
under $150,000,000, .45% of the combined average net assets at or above
$150,000,000 but less than $500,000,000, and .40% of the combined average net
assets at or above $500,000,000.
SMC has agreed to limit the total expenses of the Asset Allocation Series,
Social Awareness Series, Value Series and the Small Company Series to 2% of the
average net assets, excluding 12b-1 fees. SMC waived management fees on the
Asset Allocation Series, Social Awareness Series and Value Series until February
1, 1998. SMC has also waived the management fees for the Small Company Series
until September 30, 1998.
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 and the
Small Company Series has also adopted such a plan with repect to its Class A
shares. ThePlans provide for payments at an annual rate of 1.0% of the average
net assets of each Fund's Class B shares and .25% of the net assets of the Small
Company Series' Class A shares.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc. and the national distributor of 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 $11,930 $12,982 $149,153 $214,268
Security Equity Fund:
Equity Series 137,516 123,648 1,449,073 1,639,476
Global Series 66 24,076 16,744 58,103
Asset Allocation Series 728 7,197 13,572 10,531
Social Awareness Series 4,310 4,833 69,520 59,703
Value Series 4,530 5,438 171,982 183,293
Small Company Series 28 2,250 29,762 15,283
Ultra Fund 3,908 19,376 47,718 32,808
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.
- -----------------------------------------------------------------------------
56
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) at September 30, 1998, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
Growth & Income Fund $2,969,808 ($9,520,161) ($6,550,353)
Security Equity Fund:
Equity Series 292,259,977 (12,788,569) 279,471,408
Global Series 3,093,345 (3,984,533) (891,188)
Asset Allocation Series 799,720 (1,142,727) (343,007)
Social Awareness Series 2,453,107 (566,602) 1,886,505
Value Series 1,462,992 (2,283,252) (820,260)
Small Company Series 237,534 (99,337) 138,197
Ultra Fund 9,136,169 (10,516,295) (1,380,126)
The Growth and Income Fund, Equity Series, Global Series, Asset Allocation
Series and Ultra Fund hereby respectively designate $15,391,976, $65,468,053,
$1,414,896, $336,558, and $4,380,091 as capital gain dividends paid during the
fiscal year ended September 30, 1998 for the purpose of the dividends paid
deduction on each Fund's federal income tax return. The Small Company Series
has a capital loss camiforward of $83,808, which is available to offset future
taxable gains and expires in 2006.
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended September 30, 1998, (excluding
overnight investments and short-term commercial paper) are as follows:
PROCEEDS
PURCHASES FROM SALES
Growth & Income Fund $135,939,311 $143,767,512
Security Equity Fund:
Equity Series 393,619,848 473,548,883
Global Series 38,494,344 41,606,702
Asset Allocation Series 3,080,169 3,436,269
Social Awareness Series 6,534,238 4,637,172
Value Series 23,910,139 13,647,800
Small Company Series 14,722,414 10,661,079
Ultra Fund 96,136,753 101,175,598
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At September 30, 1998, Global Series had the following open forward
foreign exchange contracts to buy or sell currency (excluding foreign currency
contracts used for purchase and sale settlements):
<TABLE>
<CAPTION>
NET
FOREIGN AMOUNT TO BE UNREALIZED
SETTLEMENT CURRENCY (RECEIVED)/PAID U.S. $ VALUE APPRECIATION
CURRENCY TYPE DATE TO BE DELIVERED IN U.S.$ AS OF 9/30/98 (DEPRECIATION)
<S> <C> <C> <C> <C> <C> <C>
Australian Dollar Sell 11/05/98 1,189,825 ($772,818) ($706,010) $ 66,808
Australian Dollar Sell 11/05/98 188,961 (112,753) (112,090) 663
Australian Dollar Buy 11/05/98 936,458 553,787 555,669 1,882
British Pound Sell 10/06/98 1,194,832 (1,967,654) (2,030,104) (62,450)
British Pound Buy 10/06/98 1,194,832 1,993,330 2,030,104 36,774
Canadian Dollar Sell 11/30/98 1,414,840 (973,804) (924,369) 49,435
Canadian Dollar Buy 11/30/98 1,204,857 821,723 787,180 (34,543)
German Deutsche Mark Sell 10/01/98 1,902,027 (1,039,984) (1,137,984) (98,000)
German Deutsche Mark Buy 10/01/98 1,902,027 1,069,050 1,137,984 68,934
Japanese Yen Sell 03/15/99 125,819,846 (963,251) (942,920) 20,331
Swedish Krona Sell 10/01/98 5,481,412 (693,323) (699,650) (6,327)
Swedish Krona Buy 10/01/98 5,481,412 710,644 699,650 (10,994)
----------
$ 32,513
==========
</TABLE>
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, 1998, that qualified for the dividends received deductions for
corporate shareholders was 18%, 100%, 100%, 100%, 100%, 57%, 0% and 44% of the
amount taxable as ordinary income for Growth and Income Fund, Equity Series,
Global Series, Asset Allocation Series, Social Awareness Series, Value Series,
Small Company Series and Ultra Fund respectively, in accordance with the
provisions of the Internal Revenue Code.
- -------------------------------------------------------------------------------
57
<PAGE> 59
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, including the schedule of
investments of Security Growth and Income Fund, Security Equity Fund (comprised
of the Equity, Global, Asset Allocation, Social Awareness, Value and Small
Company Series) and Security Ultra Fund (the Funds) as of September 30, 1998,
and the related statements of operations, changes in net assets and financial
highlights for the periods indicated therein. These financial statements and
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 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 and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998, 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, 1998, and the results of their operations, changes in
their net assets and financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
/S/ Ernst & Young llp
- -----------------------------
Ernst & Young llp
Kansas City, Missouri
October 30,1998
- -----------------------------------------------------------------------------
58
<PAGE> 60
THIS PAGE LEFT BLANK INTENTIONALLY.
<PAGE> 61
THE SECURITY GROUP
OF MUTUAL FUNDS
- -------------------------------
Security Growth and Income Fund
Security Equity Fund
- Equity Series
- Global Series
- Asset Allocation Series
- Social Awareness Series
- Value Series
- Small Company Series
Security Ultra Fund
Security Income Fund
- Corporate Bond Series
- U.S. Government Series
- Limited Maturity Bond Series
- High Yield Series
Security Municipal Bond Fund
Security Cash Fund
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
- ----------------------
DIRECTORS
- ---------
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
James R. Schmank
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President
Mark E. Young, Vice President
Steven M. Bowser, Vice President, Equity Fund
David Eshnaur, Vice President, Equity Fund
Terry A. Milberger, Vice President, Equity Fund
Michael A. Petersen, Vice President, Growth and Income Fund
James P. Schier, Vice President, Equity Fund
Cindy L. Shields, Vice President, Ultra and Equity Fund
Jane A. Tedder, Vice President, Equity Fund
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Treasurer
- --------------------------- ------------------
SECURITY DISTRIBUTORS, INC. BULKRATE
- --------------------------- U.S. POSTAGE PAID
PERMIT NO. 941
700 SW Harrison St. CHICAGO, IL
Topeka, KS 66636-0001 ------------------
(785) 431-3127
(800) 888-2461
SDI 604 (R11-98) 46-06048-00
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation
(b) Bylaws(1)
(c) Specimen copy of share certificates for Fund's shares of capital stock(4)
(d) (1) Investment Management and Services Agreement
(2) Sub-Advisory Contract - Oppenheimer(4)
(3) Sub-Advisory Contract - Meridian(2)
(4) Sub-Advisory Contract - Strong(3)
(5) Form of Sub-Advisory Contract - Bankers Trust(4)
(e) (1) Distribution Agreement
(2) Class B Distribution Agreement
(3) Form of Class C Distribution Agreement
(4) Underwriter-Dealer Agreement
(f) Not applicable
(g) (1) Custodian Agreement - UMB Bank
(2) Form of Custodian Agreement - Chase Manhattan Bank
(h) Not applicable
(i) Legal Opinion(4)
(j) Consent of Independent Auditors
(k) Not applicable
(l) Not applicable
(m)(1) Class A Distribution Plan
(2) Class B Distribution Plan(1)
(3) Form of Class C Distribution Plan
(n) Financial Data Schedules
(o) Multiple Class Plan(4)
(1) Incorporated herein by reference from the Exhibits filed with the
Registrant's Post-Effective Amendment No. 72 to Registration Statement
2-19458 (June 1, 1995).
(2) Incorporated herein by reference from the Exhibits filed with the
Registrant's Post-Effective Amendment No. 79 to Registration Statement
2-19458 (October 15, 1997).
(3) Incorporated herein by reference from the Exhibits filed with the
Registrant's Post-Effective Amendment No. 80 to Registration Statement
2-19458 (October 15, 1997).
(4) Incorporated herein by reference from the Exhibits filed with the
Registrant's Post-Effective Amendment No. 83 to Registration Statement
2-19458 (January 28, 1999).
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH FUND.
Not applicable.
ITEM 25. 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 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.
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 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER
Security Management Company, LLC also acts as investment adviser 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 Municipal Bond Fund, and Security Ultra Fund.
NAME, BUSINESS* AND OTHER CONNECTIONS OF THE EXECUTIVE OFFICERS AND DIRECTORS OF
REGISTRANT'S ADVISER
JAMES R. SCHMANK
- ----------------
PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management Company, LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.; Security Growth and
Income Fund; Security Cash Fund; Security Municipal Bond Fund; Security Ultra
Fund; Security Equity Fund; SBL Fund; Advisor's Fund
VICE PRESIDENT--Security Income Fund
DIRECTOR--MFR Advisors, Inc., One Liberty Plaza, 46th Floor, New York, New York
10006; Stormont-Vail Foundation, 1500 SW 10th, Topeka, Kansas 66604
PRESIDENT AND DIRECTOR--Auburn-Washburn Public Schools Foundation, 5928 SW 53rd,
Topeka, Kansas 66610
TRUSTEE--Eugene P. Mitchell Charitable Remainder Unit Trust (Family Trust)
JOHN D. CLELAND
- ---------------
SENIOR VICE PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management
Company, LLC
PRESIDENT AND DIRECTOR--Security Cash Fund; Security Income Fund; Security
Municipal Bond Fund; SBL Fund; Security Growth and Income Fund; Security
Equity Fund; Security Ultra Fund; Advisor's 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
MARK E. YOUNG
- -------------
VICE PRESIDENT--Security Growth and Income Fund; Security Income Fund; Security
Cash Fund; Security Municipal Bond Fund; Security Ultra Fund; Security Equity
Fund; SBL Fund; Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
ASSISTANT VICE PRESIDENT--First Security Benefit Life Insurance and Annuity
Company of New York
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.
TRUSTEE--Topeka Zoological Foundation, Topeka, Kansas
TERRY A. MILBERGER
- ------------------
SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company,
LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--Security Equity Fund; SBL Fund
MICHAEL A. PETERSEN
- -------------------
VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund; Security Growth and Income Fund
JANE A. TEDDER
- --------------
VICE PRESIDENT AND SENIOR ECONOMIST--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund
AMY J. LEE
- ----------
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND ASSISTANT SECRETARY--Security
Benefit Life Insurance Company; Security Benefit Group, Inc.
SECRETARY--Security Management Company, LLC; Security Distributors, Inc.;
Security Cash Fund; Security Equity Fund; Security Municipal Bond Fund;
Security Ultra Fund; SBL Fund; Security Growth and Income Fund; Security
Income Fund; Advisor's Fund
DIRECTOR--Midland Hospice Care, Inc., 200 SW Frazier Court, Topeka, Kansas 66606
BRENDA M. HARWOOD
- -----------------
ASSISTANT VICE PRESIDENT AND TREASURER--Security Management Company, LLC
TREASURER--Security Equity Fund; Security Ultra Fund; Security Growth and Income
Fund; Security Income Fund; Security Cash Fund; SBL Fund; Security Municipal
Bond Fund; Advisor's Fund; Security Distributors, Inc.
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
DIRECTOR--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.
VICE PRESIDENT--Security Income Fund; Security Equity Fund; SBL Fund
THOMAS A. SWANK
- ---------------
VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT AND CHIEF INVESTMENT OFFICER--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund
CINDY L. SHIELDS
- ----------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Equity Fund
LARRY L. VALENCIA
- -----------------
ASSISTANT VICE PRESIDENT AND SENIOR RESEARCH ANALYST--Security Management
Company, LLC
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.
VICE PRESIDENT--SBL Fund; Security Equity Fund; Security Ultra Fund
DAVID ESHNAUR
- -------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund; Security Equity Fund
MARTHA L. SUTHERLAND
- --------------------
SECOND VICE PRESIDENT--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.
CHRISTOPHER D. SWICKARD
- -----------------------
ASSISTANT SECRETARY--Security Management Company, LLC; Security Cash Fund;
Security Equity Fund; Security Municipal Bond Fund; Security Ultra Fund; SBL
Fund; Security Growth and Income Fund; Security Income Fund; Advisor's Fund
ASSISTANT VICE PRESIDENT AND ASSISTANT COUNSEL--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
DIRECTOR AND SECRETARY--Security Benefit Academy, Inc.
*Located at 700 Harrison, Topeka, Kansas 66636-0001
OPPENHEIMERFUNDS, INC.:
OppenheimerFunds, Inc., sub-adviser to Global Series, currently manages
investment companies other than the Registrant with assets of more than $95
billion.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of OppenheimerFunds,
Inc., reference is made to Schedule A and D of Form ADV filed by
OppenheimerFunds, Inc. under the Investment Advisers Act of 1940 (SEC File No.
801-8253) which is incorporated by reference.
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.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Meridian Investment
Management Corporation, reference is made to Schedule A and D of Form ADV filed
by Meridian Investment Management Corporation under the Investment Advisers Act
of 1940 (SEC File No. 801-38868) which is incorporated by reference.
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.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Strong Capital
Management, Inc., reference is made to Schedule A and D of Form ADV filed by
Strong Capital Management, Inc. under the Investment Advisers Act of 1940 (SEC
File No. 801-10724) which is incorporated by reference.
BANKERS TRUST COMPANY
Bankers Trust Company ("Bankers Trust") serves as sub-adviser to Enhanced Index
Series and International Series. Bankers Trust, a New York banking corporation,
is a wholly-owned subsidiary of Bankers Trust New York Corporation. Bankers
Trust conducts a variety of commercial banking and trust activities and is a
major wholesale supplier of financial services to the international
institutional market.
To the knowledge of the Fund, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
GEORGE B. BEITZEL
- -----------------
International Business Machines Corporation, Old Orchard Road, Armonk, New York
10504.
DIRECTOR--Bankers Trust Company; Computer Task Group; Phillips Petroleum
Company; Caliber Systems, Inc. (formerly Roadway Services Inc.); Rohm and
Haas Company; TIG Holdings
RETIRED SENIOR VICE PRESIDENT AND DIRECTOR--International Business Machines
Corporation
CHAIRMAN EMERITUS--Amherst College
CHAIRMAN--Colonial Williamsburg Foundation
RICHARD H. DANIEL
- -----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER--Bankers Trust Company; Bankers Trust
New York Corporation
BENEFICIAL OWNER, GENERAL PARTNER--Daniel Brothers; Daniel Lingo & Assoc.;
Daniel Pelt & Assoc.
BENEFICIAL OWNER--Rhea C. Daniel Trust
PHILIP A. GRIFFITHS
- -------------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Institute for Advanced Study; Bankers Trust Company
CHAIRMAN--Committee on Science, Engineering and Public Policy of the National
Academies of Sciences and Engineering and the Institute of Medicine
CHAIRMAN AND MEMBER--Nominations Committee; Committee on Science and Engineering
Indicators; National Science Board
TRUSTEE--North Carolina School of Science and Mathematics; the Woodward Academy
WILLIAM R. HOWELL
- -----------------
J. C. Penney Company, Inc., P.O. Box 10001, Plano, Texas 75301-0001.
CHAIRMAN EMERITUS--J. C. Penney Company, Inc.
DIRECTOR--Bankers Trust Company; Exxon Corporation; Halliburton Company;
Warner-Lambert Corporation; The Williams Companies, Inc.; National Retail
Federation
VERNON E. JORDAN, JR.
- ---------------------
Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New Hampshire Avenue, NW,
Washington, District of Columbia 20036.
DIRECTOR--Bankers Trust Company; American Express Company; Dow-Jones, Inc.; J.
C. Penney Company, Inc.; Revlon Group Incorporated; Ryder System, Inc.; Sara
Lee Corporation; Union Carbide Corporation; Xerox Corporation
TRUSTEE--Brookings Institution; The Ford Foundation; Howard University
DAVID MARSHALL
- --------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHIEF INFORMATION OFFICER AND EXECUTIVE VICE PRESIDENT--Bankers Trust New York
Corporation
SENIOR MANAGING DIRECTOR--Bankers Trust Company
HAMISH MAXWELL
- --------------
Philip Morris Companies, Inc., 120 Park Avenue, New York, New York 10006.
ETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER--Philip Morris Companies, Inc.
DIRECTOR--Bankers Trust Company; The News Corporation Limited; Sola
International Inc.
CHAIRMAN--WWP Group pic
FRANK N. NEWMAN
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT--Bankers Trust New
York Corporation; Bankers Trust Company
DIRECTOR--Bankers Trust Company; Dow-Jones, Inc.; Carnegie Hall
N. J. NICHOLAS, JR.
- -------------------
745 Fifth Avenue, New York, New York 10020.
DIRECTOR--Bankers Trust Company; Boston Scientific Corporation; Xerox
Corporation
RUSSELL E. PALMER
- -----------------
The Palmer Group, 3600 Market Street, Suite 530, Philadelphia, Pennsylvania
19104.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER--The Palmer Group
DIRECTOR--Bankers Trust Company; Allied-Signal Inc.; Federal Home Loan Mortgage
Corporation; GTE Corporation; The May Department Stores Company; Safeguard
Scientifics, Inc.
TRUSTEE--University of Pennsylvania
DONALD L. STAHELI
- -----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER--Continental Grain Company
DIRECTOR--Bankers Trust Company; ContiFinancial Corporation; Prudential Life
Insurance Company of America; Fresenius Medical Care, A.g.; America-China
Society; National Committee on United States-China Relations; New York City
Partnership
CHAIRMAN--U.S. China Business Council; Council on Foreign Relations; National
Advisor Council of Brigham Young University's Marriott School of Management
VICE CHAIRMAN--The Points of Light Foundation
TRUSTEE--American Graduate School of International Management.
PATRICIA CARRY STEWART
- ----------------------
c/o Office of the Secretary, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Bankers Trust Company; CVS Corporation; Community Foundation for Palm
Beach and Martin Counties
TRUSTEE EMERITA--Cornell University
GEORGE J. VOJTA
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
VICE CHAIRMAN--Bankers Trust New York Corporation; Bankers Trust Company
DIRECTOR--Bankers Trust Company; Alicorp S.A.; Northwest Airlines; Private
Export Funding Corp.; New York State Banking Board; St. Lukes-Roosevelt
Hospital Center
PARTNER--New York City Partnership
CHAIRMAN--Wharton Financial Services Center
PAUL A. VOLCKER
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Bankers Trust Company; American Stock Exchange; Nestle S.A.;
Prudential Insurance Company; UAL Corporation; American Council on Germany;
Aspen Institute; Council on Foreign Relations; The Japan Society
CHAIRMAN--Group of 30
NORTH AMERICAN CHAIRMAN--Trilateral Commission
CO-CHAIRMAN--U.S./Hong Kong Economic Cooperation Committee
TRUSTEE--The American Assembly
MELVIN A. YELLIN
- ----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
SENIOR MANAGING DIRECTOR AND GENERAL COUNSEL--Bankers Trust New York
Corporation; Bankers Trust Company
DIRECTOR--1136 Tenants Corporation; ABA Securities Association
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Security Ultra Fund
Security Income Fund
Security Growth & Income Fund
Security Municipal Bond Fund
Variflex Separate Account (Variflex)
Variflex Separate Account (Variflex ES)
Varilife Variable Annuity Account
Security Varilife Separate Account
Variable Annuity Account VIII (Variflex LS)
Variable Annuity Account VIII (Variflex Signature)
Parkstone Variable Annuity Account
(b) (1) (2) (3)
NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT
------------------ -------------------- --------------------
Richard K Ryan President and Director None
John D. Cleland Vice President and Director President and Director
James R. Schmank Vice President and Director Vice President and Treasurer
Mark E. Young Vice President and Director Vice President
Donald E. Caum Director None
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer and Director Treasurer
William G. Mancuso Regional Vice President None
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
ITEM 28. 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;
Templeton/Franklin Investment Services, Inc., 777 Mariners Island Boulevard, San
Mateo, California 94404; OppenheimerFunds, Inc. Two World Trade Center, New
York, New York 10048 and Bankers Trust Company, One Bankers Trust Plaza, New
York, New York 10006. 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 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund certifies that it meets all the requirements for effectiveness of
this registration statement under Rule 485(b) under the Securities Act and has
duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Topeka, and State of Kansas on the
6th day of November, 1998.
SECURITY EQUITY FUND
(The Fund)
By: JOHN D. CLELAND
---------------------------------------
John D. Cleland, President
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated:
Date: November 6, 1998
--------------------------------------
DONALD A. CHUBB, JR. Director
- ---------------------------------------
Donald A. Chubb, Jr.
JOHN D. CLELAND President and Director
- ---------------------------------------
John D. Cleland
PENNY A. LUMPKIN Director
- ---------------------------------------
Penny A. Lumpkin
MARK L. MORRIS, JR. Director
- ---------------------------------------
Mark L. Morris, Jr.
JAMES R. SCHMANK Director
- ---------------------------------------
James R. Schmank
MAYNARD OLIVERIUS Director
- ---------------------------------------
Maynard Oliverius
BRENDA M. HARWOOD Treasurer (Principal Financial Officer)
- ---------------------------------------
Brenda M. Harwood
<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;
(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 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 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.
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 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 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, 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 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. Laing
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 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
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.
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.
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 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:
(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.
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.
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.
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 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.
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
(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 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.
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 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.
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.
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.
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 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.
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 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.
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 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.
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 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.
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. 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.
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 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.
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.
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.
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>
CERTIFICATE OF DESIGNATION OF
SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY EQUITY FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, James R. Schmank, Vice 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 6th day of November 1998,
adopted resolutions establishing fifteen new series of common stock in addition
to those twelve series of common stock currently being issued by 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
fifteen new series of common stock of Security Equity Fund in addition to
the twelve 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, Value Series
B, Small Company Series A and Small Company 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 twenty-seven
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 fifteen new series of the
Security Equity Fund designated as Equity Series C, Global Series C, Asset
Allocation Series C, Social Awareness Series C, Value Series C, Small
Company Series C, Enhanced Index Series A, Enhanced Index Series B,
Enhanced Index Series C, International Series A, International Series B,
International Series C, Select 25 Series A, Select 25 Series B and Select
25 Series C.
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, Equity Series C, Global Series A, Global
Series B, Global Series C, Asset Allocation Series A, Asset Allocation
Series B, Asset Allocation Series C, Social Awareness Series A, Social
Awareness Series B, Social Awareness Series C, Value Series A, Value Series
B, Value Series C, Small Company Series A, Small Company Series B, Small
Company Series C, Enhanced Index Series A, Enhanced Index Series B,
Enhanced Index Series C, International Series A, International Series B,
International Series C, Select 25 Series A, Select 25 Series B and Select
25 Series C.
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 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.
6. (a) Outstanding shares of Equity Series A, B and C 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, B and C 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, B and C 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, B and C 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, B and C 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, B and C 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 Enhanced
Index Series A, B and C 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 International Series A, B and C shall repsent 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 Select 25 Series A, B and C 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, B and C, Global Series A, B and C,
Asset Allocation Series A, B and C, Social Awareness Series A, B and C,
Value Series A, B and C, Small Company Series A, B and C, Enhanced
Index Series A, B and C, International Series A, B and C, and Select 25
Series A, B and C, 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, B and C, Global Series A, B and C, Asset Allocation Series A,
B and C, Social Awareness Series A, B and C, Value Series A, B and C,
Small Company Series A, B and C, Enhanced Index Series A, B and C,
International Series A, B and C or Select 25 Series A, B and C, 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, B and C
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, B and C 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, B and C
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, B and C 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, B and C 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, B and C 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. Shares of Enhanced Index Series A, B and C 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 Enhanced Index Series.
Stockholders of the Enhanced Index 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 International Series A, B and C 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
International Series. Stockholders of the International 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 Select 25 Series A,
B and C 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 Select 25 Series. Stockholders of the Select 25 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, B and C, the Global
Series A, B and C, the Asset Allocation Series A, B and C, the Social
Awareness Series A, B and C, the Value Series A, B and C, the Small Company
Series A, B and C, the Enhanced Index Series A, B and C, the International
Series A, B and C, or the Select 25 Series A, B and C, 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, the Value Series B, the Small Company Series B, the Enhanced
Index Series B, the International Series B or the Select 25 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, Small Company Series A, Enhanced Index Series A, International
Series A or Select 25 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 27th day of January, 1999.
JAMES R. SCHMANK
--------------------------------
James R. Schmank, Vice 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 James R. Schmank, Vice 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 27th day of January, 1999.
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.
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 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 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 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.
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 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.
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.
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.
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.
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.
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 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 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:
(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 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 (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.
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 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 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.
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
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 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, 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 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 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 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
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.
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 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>
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 November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer its common stock in three new series designated as the
International Series, Enhanced Index Series and Select 25 Series, in addition to
its presently offered series of common stock of Equity Series, Global Series,
Asset Allocation Series, Social Awareness Series, Value Series and Small Company
Series, with each series representing separate interests in a separate portfolio
of securities and other assets;
WHEREAS, on November 6, 1998, the Board of Directors of the Fund further
authorized the Fund to offer shares of the International Series, Enhanced Index
Series and Select 25 Series in three classes, designated Class A shares, Class B
shares, and Class C shares;
WHEREAS, on November 6, 1998, 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
International Series, Enhanced Index Series and Select 25 Series of the Fund
under the terms and conditions of the Agreement; and
WHEREAS, on November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer shares of the Equity Series, Global Series, Asset Allocation
Series, Social Awareness Series, Value Series and Small Company Series in a new
class of shares designated as Class C shares; and
WHEREAS, this amendment to the Agreement is subject to the approval of the
initial shareholder of the International Series, Enhanced Index Series and
Select 25 Series and the initial shareholder of the Class C shares of the Equity
Series, Global Series, Asset Allocation Series, Social Awareness Series, Value
Series and Small Company Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC, LLC hereby amend the
Agreement, effective January 28, 1999, to provide that SMC, LLC shall provide
all investment advisory services, general administrative, fund accounting,
transfer agency and dividend disbursing services to the International Series,
Enhanced Index Series and Select 25 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, Small Company Series, International Series, Enhanced Index Series
and Select 25 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 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 A, Class B and Class C
Distribution Plans;
and, in addition to those expenses set forth above, Asset Allocation
Series, Social Awareness Series, Value Series, Small Company Series,
International Series, Enhanced Index Series and Select 25 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. Notwithstanding the foregoing, SMC, LLC shall pay all
expenses related to the initial registration and qualification of the Class
C shares of Asset Allocation Series, Social Awareness Series, Value Series,
Small Company Series, International Series, Enhanced Index Series and
Select 25 Series, under the Blue Sky laws of the states where such class of
stock is offered.
A new paragraph 2(c) shall be added to the Agreement as follows:
(c) EXPENSE CAP. For each of the Fund's full fiscal year this Agreement
remains in force, SMC, LLC agrees that if total annual expenses of each
Series of the Fund identified below, exclusive of interest, taxes,
extraordinary expenses (such as litigation), brokerage fees and
commissions, and 12b-1 fees paid under a Fund's Class A, Class B or Class C
Distribution Plans, but inclusive of SMC LLC's compensation, exceeds the
amount set forth below (the "Expense Cap"), SMC, LLC will contribute to
such Series such funds or waive such portion of its fee, adjusted monthly,
as may be required to insure that the total annual expenses of the Series
will not exceed the Expense Cap. If this Agreement shall be effective for
only a portion of a Series' fiscal year, then the maximum annual expenses
shall be prorated for such portion.
Expense Cap
International Series, Class A, B and C shares - 2.25%
Enhanced Index Series, Class A, B and C shares - 1.75%
Select 25 Series, Class A, B and C shares - 1.75%
Paragraph 3(a) and 3(b) shall be deleted in their entirety and the following
paragraphs 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 investment advisory services to be rendered by SMC,
LLC to International Series for each of the years this Agreement is in
effect, the International Series shall pay SMC, LLC an annual fee equal to
1.10% of its average daily net assets. Such fee shall be calculated daily
and payable monthly. As compensation for the investment advisory services
to be rendered by SMC, LLC to Enhanced Index Series and Select 25 Series
for each of the years this Agreement is in effect, the Enhanced Index
Series and Select 25 Series shall each pay SMC, LLC an annual fee equal to
.75% 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 $60,000. As
compensation for the administrative services to be rendered by SMC, LLC to
International Series, the International Series shall pay SMC, LLC an annual
fee equal to .05% of the average daily net assets of International Series,
plus the greater of .10% of its average daily net assets or (i) $30,000 in
the year ended January 31, 2000; (ii) $45,000 in the year ending January
31, 2001 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, Small
Company Series, Enhanced Index Series and Select 25 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, Value Series, Small Company Series,
International Series, Enhanced Index Series, and Select 25 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.
(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 A, Class B
and Class C Distribution Plans, 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 year, then the maximum annual
expenses shall be prorated for such portion. Brokerage fees and commissions
incurred in connection with the purchase or sale of any securities by a
Series shall not be deemed to be expenses within the meaning of this
paragraph (b).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Management and Services Agreement this 28th day of January, 1999.
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>
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 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 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
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."
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;"
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.
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;
(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.
(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>
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 November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer its common stock in three new series designated as the
International Series, Enhanced Index Series and Select 25 Series, in addition to
its presently offered series of common stock of Equity Series, Global Series,
Asset Allocation Series, Social Awareness Series, Value Series, and Small
Company Series;
WHEREAS, on November 6, 1998, the Board of Directors of the Fund further
authorized the Fund to offer shares of the International Series, Enhanced Index
Series and Select 25 Series in three classes, designated Class A shares, Class B
shares, and Class C shares; and
WHEREAS, on November 6, 1998, 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 International Series, Enhanced Index
Series and Select 25 Series.
WHEREAS, on November 6, 1998, the Board of Directors of the Fund approved a
Class A Distribution Plan (the"Class A Plan") with respect to the International
Series, Enhanced Index Series and Select 25 Series pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Rule"), 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 Distribution
Agreement.
NOW, THEREFORE, the Fund and Distributor hereby amend the Distribution Agreement
to include the sale of Class A shares of the International Series, Enhanced
Index Series and Select 25 Series of the Fund.
The Fund and Distributor hereby further amend the Distribution Agreement,
effective January 28, 1999, by deleting Section 5A in its entirety and replacing
it with the following new Section 5A:
5A. (a) Pursuant to a Class A Distribution Plan adopted by the Fund with
respect to the Small Company Series, International Series, Enhanced Index
Series and Select 25 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 each 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;
(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.
(d) The provisions of the Distribution Plan approved by the Board of
Directors of the Fund on November 6, 1998, 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 28th day of January, 1999.
SECURITY EQUITY FUND
By: JAMES R. SCHMANK
---------------------------------
James R. Schmank,
Vice President
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.
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.
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:
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>
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 November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer its common stock in three new series designated as the
International Series, Enhanced Index Series and Select 25 Series, in addition to
its presently offered series of common stock of Equity Series, Global Series,
Asset Allocation Series, Social Awareness Series, Value Series and Small Company
Series; and
WHEREAS, on November 6, 1998, the Board of Directors of the Fund further
authorized the Fund to offer shares of the International Series, Enhanced Index
Series and Select 25 Series in three classes, designated Class A shares, Class B
shares, and Class C shares; and
WHEREAS, on November 6, 1998, 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 International Series,
Enhanced Index Series and Select 25 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
International Series, Enhanced Index Series and Select 25 Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 28th day of January, 1999.
SECURITY EQUITY FUND
By: JAMES R. SCHMANK
-----------------------------------------
James R. Schmank,
Vice President
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 C
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 28th day of January, 1999, 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");
WHEREAS, the Company issues its stock in several series; 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 C Shares of
each of the Company's Series of 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 C
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 the Class C 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 C 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 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 (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.
The Company also will 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 then-current
registration statement of the Fund) 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.
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 Class C shares of the Series 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.
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 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. 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:
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 Class C
shares of the Series.
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: JAMES R. SCHMANK
--------------------------------
James R. Schmank, Vice President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
BY: RICHARD K RYAN
--------------------------------
Richard K Ryan, President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
<PAGE>
FORM OF UNDERWRITER DEALER AGREEMENT
Effective: January 31, 1999
Securities Dealer: ______________
Security Distributors, Inc. ("we" or "us") invites you to participate in the
distribution of shares of the Security Mutual Funds (the "Funds") for which we
now or in the future serve as principal underwriter, subject to the terms of
this Agreement. We will notify you from time to time of the Funds which are
eligible for distribution and the terms of compensation under this Agreement.
This Agreement supersedes any prior underwriter dealer agreements between us, as
stated in paragraph 16 below.
1. Licensing.
(a) You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and are presently
licensed to the extent necessary by the appropriate regulatory agency
of each state in which you will offer and sell shares of the Funds. You
agree that termination or suspension of such membership with the NASD,
or of your license to do business by any state or federal regulatory
agency, at any time shall terminate or suspend this Agreement forthwith
and shall require you to notify us in writing of such action. This
Agreement is in all respects subject to the Conduct Rules of the NASD
which shall control any provision to the contrary in this Agreement.
(b) You agree to notify us immediately in writing if at any time you are
not a member in good standing of the Securities Investor Protection
Corporation ("SIPC").
2. Sales of Fund Shares. You may offer and sell shares of each Fund and class
only at the public offering price which shall be applicable to, and in
effect at the time of, each transaction. The procedures relating to all
orders and the handling of them shall be subject to the terms of the then
current prospectus and statement of additional information (hereafter, the
"prospectus") and new account application, including amendments, for each
such Fund, and our written instructions from time to time. This Agreement is
not exclusive, and either party may enter into similar agreements with third
parties.
3. Duties of Dealer: In General. You agree:
(a) To act as principal, or as agent on behalf of your customers, in all
transactions in shares of the Funds. You shall not have any authority
to act as agent for the issuer (the Funds), for us, or for any other
dealer in any respect, nor will you represent to any third party that
you have such authority or are acting in such capacity.
(b) To purchase shares only from us or from your customers.
(c) To enter orders for the purchase of shares of the Funds only from us
and only for the purpose of covering purchase orders you have already
received from your customers or for your own bona fide investment.
(d) To maintain records of all sales and redemptions of shares made through
you and to furnish us with copies of such records on request.
(e) To distribute prospectuses and reports to your customers in compliance
with applicable legal requirements, except to the extent that we
expressly undertake to do so on your behalf.
(f) That you will not withhold placing customers' orders for shares so as
to profit yourself as a result of such withholding or place orders for
shares in amounts just below the point at which sales charges are
reduced so as to benefit from a higher sales charge applicable to an
amount below the breakpoint.
(g) That if any shares confirmed to you hereunder are repurchased or
redeemed by any of the Funds within seven business days after such
confirmation of your original order, you shall forthwith refund to us
the full concession allowed to you on such orders. We shall forthwith
pay to the appropriate Fund our share, if any, of the "charge" on the
original sale and shall also pay to such Fund the refund from you as
herein provided. We shall notify you of such repurchase or redemption
within a reasonable time after settlement. Termination or cancellation
of this Agreement shall not relieve you or us from the requirements of
this subparagraph.
(h) That if payment for the shares purchased is not received within the
time customary or the time required by law for such payment, the sale
may be canceled forthwith without any responsibility or liability on
our part or on the part of the Funds, or at our option, we may sell the
shares which you ordered back to the Funds, in which latter case we may
hold you responsible for any loss to the Funds or loss of profit
suffered by us resulting from your failure to make payment as
aforesaid. We shall have no liability for any check or other item
returned unpaid to you after you have paid us on behalf of a purchaser.
We may refuse to liquidate the investment unless we receive the
purchaser's signed authorization for the liquidation.
(i) That you shall assume responsibility for any loss to the Funds caused
by a correction made subsequent to trade date, provided such correction
was not based on any error, omission or negligence on our part, and
that you will immediately pay such loss to the Funds upon notification.
(j) That if on a redemption which you have ordered, instructions in proper
form, including outstanding certificates, are not received within the
time customary or the time required by law, the redemption may be
canceled forthwith without any responsibility or liability on our part
or on the part of any Fund, or at our option, we may buy the shares
redeemed on behalf to the Fund, in which latter case we may hold you
responsible for any loss to the Fund or loss of profit suffered by us
resulting from your failure to settle the redemption.
4. Conditional Orders; Certificates. We will not accept from you any
conditional orders for shares of any of the Funds. Delivery of certificates
for shares purchased shall be made by the Funds only against constructive
receipt of the purchase price, subject to deduction for your concession and
our portion of the sales charges, if any, on such sale. No certificates will
be issued unless specifically requested.
5. Dealer Compensation. On each purchase of shares by you from us, the total
sales charges and your dealer concessions shall be as stated in each Fund's
then current prospectus, subject to NASD rules and applicable state and
federal laws. Such sales charges and dealer concessions are subject to
reductions under a variety of circumstances as described in the Funds'
prospectuses. For an investor to obtain these reductions, we must be
notified at the time of the sale that the sale qualifies for the reduced
charges. If you fail to notify us of the applicability of a reduction in the
sales charge at the time the trade is placed, neither we nor any of the
Funds will be liable for amounts necessary to reimburse any investor for the
reduction which should have been effected.
6. Redemptions. Redemptions or repurchases of shares will be made at the net
asset value of such shares, less any applicable deferred sales or redemption
charges, in accordance with the applicable prospectuses. Except as permitted
by applicable law, you agree not to purchase any shares from your customers
at a price lower than the redemption or repurchase prices then computed by
the Funds. You shall, however, be permitted to sell shares for the account
of the record owner to the Funds at the repurchase price then currently in
effect for such shares and may charge the owner a fair commission for
handling the transaction.
7. Exchanges. Telephone exchange orders will be effective only for uncertified
shares and may be subject to any fees or other restrictions set forth in the
applicable prospectuses. You may charge the shareholder a fair commission
for handling an exchange transaction. Exchanges from a Fund sold with no
sales charge to a Fund which carries a sales charge, and exchanges from a
Fund sold with a sales charge to a Fund which carries a higher sales charge
may be subject to a sales charge in accordance with the terms of each Fund's
prospectus. You will be obligated to comply with any additional exchange
policies described in each Fund's prospectus.
8. Transaction Processing. All orders are subject to acceptance by us and by
the Fund or its transfer agent, and become effective only upon confirmation
by us. If required by law, each transaction shall be confirmed in writing on
a fully disclosed basis and if confirmed by us, a copy of each confirmation
shall be sent simultaneously to you if you so request. All sales are made
subject to receipt of shares by us from the Funds. We reserve the right in
our discretion, without notice, to suspend the sale of shares or withdraw
the offering of shares entirely. Telephone orders will be effected at the
price(s) next computed on the day they are received from you if, as set
forth in each Fund's current prospectus, they are received prior to the time
the price of its shares is calculated. Orders received after that time will
be effected at the price(s) computed on the next business day. All orders
must be accompanied by payment in U.S. dollars. Orders payable by check must
be drawn payable in the U.S. dollars on a U.S. bank, for the full amount of
the investment.
9. Multiple Classes. We may from time to time provide to you written compliance
guidelines or standards relating to the sale or distribution of Funds
offering multiple classes of shares with different sales charges and
distribution-related operating expenses. In addition, you will be bound by
an applicable rules or regulations of government agencies or self-regulatory
organizations generally affecting the sale or distribution of mutual funds
offering multiple classes of shares.
10. Rules 12b-1 Plans. You are also invited to participate in all Plans adopted
by the Funds (the "Plan Funds") pursuant to Rule 12b-1 under the 1940 Act.
To the extent you provide administrative and other services, including, but
not limited to, furnishing personal and other services and assistance to
your customers who own shares of a Plan Fund, answering routine inquiries
regarding a Fund, assisting in changing account designations and addresses,
maintaining such accounts or such other services as a Fund may require, to
the extent permitted by applicable statutes, rules or regulations, we shall
pay you a Rule 12b-1 servicing fee. To the extent that you participate in
the distribution of Fund shares which are eligible for a Rule 12b-1
distribution fee, we shall also pay you a Rule 12b-1 distribution fee. All
Rule 12b-1 servicing and distribution fees shall be based on the value of
shares attributable to customers of your firm and eligible for such
payment, and shall be calculated on the basis and at the rates set forth in
the compensation schedule then in effect. Without prior approval by a
majority of the outstanding shares of a Fund, the aggregate annual fees
paid to you pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in each Fund's prospectus, which amount shall be a
specified percent of the value of the Fund's net assets held in your
customers' accounts which are eligible for payment pursuant to this
Agreement (determined in the same manner as each Fund uses to compute its
net assets as set forth in its effective Prospectus).
The Plans and provisions of any agreement relating to such plans must be
approved annually by a vote of the Plan Funds, for their review on a
quarterly basis, a written report of the amount expended under the Plans
and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Plan Funds' Directors, including such
persons who are not interested persons of the Plan Funds and who have no
financial interest in the Plans or any related agreement ("Rule 12b-1
Directors"). The Plans or the provisions of this Agreement relating to such
Plans may be terminated at any time by the vote of a majority of the Plan
Funds' Boards of Directors, including Rule 12b-1 Directors, or by a vote of
a majority of the outstanding shares of the Plan Funds, on sixty (60) days'
written notice, without payment of any penalty. The Plans or the provisions
of this Agreement may also be terminated by any act that terminates the
Distribution Agreement between us and the Plan Funds. In the event of the
termination of the Plans for any reason, the provisions of this Agreement
relating to the Plans will also terminate.
Continuation of the Plans and provisions of this Agreement relating to such
Plans are conditioned on Rule 12b-1 Directors being ultimately responsible
for selecting and nominating any new Rule 12b-1 Directors. Under Rule
12b-1, Directors of any of the Plan Funds have a duty to request and
evaluate, any persons who are party to any agreement related to a Plan have
a duty to furnish, such information as may reasonably be necessary to an
informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, Plan Funds are permitted to
implement or continue Plans or the provisions of this Agreement relating to
such Plans from year-to-year only if, based on certain legal
considerations, the Boards of Directors are able to conclude that the Plans
will benefit the Plan Funds. Absent such yearly determination the Plans and
the provisions of this Agreement relating to the Plans must be terminated
as set forth above. In addition, any obligation assumed by a Fund pursuant
to this Agreement shall be limited in all cases to the assets of such Fund
and no person shall seek satisfaction thereof from shareholders of a Fund.
You agree to waive payment of any amounts payable to you by us under a
Fund's Plan of Distribution pursuant to Rule 12b-1 until such time as we
are in receipt of such fee from the Fund.
The provisions of the Rule 12b-1 Plans between the Plan Funds and us,
insofar as they relate to Plans, shall control over the provisions of this
Agreement in the event of any inconsistency.
11. Registration of Shares. Upon request, we shall notify you of the states or
other jurisdictions in which each Fund's shares are currently registered or
qualified for sale to the public. We shall have no obligation to register or
qualify, or to maintain registration or qualification of, Fund shares in any
state or other jurisdiction. We shall have no responsibility, under the laws
regulating the sale of securities in any U.S. or foreign jurisdiction, for
the qualification or status of persons selling Fund shares or for the manner
of sale of Fund shares. Except as stated in this paragraph, we shall not, in
any event, be liable or responsible for the issue, form, validity,
enforceability and value of such shares or for any matter in connection
therewith, and no obligation not expressly assumed by us in this Agreement
shall be implied. Nothing in this Agreement, however, shall be deemed to be
a condition, stipulation or provision binding any person acquiring any
security to waive compliance with any provision of the Securities Act of
1933, or of the rules and regulations of the Securities and Exchange
Commission, or to relieve the parties hereto from any liability arising
under the Securities Act of 1933.
12. Fund Information. No person is authorized to give any information or make
any representations concerning shares of any Fund except those contained in
the Fund's current prospectus or in materials issued by us as information
supplemental to such prospectus. We will supply prospectuses, reasonable
quantities of supplemental sale literature, sales bulletins, and additional
information as issued. You agree not to use other advertising or sales
material relating to the Funds except that which (a) conforms to the
requirements of any applicable laws or regulations of any government or
authorized agency in the U.S. or any other country, having jurisdiction over
the offering or sale of shares of the Funds, and (b) is approved in writing
by us in advance of such use. Such approval may be withdrawn by us in whole
or in part upon notice to you, and you shall, upon receipt of such notice,
immediately discontinue the use of such sales literature, sales material and
advertising. You are not authorized to modify or translate any such
materials without our prior written consent.
13. Indemnification. You further agree to indemnify, defend and hold harmless
us, the Funds, their officers, directors and employees from any and all
losses, claims, liabilities and expenses arising out of (1) any alleged
violation of any statute or regulations (including without limitation the
securities laws and regulations of the United States or any state or foreign
country) or any alleged tort or breach of contract, in or related to the
offer and sale by you of shares of the Funds pursuant to this Agreement
(except to the extent that our negligence or failure to follow correct
instructions received from you is the cause of such loss, claim, liability
or expense), (2) any redemption or exchange pursuant to telephone
instructions received from you or your agents or employees, or (3) the
breach by you of any of the terms and conditions of this Agreement.
14. Termination; Succession; Amendment. Each party to this Agreement may cancel
its participation in this Agreement by giving written notice to the other
party. Such notice shall be deemed to have been given and to be effective on
the date on which it was either delivered personally to the other party or
any officer or member thereof, or was mailed postpaid or delivered to a
telegraph office for transmission to the other party's Chief Legal Officers
at the addresses shown herein or in the most recent NASD Manual. This
Agreement shall terminate immediately upon the appointment of a Trustee
under the Securities Investor Protection Act or any other act of insolvency
by you. The termination of this Agreement by any of the foregoing means
shall have no effect upon transactions entered into prior to the effective
date of termination. A trade placed by you subsequent to your voluntary
termination of this Agreement will not serve to reinstate the Agreement.
Reinstatement, except in the case of a temporary suspension of a dealer,
will only be effective upon written notification by us. Unless terminated,
this Agreement shall be binding upon each party's successors or assigns.
This Agreement may be amended by us at any time by written notice to you and
your placing of an order or acceptance of payments of any kind after the
effective date and receipt of notice of any such Amendment shall constitute
your acceptance of such Amendment.
15. Setoff; Dispute Resolution. Should any of your concession accounts with us
have debit balance, we may offset and recover the amount owed from any other
account you have with us, without notice or demand to you. In the event of a
dispute concerning any provision of this Agreement, either party may require
the dispute to be submitted to binding arbitration under the commercial
arbitration rules of the NASD or the American Arbitration Association.
Judgment upon any arbitration award may be entered by any state or federal
court having jurisdiction. This Agreement shall be construed in accordance
with the laws of the State of Kansas, not including any provision which
would require the general application of the law of another jurisdiction.
16. Acceptance; Cumulative Effective. This Agreement is cumulative and
supersedes any agreement previously in effect. It shall be binding upon the
parties hereto when signed by us and accepted by you. If you have a current
dealer agreement with us, your first trade or acceptance of payments from us
after receipt of this Agreement, as it may be amended pursuant to paragraph
14, above, shall constitute your acceptance of its terms. Otherwise, your
signature below shall constitute your acceptance of its terms.
SECURITY DISTRIBUTORS, INC.
By:
- --------------------------------
Rick Ryan, President
700 Harrison, Topeka, Kansas 66636-0001
Attention: Chief Legal Officer (for legal notices only) 785/431-3000
Dealer: If you have NOT previously signed a Dealer Agreement with us, please
complete and sign this section and return the original to us.
DEALER NAME:
By:
(Signature)
Name:
Title:
Address:
Telephone:
NASD CRD #
<PAGE>
CUSTODY AGREEMENT
Dated January 1, 1995
As amended September 24, 1998
Between
UMB BANK, N.A.
and
THE SECURITY 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 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 5
(f) Sales of Assets 5
(g) Options 6
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 7
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 7
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 8
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 9
(p) Routine Dealings 9
(q) Collections 9
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 10
(u) Proxies and Notices; Compliance with the Shareholders 10
Communication Act of 1985
(v) Books and Records 10
(w) Opinion of Fund's Independent Certified Public 10
Accountants
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 11
5. Subcustodians 11
(a) Domestic Subcustodians 11
(b) Foreign Subcustodians 11
(c) Interim Subcustodians 12
(d) Special Subcustodians 12
(e) Termination of a Subcustodian 12
(f) Certification Regarding Foreign Subcustodians 12
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict, Sovereign Risk, etc. 12
(c) Liability for Past Records 13
(d) Advice of Counsel 13
(e) Advice of the Fund and Others 13
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 14
(a) Domestic Subcustodians 14
(b) Liability for Acts and Omissions of Foreign 14
Subcustodians
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing 14
Agencies
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 15
9. Advances 15
10. Liens 15
11. Compensation 16
12. Powers of Attorney 16
13. Termination and Assignment 16
14. Additional Funds 16
15. Notices 16
16. Miscellaneous 17
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 1st day of January, 1995, as amended
September 24, 1998, between UMB Bank, n.a., a national banking association with
its principal place of business located in 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, registered investment company shares 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 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.
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.
(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; (ii) in
book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below; or (iii) with the transfer
agents for other registered investment companies (in the case of registered
investment company shares owned by a Fund) in accordance with the provisions of
sub-paragraph (4) 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 O 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.
(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 that 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.
(4) The Custodian may hold shares of other registered investment
companies ("Underlying Funds") which are owned by a Fund with the transfer
agents for such Underlying Funds. In maintaining shares of Underlying Funds with
such transfer agents, each Fund investing in such shares and the Custodian shall
adhere to the following procedures designed to comply with the requirements of
Rule 17f-4 of the 1940 Act:
(i) The Custodian may deposit the shares directly or through one
or more agents or Subcustodians which are also qualified to act as custodians
for investment companies.
(ii) The Custodian shall hold the shares in accounts with the
transfer agents of the Underlying Funds, provided such accounts are maintained
by such transfer agents as segregated accounts containing only assets held for
the Custodian as Custodian of a Fund.
(iii) The books and records of the Custodian shall at all times
identify those shares of Underlying Funds belonging to one or more Funds which
are held by the transfer agents of such Underlying Funds.
(iv) The Custodian shall provide notice to the Funds of all
transfers to or from the account of a Fund held at the transfer agent of an
Underlying Fund.
(v) The Custodian shall, if reasonably requested by a Fund
pursuant to Instructions, provide such Fund with reports obtained by the
Custodian or any Subcustodian with respect to the internal accounting control
maintained by the transfer agent for an Underlying Fund.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Sections 3 and 4 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) Purchases 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 other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; (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; and (iv) in the case of shares of Underlying Funds maintained with
transfer agents for such Underlying Funds pursuant to Section 4(b)(4) hereof,
payment for shares purchased shall be in accordance with the procedures of such
transfer agent.
(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: (i) 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; and
(ii) in the case of shares of Underlying Funds maintained with transfer agents
for such Underlying Funds pursuant to Section 4(b)(4) hereof, delivery of shares
sold shall be in accordance with the procedures of such transfer agent.
(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.
(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 "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 and shares maintained by the Custodian with
the transfer agents for Underlying Funds pursuant to Paragraph (b)(4) 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) Depositary 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
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.
(m) Foreign Exchange Transactions.
(l) Each Fund may from time to time appoint the Custodian as its agent
in the execution of currency exchange transactions. The Custodian agrees to
provide exchange rate and U.S. Dollar information, electronically or in writing,
to the Funds prior to the value date of said foreign exchange transaction. The
Fund agrees to provide the Custodian with information necessary to complete the
foreign exchange transaction two business days prior to the value date of said
transaction.
(2) 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. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) 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 or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) 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.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions and
subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(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.
(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 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.
(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 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, with a transfer agent for an Underlying Fund
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) 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.
(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 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 (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, transfer agent, 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: (a) 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 (b) 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 (ii) for any loss, damage, cost or expense resulting from "Sovereign
Risk." A "Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, 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.
(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.
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, Transfer Agents for Underlying funds, 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, transfer agent for an Underlying
Fund, Interim Subcustodian, Special Subcustodian, or Securities Depository and
Clearing Agency unless such loss, damage or expense is caused by, or results
from, the negligence or willful misfeasance of the Custodian.
(d) Defaults or Insolvency's 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 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.
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 negligence or willful misfeasance of
the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, transfer agent for an Underlying Fund, 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 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 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,
Kansas 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
Blvd., 10th Floor, Attn: Debbie Cadwell, Kansas City, Missouri 64106, or mailed
postage prepaid, to the Custodian's Securities Administration department, Post
Office Box 226, Attn: Debbie Cadwell, Kansas City, Missouri 64141, or to such
other addresses as the Custodian may have designated to each Fund in writing,
shall be deemed 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:
Term Section
---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
Underlying Funds 4(b)(4)
(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.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
SECURITY ULTRA FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY EQUITY FUND
- Equity Series
- Social Awareness Series
- Value Series
- Small Company Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SBL FUND
- Series A, B, C, E, J, P, S, V and X
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY INCOME FUND
- Corporate Bond Series
- U. S. Government Series
- Limited Maturity Bond Series
- High Yield Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY GROWTH AND INCOME FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MUNICIPAL BOND FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
ADVISOR'S FUND
- PCG Growth Series
- PCG Aggressive Growth Series
- SIM Growth Series
- SIM Conservative Growth Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MANAGEMENT COMPANY, LLC
(Corporate Account)
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: Senior Vice President
Date: September 24, 1998
SECURITY CASH FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
UMB BANK, N.A.
ATTEST: R. WM. BLOOM By: RALPH R. SANTORO
---------------------------- -------------------------------
Name: Ralph R. Santoro
Title: Senior Vice President
Date: September 24, 1998
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
The Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
SECURITY ULTRA FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY EQUITY FUND
- Equity Series
- Social Awareness Series
- Value Series
- Small Company Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SBL FUND
- Series A, B, C, E, J, P, S, V and X
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY INCOME FUND
- Corporate Bond Series
- U. S. Government Series
- Limited Maturity Bond Series
- High Yield Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY GROWTH AND INCOME FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MUNICIPAL BOND FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY CASH FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
ADVISOR'S FUND
- PCG Growth Series
- PCG Aggressive Growth Series
- SIM Growth Series
- SIM Conservative Growth Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MANAGEMENT COMPANY, LLC
(Corporate Account)
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: Senior Vice President
Date: September 24, 1998
UMB BANK, N.A.
ATTEST: R. WM. BLOOM By: RALPH R. SANTOROO
---------------------------- -------------------------------
Name: Ralph R. Santoro
Title: Senior Vice President
Date: September 24, 1998
<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, as amended September 24,
1998, 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, Enhanced Index Series
Security Equity Fund, Select 25 Series
ATTEST: SECURITY EQUITY FUND
- Enhanced Index Series
- Select 25 Series
- ------------------------------
Amy J. Lee By:
-------------------------
Title: Vice President
ATTEST: UMB Bank, n.a.
- -------------------------------
By:
-------------------------
Title:
-------------------------
Date:
-------------------------
<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 Trust Company
SPECIAL SUBCUSTODIANS:
The Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
SECURITY EQUITY FUND
- Enhanced Index Series
- Select 25 Series
ATTEST: By:
- ----------------------------- -----------------------
Name: James R. Schmank
Title: Vice President
Date: January 27, 1999
UMB BANK, N.A.
ATTEST: By:
-----------------------
- ----------------------------- Name:
-----------------------
Title:
-----------------------
Date:
-----------------------
<PAGE>
[CHASE LOGO]
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective May 1st, 1991, and is between THE CHASE MANHATTAN
BANK ("Bank") and each of the portfolios listed on Exhibit 1 hereto (each a
"Customer").
With respect to any obligations of a particular Customer arising hereunder,
Bank shall look for payment or satisfaction of any such obligation solely to
that Customer and the Assets of such Customer and Customer's Accounts to which
such obligation relates as though that Customer had separately contracted with
Bank by separate written agreement with respect to such Accounts. The rights and
benefits to which a given Customer is entitled hereunder shall be solely those
of such Customer and no other Customer hereunder shall receive such benefits.
1. CUSTOMER ACCOUNTS.
Bank, acting as "Securities Intermediary" (as defined in Section 15(g)
hereof) shall establish and maintain the following accounts ("Accounts"):
(a) a Custody Account (as defined in Section 15(b) hereof) in the name of
Customer for Financial Assets, which shall, except as modified by Section 15(d)
hereof, mean stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by Bank or its Subcustodian (as defined in
Section 3 hereof) for the account of Customer, including as an "Entitlement
Holder" as defined in Section 15(c) hereof); and
(b) an account in the name of Customer ("Deposit Account") for any and all
cash in any currency received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and Financial
Assets (collectively "Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11 hereof) concerning the Accounts. Bank may deliver
Financial Assets of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional Accounts
may be established and separately accounted for as additional Accounts
hereunder.
2. MAINTENANCE OF FINANCIAL ASSETS AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to Bank:
(a) Financial Assets shall be held in the country or other jurisdiction
in which the principal trading market for such Financial Assets is located,
where such Financial Assets are to be presented for payment or where such
Financial Assets are acquired; and
(b) Cash shall be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or non-interest
bearing accounts as may be available for the particular currency. To the extent
Instructions are issued and Bank can comply with such Instructions, Bank is
authorized to maintain cash balances on deposit for Customer with itself or one
of its "Affiliates" at such reasonable rates of interest as may from time to
time be paid on such accounts, or in non-interest bearing accounts as Customer
may direct, if acceptable to Bank. For purposes hereof, the term "Affiliate"
shall mean an entity controlling, controlled by, or under common control with,
Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Bank may act hereunder through the subcustodians listed in Schedule A hereof
with which Bank has entered into subcustodial agreements ("Subcustodians").
Customer authorizes Bank to hold Assets in the Accounts in accounts which Bank
has established with one or more of its branches or Subcustodians. Bank and
Subcustodians are authorized to hold any of Financial Assets in their account
with any securities depository in which they participate.
Bank reserves the right to add new, replace or remove Subcustodians. Customer
shall be given reasonable notice by Bank of any amendment to Schedule A. Upon
request by Customer, Bank shall identify the name, address and principal place
of business of any Subcustodian of Customer's Assets and the name and address of
the governmental agency or other regulatory authority that supervises or
regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging to
other customers of Bank in accounts identified on such Subcustodian's books as
custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject only
to the instructions of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding Bank's
customers' assets shall provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration, or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) Bank or its Subcustodians shall make payments from the Deposit Account
upon receipt of Instructions which include all information required by Bank.
(b) In the event that any payment to be made under this Section 5 exceeds the
funds available in the Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a loan payable on demand,
bearing interest at the rate customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at any time
prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Financial Assets shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Financial Assets with respect to any
sale, exchange or purchase of Financial Assets. Otherwise, such transactions
shall be credited or debited to the Accounts on the date cash or Financial
Assets are actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Financial Assets delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. ACTIONS OF BANK.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Financial Assets which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that Bank or Subcustodian is
actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other certificates as
may be required to obtain payments in respect of Financial Assets.
(c) Exchange interim receipts or temporary Financial Assets for definitive
Financial Assets.
(d) Appoint brokers and agents for any transaction involving the Financial
Assets, including, without limitation, Affiliates of Bank or any Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon, identifying
the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of Assets
to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
All collections of funds or other property paid or distributed in respect of
Financial Assets in the Custody Account shall be made at the risk of Customer.
Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by Bank or by its Subcustodians of any payment, redemption or
other transaction regarding Financial Assets in the Custody Account in respect
of which Bank has agreed to take any action hereunder.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) CORPORATE ACTIONS. Whenever Bank receives information concerning the
Financial Assets which requires discretionary action by the beneficial owner of
the Financial Assets (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate Actions"),
Bank shall give Customer notice of such Corporate Actions to the extent that
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, Bank shall endeavor to obtain Instructions from
Customer or its Authorized Person (as defined in Section 10 hereof), but if
Instructions are not received in time for Bank to take timely action, or actual
notice of such Corporate Action was received too late to seek Instructions, Bank
is authorized to sell such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take any other action it deems,
in good faith, to be appropriate in which case it shall be held harmless for any
such action.
(b) PROXY VOTING. Bank shall provide proxy voting services, if elected by
Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) TAX RECLAIMS.
(i) Subject to the provisions hereof, Bank shall apply for a reduction of
withholding tax and any refund of any tax paid or tax credits which apply
in each applicable market in respect of income payments on Financial
Assets for Customer's benefit which Bank believes may be available to
Customer.
(ii) The provision of tax reclaim services by Bank is conditional upon
Bank's receiving from Customer or, to the extent the Financial Assets are
beneficially owned by others, from each beneficial owner, A) a
declaration of the beneficial owner's identity and place of residence and
(B) certain other documentation (pro forma copies of which are available
from Bank). Customer acknowledges that, if Bank does not receive such
declarations, documentation and information Bank shall be unable to
provide tax reclaim services.
(iii) Bank shall not be liable to Customer or any third party for any
taxes, fines or penalties payable by Bank or Customer, and shall be
indemnified accordingly, whether these result from the inaccurate
completion of documents by Customer or any third party, or as a result of
the provision to Bank or any third party of inaccurate or misleading
information or the withholding of material information by Customer or any
other third party, or as a result of any delay of any revenue authority
or any other matter beyond Bank's control.
(iv) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at
Bank's absolute discretion, supplement or amend the markets in which tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, Bank shall have no responsibility with regard to Customer's
tax position or status in any jurisdiction.
(v) Customer confirms that Bank is authorized to disclose any information
requested by any revenue authority or any governmental body in relation
to Customer or the securities and/or cash held for Customer.
(vi) Tax reclaim services may be provided by Bank or, in whole or in
part, by one or more third parties appointed by Bank (which may be Bank's
affiliates); provided that Bank shall be liable for the performance of
any such third party to the same extent as Bank would have been if Bank
performed such services.
(d) TAX OBLIGATIONS.
(i) Customer confirms that Bank is authorized to deduct from any cash
received or credited to the Deposit Account any taxes or levies required
by any revenue or governmental authority for whatever reason in respect
of the Custody Account.
(ii) If Bank does not receive appropriate declarations, documentation and
information that additional United Kingdom taxation shall be deducted
from all income received in respect of the Financial Assets issued
outside the United Kingdom and any applicable United States withholding
tax shall be deducted from income received from the Financial Assets.
Customer shall provide to Bank such documentation and information as Bank
may require in connection with taxation, and warrants that, when given,
this information shall be true and correct in every respect, not
misleading in any way, and contain all material information. Customer
undertakes to notify Bank immediately if any such information requires
updating or amendment.
(iii) Customer shall be responsible for the payment of all taxes relating
to the Financial Assets in the Custody Account, and Customer agrees to
pay, indemnify and hold Bank harmless from and against any and all
liabilities, penalties, interest or additions to tax with respect to or
resulting from, any delay in, or failure by, Bank (1) to pay, withhold or
report any U.S. federal, state or local taxes or foreign taxes imposed
on, or (2) to report interest, dividend or other income paid or credited
to the Deposit Account, whether such failure or delay by Bank to pay,
withhold or report tax or income is the result of (x) Customer's failure
to comply with the terms of this paragraph, or (y) Bank's own acts or
omissions; provided however, Customer shall not be liable to Bank for any
penalty or additions to tax due as a result of Bank's failure to pay or
withhold tax or to report interest, dividend or other income paid or
credited to the Deposit Account solely as a result of Bank's negligent
acts or omissions.
9. NOMINEES.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Financial
Assets to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Financial Assets
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Financial Assets in the Custody Account.
10. AUTHORIZED PERSONS.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded. The term "Instructions" includes, without
limitation, instructions to sell, assign, transfer, deliver, purchase or receive
for the Custody Account, any and all stocks, bonds and other Financial Assets or
to transfer funds in the Deposit Account.)
Any Instructions delivered to Bank by telephone shall promptly thereafter be
confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the telephone instructions received
or Bank's failure to produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer or its Authorized
Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) Bank shall be responsible for the performance of only such duties as are
set forth herein or expressly contained in Instructions which are consistent
with the provisions hereof as follows:
(i) Notwithstanding any other provisions of this Agreement, Bank's
responsibilities shall be limited to the exercise of reasonable care with
respect to its obligations hereunder. Bank shall only be liable to
Customer for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets where such loss results directly from the failure by the
Subcustodian to use reasonable care in the provision of custodial
services by it in accordance with the standards prevailing in its local
market or from the willful default of such Subcustodian in the provision
of custodial services by it. In the event of any loss to Customer which
is compensable hereunder (i.e. a loss arising by reason of willful
misconduct or the failure of Bank or its Subcustodian to use reasonable
care), Bank shall be liable to Customer only to the extent of Customer's
direct damages, to be determined based on the market value of the
property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or
circumstances. Bank shall have no liability whatsoever for any
consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions and services contemplated hereby and the
relationship established hereby even if Bank has been advised as to the
possibility of the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any Subcustodian
which is not a branch or Affiliate of Bank. Bank shall not be responsible
for any act, omission, default or the solvency of any broker or agent
which it or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) (A) Customer shall indemnify and hold Bank and its directors,
officers, agents and employees (collectively the "Indemnitees") harmless
from and against any and all claims, liabilities, losses, damages, fines,
penalties, and expenses, including out-of-pocket and incidental expenses
and legal fees ("Losses") that may be imposed on, incurred by, or
asserted against, the Indemnitees or any of them for following any
instructions or other directions upon which Bank is authorized to rely
pursuant to the terms of this Agreement. (B) In addition to and not in
limitation of the preceding subparagraph, Customer shall also indemnify
and hold the Indemnitees and each of them harmless from and against any
and all Losses that may be imposed on, incurred by, or asserted against,
the Indemnitees or any of them in connection with or arising out of
Bank's performance under this Agreement, provided the Indemnitees have
not acted with negligence or engaged in willful misconduct. (C) In
performing its obligations hereunder, Bank may rely on the genuineness of
any document which it believes in good faith to have been validly
executed.
(iv) Customer shall pay for and hold Bank harmless from any liability or
loss resulting from the imposition or assessment of any taxes or other
governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for any
loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error
in the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation
of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the
orderly execution of securities transactions or affect the value of
Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war (whether declared or undeclared) or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation, or acts
of God.
(b) Consistent with and without limiting the first paragraph of this Section
12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or the
retention of Financial Assets;
(iii) advise Customer or an Authorized Person regarding any default in
the payment of principal or income of any security other than as provided
in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person regarding the
financial condition of any broker, agent or other party to which
Financial Assets are delivered or payments are made pursuant hereto; and
(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued
to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank or
any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Financial Assets, act as a lender to the issuer of Financial Assets,
act in the same transaction as agent for more than one customer, have a material
interest in the issue of Financial Assets, or earn profits from any of the
activities listed herein.
13. FEES AND EXPENSES.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. Bank shall have a lien on and is authorized to
charge any Accounts of Customer for any amount owing to Bank under any provision
hereof
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of
Customer's trading and investment activity, when instructed by specific or
standing Instruction, Bank is authorized to enter into spot or forward foreign
exchange contracts with Customer or an Authorized Person for Customer and may
also provide foreign exchange through its subsidiaries, Affiliates or
Subcustodians. Instructions, may be issued with respect to such contracts but
Bank may establish rules or limitations concerning any foreign exchange facility
made available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a separate master foreign exchange contract with
Customer that covers foreign exchange transactions for the Accounts, the terms
and conditions of that foreign exchange contract, and to the extent not
inconsistent, this Agreement, shall apply to such transactions.
(b) CERTIFICATION OF RESIDENCY, ETC. Customer certifies that it is a resident
of the United States and shall notify Bank of any changes in residency. Bank may
rely upon this certification or the certification of such other facts as may be
required to administer Bank's obligations hereunder. Customer shall indemnify
Bank against all losses, liability, claims or demands arising directly or
indirectly from any such certifications.
(c) ACCESS TO RECORDS. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS, Captions THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN NEW YORK and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank. The captions given
to the sections and subsections of this Agreement are for convenience of
reference only and are not to be used to interpret this Agreement.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the Assets
deposited in the Accounts are (Check one):
X Investment Company assets subject to certain U.S. Securities
------- and Exchange Commission rules and regulations;
------- Other (specify)
This Agreement consists exclusively of this document together with
Schedules A and B, Exhibits I - _______ and the following Rider(s)
[Check applicable rider(s)]:
X INVESTMENT COMPANY
-------
PROXY VOTING
-------
X SPECIAL TERMS AND CONDITIONS
-------
There are no other provisions hereof and this Agreement supersedes any other
agreements, whether written or oral, between the parties. Any amendment hereto
must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions hereof are held
invalid, illegal or unenforceable in any respect on the basis of any particular
circumstances or in any jurisdiction, the validity, legality and enforceability
of such provision or provisions under other circumstances or in other
jurisdictions and of the remaining provisions shall not in any way be affected
or impaired.
(g) WAIVER. Except as otherwise provided herein, no failure or delay on the
part of either party in exercising any power or right hereunder operates as a
waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) REPRESENTATIONS AND WARRANTIES. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) NOTICES. All notices hereunder shall be effective when actually received.
Any notices or other communications which may be required hereunder are to be
sent to the parties at the following addresses or such other addresses as may
subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Global Investor Services, Investment Management Group; and (b) Customer:
Security Funds. 700 SW Harrison Street, Topeka, KS 66636-0001, Attention: Brenda
M. Harwood.
(j) TERMINATION. This Agreement may be terminated by Customer or Bank by
giving sixty (60) days written notice to the other, provided that such notice to
Bank shall specify the names of the persons to whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall, within sixty (60) days following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to the persons so
specified, after deducting any amounts which Bank determines in good faith to be
owed to it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall deliver the Assets, Bank,
at its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions hereof, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to Bank.
(k) MONEY LAUNDERING. Customer warrants and undertakes to Bank for itself and
its agents that all Customer's customers are properly identified in accordance
with U.S. Money Laundering Regulations as in effect from time to time.
(l) Imputation of certain information. Bank shall not be held responsible for
and shall not be required to have regard to information held by any person by
imputation or information of which Bank is not aware by virtue of a "Chinese
Wall" arrangement. If Bank becomes aware of confidential information which in
good faith it feels inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
15. DEFINITIONS.
As used herein, the following terms shall have the meaning hereinafter
stated:
a) "Certificated Security" shall mean a security that is represented by a
certificate.
b) "Custody Account" means each Securities custody account on Bank's records to
which Financial Assets are or may be credited pursuant hereto.
c) "Entitlement Holder" shall mean the person on the records of a Securities
Intermediary as the person having a Securities Entitlement against the
Securities Intermediary.
d) "Financial Asset" shall mean, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced, including
a Certificated Security or Uncertificated Security, a security certificate,
or a Securities Entitlement.
e) "Securities" means stocks, bonds, rights, warrants and other negotiable and
non-negotiable paper whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt in on securities
exchanges or financial markets, and other obligations of an issuer, or
shares, participations and interests in an issuer recognized in an area in
which it is issued or dealt in as a medium for investment and any other
property as shall be acceptable to Bank for the Custody Account.
f) "Securities Entitlement" shall mean the rights and property interest of an
Entitlement Holder with respect to a Financial Asset as set forth in Part 5
of the Uniform Commercial Code.
g) "Securities Intermediary" shall mean Bank, a Subcustodian, a securities
depository, and any other financial institution which in the ordinary course
of business maintains custody accounts for others and acts in that capacity.
h) "Uncertificated Security" shall mean a security that is not represented by a
certificate.
i) "Uniform Commercial Code" means Article 8 of the Uniform Commercial Code of
the State of New York, as the same may be amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first-above written.
CUSTOMER
SBL FUND
SECURITY EQUITY FUND
SECURITY INCOME FUND
By: AMY J. LEE
------------------------------
Title: Secretary
Date: January 11, 1999
THE CHASE MANHATTAN BANK
By: MATTHEW D. GOAD
-------------------------------
Title: Vice President
Date: January 7, 1999
STATE OF KANSAS )
: ss.
COUNTY OF SHAWNEE )
On this 11th day of January, 1999, before me personally came Amy J. Lee, to
me known, who being by me duly sworn, did depose and say that she resides in
Lawrence, Kansas at 701 Tennessee, that she is Secretary of the entity described
in and which executed the foregoing instrument; that she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that she signed her name thereto by like
order.
Sworn to before me this 11th
day of January, 1999.
Notary
ANNETTE E. CRIPPS
- ------------------------------
Annette E. Cripps
Notary Public
State of Kansas
My Appt. Expires 7/8/2001
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 7th day of January, 1999, before me personally came Matthew D. Goad,
to me known, who being by me duly sworn, did depose and say that he resides in
Brooklyn at 163 Bond Street; that he is a Vice President of THE CHASE MANHATTAN
BANK, the corporation described in and which executed the foregoing instrument;
that he knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
Sworn to before me this 7th
day of January, 1999.
Notary
ANTOINETTE D. TURNER
- -------------------------------
Antoinette D. Turner
Notary Public
State of New York
Commission Expires, January 1, 1999
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
Each of the Portfolios Listed on Exhibit 1
Effective May 1st, 1991
The following modifications are made to the Agreement:
A. Add a new Section 16 to the Agreement as follows:
"16. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter `Board')
hereby delegates to Bank, and, except as to the country or countries as to which
Bank may, from time to time, advise Customer that it does not accept such
delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's `Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2)), both for the purpose of selecting Eligible Foreign Custodians
(as that term is defined in SEC rule 17f-5(a)(1), and as the same may be amended
from time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order) to hold Assets and of evaluating the contractual arrangements
with such Eligible Foreign Custodians (as set forth in SEC rule 17f-5(c)(2));
provided that, the term Eligible Foreign Custodian shall not include any
`Compulsory Depository.' A Compulsory Depository shall mean a securities
depository or clearing agency the use of which is compulsory because: (1) its
use is required by law or regulation, (2) securities cannot be withdrawn from
the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Bank as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement of
Assets with particular Eligible Foreign Custodians and of any material change
in the arrangements with such Eligible Foreign Custodians, with such reports
to be provided to Customer's Board at such times as the Board deems
reasonable and appropriate based on the circumstances of Customer's foreign
custody arrangements (and until further notice from Customer such reports
shall be provided not less than quarterly with respect to the placement of
Assets with particular Eligible Foreign Custodians and with reasonable
promptness upon the occurrence of any material change in the arrangements
with such Eligible Foreign Custodians);
(ii)exercise such reasonable care, prudence and diligence in performing as
Customer's Foreign Custody Manager as a person having responsibility for the
safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined that
Assets placed and maintained in the safekeeping of such Eligible Foreign
Custodian shall be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, after having considered all
factors relevant to the safekeeping of such Assets, including, without
limitation, those factors set forth in SEC rule 17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign Custodian
(or, in the case of an Eligible Foreign Custodians that is a securities
depository or clearing agency, such contract, the rules or established
practices or procedures of the depository, or any combination of the
foregoing) requires that the Eligible Foreign Custodian will provide
reasonable care for Assets based on the standards applicable to custodians in
the relevant market.
(v) have established a system to monitor the continued appropriateness of
maintaining Assets with particular Eligible Foreign Custodians and of the
governing contractual arrangements; it being understood, however, that in the
event that Bank shall have determined that the existing Eligible Foreign
Custodian in a given country would no longer afford Assets reasonable care
and that no other Eligible Foreign Custodian in that country would afford
reasonable care, Bank shall promptly so advise Customer and shall then act in
accordance with the Instructions of Customer with respect to the disposition
of the affected Assets.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed and
maintained in Bank's custody are subject to the Investment Company Act of 1940,
as amended (the "1940 Act"), as the same may be amended from time to time; (2)
its Board: (i) has determined that it is reasonable to rely on Bank to perform
as Customer's Foreign Custody Manager (ii) or its investment adviser shall have
determined that Customer may maintain Assets in each country in which Customer's
Assets shall be held hereunder and determined to accept the risks arising
therefrom (including, but not limited to, a country's financial infrastructure),
prevailing custody and settlement practices, laws applicable to the safekeeping
and recovery of Assets held in custody, and the likelihood of nationalization,
currency controls and the like) (collectively ("Country Risk")). Nothing
contained herein shall require Bank to make any selection or to engage in any
monitoring on behalf of Customer that would entail consideration of Country
Risk.
(e) Bank shall provide to Customer such information relating to Country Risk
as is specified in Appendix 1-B hereto. Customer hereby acknowledges that: (i)
such information is solely designed to inform Customer of market conditions and
procedures and is not intended as a recommendation to invest or not invest in
particular markets; and (ii) Bank has gathered the information from sources it
considers reliable, but that Bank shall have no responsibility for inaccuracies
or incomplete information.
B. Add the following after the first sentence of Section 3 of the Agreement:
"At the request of Customer, Bank may, but need not, add to Schedule A an
Eligible Foreign Custodian that is either a bank or a non-Compulsory Depository
where Bank has not acted as Foreign Custody Manager with respect to the
selection thereof. Bank shall notify Customer in the event that it elects to add
any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
"The term Subcustodian as used herein shall mean the following:
(a) a U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7);
(b) an Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws of a
country other than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-owned direct or
indirect subsidiary of a U.S. bank or bank holding company which subsidiary is
incorporated or organized under the laws of a country other than the United
States; (iii) a securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States (other than a
Compulsory Depository), that acts as a system for the central handling of
securities or equivalent book-entries in that country and that is regulated by a
foreign financial regulatory authority as defined under section 2(a)(50) of the
1940 Act, (iv) a securities depository or clearing agency organized under the
laws of a country other than the United States to the extent acting as a
transnational system for the central handling of securities or equivalent
book-entries, and (v) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC.
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall not include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any Compulsory Depository."
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<PAGE>
Appendix 1-B
Information Regarding Country Risk
1. To aid Customer in its determinations regarding Country Risk, Bank shall
furnish annually and upon the initial placing of Assets into a country the
following information (check items applicable):
A. Opinions of local counsel concerning:
X
- ------ i. Whether applicableforeign law would restrict the access afforded
Customer's independent public accountants to books and records kept
by an eligible foreign custodian located in that country.
X
- ------ ii. Whether applicable foreign law would restrict the Customer's ability
to recover its assets in the event of the bankruptcy of an Eligible
Foreign Custodian located in that country.
X
- ------ iii. Whether applicable foreign law would restrict the Customer's ability
to recover assets that are lost while under the control of an
Eligible Foreign Custodian located in the country.
B. Written information concerning:
X
- ------ i. The foreseeability of expropriation, nationalization, freezes, or
confiscation of Customer's assets.
X
- ------ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.]
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Customer in monitoring Country Risk, Bank shall furnish board the
following additional information:
Market flashes, including with respect to changes in the information in
market reports.
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Financial Assets in the Custody Account as call for voting
or relate to legal proceedings within a reasonable time after
sufficient copies are received by Bank for forwarding to its customers.
In addition, Bank shall follow coupon payments, redemptions, exchanges
or similar matters with respect to Financial Assets in the Custody
Account and advise Customer or the Authorized Person for such Account
of rights issued, tender offers or any other discretionary rights with
respect to such Financial Assets, in each case, of which Bank has
received notice from the issuer of the Financial Assets, or as to which
notice is published in publications routinely utilized by Bank for this
purpose.
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
SBL Fund and The Chase Manhattan Bank
Dated as of May 1st, 1991
The following is a list of Portfolios for which the Custodian shall serve
under a Custodian Agreement dated as of May 1, 1991 (the "Agreement"):
Portfolio Name: Effective as of:
- --------------------------------------------------------------------------------
Series D May 1, 1991
Series I January 28, 1999
Series K May 15, 1995
Series M May 15, 1995
Series N May 15, 1995
Series O May 15, 1995
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
Security Equity Fund and The Chase Manhattan Bank
Dated as of May 1, 1991
The following is a list of Portfolios for which the Custodian shall serve
under a Custodian Agreement dated as of May 1, 1991 (the "Agreement"):
Portfolio Name: Effective as of:
- --------------------------------------------------------------------------------
Asset Allocation Fund May 15, 1995
Global Series May 30, 1995
International Series January 28, 1999
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
Security Income Fund and The Chase Manhattan Bank
Dated as of May 1st, 1991
The following is a list of Portfolios for which the Custodian shall
serve under a Custodian Agreement dated as of May 1st, 1991 (the "Agreement"):
Portfolio Name: Effective as of:
- --------------------------------------------------------------------------------
Emerging Markets Total Return Series April 9, 1997
Global Asset Allocation Series April 9, 1997
Global High Yield Series May 15, 1995
<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 October 30, 1998, in the Post-Effective Amendment No. 84 to the
Registration Statement (Form N-1A) and related Prospectus and Statement of
Additional Information 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
January 25, 1999
<PAGE>
AMENDED AND RESTATED CLASS A
DISTRIBUTION PLAN
SECURITY EQUITY FUND
WHEREAS, the Security Equity Fund, Small Company Series adopted a Distribution
Plan under Rule 12b-1 of the Investment Company Act of 1940 with respect to its
Class A shares; and
WHEREAS, the Distribution Plan was initially entered into on September 15, 1997;
and
WHEREAS, on November 6, 1998, the Board of Directors of the Security Equity Fund
authorized the issuance of three additional series of Class A common stock of
the Fund, designated as the International Series, Enhanced Index Series and
Select 25 Series; and
WHEREAS, on November 6, 1998, the Board of Directors of the Security Equity Fund
determined that extending the Fund's Class A Distribution Plan to the
International Series, Enhanced Index Series and Select 25 Series was reasonably
likely to benefit each such series and their respective shareholders; and
WHEREAS, in order to extend the Class A Distribution Plan to each such series of
Security Equity Fund, the Board of Directors has determined to amend and restate
the Class A Distribution Plan as follows:
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
series of the Fund (hereinafter called "distribution-related activities")
set forth in Appendix A to the Plan (collectively referred to herein as the
"Series"). Appendix A, as it may be amended from time to time is
incorporated herein by this reference. 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 Series and their respective
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 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;
(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 an 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 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 each 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
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: January 28, 1999 By: AMY J. LEE
------------------------------ --------------------------------
<PAGE>
Appendix A
1. Small Company Series
2. International Series
3. Enhanced Index Series
4. Select 25 Series
<PAGE>
SECURITY EQUITY FUND
CLASS C
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 C shares of the
Series of the Fund (hereinafter called "distribution-related activities").
The Fund's Series are listed on Exhibit A to this Plan. 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 Fund 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 C shares
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 Fund 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 Fund shares
to the public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Fund 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 (a
"Service Fee");
(vi) Commissions to sales personnel for selling shares of the Fund
and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the Fund 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 Fund 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 account maintenance and shareholder services
provided by such other party. Such Service Fee shall be payable (a) for the
first year, initially, in an amount equal to 0.25 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 0.25 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 Fund 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 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 percent (1.00%) 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' Class C shares; 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
Series' Class C shares. 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 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 Series' Class C shares. 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: January 28, 1999 By: AMY J. LEE
--------------------- -------------------------
<PAGE>
EXHIBIT A
Series of Security Equity Fund:
Equity Series
Global Series
Asset Allocation Series
Social Awareness Series
Value Series
Small Company Series
Enhanced Index Series
International Series
Select 25 Series
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NUMBER> 012
<NAME> EQUITY SERIES - CLASS B
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 021
<NAME> GLOBAL SERIES - CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
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<PERIOD-END> SEP-30-1998
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<ACCUM-APPREC-OR-DEPREC> (764)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 022
<NAME> GLOBAL SERIES - CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NUMBER> 031
<NAME> ASSET ALLOCATION SERIES - CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NUMBER> 032
<NAME> ASSET ALLOCATION SERIES - CLASS B
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<CURRENCY> U.S. DOLLARS
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NAME> SOCIAL AWARENESS SERIES - CLASS A
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NUMBER> 042
<NAME> SOCIAL AWARENESS SERIES - CLASS B
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
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<NAME> VALUE SERIES - CLASS A
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<CURRENCY> U.S. DOLLARS
<S> <C>
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