-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G7EUNqZbfiIRlOqeaua8AxZ2vA4ACmTPZBbF9kgR8ncqETFe4rF7CkMzBySGga6d vd0kJZMHXBDwocaXcezeVA== 0000088525-97-000014.txt : 19970222 0000088525-97-000014.hdr.sgml : 19970222 ACCESSION NUMBER: 0000088525-97-000014 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970214 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY EQUITY FUND CENTRAL INDEX KEY: 0000088525 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 486104426 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-19458 FILM NUMBER: 97533665 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01136 FILM NUMBER: 97533666 BUSINESS ADDRESS: STREET 1: 700 HARRISON ST CITY: TOPEKA STATE: KS ZIP: 66636 BUSINESS PHONE: 9132953127 MAIL ADDRESS: STREET 1: 700 HARRISON ST CITY: TOPEKA STATE: KS ZIP: 66636 485APOS 1 N1A-PEA 77-REGISTRATION STATEMENT File Nos. 811-1136 2-19458 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_| Post-Effective Amendment No. 77 |X| and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_| Amendment No. 77 |X| ------ (Check appropriate box or boxes) SECURITY EQUITY FUND (Exact Name of Registrant as Specified in Charter) 700 HARRISON STREET, TOPEKA, KANSAS 66636-0001 (Address of Principal Executive Offices/Zip Code) Registrant's Telephone Number, including area code: (913) 295-3127 Copies To: John D. Cleland, President Amy J. Lee, Secretary Security Equity Fund Security Equity Fund 700 Harrison Street 700 Harrison Street Topeka, KS 66636-0001 Topeka, KS 66636-0001 (Name and address of Agent for Service) It is proposed that this filing will become effective (check appropriate box): |_| immediately upon filing pursuant to paragraph (b) |_| on April 30, 1997, pursuant to paragraph (b) |_| 60 days after filing pursuant to paragraph (a)(1) |_| on April 30, 1997, pursuant to paragraph (a)(1) |_| 75 days after filing pursuant to paragraph (a)(2) |X| on April 30, 1997, pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: |_| this post-effective amendment designates a new effective date for a previously filed post-effective amendment -------------------- The Registrant has registered an indefinite amount of securities under the Securities Act of 1933 pursuant to Section 24(f) under the Investment Company Act of 1940; accordingly, no fee is payable herewith. The Registrant filed the Notice required by 24f-2 on November 26, 1996. SECURITY EQUITY FUND FORM N-1A CROSS REFERENCE SHEET FORM N-1A ITEM NUMBER CAPTION PART A PROSPECTUS 1. Cover Page 2. Not Applicable 2a. Transaction and Operating Expense Table 3. Financial Highlights; Performance 4. Investment Objective and Policies of the Funds 5. Management of the Funds; Trading Practices and Brokerage 6. General Information; Dividends and Taxes; Foreign Taxes 7. How to Purchase Shares; Determination of Net Asset Value; Shareholder Services; Appendix A 8. How to Redeem Shares 9. Not Applicable EXPLANATORY NOTE This Post-Effective Amendment No. 77 (the "Amendment") to the Registrant's Registration Statement on Form N-1A (File Nos. 2-19458 and 811-1136) is being filed solely for the purpose of adding to the prospectus and statement of additional information for the Global and Equity Series of the Registrant, the Value Series, a new series of shares of the Registrant. As a result, the Amendment does not affect the Registrant's currently effective Social Awareness Series or Asset Allocation Series prospectuses, which prospectuses are hereby incorporated by reference as most recently filed pursuant to Rule 497 under the Securities Act of 1933, as amended. PART B STATEMENT OF ADDITIONAL INFORMATION 10. Cover Page 11. Table of Contents 12. Not Applicable 13. Investment Objective and Policies of the Funds; Investment Policy Limitations 14. Officers and Directors 15. Remuneration of Directors and Others 16. Investment Management; Distributor; Custodian, Transfer Agent and Dividend-Paying Agent 17. Allocation of Portfolio Brokerage PART B (Continued) STATEMENT OF ADDITIONAL INFORMATION 18. Organization 19. How to Purchase Shares; How Net Asset Value is Determined; How to Redeem Shares; How to Exchange Shares; Systematic Withdrawal Program; Accumulation Plan; Retirement Plans; Individual Retirement Accounts (IRAs); SIMPLE IRAs, Pension and Profit Sharing Plans; 403(b) Retirement Plans; Simplified Employee Pension Plans (SEPPs); Appendix B 20. Dividends and Taxes 21. Distributor 22. Performance Information 23. Financial Statements; Independent Auditors SECURITY FUNDS ================================================================================ PROSPECTUS May 1, 1997 * Security Growth and Income Fund * Security Equity Fund - Equity Series - Global Series - Value Series * Security Ultra Fund * Application [SDI Logo] SECURITY FUNDS PROSPECTUS ================================================================================ SECURITY GROWTH AND INCOME FUND SECURITY EQUITY FUND PROSPECTUS EQUITY SERIES MAY 1, 1997 GLOBAL SERIES VALUE SERIES SECURITY ULTRA FUND MEMBERS OF THE SECURITY BENEFIT GROUP OF COMPANIES 700 HARRISON, TOPEKA, KANSAS 66636-0001 The investment objective of Security Growth and Income Fund ("Growth and Income Fund") is long-term growth of capital with a secondary emphasis on income. Growth and Income Fund seeks to achieve this objective through investment in a diversified portfolio which will ordinarily consist principally of common stocks but may also include other securities when deemed advisable. Such other securities may include securities convertible into common stocks, preferred stocks and U.S. and foreign debt securities, which may include higher yielding, higher risk securities ("junk bonds") ordinarily characteristic of securities in the lower rating categories of the recognized rating services. BECAUSE GROWTH AND INCOME FUND INVESTS IN SUCH JUNK BONDS, IT MAY NOT BE SUITABLE FOR ALL INVESTORS. IN ADDITION TO OTHER RISKS, JUNK BONDS ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN ARE LOWER YIELDING, HIGHER RATED BONDS. The investment objective of Security Equity Fund ("Equity Fund") is long-term capital growth. Equity Fund seeks this objective primarily through investment in equity securities, and emphasis is placed upon the selection of those securities which, in the opinion of the Investment Manager, offer basic value or above-average capital growth potential. The investment objective of Security Global Fund ("Global Fund") is long-term growth of capital. Global Fund seeks this objective primarily through investment in common stocks and equivalents of companies domiciled in foreign countries and the United States. Investments in foreign securities may involve risks not present in domestic investments. The investment objective of Security Value Fund ("Value Fund") is to seek long-term growth of capital by investing primarily in a diversified portfolio of common stocks, securities convertible into common stocks, preferred stocks, and warrants which the Investment Manager believes are undervalued. The investment objective of Security Ultra Fund ("Ultra Fund") is capital appreciation. Ultra Fund seeks this objective primarily through investment in equity securities. Ultra Fund will ordinarily invest in a diversified portfolio of common stocks and securities convertible into common stocks, and the portfolio may include the securities of smaller and less mature companies. ULTRA FUND MAY ENGAGE IN SHORT-TERM TRADING WHICH MAY BE CONSIDERED SPECULATIVE, AND INCREASES RISKS TO ULTRA FUND. This Prospectus sets forth concisely the information that a prospective investor should know about the Funds. It should be read and retained for future reference. Certain additional information is contained in a "Statement of Additional Information" about the Funds, dated May 1, 1997, which has been filed with the Securities and Exchange Commission. The Statement of Additional Information, as it may be supplemented from time to time, is incorporated by reference in this Prospectus. It is available at no charge by writing Security Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001, or by calling (913) 295-3127 or (800) 888-2461. - -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THE FUNDS INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. - -------------------------------------------------------------------------------- SECURITY FUNDS CONTENTS ================================================================================ Page Transaction and Operating Expense Table................................... 1 Financial Highlights...................................................... 2 Investment Objective and Policies of the Funds............................ 4 Growth and Income Fund............................................. 4 Equity Fund........................................................ 7 Global Fund........................................................ 7 Value Fund......................................................... 10 Ultra Fund......................................................... 10 Investment Methods and Risk Factors....................................... 11 Management of the Funds................................................... 16 Portfolio Management............................................... 18 How to Purchase Shares.................................................... 19 Alternative Purchase Options....................................... 20 Class A Shares..................................................... 20 Class B Shares..................................................... 21 Class B Distribution Plan.......................................... 22 Calculation and Waiver of Contingent Deferred Sales Charges........ 22 Arrangements with Broker-Dealers and Others........................ 23 Purchases at Net Asset Value....................................... 24 How to Redeem Shares...................................................... 24 Telephone Redemptions ............................................. 25 Dividends and Taxes....................................................... 26 Foreign Taxes...................................................... 27 Determination of Net Asset Value.......................................... 27 Trading Practices and Brokerage........................................... 28 Performance............................................................... 29 Shareholder Services...................................................... 29 Accumulation Plan.................................................. 29 Systematic Withdrawal Program...................................... 30 Exchange Privilege................................................. 30 Retirement Plans................................................... 31 General Information....................................................... 31 Organization....................................................... 31 Stockholder Inquiries.............................................. 32 Appendix A - Class A Shares Reduced Sales Charges......................... 33 Rights of Accumulation............................................. 33 Statement of Intention............................................. 33 Reinstatement Privilege............................................ 33 - -------------------------------------------------------------------------------- SECURITY FUNDS PROSPECTUS ================================================================================ TRANSACTION AND OPERATING EXPENSE TABLE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES (ALL FUNDS) CLASS A SHARES CLASS B SHARES(1) Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.75% None Maximum Sales Load Imposed on Reinvested Dividends None None Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, whichever is lower) None(2) 5% during the first year, decreasing to 0% in the sixth and following years
GROWTH AND INCOME FUND EQUITY FUND GLOBAL FUND VALUE FUND ULTRA FUND CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets) Management Fees (after fee waivers)(3) 1.29% 1.29% 1.04% 1.04% 2.00% 2.00% None None% 1.31% 1.31% 12b-1 Fees(4) None 1.00% None 1.00% None 1.00% None 1.00% None 1.00% Other Expenses(5) None None None None None None 1.24% 1.24% None None ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Fund Operating Expenses(6) 1.29% 2.29% 1.04% 2.04% 2.00% 3.00% 1.24% 1.24% 1.31% 2.31% ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== EXAMPLE You would pay the following 1 Year $ 70 $ 73 $ 68 $ 71 $ 77 $ 80 $ 69 $ 73 $ 70 $ 73 expenses on a $1,000 invest- 3 Years 96 102 89 94 117 123 95 100 97 102 ment assuming (1) 5 percent 5 Years 124 143 112 130 159 178 --- --- 125 144 annual return and (2) redemp- 10 Years 204 263 177 237 277 332 --- --- 206 265 tion at the end of each time period EXAMPLE You would pay the following 1 Year $ 70 $ 23 $ 68 $ 21 $ 77 $ 30 $69 $23 $ 70 $ 23 expenses on a $1,000 3 Years 96 72 89 64 117 93 95 70 97 72 investment, assuming 5 Years 124 123 112 110 159 158 --- --- 125 124 (1) 5 percent annual 10 Years 204 263 177 237 277 332 --- --- 206 265 return and (2) no redemption
(1) Class B shares convert tax-free to Class A shares automatically after eight years. (2) Purchases of Class A shares in amounts of $1,000,000 or more are not subject to an initial sales load; however, a contingent deferred sales charge of 1% is imposed in the event of redemption within one year of purchase. See "Class A Shares" on page 20. (3) During the fiscal year ending September 30, 1997, the Investment Manager has agreed to waive the investment advisory fee of Value Fund; absent such fee waiver, "Management Fees" would have been 1.00%. (4) Long-term holders of Class B shares may pay more than the equivalent of the maximum front-end sales charge otherwise permitted by NASD Rules. (5) The amount of "Other Expenses" of Value Fund is based on estimated amounts for the fiscal year ending September 30, 1997. (6) During the fiscal year ending September 30, 1997, the Investment Manager has agreed to waive the investment advisory fee of Value Fund; absent such fee waiver, "Total Fund Operating Expenses" would have been as follows: 2.24% for Class A shares and 3.24% for Class B shares of Value Fund. THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AS ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED FIVE PERCENT ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN. THE ACTUAL RETURN MAY BE GREATER OR LESSER THAN THE ASSUMED AMOUNT. The purpose of the foregoing fee table is to assist the investor in understanding the various costs and expenses that an investor in Growth and Income, Equity, Global and Ultra Funds will bear directly or indirectly. For a more detailed discussion of the Funds' fees and expenses, see the discussion under "Management of the Funds," page 16. See "How to Purchase Shares," page 19, for more information concerning the sales load. Also, see Appendix A for a discussion of "Rights of Accumulation" and "Statement of Intention," which options may serve to reduce the front-end sales load on purchases of Class A shares. - -------------------------------------------------------------------------------- 1 SECURITY FUNDS FINANCIAL HIGHLIGHTS ================================================================================ The following financial highlights, for each of the years in the period ended September 30, 1996, have been audited by Ernst & Young LLP. Such information for each of the five years in the period ended September 30, 1996, should be read in conjunction with the financial statements of the Funds and the report of Ernst & Young LLP, the Funds' independent auditors, appearing in the September 30, 1996 Annual Report to Stockholders which is incorporated by reference in this prospectus. The Funds' Annual Report to Stockholders also contains additional information about the performance of the Funds and may be obtained without charge by calling Security Distributors, Inc. at 1-800-888-2461. The information for each of the years in the period ended September 30, 1991, is not covered by the report of Ernst & Young LLP.
Average com- Net Ratio mission gains Ratio of paid Net (losses) Divi- of net per asset on sec- Total dends Net expenses income invest- Fiscal value urities from (from Distri- Net assets to (loss) Port- ment year begin- Net (real- invest- net butions Return asset end of aver- to folio secu- ended ning invest- ized & ment invest- (from of Total value Total period age average turn- rity Septem- of ment unreal- opera- ment capital capi- distri- end of return (thou- net net over traded ber 30 period income ized) tions income) gains) tal butions period (a) sands) assets assets rate (h) - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY GROWTH AND INCOME FUND (CLASS A) 1987 $9.61 $.51 $(.87) $(.36) $(.50) $(.42) $--- $(.92) $8.33 (4.7%) $84,493 .74% 5.02% 32% --- 1988 8.33 .54 .55 1.09 (.54) (.45) --- (.99) 8.43 13.8% 81,357 .78% 6.22% 47% --- 1989(b) 8.43 .44 1.114 1.554 (.537) (.387) --- (.924) 9.06 19.9% 84,964 1.10% 5.93% 49% --- 1990 9.06 .52 (.978) (.458) (.509) (.663) --- (1.172) 7.43 (5.8%) 70,588 1.28% 6.24% 66% --- 1991 7.43 .45 .992 1.442 (.474) (1.088) --- (1.562) 7.31 22.3% 77,418 1.28% 6.14% 103% --- 1992 7.31 .35 (.016) .334 (.343) (.171) --- (.514) 7.13 4.7% 75,436 1.27% 4.79% 74% --- 1993 7.13 .21 .876 1.086 (.218) (.158) --- (.376) 7.84 15.6% 81,982 1.26% 2.80% 135% --- 1994(g) 7.84 .13 (.713) (.583) (.128) (.169) --- (.297) 6.96 (7.6%) 65,328 1.28% 1.70% 163% --- 1995(g) 6.96 .16 1.183 1.343 (.158) (.215) --- (.373) 7.93 20.25% 67,430 1.31% 2.21% 130% --- 1996(g) 7.93 .18 1.373 1.553 (.158) (.275) --- (.433) 9.05 20.31% 73,273 1.29% 2.09% 69% .0625 SECURITY GROWTH AND INCOME FUND (CLASS B) 1994(e) $7.83 $0.05 $(0.694) $(0.644) $(0.117) $(0.169) $--- $(0.286) $6.90 (8.00%) $668 2.27% 1.03% 178% --- 1995(g) 6.90 0.08 1.179 1.259 (0.094) (0.215) --- (0.309) 7.85 19.07% 1,130 2.31% 1.21% 130% --- 1996(g) 7.85 0.09 1.353 1.443 (0.078) (0.275) --- (0.353) 8.94 19.01% 2,247 2.29% 1.09% 69% .0625 SECURITY EQUITY FUND (CLASS A) 1987 $5.39 $.14 $1.88 $2.02 $(.14) $(.32) $--- $(.46) $6.95 40.1% $288,431 .66% 2.15% 151% --- 1988 6.95 .14 (1.05) (.91) (.11) (1.19) --- (1.30) 4.74 (10.6%) 231,807 .72% 2.78% 142% --- 1989 4.74 .15 1.758 1.908 (.118) --- --- (.118) 6.53 41.2% 283,662 .99% 2.62% 86% --- 1990 6.53 .15 (1.115) (.965) (.166) (.579) --- (.745) 4.82 (15.9%) 226,186 1.08% 2.72% 97% --- 1991 4.82 .12 1.403 1.523 (.148) (.375) --- (.523) 5.82 34.2% 295,030 1.08% 2.34% 61% --- 1992 5.82 .09 .475 .565 (.132) (.393) --- (.525) 5.86 10.2% 313,582 1.06% 1.48% 83% --- 1993 5.86 .12 1.165 1.285 (.053) (.362) --- (.415) 6.73 22.7% 375,565 1.06% 1.95% 95% --- 1994(g) 6.73 .05 .085 .135 (.120) (1.205) --- (1.325) 5.54 1.95% 358,237 1.06% .86% 79% --- 1995(g) 5.54 .04 1.377 1.417 --- (.407) --- (.407) 6.55 27.77% 440,339 1.05% .87% 95% --- 1996(g) 6.55 .05 1.482 1.532 (.060) (.482) --- (.542) 7.54 24.90% 575,680 1.04% .75% 64% .0609 SECURITY EQUITY FUND (CLASS B) 1994(e) $6.81 $0.01 $(0.005) $0.005 $(0.12) $(1.205) $--- $(1.325) $5.49 (0.15%) $7,452 2.07% (0.01%) 80% --- 1995(g) 5.49 (0.01) 1.357 1.347 --- (0.407) --- (0.407) 6.43 26.69% 19,288 2.05% (0.13%) 95% --- 1996(g) 6.43 (0.02) 1.449 1.429 (0.017) (0.482) --- (0.499) 7.36 23.57% 38,822 2.04% (0.25%) 64% .0609
- -------------------------------------------------------------------------------- 2 SECURITY FUNDS FINANCIAL HIGHLIGHTS (CONTINUED) ================================================================================
Average com- Net Ratio mission gains Ratio of paid Net (losses) Divi- of net per asset on sec- Total dends Net expenses income invest- Fiscal value urities from (from Distri- Net assets to (loss) Port- ment year begin- Net (real- invest- net butions Return asset end of aver- to folio secu- ended ning invest- ized & ment invest- (from of Total value Total period age average turn- rity Septem- of ment unreal- opera- ment capital capi- distri- end of return (thou- net net over traded ber 30 period income ized) tions income) gains) tal butions period (a) sands) assets assets rate (h) - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY GLOBAL FUND (CLASS A) 1994(f) $10.00 $(0.03) $.87 $0.84 $--- $--- $--- $--- $10.84 8.40% $20,128 2.00% (0.01%) 73% --- 1995(g) 10.84 (0.02) .31 0.29 --- (.19) --- (.19) 10.94 2.80% 16,261 2.00% (0.17%) 141% --- 1996(g) 10.94 0.01 1.874 1.884 (0.248) (.156) --- (.404) 12.42 17.73% 19,644 2.00% 0.07% 142% .0338 SECURITY GLOBAL FUND (CLASS B) 1994 $9.96 $(0.12) $.91 $0.79 $--- $--- $--- $--- $10.75 7.90% $3,960 3.00% (0.01%) 73% --- (e)(f) 1995(g) 10.75 (0.12) .30 0.18 --- (.19) --- (.19) 10.74 1.79% 5,433 3.00% (1.17%) 141% --- 1996(g) 10.74 (0.10) 1.841 1.741 (0.145) (.156) --- (.301) 12.18 16.57% 7,285 3.00% (0.93%) 142% .0338 SECURITY ULTRA FUND (CLASS A) 1987 $9.35 $.13 $(1.89) $(1.76) $(.35) $(1.88) $--- $(2.23) $5.36 (24.1%) 62,246 .84% 1.45% 301% --- 1988(c) 5.36 (.02) 1.135 1.115 (.125) (.06) --- (.185) 6.29 21.4% 68,700 1.54% (0.24%) 120% --- 1989(b)(c)6.29 (.12) 1.72 1.60 --- --- --- --- 7.89 25.4% 66,841 3.53% (1.66%) 89% --- 1990(c) 7.89 (.14) (2.845) (2.985) --- (.445) --- (.445) 4.46 (39.6%) 31,486 2.58% (1.82%) 96% --- 1991(c)(d)4.46 (.03) 2.525 2.495 --- (.235) --- (.235) 6.72 58.4% 65,449 1.61% (0.51%) 163% --- 1992 6.72 (.09) .202 .112 --- (.172) --- (.172) 6.66 1.5% 57,128 1.32% (0.46%) 142% --- 1993 6.66 (.028) 1.791 1.763 --- (.293) --- (.293) 8.13 26.8% 71,056 1.30% (0.50%) 101% --- 1994(g) 8.13 (.056) (.188) (.244) --- (1.066) --- (1.066) 6.82 (3.6%) 60,695 1.33% (0.80%) 111% --- 1995(g) 6.82 (.02) 1.535 1.515 --- (.135) --- (.135) 8.20 22.69% 66,052 1.32% (0.31%) 180% --- 1996(g) 8.20 (.05) 1.096 1.046 --- (.996) --- (.996) 8.25 15.36% 74,230 1.31% (0.61%) 161% .0606 SECURITY ULTRA FUND (CLASS B) 1994(e) $8.30 $(0.103) $(0.321) $(0.424 $--- $(1.066) $--- $(1.066) $6.81 (5.7%) $1,254 2.36% (1.76%) 110% --- 1995(g) 6.81 (0.09) 1.525 1.435 --- (.135) --- (.135) 8.11 21.53% 5,428 2.32% (1.32%) 180% --- 1996(g) 8.11 (0.13) 1.046 0.916 --- (.996) --- (.996) 8.03 13.81% 2,698 2.31% (1.61%) 161% .0606
(a) Total return information does not take into account any sales charge at time of purchase for Class A shares or upon redemption for Class B shares. (b) Effective in 1989, the fiscal year ends of Growth and Income and Ultra Funds were changed from November 30 and October 31, respectively, to September 30. The information presented in the table above for the fiscal year ended September 30, 1989, represents 10 months of performance for Growth and Income Fund and 11 months of performance for Ultra Fund. The data for years 1987 and 1988 are for fiscal years ended November 30 for Growth and Income Fund and October 31 for Ultra Fund. Percentage amounts for the period have been annualized.
(c) Debt Weighted average Weighted average Average Interest outstanding debt outstanding month-end shares debt per expense Year at end of period during the period outstanding share per share ---------------------------------------------------------------------------------------------------- Security Ultra Fund 1988 $--- $4,217,187 11,834,629 $.36 $.03 Security Ultra Fund 1989 17,742,849 13,322,428 9,374,183 1.42 .17 Security Ultra Fund 1990 8,207,425 5,948,569 7,713,750 .77 .08 Security Ultra Fund 1991 --- 970,096 8,817,652 .11 .01
Borrowings and related interest, if any, were immaterial in 1987, 1992, 1993, 1994, 1995 and 1996. (d) Portfolio turnover calculation excludes the portfolio investments acquired in the Security Omni Fund merger. Per share data has been calculated using the average month-end shares outstanding. (e) Class "B" shares were initially offered on October 19, 1993. Percentage amounts for the period, except total return, have been annualized. Per share data has been calculated using the average month-end shares outstanding. (f) Security Global Fund was initially capitalized on October 1, 1993, with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. (g) Net investment income (loss) was computed using average shares outstanding throughout the period. (h) Brokerage commissions paid on portfolio transactions increase the cost of securities purchased or reduce the proceeds of securities sold and are not reflected in the Fund's statement of operations. Shares traded on a principal basis, such as most over-the-counter and fixed-income transactions, are excluded. Generally, non-U.S. commissions are lower than U.S. commissions when expressed as cents per share but higher when expressed as a percentage of transactions because of the lower per-share prices of many non-U.S. securities. - -------------------------------------------------------------------------------- 3 SECURITY FUNDS PROSPECTUS ================================================================================ INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS Security Growth and Income Fund, Security Equity Fund and Security Ultra Fund are diversified, open-end management investment companies, which were organized as Kansas corporations on February 2, 1944, November 27, 1961, and April 20, 1965, respectively. Equity Fund, Global Fund and Value Fund are series of Security Equity Fund. Each of Growth and Income Fund, Equity Fund, Global Fund, Value Fund and Ultra Fund (collectively, the "Funds") has its own investment objective and policies which are described below. There, of course, can be no assurance that such investment objectives will be achieved. While there is no present intention to do so, each Fund's investment objective and policies, unless otherwise noted, may be changed by its Board of Directors without the approval of stockholders. If there is a change in investment objective, stockholders should consider whether the Fund remains an appropriate investment in light of their then current financial position and needs. Each of the Funds is also subject to certain investment policy limitations which may not be changed without stockholder approval. Among these limitations, some of the more important ones are that each Fund will not invest more than 5 percent of the value of its assets in any one issuer (for the Value Fund, this limitation applies only with respect to 75 percent of the value of its total assets) or purchase more than 10 percent of the outstanding voting securities of any one issuer or invest more than 25 percent of its total assets in any one industry. The full text of the investment policy limitations of each Fund is set forth in the Statement of Additional Information of the Funds. GROWTH AND INCOME FUND The investment objective of Growth and Income Fund is long-term growth of capital with a secondary emphasis on income. Growth and Income Fund seeks to achieve this objective through investment in a diversified portfolio which will ordinarily consist principally of common stocks, which may include American Depositary Receipts ("ADRs"), but may also include other securities when deemed advisable. (See the discussion of ADRs under "Investment Methods and Risk Factors.") Such other securities may include (i) securities convertible into common stocks; (ii) preferred stocks; (iii) debt securities issued by U.S. corporations; (iv) securities issued by the U.S. Government or any of its agencies or instrumentalities, including Treasury bills, certificates of indebtedness, notes and bonds; (v) securities issued by foreign governments, their agencies, and instrumentalities, and foreign corporations, provided that such securities are denominated in U.S. dollars; and (vi) higher yielding, high risk debt securities (commonly referred to as "junk bonds"). In the selection of securities for investment, the potential for appreciation and future dividends is given more weight than current dividends. With respect to Growth and Income Fund's investment in debt securities, there is no percentage limitation on the amount of the Fund's assets that may be invested in securities within any particular rating classification (see the description of corporate bond ratings below), and the Fund may invest without limit in unrated - -------------------------------------------------------------------------------- No dealer, salesperson, or other person has been authorized to give any information or to make any representations, other than those contained in this Prospectus and in the Funds' Statement of Additional Information, and if given or made, such other information or representations must not be relied upon as having been authorized by the Funds, the Investment Manager, or the Distributor. - -------------------------------------------------------------------------------- 4 securities. Growth and Income Fund may invest in securities rated Baa by Moody's Investors Service, Inc. or BBB by Standard & Poor's Corporation. Baa securities are considered to be "medium grade" obligations by Moody's and BBB is the lowest classification which is still considered an "investment grade" rating by Standard & Poor's. Bonds rated Baa by Moody's or BBB by Standard & Poor's have speculative characteristics and may be more susceptible than higher grade bonds to adverse economic conditions or other adverse circumstances which may result in a weakened capacity to make principal and interest payments. In addition, the Fund may invest in higher yielding, longer-term debt securities in the lower rating (higher risk) categories of the recognized rating services (commonly referred to as "junk bonds"). These include securities rated Ba or lower by Moody's or BB or lower by Standard & Poor's and are regarded as predominantly speculative with respect to the ability of the issuer to meet principal and interest payments. However, the Investment Manager will not rely principally on the ratings assigned by the rating services. Because Growth and Income Fund may invest in lower rated securities and unrated securities of comparable quality, the achievement of the Fund's investment objective may be more dependent on the Investment Manager's own credit analysis than would be true if investing in higher rated securities. As discussed above, Growth and Income Fund may invest in foreign debt securities that are denominated in U.S. dollars. Such foreign debt securities may include debt of foreign governments, including Brady Bonds, and debt of foreign corporations. The Fund expects to limit its investment in foreign debt securities, excluding Canadian securities, to not more than 15 percent of its total assets and its investment in debt securities of issuers in emerging markets, excluding Brady Bonds, to not more than 5 percent of its net assets. See the discussion of the risks associated with investing in foreign securities and, in particular, Brady Bonds under "Investment Methods and Risk Factors." Growth and Income Fund may purchase securities on a "when-issued" or "delayed delivery basis" in excess of customary settlement periods for the type of security involved. The Fund may purchase securities that are restricted as to disposition under the federal securities laws, provided that such securities are eligible for resale to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933 and subject to the Fund's policy that not more than 15 percent of its total assets will be invested in illiquid securities. From time to time, Growth and Income Fund may purchase government bonds or commercial notes for temporary defensive purposes. The Fund may utilize repurchase agreements on an overnight basis or bank demand accounts, pending investment in securities or to meet potential redemptions or expenses. See the discussion of when-issued securities, Rule 144A securities, and repurchase agreements under "Investment Methods and Risk Factors." SPECIAL RISKS OF HIGH YIELD INVESTING -- Because Growth and Income Fund invests in the high yield, high risk debt securities (commonly referred to as "junk bonds") described above, its share price and yield are expected to fluctuate more than the share price and yield of a fund investing in higher quality, shorter-term securities. The market values of high yield securities tend to reflect individual corporate developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. High yield securities also tend to be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade bonds. - -------------------------------------------------------------------------------- 5 A projection of an economic downturn, or higher interest rates, for example, could cause a decline in high yield bond prices because an advent of such events could lessen the ability of highly leveraged companies to make principal and interest payments on their debt securities. In addition, the secondary trading market for high yield bonds may be less liquid than the market for higher grade bonds, which can adversely affect the ability of Growth and Income Fund to dispose of its portfolio securities. Bonds for which there is only a "thin" market can be more difficult to value inasmuch as objective pricing data may be less available and judgment may play a greater role in the valuation process. Many of the high yield securities traded in today's market were issued relatively recently and have not endured a major business recession. A long-term track record on default rates, such as that for investment grade corporate bonds, does not exist for the high yield market. It may be that future default rates on high yield securities will be higher than in the past, especially during periods of deteriorating economic conditions. Debt securities issued by governments in emerging markets can differ from debt obligations issued by private entities in that remedies from defaults generally must be pursued in the courts of the defaulting government, and legal recourse is therefore somewhat diminished. Political conditions, in terms of a government's willingness to meet the terms of its debt obligations, also are of considerable significance. There can be no assurance that the holders of commercial bank debt may not contest payments to the holders of debt securities issued by governments in emerging markets in the event of default by the governments under commercial bank loan agreements. DESCRIPTION OF CORPORATE BOND RATINGS MOODY'S STANDARD & INVESTORS POOR'S SERVICE, INC. CORPORATION DEFINITION Aaa AAA Highest quality Aa AA High quality A A Upper medium grade Baa BBB Medium grade Ba BB Lower medium grade/ speculative elements B B Speculative Caa CCC More speculative/ possibly in or high risk of default -- D In default Not rated Not rated Not rated A more complete description of the corporate bond ratings is found in the Appendix to the Funds' Statement of Additional Information. During the year ended September 30, 1996, the dollar weighted average of Growth and Income Fund's holdings (excluding equities) had the following credit quality characteristics. - -------------------------------------------------------------------------------- 6 PERCENT OF INVESTMENT NET ASSETS U.S. Government Securities............... 0% Cash and other Assets, Less Liabilities.. 2.46% Rated Fixed Income Securities A..................................... 0% Baa/BBB............................... 1.13% Ba/BB................................. 8.84% B..................................... 7.56% Caa/CCC............................... 0% D..................................... 1.02% Unrated Securities Comparable in Quality to A..................................... 0% Baa/BBB............................... 0% Ba/BB................................. 0% B..................................... 0% Caa/CCC............................... 0% ------- 21.01% The foregoing table is intended solely to provide disclosure about Growth and Income Fund's asset composition during the year ended September 30, 1996. The asset composition after this may or may not be approximately the same as shown above. EQUITY FUND Equity Fund's objective is to seek long-term capital growth, and emphasis is placed upon the selection of those securities which, in the opinion of the Investment Manager, offer basic value or above-average capital growth potential. Income potential will be considered in the selection of securities, to the extent doing so is consistent with the Fund's investment objective of long-term capital growth. Equity Fund will ordinarily have at least 90 percent of its total assets invested in a broadly diversified portfolio of common stocks, which may include ADRs, and securities convertible into common stocks, although it reserves the right to invest in fixed income securities. (See the discussion of ADRs under "Investment Methods and Risk Factors.") Equity Fund also reserves the right to invest its assets temporarily in cash and money market instruments when, in the opinion of the Investment Manager, it is advisable to do so on account of current or anticipated market conditions. Except when in a temporary defensive position, Equity Fund will maintain at least 65 percent of its assets invested in equity securities; the remaining 35 percent of the Fund's assets may be invested in investment grade debt securities (or unrated securities of comparable quality), which may include commercial paper or other debt securities issued by U.S. corporations, and U.S. Government securities. Equity Fund may utilize repurchase agreements on an overnight basis or bank demand accounts, pending investment in securities or to meet potential redemptions or expenses. See the discussion of repurchase agreements under "Investment Methods and Risk Factors." GLOBAL FUND The investment objective of Global Fund is to seek long-term growth of capital primarily through investment in securities of companies domiciled in foreign countries and the United States. Global Fund will seek to achieve its objective through investment in a diversified portfolio of securities which under normal circumstances will consist primarily of various types of common stocks and equivalents (the following constitute equivalents: convertible debt securities, warrants and options). The Fund may also invest in preferred stocks, bonds and other debt obligations, which include money market instruments of foreign and domestic companies and the U.S. Government and foreign governments, governmental agencies and international organizations. The Fund may purchase securities that are restricted as to disposition under federal securities laws, provided that such securities are eligible for resale pursuant - -------------------------------------------------------------------------------- 7 to Rule 144A under the Securities Act of 1933 and subject to the Fund's policy that not more than 10 percent of its assets will be invested in illiquid securities. See the discussion of Rule 144A securities under "Investment Methods and Risk Factors." Global Fund will at all times invest at least 65 percent or more of its assets in at least three countries, one of which may be the United States. The Fund is not required to maintain any particular geographic or currency mix of its investments, nor is it required to maintain any particular proportion of stocks, bonds or other securities in its portfolio. Global Fund may invest substantially or primarily in foreign debt securities when it appears that the capital appreciation available from investments in such securities will equal or exceed the capital appreciation available from investments in equity securities. Because the market value of debt obligations can be expected to vary inversely to changes in prevailing interest rates, investing in debt obligations may provide an opportunity for capital appreciation when interest rates are expected to decline. When a defensive position is deemed advisable in the judgment of Lexington Management Corporation (the "Sub-Adviser"), Global Fund may temporarily invest up to 100 percent of its assets in debt obligations consisting of repurchase agreements (with maturities of up to seven days), and money market instruments of foreign or domestic companies and the U.S. Government and foreign governments, governmental and international organizations. The Fund will limit its investments in debt securities to those obligations which are considered to be investment grade by the Sub-Adviser. The Fund will be moved into a defensive position when, in the judgment of the Sub-Adviser, conditions in the securities markets would make pursuing the Fund's basic investment strategy inconsistent with the best interests of the shareholders. Global Fund may utilize bank demand accounts and repurchase agreements, pending investment in securities or to meet potential redemptions or expenses. Global Fund is intended to provide investors with the opportunity to invest in a portfolio of securities of companies and governments located throughout the world. In making the allocation of assets among the various countries and geographic regions, the Sub-Adviser ordinarily considers such factors as prospects for relative economic growth between the U.S. and other countries; expected levels of inflation and interest rates; government policies influencing business conditions; the range of investment opportunities available to international investors; and other pertinent financial, tax, social and national factors--all in relation to the prevailing prices of the securities in each country or region. Investments may be made in companies based in (or governments of or within) such areas and countries as the Sub-Adviser may determine from time to time. Global Fund may invest in companies located in developing countries without limitation. Such countries may have relatively unstable governments, economies based on only a few industries, and securities markets which trade a small number of companies. Prices on these exchanges tend to be volatile and in the past these exchanges have offered greater potential for gain, as well as loss, than exchanges in developed countries. While Global Fund invests only in countries that it considers as having relatively stable and friendly governments, it is possible that certain Fund investments could be subject to foreign expropriation or exchange control restrictions. See "Investment Methods and Risk Factors"--"Foreign Investment Risks" and "Currency Risk" for a discussion of the risks associated with investing in foreign securities. - -------------------------------------------------------------------------------- 8 Although the Fund does not intend to invest for the purpose of seeking short-term profits, the Fund's investments may be changed whenever the Sub-Adviser deems it appropriate to do so, without regard to the length of time a particular security has been held. The operating expenses of the Fund can be expected to be higher than those of an investment company investing exclusively in United States securities. CERTAIN INVESTMENT METHODS. Global Fund may from time to time engage in the following investment practices: SETTLEMENT TRANSACTIONS -- Global Fund may, for a fixed amount of United States dollars, enter into a forward foreign exchange contract for the purchase or sale of the amount of foreign currency involved in the underlying securities transaction. In so doing, the Fund will attempt to insulate itself against possible losses and gains resulting from a change in the relationship between the United States dollar and the foreign currency during the period between the date a security is purchased or sold and the date on which payment is made or received. This process is known as "transaction hedging." To effect the translation of the amount of foreign currencies involved in the purchase and sale of foreign securities and to effect the "transaction hedging" described above, the Fund may purchase or sell foreign currencies on a "spot" (i.e., cash) basis or on a forward basis whereby the Fund purchases or sells a specific amount of foreign currency, at a price set at the time of the contract, for receipt of delivery at a specified date which may be any fixed number of days in the future. Such spot and forward foreign exchange transactions may also be utilized to reduce the risk inherent in fluctuations in the exchange rate between the United States dollar and the relevant foreign currency when foreign securities are purchased or sold for settlement beyond customary settlement time (as described below). Neither type of foreign currency transaction will eliminate fluctuations in the prices of the Fund's portfolio or securities or prevent loss if the price of such securities should decline. PORTFOLIO HEDGING -- When, in the opinion of the Sub-Adviser, it is desirable to limit or reduce exposure in a foreign currency in order to moderate potential changes in the United States dollar value of the portfolio, Global Fund may enter into a forward foreign currency exchange contract by which the United States dollar value of the underlying foreign portfolio securities can be approximately matched by an equivalent United States dollar liability. The Fund may also enter into forward currency exchange contracts to increase its exposure to a foreign currency that the Sub-Adviser expects to increase in value relative to the United States dollar. The Fund will not attempt to hedge all of its portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Sub-Adviser. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Global Fund will not enter into forward foreign currency exchange transactions for speculative purposes. The Fund intends to limit such transactions to not more than 70 percent of its total assets. FORWARD COMMITMENTS -- Global Fund may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") because new issues of securities are typically offered to investors, such as Global Fund, on that basis. Forward commitments involve a risk of loss if the 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 - -------------------------------------------------------------------------------- 9 assets. Although the Fund will enter into such contracts with the intention of acquiring the securities, it may dispose of a commitment prior to settlement if the Sub-Adviser deems it appropriate to do so. See the discussion of forward commitments under "Investment Methods and Risk Factors." COVERED CALL OPTIONS -- Global Fund may seek to preserve capital by writing covered call options on securities which it owns. Such an option on an underlying security would obligate the Fund to sell, and give the purchaser of the option the right to buy, that security at a stated exercise price at any time until a stated expiration date of the option. VALUE FUND The investment objective of the Value Fund is to seek long-term growth of capital. The Value Fund will seek to achieve its objective through investment in a diversified portfolio of securities. Under normal circumstances the Fund will consist primarily of various types of common stock, which may include ADRs, and securities convertible into common stocks which the Investment Manager believes are undervalued relative to assets, earnings, growth potential or cash flows. See the discussion of ADRs under "Investment Methods and Risk Factors." Under normal circumstances, the Fund will invest at least 65 percent of its assets in the securities of companies which the Investment Manager believes are undervalued. The Value Fund may also invest in (i) preferred stocks; (ii) warrants; and (iii) investment grade debt securities (or unrated securities of comparable quality). The Value Fund may purchase securities on a "when-issued" or "delayed delivery basis" in excess of customary settlement periods for the type of security involved. The Fund may purchase securities which are restricted as to disposition under the federal securities laws, provided that such securities are eligible for resale to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933 and subject to the Fund's policy that not more than 15 percent of its total 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, Rule 144A securities and repurchase agreements under "Investment Methods and Risk Factors." The Fund may borrow as set forth in the Statement of Additional Information. However, as an operating policy, the Fund will not purchase portfolio securities when borrowings exceed 5 percent of total Fund assets. ULTRA FUND Ultra Fund's objective is to seek capital appreciation and emphasis is placed upon the selection of those securities which, in the opinion of the Investment Manager, offer the greatest potential for appreciation. Current income will not be a factor in the selection of investments and any such income should be considered incidental. Ultra Fund will ordinarily invest in a diversified portfolio of common stocks, which may include ADRs, and securities convertible into common stocks, although it reserves the right to invest in fixed income securities. (See the discussion of ADRs under "Investment Methods and Risk Factors.") Ultra Fund also reserves the right to invest its assets in cash and money market - -------------------------------------------------------------------------------- 10 instruments when, in the opinion of the Investment Manager, it is advisable to do so on account of current or anticipated market conditions. Ultra Fund may utilize repurchase agreements on an overnight basis or bank demand accounts, pending investment in securities or to meet potential redemptions or expenses. Stocks considered to have appreciation potential will often include securities of smaller and less mature companies which often have a unique proprietary product or profitable market niche and the potential to grow very rapidly. Such companies may present greater opportunities for capital appreciation because of high potential earnings growth, but may also involve greater risks than investments in more established companies with demonstrated earning power. Smaller companies may have limited product lines, markets or financial resources and their securities may trade less frequently and in limited volume. As a result, the securities of smaller companies may be subject to more abrupt or erratic changes in value than securities of larger, more established companies. In seeking capital appreciation, Ultra Fund may, during certain periods, trade to a substantial degree in securities for the short term. That is, Ultra Fund may be engaged essentially in trading operations based on short-term market considerations, as distinct from long-term investments based on fundamental evaluations of securities. This investment policy is speculative and involves substantial risk. Ultra Fund may buy and sell futures contracts to hedge all or a portion of its portfolio, or as an efficient means of adjusting its exposure to the stock market. The Fund will limit its use of futures contracts so that initial margin deposits or premiums on such contracts used for non-hedging purposes will not equal more than 5 percent of the Fund's net asset value. See the discussion of futures contracts and the risks associated with investing in such contracts under "Investment Methods and Risk Factors." Ultra Fund may make short sales if, at the time of such sale, it owns or has the right to acquire an equal amount of such securities without payment of any further consideration. Short sales will be used by Ultra Fund only for the purpose of deferring recognition of gain or loss for federal income tax purposes. Ultra Fund may invest up to 5 percent of its assets in companies having a record of less than three years continuous operation or in warrants. INVESTMENT METHODS AND RISK FACTORS Some of the risk factors related to certain securities, instruments and techniques that may be used by one or more of the Funds are described in the "Investment Objective and Policies" section of this Prospectus and in the Funds' Statement of Additional Information. The following is a description of certain additional risk factors related to various securities, instruments and techniques. The risks so described only apply to those Funds which may invest in such securities and instruments or which use such techniques. Also included is a general description of some of the investment instruments, techniques and methods which may be used by one or more of the Funds. The methods described only apply to those Funds which may use such methods. Although a Fund may employ the techniques, instruments and methods described below, consistent with its investment objective and policies and any applicable law, no Fund will be required to do so. AMERICAN DEPOSITARY RECEIPTS (ADRS) -- 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 - -------------------------------------------------------------------------------- 11 company's securities. ADRs are publicly traded on exchanges or over-the-counter in the United States. Investors should consider carefully the substantial risks involved in investing in securities issued by companies of foreign nations, which are in addition to the usual risks inherent in domestic investments. See "Foreign Investment Risks" below. FOREIGN INVESTMENT RISKS -- 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 Funds, political or social instability, or diplomatic developments which could affect the investments of the Funds in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, rate of savings and capital reinvestment, resource self-sufficiency and balance of payments positions. CURRENCY RISK -- Funds that invest in securities denominated in currencies other than the U.S. dollar, will be affected favorably or unfavorably by exchange control regulations or changes in the exchange rates between such currencies and the U.S. dollar. Changes in currency exchange rates will influence the value of a Fund's shares, and also may affect the value of dividends and interest earned by the Fund and gains and losses realized by the Fund. In addition, the Fund may incur costs in connection with the conversion or transfer of foreign currencies. Currencies generally are evaluated on the basis of fundamental economic criteria (e.g., relative inflation and interest rate levels and trends, growth rate forecasts, balance of payments status and economic policies) as well as technical and political data. The exchange rates between the U.S. dollar and other currencies are determined by supply and demand in the currency exchange markets, the international balance of payments, governmental intervention, speculation and other economic and political conditions. If the currency in which a security is denominated appreciates against the U.S. dollar, the dollar value of the security will increase. Conversely, a decline in the exchange rate of the currency would adversely affect the value of the security expressed in U.S. dollars. BRADY BONDS -- Growth and Income Fund may invest in "Brady Bonds," which are debt restructurings that provide for the exchange of cash and loans for newly issued bonds. Brady - -------------------------------------------------------------------------------- 12 Bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructuring under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. Brady Bonds recently have been issued by the governments of Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Jordan, Mexico, Nigeria, The Philippines, Uruguay, Venezuela, Ecuador and Poland and are expected to be issued by other emerging market countries. Approximately $150 billion in principal amount of Brady Bonds has been issued to date. Investors should recognize that Brady Bonds have been issued only recently and, accordingly, do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (primarily the U.S. dollar) and are actively traded in the secondary market for Latin American debt. The Salomon Brothers Brady Bond Index provides a benchmark that can be used to compare returns of emerging market Brady Bonds with returns in other bond markets, e.g., the U.S. bond market. Growth and Income Fund may invest in collateralized Brady Bonds, denominated in U.S. dollars. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds. Interest payments on such bonds generally are collateralized by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at the time and is adjusted at regular intervals thereafter. WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Purchase or sale of securities on a "forward commitment" basis may be used to hedge against anticipated changes in interest rates and prices. The price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. When-issued securities and forward commitments may be sold prior to the settlement date, but the Funds will enter into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be; however, a Fund may dispose of a commitment prior to settlement if the Investment Manager (or Sub-Adviser) deems it appropriate to do so. No income accrues on securities which have been purchased pursuant to a forward commitment or on a when-issued basis prior to delivery of the securities. If a Fund disposes of the right to acquire a when-issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it may incur a gain or loss. At the time a Fund enters into a transaction on a when-issued or forward commitment basis, a segregated account consisting of cash or liquid securities equal to the value of the when-issued or forward commitment securities will be established and maintained with its custodian and will be marked to market daily. There is a risk that the securities may not be delivered and that the Fund may incur a loss. REPURCHASE AGREEMENTS -- A repurchase agreement is a contract under which a Fund would acquire a security for a relatively short period (usually not more than seven days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). Although each of the Funds may enter into repurchase agreements with respect to any - -------------------------------------------------------------------------------- 13 portfolio securities which it may acquire consistent with its investment polices and restrictions, it is each 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 Funds will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in United States Government securities. Repurchase agreements will be fully collateralized including interest earned thereon during the entire term of the agreement. If the institution defaults on the repurchase agreement, the Fund will retain possession of the underlying securities. If bankruptcy proceedings are commenced with respect to the seller, realization on the collateral by the Fund may be delayed or limited and the Fund may incur additional costs. In such case, the Fund will be subject to risks associated with changes in market value of the collateral securities. The Funds intend to limit repurchase agreements to institutions believed by the Investment Manager (or Sub-Adviser) to present minimal credit risk. RULE 144A SECURITIES -- Certain Funds 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. 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. The Board of Directors is responsible for developing and establishing guidelines and procedures for determining the liquidity of Rule 144A securities. As permitted by Rule 144A, the Board of Directors has delegated this responsibility to the Investment Manager. In making the determination regarding the liquidity of Rule 144A securities, the Investment Manager will consider trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, the Investment Manager may consider: (1) the frequency of trades and quotes; (2) the number of dealers and potential purchasers; (3) dealer undertakings to make a market; and (4) the nature of the security and of the market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Investing in Rule 144A securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities to the extent that qualified institutional buyers become uninterested, for a time, in purchasing these securities. CONVERTIBLE SECURITIES AND WARRANTS -- Convertible securities are debt or preferred equity securities convertible or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. In recent years, convertibles have been developed which combine higher or lower current income with options and other features. Warrants are options to buy a stated number of shares of common stock at a specified price any time during the life of the warrants (generally two or more years). FUTURES CONTRACTS AND RELATED OPTIONS -- Certain Funds may buy and sell futures contracts (and options on such contracts) to hedge all or a portion of its portfolio or as an efficient means of adjusting overall exposure to certain markets. A financial futures contract calls for delivery of a - -------------------------------------------------------------------------------- 14 particular security at a certain time in the future. The seller of the contract agrees to make delivery of the type of security called for in the contract and the buyer agrees to take delivery at a specified future time. Certain Funds may also write call options and purchase put options on financial futures contracts as a hedge to attempt to protect the Fund's securities from a decrease in value. When a Fund writes a call option on a futures contract, it is undertaking the obligation of selling a futures contract at a fixed price at any time during a specified period if the option is exercised. Conversely, the purchaser of a put option on a futures contract is entitled (but not obligated) to sell a futures contract at a fixed price during the life of the option. Financial futures contracts may include stock index futures contracts. A stock index assigns relative values to common stocks included in the index and the index fluctuates with changes in the market values of the common stocks included. A stock index futures contract is a bilateral contract pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of the last trading day of the contract and the price at which the futures contract is originally struck. An option on a financial futures contract gives the purchaser the right to assume a position in the contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. REGULATORY MATTERS RELATED TO FUTURES AND OPTIONS -- In connection with its proposed futures and options transactions, each Fund that may invest in such instruments has filed with the CFTC a notice of eligibility for exemption from the definition of (and therefore from CFTC regulation as) a "commodity pool operator" under the Commodity Exchange Act. The Fund represents in its notice of eligibility that: (i) it will not purchase or sell futures or options on futures contracts or stock indices if as a result the sum of the initial margin deposits on its existing futures contracts and related options positions and premiums paid for options on futures contracts or stock indices would exceed 5 percent of the Fund's net assets; and (ii) with respect to each futures contract purchased or long position in an option contract, each Fund will set aside in a segregated account cash or liquid securities in an amount equal to the market value of such contract less the initial margin deposit. The Staff of Securities and Exchange Commission ("SEC") has taken the position that the purchase and sale of futures contracts and the writing of related options may involve senior securities for the purposes of the restrictions contained in Section 18 of the Investment Company Act of 1940 on investment companies' issuing senior securities. However, the Staff has issued letters declaring that it will not recommend enforcement action under Section 18 if an investment company: (i) sells futures contracts to offset expected declines in the value of the investment company's securities, provided the value of such futures contracts does not exceed the total market value of those securities (plus such additional amount as may be necessary because of differences in the volatility factor of the securities vis-a-vis the futures contracts); (ii) writes call options on futures contracts, stock indices or other securities, provided that such options are covered by the investment company's holding of a corresponding long futures position, by its ownership of securities which correlate with the underlying stock index, or otherwise; (iii) purchases futures contracts, provided the investment company establishes a segregated account consisting of cash or liquid securities in - -------------------------------------------------------------------------------- 15 an amount equal to the total market value of such futures contracts less the initial margin deposited therefor; and (iv) writes put options on futures contracts, stock indices or other securities, provided that such options are covered by the investment company's holding of a corresponding short futures position, by establishing a cash segregated account in an amount equal to the value of its obligation under the option, or otherwise. Each Fund will conduct its purchases and sales of any futures contracts and writing of related options transactions in accordance with the foregoing. FUTURES AND OPTIONS RISK -- Futures contracts and options can be highly volatile and could result in reduction of a Fund's total return, and a Fund's attempt to use such investments for hedging purposes may not be successful. Successful futures strategies require the ability to predict future movements in securities prices, interest rates and other economic factors. Losses from options and futures could be significant if a Fund is unable to close out its position due to distortions in the market or lack of liquidity. A Fund's risk of loss from the use of futures extends beyond its initial investment and could potentially be unlimited. The use of futures and options involves investment risks and transaction costs to which a Fund would not be subject absent the use of these strategies. If the Investment Manager seeks to protect a Fund against potential adverse movements in the securities markets using these instruments, and such markets do not move in a direction adverse to such Fund, such Fund could be left in a less favorable position than if such strategies had not been used. Risks inherent in the use of futures and options include: (a) the risk that securities prices will not move in the direction anticipated; (b) imperfect correlation between the price of futures and options and movements in the prices of the securities being hedged; (c) the fact that skills needed to use these strategies are different from those needed to select portfolio securities; (d) the possible absence of a liquid secondary market for any particular instrument at any time; and (e) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences. A Fund's ability to terminate option positions established in the over-the-counter market may be more limited than in the case of exchange-traded options and may also involve the risk that securities dealers participating in such transactions would fail to meet their obligations to such Fund. The use of options and futures involves the risk of imperfect correlation between movements in options and futures prices and movements in the price of securities which are the subject of a hedge. Such correlation, particularly with respect to options on stock indices and stock index futures, is imperfect, and such risk increases as the composition of the Fund diverges from the composition of the relevant index. The successful use of these strategies also depends on the ability of the Investment Manager (or Sub-Adviser) to correctly forecast general stock market price movements. MANAGEMENT OF THE FUNDS The management of the Funds' business and affairs is the responsibility of the Board of Directors. Security Management Company, LLC (the "Investment Manager"), 700 Harrison St., Topeka, Kansas, is responsible for selection and management of the Funds' portfolio investments. The Investment Manager is a limited liability company, which is ultimately controlled by Security Benefit Life Insurance Company, a mutual life insurance company with over $15.5 - -------------------------------------------------------------------------------- 16 billion of insurance in force. The Investment Manager also acts as investment adviser to Security Asset Allocation Fund, Security Social Awareness Fund, Security Income Fund, Security Tax-Exempt Fund, Security Cash Fund and SBL Fund. On September 30, 1996, the aggregate assets of all of the Funds under the investment management of the Investment Manager were approximately $3.4 billion. The Investment Manager has engaged Lexington Management Corporation (the "Sub-Adviser"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to provide certain investment advisory services to Global Fund. The Sub-Adviser is a wholly-owned subsidiary of Lexington Global Asset Managers, Inc., a Delaware corporation with offices at Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other related entities have a majority voting control of the outstanding shares of Lexington Global Asset Managers, Inc. The Sub-Adviser was established in 1938 and currently manages over $3.5 billion in assets. Subject to the supervision and direction of the Funds' Board of Directors, the Investment Manager manages the Funds' portfolios in accordance with each Fund's stated investment objective and policies and makes all investment decisions. As to Global Fund, the Investment Manager supervises the management of this Fund's portfolio by the Sub-Adviser. The Investment Manager has agreed that total annual expenses of the respective Funds (including for any fiscal year, the management fee, but excluding interest, taxes, brokerage commissions, extraordinary expenses and Class B distribution fees) shall not for each of the Funds exceed the level of expenses which the Funds are permitted to bear under the most restrictive expense limitation imposed by any state in which shares of the Fund are then qualified for sale. The Investment Manager will contribute such funds to the Funds or waive such portion of its compensation as may be necessary to insure that such total annual expenses do not exceed any such limitation. The Investment Manager also acts as the administrative agent and transfer agent and dividend disbursing agent for the Funds, and as such performs administrative functions, transfer agency and dividend disbursing services, and the bookkeeping, accounting and pricing functions for the Funds. The Investment Manager has arranged for the Sub-Adviser to provide certain administrative services to Global Fund, including performing certain accounting and pricing functions. For its services, the Investment Manager receives, with respect to Growth and Income, Equity and Ultra Funds, on an annual basis, a fee of 2 percent of the first $10 million of the average net assets, 1 1/2 percent of the next $20 million of the average net assets and 1 percent of the remaining average net assets of these Funds, calculated daily and payable monthly. The Investment Manager receives with respect to the Global Fund, on an annual basis, 2 percent of the first $70 million of the average net assets and 1 1/2 percent of the remaining average net assets of this Fund, calculated daily and payable monthly. The Investment Manager pays the Sub-Adviser an amount equal to 1/2 percent of the average net assets of Global Fund, calculated on a daily basis and payable monthly. For the investment advisory services provided to the Value Fund, the Investment Manager receives, on an annual basis, a fee of 1 percent of the average daily net assets of the Fund, calculated daily and payable monthly. As compensation for providing administrative, bookkeeping, accounting and pricing services to the Value Fund, the Investment - -------------------------------------------------------------------------------- 17 Manager receives on an annual basis, a fee of .09 percent of the average daily net assets of the Fund, calculated daily and payable monthly. For the year ended September 30, 1996, the total expenses, as a percentage of average net assets, were 1.29 percent for Class A and 2.29 percent for Class B shares of Growth and Income Fund; 1.04 percent for Class A and 2.04 percent for Class B shares of Equity Fund; 2.0 percent for Class A and 3.0 percent for Class B shares of Global Fund; and 1.31 percent for Class A and 2.31 percent for Class B shares of Ultra Fund. Expense information for the Value Fund is not yet available as it did not begin operations until May of 1997. PORTFOLIO MANAGEMENT The common stock portion of the GROWTH AND INCOME FUND portfolio is managed by the Investment Manager's Large Capitalization Team consisting of John Cleland, Chief Investment Strategist, Terry Milberger, Jim Schier, and Chuck Lauber. Terry Milberger, Senior Portfolio Manager, has had day-to-day responsibility for managing this portion of the portfolio since 1995. The fixed income portion of the Growth and Income Fund portfolio is managed by the Fixed Income Team of the Investment Manager consisting of John Cleland, Chief Investment Strategist, Greg Hamilton, Jane Tedder, Tom Swank, Steve Bowser, Barb Davison and Elaine Miller. Tom Swank, Assistant Vice President and Portfolio Manager of the Investment Manager, has had day-to-day responsibility for managing the fixed income portion of the Growth and Income Fund portfolio since 1994. EQUITY FUND is managed by the Large Capitalization Team of the Investment Manager described above. Mr. Milberger has had day-to-day responsibility for managing the Equity Fund since 1981. GLOBAL FUND is managed by an investment management team of the Sub-Adviser. Richard T. Saler and Alan Wapnick, the lead managers, have had day-to-day responsibility for managing Global Fund since 1994. VALUE FUND is managed by the Large Capitalization Team of the Investment Manager described above. Mr. Schier has had day-to-day responsibility for managing the Value Fund since its inception in 1997. ULTRA FUND is managed by the Investment Manager's Small Capitalization Team which consists of John Cleland, Chief Investment Strategist, Cindy Shields, Larry Valencia and Frank Whitsell. Cindy Shields, Portfolio Manager, has had day-to-day responsibility for managing the Fund since 1994. MR. MILBERGER, Senior Portfolio Manager, has more than 20 years of investment experience. He began his career as an investment analyst in the insurance industry and from 1974 through 1978 he served as an assistant portfolio manager for the Investment Manager. He was then employed as Vice President of Texas Commerce Bank and managed its pension assets until he returned to the Investment Manager in 1981. Mr. Milberger holds a bachelor's degree in business and a Masters of Business Administration from the University of Kansas and is a Chartered Financial Analyst. His investment philosophy is based on patience and opportunity for the long-term investor. MR. SALER is a Senior Vice President of the Sub-Adviser and is responsible for international investment analysis and portfolio management. He has eleven years of investment experience. Mr. Saler has focused on international markets since first joining the Sub-Adviser in 1986. Most recently he was a strategist with Nomura Securities and rejoined the Sub-Adviser in 1992. Mr. Saler is a graduate of New York University with a B.S. Degree in Marketing and an M.B.A. in Finance from New York University's graduate School of Business Administration. - -------------------------------------------------------------------------------- 18 MS. SHIELDS joined the Investment Manager in 1989. Ms. Shields graduated from Washburn University with a Bachelor of Business Administration degree, majoring in finance and economics. She is a Chartered Financial Analyst with seven years of investment experience. MR. SCHIER, Portfolio Manager of the Investment Manager has 13 years experience in the investment field and is a Chartered Financial Analyst. Mr. Schier earned a Bachelor of Business degree from the University of Notre Dame and an M.B.A. from Washington University. MR. SWANK has over ten years of experience in the investment field. Prior to joining the Investment Manager in 1992, he was an Investment Underwriter and Portfolio Manager for U.S. West Financial Services, Inc. from 1986 to 1992. From 1984 to 1986, he was a Commercial Credit Officer for United Bank of Denver. From 1982 to 1984, he was employed as a Bank Holding Company Examiner for the Federal Reserve Bank of Kansas City - Denver Branch. Mr. Swank graduated from Miami University in Ohio with a Bachelor of Science degree in Finance in 1982. He earned a Master of Business Administration degree from the University of Colorado and is a Chartered Financial Analyst. MR. WAPNICK is a Senior Vice President of the Sub-Adviser and is responsible for portfolio management. He has 27 years investment experience. Prior to joining the Sub-Adviser in 1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J. & W. Seligman, Dean Witter and most recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth College and received a Master's Degree in Business Administration from Columbia University. HOW TO PURCHASE SHARES Security Distributors, Inc. (the "Distributor"), 700 Harrison St., Topeka, Kansas, a wholly-owned subsidiary of Security Benefit Group, Inc., is principal underwriter for the Funds. Shares of the Funds may be purchased through authorized investment dealers. In addition, banks and other financial institutions that have an agreement with the Distributor, may make shares of the Funds available to their customers. The minimum initial purchase must be $100. Subsequent purchases must be $100 unless made through an Accumulation Plan which allows subsequent purchases of $20. Orders for the purchase of shares of the Funds will be confirmed at an offering price equal to the net asset value per share next determined after receipt of the order in proper form by the Distributor (generally as of the close of the New York Stock Exchange on that day) plus the sales charge in the case of Class A shares. Orders received by dealers or other firms prior to the close of the Exchange and received by the Distributor prior to the close of its business day will be confirmed at the offering price effective as of the close of the Exchange on that day. Orders for shares received by broker-dealers prior to that day's close of trading on the New York Stock Exchange and transmitted to the Fund prior to its close of business that day will receive the offering price equal to the net asset value per share computed at the close of trading on the Exchange on the same day plus, in the case of Class A shares, the sales charge. Orders received by broker-dealers after that day's close of trading on the Exchange and transmitted to the Fund prior to the close of business on the next business day will receive the next business day's offering price. - -------------------------------------------------------------------------------- 19 The Funds reserve the right to withdraw all or any part of the offering made by this prospectus and to reject purchase orders. ALTERNATIVE PURCHASE OPTIONS The Funds offer two classes of shares: CLASS A SHARES -- FRONT-END LOAD OPTION -- Class A shares are sold with a sales charge at the time of purchase. Class A shares are not subject to a sales charge when they are redeemed (except that shares sold in an amount of $1,000,000 or more without a front-end sales charge will be subject to a contingent deferred sales charge for one year). See Appendix A for a discussion of "Rights of Accumulation" and "Statement of Intention," which options may reduce the front-end sales charge on purchases of Class A shares. CLASS B SHARES -- BACK-END LOAD OPTION -- Class B shares are sold without a sales charge at the time of purchase, but are subject to a deferred sales charge if they are redeemed within five years of the date of purchase. Class B shares will automatically convert tax-free to Class A shares at the end of eight years after purchase. The decision as to which class is more beneficial to an investor depends on the amount and intended length of the investment. Investors who would rather pay the entire cost of distribution at the time of investment, rather than spreading such cost over time, might consider Class A shares. Other investors might consider Class B shares, in which case 100 percent of the purchase price is invested immediately, depending on the amount of the purchase and the intended length of investment. The Funds will not normally accept any purchase of Class B shares in the amount of $500,000 or more. Dealers or others receive different levels of compensation depending on which class of shares they sell. CLASS A SHARES Class A shares are offered at net asset value plus an initial sales charge as follows: SALES CHARGE ---------------------------------------------- AMOUNT OF PERCENTAGE PERCENTAGE OF PERCENTAGE TRANSACTION AT OF OFFERING NET AMOUNT REALLOWABLE OFFERING PRICE PRICE INVESTED TO DEALERS - --------------------------------------------------------------------------- Less than $50,000 5.75% 6.10% 5.00% $50,000 but less than $100,000 4.75% 4.99% 4.00% $100,000 but less than $250,000 3.75% 3.90% 3.00% $250,000 but less than $500,000 2.75% 2.83% 2.25% $500,000 but less than $1,000,000 2.00% 2.04% 1.75% $1,000,000 or more None None (See below) Purchases of Class A shares in an amount of $1,000,000 or more are at net asset value (without a sales charge), but are subject to a contingent deferred sales charge of one percent in the event of redemption within one year following purchase. For a discussion of the contingent deferred sales charge, see "Calculation and Waiver of Contingent Deferred Sales Charges" on page 22. The Distributor will pay a commission to dealers on Class A purchases of $1,000,000 or more as follows: 1.00 percent on sales up to $5,000,000, plus .50 percent on sales of $5,000,000 or more up to $10,000,000 and .10 percent on any amount of $10,000,000 or more. The Investment Manager may, at its expense, pay a service fee to dealers who satisfy certain criteria established by the Investment Manager from time to time relating to the volume of their sales of Class A shares of the Funds and certain other Security Funds during prior periods and certain other factors, including providing certain services to their clients who are stockholders of the Funds. Such services include assisting in - -------------------------------------------------------------------------------- 20 maintaining records, processing purchase and redemption requests and establishing stockholder accounts, assisting stockholders in changing account options or enrolling in specific plans, and providing stockholders with information regarding the Funds and related developments. Currently, service fees are paid on the aggregate value of accounts opened after July 31, 1990, in Security Equity, Ultra, Global, Growth and Income, Asset Allocation, Social Awareness, Value and Tax-Exempt Funds at the following annual rates: .25 percent of aggregate net asset value for amounts of $100,000 but less than $5,000,000 and .30 percent for amounts of $5,000,000 or more. Additional information may be obtained by referring to the Funds' Statement of Additional Information. CLASS B SHARES Class B shares are offered at net asset value, without an initial sales charge. With certain exceptions, the Funds may impose a deferred sales charge on shares redeemed within five years of the date of purchase. No deferred sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is deducted from the redemption proceeds or original purchase price, whichever is lower, otherwise payable to the stockholder. 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 - -------------------------------------------------------------------------------- 21 case, the Board of Directors will consider what action, if any, is appropriate and in the best interests of the Class B stockholders. CLASS B DISTRIBUTION PLAN Each Fund bears some of the costs of selling its Class B shares under a Distribution Plan adopted with respect to its Class B shares ("Class B Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act"). This Plan provides for payments at an annual rate of 1.00 percent of the average daily net asset value of Class B shares. Amounts paid by the Funds are currently used to pay dealers and other firms that make Class B shares available to their customers (1) a commission at the time of purchase normally equal to 4.00 percent of the value of each share sold and (2) a service fee payable for the first year, initially, and for each year thereafter, quarterly, in an amount equal to .25 percent annually of the average daily net asset value of Class B shares sold by such dealers and other firms and remaining outstanding on the books of the Funds. NASD Rules limit the aggregate amount that each Fund may pay annually in distribution costs for the sale of its Class B shares to 6.25 percent of gross sales of Class B shares since the inception of the Distribution Plan, plus interest at the prime rate plus one percent on such amount (less any contingent deferred sales charges paid by Class B shareholders to the Distributor). The Distributor intends, but is not obligated, to continue to pay or accrue distribution charges incurred in connection with the Class B Distribution Plan which exceed current annual payments permitted to be received by the Distributor from the Funds. The Distributor intends to seek full payment of such charges from the Fund (together with annual interest thereon at the prime rate plus one percent) at such time in the future as, and to the extent that, payment thereof by the Funds would be within permitted limits. Each Fund's Class B Distribution Plan may be terminated at any time by vote of its directors who are not interested persons of the Fund as defined in the 1940 Act or by vote of a majority of the outstanding Class B shares. In the event the Class B Distribution Plan is terminated by the Class B stockholders or the Funds' Board of Directors, the payments made to the Distributor pursuant to the Plan up to that time would be retained by the Distributor. Any expenses incurred by the Distributor in excess of those payments would be absorbed by the Distributor. The Funds make no payments in connection with the sale of their shares other than the distribution fee paid to the Distributor. CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES Any contingent deferred sales charge imposed upon redemption of Class A shares (purchased in an amount of $1,000,000 or more) and Class B shares is a percentage of the lesser of (1) the net asset value of the shares redeemed or (2) the net cost of such shares. No contingent deferred sales charge is imposed upon redemption of amounts derived from (1) increases in the value above the net cost of such shares due to increases in the net asset value per share of the Fund; (2) shares acquired through reinvestment of income dividends and capital gain distributions; or (3) Class A shares (purchased in an amount of $1,000,000 or more) held for more than one year or Class B shares held for more than five years. Upon request for redemption, shares not subject to the contingent deferred sales charge will be redeemed first. 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 - -------------------------------------------------------------------------------- 22 redemption is made within one year after death; (2) upon the disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a stockholder prior to age 65 if redemption is made within one year after the disability, provided such disability occurred after the stockholder opened the account; (3) in connection with required minimum distributions in the case of an IRA, SAR-SEP or Keogh or any other retirement plan qualified under section 401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from retirement plans qualified under section 401(a) or 401(k) of the Internal Revenue Code due to (i) returns of excess contributions to the plan, (ii) retirement of a participant in the plan, (iii) a loan from the plan (repayment of loans, however, will constitute new sales for purposes of assessing the CDSC), (iv) "financial hardship" of a participant in the plan, as that term is defined in Treasury Regulation section 1.401(k)-1(d)(2), as amended from time to time, (v) termination of employment of a participant in the plan, (vi) any other permissible withdrawal under the terms of the plan. The contingent deferred sales charge may also be waived in the case of redemptions of Class B shares of the Funds pursuant to a systematic withdrawal program. See "Systematic Withdrawal Program," page 30 for details. ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS The Investment Manager or Distributor, from time to time, will provide promotional incentives or pay a bonus to certain dealers whose representatives have sold or are expected to sell significant amounts of the Funds and/or certain other funds managed by the Investment Manager. Such promotional incentives will include payment for attendance (including travel and lodging expenses) by qualifying registered representatives (and members of their families) at sales seminars at luxury resorts within or without the United States. Bonus compensation may include reallowance of the entire sales charge and may also include, with respect to Class A shares, an amount which exceeds the entire sales charge and, with respect to Class B shares, an amount which exceeds the maximum commission. The Distributor, or the Investment Manager, may also provide financial assistance to certain dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns, and/or shareholder services and programs regarding one or more of the funds managed by the Investment Manager. Certain of the promotional incentives or bonuses may be financed by payments to the Distributor under a Rule 12b-1 Distribution Plan. The payment of promotional incentives and/or bonuses will not change the price an investor will pay for shares or the amount that the Funds will receive from such sale. No compensation will be offered to the extent it is prohibited by the laws of any state or self-regulatory agency, such as the National Association of Securities Dealers, Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A shares is reallowed may be deemed to be an "underwriter" under federal securities laws. The Distributor also may pay banks and other financial services firms that facilitate transactions in shares of the funds for their clients a transaction fee up to the level of the payments made allowable to dealers for the sale of such shares as described above. Banks currently are prohibited under the Glass-Steagall Act from providing certain underwriting or distribution services. If banking firms were prohibited from acting in any capacity or providing any of the described services, the Funds' Board of Directors would consider what action, if any, would be appropriate. - -------------------------------------------------------------------------------- 23 In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law. The Investment Manager or Distributor also may pay a marketing allowance to dealers who meet certain eligibility criteria. This allowance is paid with reference to new sales of Fund shares in a calendar year. To be eligible for this allowance in any given year, the dealer must sell a minimum of $2,000,000 of Class A and Class B shares during that year. The marketing allowance ranges from .15 percent to .75 percent of aggregate new sales depending upon the volume of shares sold. See the Funds' Statement of Additional Information for more detailed information about the marketing allowance. PURCHASES AT NET ASSET VALUE Class A shares of the Funds may be purchased at net asset value by (1) directors, officers and employees of the Funds, the Funds' Investment Manager or Distributor; directors, officers and employees of Security Benefit Life Insurance Company and its subsidiaries; agents licensed with Security Benefit Life Insurance Company; spouses or minor children of any such agents; as well as the following relatives of any such directors, officers and employees (and their spouses): spouses, grandparents, parents, children, grandchildren, siblings, nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan established by any of the foregoing corporations for persons described above; (3) retirement plans where third party administrators of such plans have entered into certain arrangements with the Distributor or its affiliates provided that no commission is paid to dealers; and (4) officers, directors, partners or registered representatives (and their spouses and minor children) of broker/dealers who have a selling agreement with the Distributor. Such sales are made upon the written assurance of the purchaser that the purchase is made for investment purposes and that the securities will not be transferred or resold except through redemption or repurchase by or on behalf of the Funds. Class A shares of the Funds may also be purchased at net asset value when the purchase is made on the recommendation of (i) a registered investment adviser, trustee or financial intermediary who has authority to make investment decisions on behalf of the investor; or (ii) a certified financial planner or registered broker-dealer who either charges periodic fees to its customers for financial planning, investment advisory or asset management services, or provides such services in connection with the establishment of an investment account for which a comprehensive "wrap fee" is imposed. The Distributor must be notified when a purchase is made that qualifies under this provision. A stockholder of Equity Fund who formerly invested in the Bondstock Investment Plans or Life Insurance Investors Investment Plans may purchase Class A shares of Equity Fund at net asset value provided that such stockholder maintains his or her Equity Fund account. HOW TO REDEEM SHARES A stockholder may redeem shares at the net asset value next determined after the time when such shares are tendered for redemption. Shares will be redeemed on request of the stockholder in proper order to the Funds' Investment Manager, Security Management Company, LLC, 700 Harrison St., Topeka, Kansas 66636-0001, which serves as the Funds' transfer agent. A request is made in proper order by - -------------------------------------------------------------------------------- 24 submitting the following items to the Investment Manager: (1) a written request for redemption signed by all registered owners exactly as the account is registered, including fiduciary titles, if any, and specifying the account number and the dollar amount or number of shares to be redeemed; (2) a guarantee of all signatures on the written request or on the share certificate or accompanying stock power; (3) any share certificates issued for any of the shares to be redeemed; and (4) any additional documents which may be required by the Investment Manager for redemption by corporations or other organizations, executors, administrators, trustees, custodians or the like. Transfers of shares are subject to the same requirements. The signature guarantee must be provided by an eligible guarantor institution, such as a bank, broker, credit union, national securities exchange or savings association. A signature guarantee is not required for redemptions of $10,000 or less, requested by and payable to all stockholders of record for an account, to be sent to the address of record. The Investment Manager reserves the right to reject any signature guarantee pursuant to its written procedures which may be revised in the future. To avoid delay in redemption or transfer, stockholders having questions should contact the Investment Manager by calling 1-800-888-2461, extension 3127. The redemption price will be the net asset value of the shares next computed after the redemption request in proper order is received by the Investment Manager. Payment of the amount due, less any applicable deferred sales charge, will be made by check within seven days after receipt of the redemption request in proper order. Payment may also be made by wire at the sole discretion of the Investment Manager. If a wire transfer is requested, the Investment Manager must be provided with the name and address of the stockholder's bank as well as the account number to which payment is to be wired. Checks will be mailed to the stockholder's registered address (or as otherwise directed). Remittance by wire (to a commercial bank account in the same name(s) as the shares are registered), by certified or cashier's check, or by express mail, if requested, will be at a charge of $15, which will be deducted from the redemption proceeds. In addition to the foregoing redemption procedure, the Funds repurchase shares from broker-dealers at the price determined as of the close of business on the day such offer is confirmed. Dealers may charge a commission on the repurchase of shares. At various times, requests may be made to redeem shares for which good payment has not yet been received. Accordingly, the mailing of a redemption check may be delayed until such time as good payment has been collected for the purchase of the shares in question, which may take up to 15 days. Requests may also be made to redeem shares in an account for which the stockholder's tax identification number has not been provided. To the extent permitted by law, the redemption proceeds from such an account will be reduced by $50 to reimburse for the penalty imposed by the Internal Revenue Service for failure to report the tax identification number. TELEPHONE REDEMPTIONS A stockholder may redeem uncertificated shares in amounts up to $10,000 by telephone request, provided the stockholder has completed the Telephone Redemption section of the application or a Telephone Redemption form which may be obtained from the Investment Manager. The proceeds of a telephone redemption will be sent to the stockholder at his or her address as set forth in the application or in a subsequent written - -------------------------------------------------------------------------------- 25 authorization with a signature guarantee. Once authorization has been received by the Investment Manager, a stockholder may redeem shares by calling the Funds at (800) 888-2461, extension 3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Redemption requests received by telephone after the close of the New York Stock Exchange (normally 3 p.m. Central time) will be treated as if received on the next business day. A stockholder who authorizes telephone redemptions authorizes the Investment Manager to act upon the instructions of any person identifying themselves as the owner of the account or the owner's broker. The Investment Manager has established procedures to confirm that instructions communicated by telephone are genuine and may be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Investment Manager's procedures require that any person requesting a telephone redemption provide the account registration and number and the owner's tax identification number, and such instructions must be received on a recorded line. Neither the Fund, the Investment Manager, nor the Distributor shall be liable for any loss, liability, cost or expense arising out of any telephone redemption request, provided the Investment Manager complied with its procedures. Thus, a stockholder who authorizes telephone redemptions may bear the risk of loss from a fraudulent or unauthorized request. The telephone redemption privilege may be changed or discontinued at any time by the Investment Manager or the Funds. During periods of severe market or economic conditions, telephone redemptions may be difficult to implement and stockholders should make redemptions by mail as described under "How to Redeem Shares." DIVIDENDS AND TAXES It is each Fund's policy to distribute realized capital gains, if any, in excess of any capital losses and capital loss carryovers, at least once a year and to pay dividends from net investment income as the Funds' Board of Directors may declare from time to time, except Growth and Income Fund which pays dividends quarterly in March, June, September, and December. Because Class A shares of the Funds bear most of the costs of distribution of such shares through payment of a front-end sales charge, while Class B shares of the Funds bear such costs through a higher distribution fee, expenses attributable to Class B shares will generally be higher and, as a result, income distributions paid by the Funds with respect to Class B shares generally will be lower than those paid with respect to Class A shares. Any dividend payment or capital gain distribution will result in a decrease of the net asset value of the shares in an amount equal to the payment or distribution. All dividends and distributions are automatically reinvested on the payable date in shares of the Funds at net asset value as of the record date (reduced by an amount equal to the amount of the dividend or distribution), unless the Investment Manager is previously notified in writing by the stockholder that such dividends or distributions are to be received in cash. A stockholder may request that such dividends or distributions be directly deposited to the stockholder's bank account. Dividends or distributions paid with respect to Class A shares and received in cash may, within 30 days of the payment date, be reinvested without a sales charge. Each of the series of Security Equity Fund is to be treated separately in determining the amounts of income and capital gains distributions, and for - -------------------------------------------------------------------------------- 26 this purpose, each series will reflect only the income and gains, net of losses, of that series. Certain requirements relating to the qualification of a Fund as a regulated investment company may limit the extent to which a Fund will be able to engage in certain investment practices, including transactions in futures contracts and other types of derivative securities transactions. In addition, if a Fund were unable to dispose of portfolio securities due to settlement problems relating to foreign investments or due to the holding of illiquid securities, the Fund's ability to qualify as a regulated investment company might be affected. Each of the Funds intends to qualify as a "regulated investment company" under the Internal Revenue Code. Such qualification generally removes the liability for federal income taxes from the Fund, and generally makes federal income tax upon income and capital gains generated by the Fund's investments, the sole responsibility of its stockholders provided the Fund continues to so qualify and distributes all of its net investment income and net realized capital gain to its stockholders. Furthermore, the Funds generally will not be subject to excise taxes imposed on certain regulated investment companies provided that each Fund distributes 98 percent of its ordinary income and 98 percent of its net capital gain income each year. Distributions of net investment income and realized net short-term capital gain are taxable to stockholders as ordinary income whether received in cash or reinvested in additional shares. Distributions (designated by the Funds as "capital gain dividends") of the excess, if any, of net long-term capital gains over net short-term capital losses are taxable to stockholders as long-term capital gains regardless of how long a stockholder has held the Fund's shares and regardless of whether received in cash or reinvested in additional shares. Stockholders should consult their tax adviser to determine the federal, state and local tax consequences to them from an investment in the Fund. Certain dividends declared in October, November or December of a calendar year are taxable to stockholders as though received on December 31 of that year if paid to stockholders during January of the following calendar year. Advice as to the tax status of each year's distributions will be mailed on or before January 31, of the following year. The Funds are required by law to withhold 31 percent of taxable dividends and distributions (including redemption proceeds) to stockholders who do not furnish their correct taxpayer identification numbers, or are otherwise subject to the backup withholding provisions of the Internal Revenue Code. FOREIGN TAXES Investment income received from sources within foreign countries may be subject to foreign income taxes. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty are often as high as 30 percent or more. The United States has entered into tax treaties with many foreign countries which entitle certain investors (such as the Funds) to a reduced tax rate (generally 10 to 15 percent) or to certain exemptions from tax. The Funds will operate so as to qualify for such reduced tax rates or tax redemptions whenever possible. While stockholders will bear the cost of any foreign tax withholding, they will not be able to claim foreign tax credit or deduction for taxes paid by the Fund. DETERMINATION OF NET ASSET VALUE The net asset value of each Fund is computed as of the close of regular trading hours on the New - -------------------------------------------------------------------------------- 27 York Stock Exchange (normally 3 p.m. Central time) on days when the Exchange is open. The net asset value per share is computed by adding the value of all securities and other assets in the portfolio, deducting any liabilities and dividing by the number of shares outstanding. In determining each Fund's total net assets, securities listed or traded on a recognized securities exchange will be valued on the basis of the last sale price. If there are no sales on a particular day, then the securities are valued at the last bid price. If a security is traded on multiple exchanges, its value will be based on prices from the principal exchange where it is traded. All other securities for which market quotations are available are valued on the basis of the last current bid price. If there is no bid price, or if the bid price is deemed unsatisfactory by the Board of Directors or by the Investment Manager, then the securities are valued in good faith by such method as the Board of Directors determines will reflect the fair market value. Valuations of the Funds' securities are supplied by a pricing service approved by the Funds' Board of Directors. Because the expenses of distribution are borne by Class A shares through a front-end sales charge and by Class B shares through an ongoing distribution fee, the expenses attributable to each class of shares will differ, resulting in different net asset values. The net asset value of Class B shares will generally be lower than the net asset value of Class A shares as a result of the distribution fee charged to Class B shares. It is expected, however, that the net asset value per share will tend to converge immediately after the payment of dividends which will differ in amount for Class A and B shares by approximately the amount of the different distribution expenses attributable to Class A and B shares. TRADING PRACTICES AND BROKERAGE The portfolio turnover rate for each of the Funds for the fiscal year ended September 30, 1996, was Growth and Income Fund - 69 percent; Equity Fund - 64 percent; Global Fund - 142 percent; and Ultra Fund - 161 percent. Portfolio turnover rates are not yet available for the Value Fund as it did not begin operations until May of 1997. Higher portfolio turnover (portfolio turnover of 100 percent or more) subjects a Fund to increased brokerage costs and may, in some cases, have adverse tax effects on the Fund or its stockholders. The annual portfolio turnover of Growth and Income and Global Funds generally will be less than 100 percent, that of Equity and Value Funds generally will be in the area of 100 percent, and that of Ultra Fund generally will be more than 100 percent. Transactions in portfolio securities for each Fund are effected in the manner deemed to be in the best interests of the Fund. In selecting a broker to execute a specific transaction, all relevant factors will be considered. Portfolio transactions may be directed to brokers who furnish investment information or research services to the Investment Manager or who sell shares of the Funds. The Investment Manager may, consistent with the NASD Rules of Fair Practice, consider sales of Fund shares in the selection of a broker. Securities held by the Funds may also be held by other investment advisory clients of the Investment Manager, including other investment companies, and by Security Benefit Life Insurance Company ("SBL"). Purchases or sales of the same security occurring on the same day (which may include orders from SBL) may be aggregated and executed as a single transaction, subject to the Investment Manager's obligation to seek best execution. Aggregated purchases or sales are generally effected at an average price and on a - -------------------------------------------------------------------------------- 28 pro rata basis (transaction costs will also generally be shared on a pro rata basis) in proportion to the amounts desired to be purchased or sold. See the Funds' Statement of Additional Information for a more detailed description of trading and brokerage practices. PERFORMANCE Each Fund may, from time to time, include quotations of its average annual total return and aggregate total return in advertisements or reports to stockholders or prospective investors. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the life of the Fund). Such total return figures will reflect the deduction of the maximum sales charge and a proportional share of Fund expenses on an annual basis, and will assume that all dividends and distributions are reinvested when paid. Quotations of aggregate total return will be calculated for any specified period by assuming a hypothetical investment in the Fund on the date of the commencement of the period and assuming that all dividends and distributions are reinvested when paid. The net increase or decrease in the value of the investment over the period will be divided by its beginning value to arrive at total return. Total return calculated in this manner reflects actual performance over a stated period of time while average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same aggregate total return. In addition, quotations of aggregate total return may also be calculated for several consecutive one-year periods, expressing the total return as a percentage increase or decrease in the value of the investment for each year relative to the ending value for the previous year. The Funds may from time to time quote total return that does not reflect deduction of any applicable sales charge, which charges, if reflected, would reduce the total return quoted. Quotations of average annual total return or aggregate total return reflect only the performance of a hypothetical investment in the Fund during the particular time period on which the calculations are based. Such quotations for the Funds will vary based on changes in market conditions and the level of the Fund's expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. In connection with communicating its average annual total return and aggregate total return to current or prospective stockholders, each Fund also may compare these figures to the performance of other mutual fund rating services or to other unmanaged indexes which may assume reinvestment of dividends, but generally do not reflect deductions for administrative and management costs and expenses. Each Fund will include performance data for both Class A and Class B shares of the Fund in any advertisement or report including performance data of the Fund. For a more detailed description of the methods used to calculate the average annual total return and aggregate total return of the Funds, see the Funds' Statement of Additional Information. SHAREHOLDER SERVICES ACCUMULATION PLAN An investor may choose to invest in one of the Funds through a voluntary Accumulation Plan. This allows for an initial investment of $100 minimum and subsequent investments of $20 minimum at any time. An Accumulation Plan - -------------------------------------------------------------------------------- 29 involves no obligation to make periodic investments, and is terminable at will. Payments are made by sending a check to the Distributor who (acting as an agent for the dealer) will purchase whole and fractional shares of the Fund as of the close of business on such day as the payment is received. The investor will receive a confirmation and statement after each investment. Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make their Fund purchases. There is no additional charge for choosing to use Secur-O-Matic. An application for Secur-O-Matic may be obtained from the Funds. SYSTEMATIC WITHDRAWAL PROGRAM Stockholders who wish to receive regular monthly, quarterly, semiannual, or annual payments of $25 or more may establish a Systematic Withdrawal Program. A stockholder may elect a payment that is a specified percentage of the initial or current account value or a specified dollar amount. A Systematic Withdrawal Program will be allowed only if shares with a current offering price of $5,000 or more are deposited with the Investment Manager, which will act as agent for the stockholder under the Program. Shares are liquidated at net asset value. The Program may be terminated on written notice, or it will terminate automatically if all shares are liquidated or withdrawn from the account. A stockholder may establish a Systematic Withdrawal Program with respect to Class B shares without the imposition of any applicable contingent deferred sales charge, provided that such withdrawals do not in any 12-month period, beginning on the date the Program is established, exceed 10 percent of the value of the account on that date ("Free Systematic Withdrawals"). Free Systematic Withdrawals are not available if a Program established with respect to Class B shares provides for withdrawals in excess of 10 percent of the value of the account in any Program year and, as a result, all withdrawals under such a Program would be subject to any applicable contingent deferred sales charge. Free Systematic Withdrawals will be made first by redeeming those shares that are not subject to the contingent deferred sales charge and then by redeeming shares held the longest. The contingent deferred sales charge applicable to a redemption of Class B shares requested while Free Systematic Withdrawals are being made will be calculated as described under "Calculation and Waiver of Contingent Deferred Sales Charges," page 22. A Systematic Withdrawal form may be obtained from the Funds. EXCHANGE PRIVILEGE Stockholders who own shares of the Funds may exchange those shares for shares of another of the Funds, Security Asset Allocation Fund, Security Social Awareness Fund, Security Income Fund, Security Tax-Exempt Fund, or Security Cash Fund at net asset value. Exchanges may be made only in those states where shares of the fund into which an exchange is to be made are qualified for sale. No service fee is presently imposed on such an exchange. Class A and Class B shares of the Funds may be exchanged for Class A and Class B shares, respectively, of another fund or for shares of Security Cash Fund, a money market fund that offers a single class of shares. Any applicable contingent deferred sales charge will be imposed upon redemption and calculated from the date of the initial purchase without regard to the time shares were held in Security Cash Fund. For tax purposes, an exchange is a sale of shares which may result in a taxable gain or loss. Special rules may apply to determine the amount of gain or loss on an exchange occurring within ninety days after - -------------------------------------------------------------------------------- 30 the exchanged shares were acquired. Exchanges are made upon receipt of a properly completed Exchange Authorization form. A current prospectus of the fund into which an exchange is made will be given to each stockholder exercising this privilege. To exchange shares by telephone, a stockholder must hold shares in non-certificate form and must either have completed the Telephone Exchange section of the application or a Telephone Transfer Authorization form which may be obtained from the Investment Manager. Once authorization has been received by the Investment Manager, a stockholder may exchange shares by telephone by calling the Funds at (800) 888-2461, extension 3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests received by telephone after the close of the New York Stock Exchange (normally 3 p.m. Central time) will be treated as if received on the next business day. A stockholder who authorizes telephone exchanges authorizes the Investment Manager to act upon the instructions of any person by telephone to exchange shares between any identically registered accounts with the Funds listed above. The Investment Manager has established procedures to confirm that instructions communicated by telephone are genuine and may be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Investment Manager's procedures require that any person requesting an exchange by telephone provide the account registration and number and the owner's tax identification number and such instructions must be received on a recorded line. Neither the Fund, the Investment Manager nor the Distributor shall be liable for any loss, liability, cost or expense arising out of any request, including any fraudulent request, provided the Investment Manager complied with its procedures. Thus, a stockholder who authorizes telephone exchanges may bear the risk of loss from a fraudulent or unauthorized request. The exchange privilege, including telephone exchanges, may be changed or discontinued at any time by either the Investment Manager or the Funds upon 60 days' notice to stockholders. In periods of severe market or economic conditions, the telephone exchange of shares may be difficult to implement and stockholders should make exchanges by writing to Security Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001. RETIREMENT PLANS The Funds have available tax-qualified retirement plans for individuals, prototype plans for the self-employed, pension and profit sharing plans for corporations and custodial accounts for employees of public school systems and organizations meeting the requirements of Section 501(c)(3) of the Internal Revenue Code. Further information concerning these plans is contained in the Funds' Statement of Additional Information. GENERAL INFORMATION ORGANIZATION Security Growth and Income, Equity and Ultra Funds are Kansas corporations, the Articles of Incorporation of which provide for the issuance of an indefinite number of shares of common stock in one or more classes or series. Security Equity Fund has authorized capital stock of $.25 par value and currently issues its shares in five series, Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness Fund and Value Fund. The shares of each series of Security Equity Fund represent a pro rata beneficial interest in that series' net assets and in the earnings and profits or losses derived from the investment of such assets. - -------------------------------------------------------------------------------- 31 Growth and Income and Ultra Funds have not issued shares in any additional series at the present time. Growth and Income and Ultra Funds have authorized capital stock of $1.00 par value and $.50 par value, respectively. Each of the Funds currently issues two classes of shares which participate proportionately based on their relative net asset values in dividends and distributions and have equal voting, liquidation and other rights except that (i) expenses related to the distribution of each class of shares or other expenses that the Board of Directors may designate as class expenses from time to time, are borne solely by each class; (ii) each class of shares has exclusive voting rights with respect to any Distribution Plan adopted for that class; (iii) each class has different exchange privileges; and (iv) each class has a different designation. When issued and paid for, the shares will be fully paid and nonassessable by the Funds. Shares may be exchanged as described above under "Exchange Privilege," but will have no other preference, conversion, exchange or preemptive rights. Shares are transferable, redeemable and assignable and have cumulative voting privileges for the election of directors. On certain matters, such as the election of directors, all shares of the series of Security Equity Fund vote together, with each share having one vote. On other matters affecting a particular series, such as the investment advisory contract or the fundamental policies, only shares of that series are entitled to vote, and a majority vote of the shares of that series is required for approval of the proposal. The Funds do not generally hold annual meetings of stockholders and will do so only when required by law. Stockholders may remove directors from office by vote cast in person or by proxy at a meeting of stockholders. Such a meeting will be called at the written request of 10 percent of the corporation's outstanding shares. Although each Fund offers only its own shares, it is possible one Fund might become liable for any misstatement, inaccuracy, or incomplete disclosure in this prospectus relating to another of the Funds. The Funds' Board of Directors has considered this risk and has approved the use of a combined prospectus. STOCKHOLDER INQUIRIES Stockholders who have questions concerning their account or wish to obtain additional information, may call the Funds (see back cover for address and telephone numbers), or contact their securities dealer. - -------------------------------------------------------------------------------- 32 SECURITY FUNDS PROSPECTUS APPENDIX A ================================================================================ APPENDIX A CLASS A SHARES REDUCED SALES CHARGES Initial sales charges may be reduced or eliminated for persons or organizations purchasing Class A shares of the Funds alone or in combination with Class A shares of other Security Funds. For purposes of qualifying for reduced sales charges on purchases made pursuant to Rights of Accumulation or a Statement of Intention, the term "Purchaser" includes the following persons: an individual, his or her spouse and children under the age of 21; a trustee or other fiduciary of a single trust estate or single fiduciary account established for their benefit; an organization exempt from federal income tax under Section 501(c)(3) or (13) of the Internal Revenue Code; or a pension, profit-sharing or other employee benefit plan whether or not qualified under Section 401 of the Internal Revenue Code. RIGHTS OF ACCUMULATION To reduce sales charges on purchases of Class A shares of a Fund, a Purchaser may combine all previous purchases of the Funds with a contemplated current purchase and receive the reduced applicable front-end sales charge. The Distributor must be notified when a sale takes place which might qualify for the reduced charge on the basis of previous purchases. Rights of accumulation also apply to purchases representing a combination of the Class A shares of the Funds, and other Security Funds, except Security Cash Fund, in those states where shares of the fund being purchased are qualified for sale. STATEMENT OF INTENTION A Purchaser may choose to sign a Statement of Intention within 90 days after the first purchase to be included thereunder, which will cover future purchases of Class A shares of the Funds, and other Security Funds, except Security Cash Fund. The amount of these future purchases shall be specified and must be made within a 13-month period (or 36-month period for purchases of $1 million or more) to become eligible for the reduced front-end sales charge applicable to the actual amount purchased under the Statement. Five percent (5%) of the amount specified in the Statement of Intention will be held in escrow shares until the statement is completed or terminated. These shares may be redeemed by the Fund if the Purchaser is required to pay additional sales charges. A Statement of Intention may be revised during the 13-month (or, if applicable, 36-month) period. Additional Class A shares received from reinvestment of income dividends and capital gains distributions are included in the total amount used to determine reduced sales charges. A Statement of Intention may be obtained from the Funds. REINSTATEMENT PRIVILEGE Stockholders who redeem their Class A shares of the Funds have a one-time privilege (1) to reinstate their accounts by purchasing Class A shares without a sales charge up to the dollar amount of the redemption proceeds; or (2) to the extent the redeemed shares would have been eligible for the exchange privilege, to purchase Class A shares of another of the Security Funds, without a sales charge up to the dollar amount of the redemption proceeds. To exercise this privilege, a stockholder must provide written notice and a check in the amount of the reinvestment to the Fund within thirty days after the redemption request; the reinstatement will be made at the net asset value on the date received by the Fund. - -------------------------------------------------------------------------------- 33 THIS PAGE LEFT BLANK INTENTIONALLY THIS PAGE LEFT BLANK INTENTIONALLY SECURITY FUNDS APPLICATION 1. ACCOUNT REGISTRATION (THE OWNER(S) MUST COMPLETE SECTION 10 "CERTIFICATION AND SIGNATURE" TO ESTABLISH AN ACCOUNT.) I hereby authorize the establishment of the account marked below and acknowledge receipt of the Fund's current prospectus. Check is enclosed for $ (minimum $100) payable to SECURITY DISTRIBUTORS, INC. as ------------------ an initial investment. I am of legal age in the state of my residence and wish to purchase shares of the Fund indicated below. By the execution of this application, the undersigned represents and warrants that the investor has full right, power and authority to make this investment and the undersigned is duly authorized to sign this application and to purchase or redeem shares of the Fund on behalf of the investor. No stock certificate is to be issued unless I so request. See the prospectus for information about an Accumulation Plan which allows a minimum investment of $100 and subsequent investments of $20. - ------------------------------------------------------------- Owner/Custodian/Trustee Name (Print) - ------------------------------------------------------------- Social Security Number Date of Birth - ------------------------------------------------------------- Joint Owner/Minor Name (Print) [ ] Check if UGMA/UTMA Account - ------------------------------------------------------------- Social Security Number Date of Birth 2. ADDRESS AND TELEPHONE NUMBER - ------------------------------ ----------------------------------------------- Street Address Daytime Telephone (for first individual) - ------------------------------ Citizenship [ ] U.S. [ ] Other City, State, Zip Code ---------------- Indicate Country 3. INITIAL INVESTMENT CLASS OF SHARES (MUST SELECT ONE ONLY) ( ) A SHARES ( ) B SHARES (IF NO CLASS IS SELECTED, PURCHASE(S) WILL BE MADE OF A SHARES) SECURITY EQUITY FUND $ SECURITY LIMITED MATURITY BOND FUND $ ------ ------ SECURITY GLOBAL FUND $ SECURITY U.S. GOVERNMENT FUND $ ------ ------ SECURITY ASSET ALLOCATION FUND $ SECURITY GLOBAL AGGRESSIVE BOND FUND $ ------ ------ SECURITY GROWTH & INCOME FUND $ SECURITY HIGH YIELD FUND $ ------ ------ SECURITY ULTRA FUND $ SECURITY TAX-EXEMPT FUND $ ------ ------ SECURITY CASH FUND $ SECURITY SOCIAL AWARENESS FUND $ ------ ------ SECURITY CORPORATE BOND FUND $ ------
4. DIVIDEND OPTION (CHECK ONE ONLY) (If no option is selected, distributions will be reinvested into the Fund that pays them.) [ ] Reinvest all dividends and capital gains [ ] Reinvest only capital gains and pay dividends in cash [ ] Cash payment of dividends and capital gains [ ] Invest dividends and capital gains into another Security Fund account (must be same class of shares; if new account, number will be assigned) Fund Name Account Number ------------------------------------ ------------------ [ ] Send distributions to third party below Account No. (if applicable) ---------------------------------------------------- Name --------------------------------------------------------------------------- Address ------------------------------------------------------------------------ 5. SYSTEMATIC WITHDRAWAL PROGRAM (FOR ACCOUNTS OF $5,000 OR MORE) You are hereby authorized to send a check(s) beginning: Month Day [ ] 11th or [ ] 26th 19 ---------------- ---- (if no date is selected withdrawal will be made on the 26th) Payable: [ ] monthly [ ] quarterly [ ] semi-annually [ ] annually Fund Name Fund Name ----------------------------- ------------------------------ Account No. (if known) Account No. (if known) ---------------- --------------- (if 3 or more funds, please send written instructions) Level Payment $ ($25 minimum) Level Payment $ ($25 minimum) -------- -------- Variable Payment based on fixed number Variable Payment based on fixed number of shares or a percentage of account of shares or a percentage of account value ($25 minimum) value ($25 minimum) Number of shares: or Number of shares: or ----------- ----------- Percentage of account value: Percentage of account value: --------- --------- Note: For Class B shares, annual withdrawals in excess of 10% of value of account at time program is established may be subject to a contingent deferred sales charge. Complete this section only if you want check payable and sent to another address (please print): Name Signature(s) of all registered owners required ---------------------------- Address Individual Signature ------------------------- ------------------------- City, State, Zip Code Joint Owner Signature ------------ ------------------------ 6. SECUR-O-MATIC[Registration Mark] BANK DRAFT PLAN I wish to make investments directly from my checking account. (Please attach a voided check to this application.) Fund Name Account Number (if known) Amount $ ------------------ ------- ------- Fund Name Account Number (if known) Amount $ ------------------ ------- ------- Date: [ ] 7th Day of Month [ ] 14th Day of Month [ ] 21st Day of Month [ ] 28th Day of Month (if no date is selected investment will be made on the 21st) Mode: [] Monthly ($20 minimum) [] Bi-Monthly ($40 minimum) [] Quarterly ($50 minimum) [] Semiannually ($100 minimum) [] Annually ($200 minimum) You should notify your bank that you are going to use this service to ensure they accept preauthorized electronic drafts. (continued on back) 7. RIGHTS OF ACCUMULATION I own shares in other Security Funds which may entitle this purchase to have a reduced sales charge under the provisions in the Fund Prospectus. - -------------------------------- --------------------------- ----------------- Current Account Registration Fund Name Account Number(s) - -------------------------------- --------------------------- ----------------- - -------------------------------- --------------------------- ----------------- 8. STATEMENT OF INTENTION [ ] Please check here if you wish to receive a Statement of Intention. This form allows you to purchase shares at reduced sales charges if you plan to invest more than: (Please check one) [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 in installments during the next 13 months (36 months for purchases of $1 million or more). See the current prospectus for more information. 9. TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGE If you would like to have telephone exchange and/or redemption privileges, please mark one or more of the boxes below: Yes, I want [ ] telephone exchange [ ] telephone redemption privileges. By checking the applicable box(es) and signing this Application, you authorize the Investment Manager to honor any telephone request for the exchange and/or redemption of Fund shares (maximum telephone redemption is $10,000), subject to the terms of the Fund prospectus. The Investment Manager has established reasonable procedures to confirm that instructions communicated by telephone are genuine and may be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The procedures require that any person requesting a telephone redemption or exchange provide the account registration and number and owner's tax identification number and such request must be received on a recorded line. Neither the Fund, the Investment Manager nor the Underwriter will be liable for any loss, liability, cost or expense arising out of any telephone request, provided that the Investment Manager complied with its procedures. Thus, a stockholder may bear the risk of loss from a fraudulent or unauthorized request. 10. CERTIFICATION AND SIGNATURE TAX IDENTIFICATION NUMBER CERTIFICATION UNDER PENALTIES OF PERJURY I CERTIFY THAT: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me); and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. - -------------------------------------------------------------------------------- Signature of Owner Date - -------------------------------------------------------------------------------- Signature of Joint Owner Date In case of joint ownership, both must sign. If no form of ownership is indicated then it will be assumed the ownership is as "joint tenants, with right of survivorship" and not as "tenants in common." CERTIFICATION INSTRUCTIONS - You must cross out item (2) to the left if you have been notified by IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. 11. INVESTMENT DEALER I (we) agree to act as dealer under this account in accordance with the provisions of the Dealer Agreement and appoint Security Distributors, Inc. to act as my (our) agent pursuant thereto. I (we) represent that the appropriate prospectus was delivered to the above indicated owner(s). - -------------------------------------------------------------------------------- Name of Firm (Print) - -------------------------------------------------------------------------------- Business Address - -------------------------------------------------------------------------------- City, State, Zip Code - -------------------------------------------------------------------------------- Signature of Authorized Dealer - ----------------------------------------------------- ------------------------ Representative's Name Account Executive Number - -------------------------------------------------------------------------------- Business Address - -------------------------------------------------------------------------------- City, State, Zip Code - -------------------------------------------------------------------------------- Representative's Telephone Number SEND COMPLETED APPLICATION TO SECURITY DISTRIBUTORS, INC., 700 SW HARRISON ST., TOPEKA, KS 66636-0001 1-800-888-2461, EXT. 3127 Attach Voided Check Here (Check must be preprinted with the bank account registration) [SDI LOGO} BULK RATE U.S. POSTAGE 700 SW Harrison St. PAID Topeka, KS 66636-0001 TOPEKA, KS (913) 295-3127 PERMIT NO. 385 SECURITY GROWTH AND INCOME FUND (formerly Security Investment Fund) SECURITY EQUITY FUND * EQUITY SERIES * GLOBAL SERIES * ASSET ALLOCATION SERIES * SOCIAL AWARENESS SERIES * VALUE SERIES SECURITY ULTRA FUND STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1997 RELATING TO THE PROSPECTUS DATED MAY 1, 1997, AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME (913) 295-3127 (800) 888-2461 INVESTMENT MANAGER Security Management Company, LLC 700 SW Harrison Street Topeka, Kansas 66636-0001 UNDERWRITER Security Distributors, Inc. 700 SW Harrison Street Topeka, Kansas 66636-0001 CUSTODIAN UMB Bank, N.A. 928 Grand Avenue Kansas City, Missouri 64106 The Chase Manhattan Bank 4 Chase MetroTech Center Brooklyn, New York 11245 INDEPENDENT AUDITORS Ernst & Young LLP One Kansas City Place 1200 Main Street Kansas City, Missouri 64105-2143 SECURITY GROWTH AND INCOME FUND (formerly Security Investment Fund) SECURITY EQUITY FUND SECURITY ULTRA FUND Members of The Security Benefit Group of Companies 700 SW Harrison, Topeka, Kansas 66636-0001 STATEMENT OF ADDITIONAL INFORMATION May 1, 1997 (RELATING TO THE PROSPECTUS DATED MAY 1, 1997, AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME) This Statement of Additional Information is not a Prospectus. It should be read in conjunction with the Prospectus dated January 31, 1997, as it may be supplemented from time to time. A Prospectus may be obtained by writing or calling Security Distributors, Inc., 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling (913) 295-3127 or (800) 888-2461, ext. 3127. TABLE OF CONTENTS Page General Information...................................................... 1 Investment Objective and Policies of the Funds........................... 2 Security Growth and Income Fund....................................... 2 Security Equity Fund.................................................. 3 Equity Fund......................................................... 4 Global Fund......................................................... 4 Asset Allocation Fund............................................... 6 Social Awareness Fund............................................... 8 Value Fund.......................................................... 9 Security Ultra Fund................................................... 9 Investment Methods and Risk Factors...................................... 10 Investment Policy Limitations............................................ 23 Security Growth and Income Fund's Fundamental Policies................ 23 Security Equity Fund's Fundamental Policies........................... 24 Security Ultra Fund's Fundamental Policies............................ 25 Officers and Directors................................................... 26 Remuneration of Directors and Others..................................... 28 How to Purchase Shares................................................... 29 Alternative Purchase Options.......................................... 29 Class A Shares........................................................ 30 Class B Shares........................................................ 30 Class B Distribution Plan............................................. 31 Calculation and Waiver of Contingent Deferred Sales Charges............................................................. 31 Arrangements With Broker-Dealers and Others........................... 32 Purchases at Net Asset Value.......................................... 33 Accumulation Plan........................................................ 33 Systematic Withdrawal Program............................................ 34 Investment Management.................................................... 34 Portfolio Management.................................................. 37 Code of Ethics........................................................ 38 Distributor.............................................................. 38 Allocation of Portfolio Brokerage........................................ 39 How Net Asset Value is Determined........................................ 41 How to Redeem Shares..................................................... 42 Telephone Redemptions................................................. 43 How to Exchange Shares................................................... 43 Exchange by Telephone................................................. 44 Dividends and Taxes...................................................... 44 Organization............................................................. 48 Legal Proceedings........................................................ 49 Custodian, Transfer Agent and Dividend-Paying Agent...................... 49 Independent Auditors..................................................... 49 Performance Information.................................................. 49 Retirement Plans......................................................... 51 Individual Retirement Accounts (IRAs).................................... 51 SIMPLE IRAs.............................................................. 51 Pension and Profit-Sharing Plans......................................... 52 403(b) Retirement Plans.................................................. 52 Simplified Employee Pension Plans (SEPPs)................................ 52 Financial Statements..................................................... 52 Appendix A............................................................... 53 Appendix B............................................................... 55 GENERAL INFORMATION Security Growth and Income Fund (formerly Security Investment Fund), Security Equity Fund and Security Ultra Fund were organized as Kansas corporations on February 2, 1944, November 27, 1961 and April 20, 1965, respectively. The name of Security Growth and Income Fund (formerly Security Investment Fund) was changed effective July 6, 1993. The Funds are registered with the Securities and Exchange Commission ("SEC") as investment companies. Such registration does not involve supervision by the SEC of the management or policies of the Funds. The Funds are open-end investment companies that, upon the demand of the investor, must redeem their shares and pay the investor the current net asset value thereof. (See "How to Redeem Shares," page 42.) 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"), and Value Series ("Value Fund") of Security Equity Fund, and Security Ultra Fund ("Ultra Fund") (collectively, the "Funds") has its own investment objective and policies which are described below. While there is no present intention to do so, the investment objective and policies of each Fund, unless otherwise noted, may be changed by its Board of Directors without the approval of stockholders. Each of the Funds is also required to operate within limitations imposed by its fundamental investment policies which may not be changed without stockholder approval. These limitations are set forth below under "Investment Policy Limitations," page 23. 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 44.) The Funds' shares are sold to the public at net asset value, plus a sales commission which is allocated between the principal underwriter and dealers who sell the shares ("Class A Shares"), or at net asset value with a contingent deferred sales charge ("Class B Shares"). (See "How to Purchase Shares," page 29.) Professional investment advice is provided to each Fund by Security Management Company, LLC (the "Investment Manager"). The Investment Manager has appointed Lexington Management Corporation ("Lexington") to provide certain investment advisory services to Global Fund. The Investment Manager has arranged for Meridian Investment Management Corporation ("Meridian") to provide quantitative investment research, and Templeton/Franklin Investment Services, Inc. ("Templeton") to provide analytical research, to the Asset Allocation Fund. The Funds receive investment advisory, administrative, accounting, and transfer agency services from the Investment Manager for a fee. The fee for each 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, and Value Funds, to the Investment Manager for investment advisory, administrative and transfer agency services. The investment advisory fee for Asset Allocation, Social Awareness, and Value Funds on an annual basis is equal to 1% of the average daily net assets of each Fund, calculated daily and payable monthly. The administrative fee for Asset Allocation Fund on an annual basis is equal to .045% of the average daily net assets of the Fund plus the greater of .10% of its average net assets or (i) $30,000 in the year ended April 29, 1996; (ii) $45,000 in the year ending April 29, 1997; or (iii) $60,000 thereafter. The administrative fee for the Social Awareness and Value Funds on an annual basis is equal to .09% of the average daily net assets of each respective Fund. The transfer agency fee for the Asset Allocation Fund, the Social Awareness Fund and the Value Fund consists of an annual maintenance fee of $8.00 per account, and a transaction fee of $1.00 per transaction. The Investment Manager bears all expenses of the Funds (except Asset Allocation, Social Awareness and Value Funds) except for its fees and the expenses of brokerage commissions, interest, taxes, Class B distribution fees, and extraordinary expenses approved by the Board of Directors of the Funds. The Asset Allocation, Social Awareness and Value Funds pay all of their expenses not assumed by the Investment Manager or Security Distributors, Inc. (the "Distributor") as described under "Investment Management," page 34. 1 The Investment Manager has agreed that the total annual expenses of any class or Series of a Fund (including the management fee and its other fees, but excluding interest, taxes, brokerage commissions, extraordinary expenses and Class B distribution fees) will not exceed any expense limitation imposed by any state. See "Investment Management," page 34 for a discussion of the Investment Manager and the Investment Management and Services Agreements. Under Distribution Plans adopted with respect to the Class B shares of the Funds, pursuant to Rule 12b-1 under the Investment Company Act of 1940, each Fund is authorized to pay the Distributor an annual fee of 1.00% of the average daily net assets of the Class B shares of the respective Funds to finance various distribution-related activities. (See "Class B Distribution Plan," page 31.) 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; and (vi) higher yielding, high risk debt securities (commonly referred to as "junk bonds"). 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. 2 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, Rule 144A securities, and repurchase agreements under "Investment Methods and Risk Factors" and see the discussion of restricted securities under the same heading in the prospectus. Growth and Income Fund's policy is to diversify its investments among various industries, but freedom of action is reserved (at times when deemed appropriate for the attainment of its investment objectives) to invest up to 25% of its assets in one industry. This is a fundamental policy of Growth and Income Fund which cannot be changed without stockholder approval. There is no restriction on Growth and Income Fund's portfolio turnover, but it is the Fund's practice to invest its funds for long-term growth and secondarily for income. The portfolio turnover rate of Class A shares for the fiscal years ended September 30, 1996, 1995 and 1994 was as follows: 1996 - 69%, 1995 - 130% and 1994 - 163%. The portfolio turnover rate of Class B shares of Growth and Income Fund for the fiscal years ended September 30, 1996 and 1995 was 69% and 130%, respectively. The portfolio turnover rate of Class B shares for the period October 19, 1993 to September 30, 1994 was 178%. Portfolio turnover is the percentage of the lower of security sales or purchases to the average portfolio value and would be 100% if all securities in the Fund were replaced within a period of one year. The Fund will not usually trade securities for short-term profits. SPECIAL RISKS OF HIGH YIELD INVESTING. Because Growth and Income Fund invests in the high yield, high risk debt securities (commonly referred to as "junk bonds") described above, its share price and yield are expected to fluctuate more than the share price and yield of a fund investing in higher quality, shorter-term securities. High yield bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade bonds. A projection of an economic downturn, or higher interest rates, for example, could cause a decline in high yield bond prices because an advent of such events could lessen the ability of highly leveraged companies to make principal and interest payments on its debt securities. In addition, the secondary trading market for high yield bonds may be less liquid than the market for higher grade bonds, which can adversely affect the ability of Growth and Income Fund to dispose of its portfolio securities. Bonds for which there is only a "thin" market can be more difficult to value inasmuch as objective pricing data may be less available and judgment may play a greater role in the valuation process. Debt securities issued by governments in emerging markets can differ from debt obligations issued by private entities in that remedies from defaults generally must be pursued in the courts of the defaulting government, and legal recourse is therefore somewhat diminished. Political conditions, in terms of a government's willingness to meet the terms of its debt obligations, also are of considerable significance. There can be no assurance that the holders of commercial bank debt may not contest 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 five series -- Equity Series ("Equity Fund"), Global Series ("Global Fund"), Asset Allocation Series ("Asset Allocation Fund"), Social Awareness Series ("Social Awareness Fund") and Value Series ("Value 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 3 objective and policies of each Series are described below. There are risks inherent in the ownership of any security and there can be no assurance that such investment objective will be achieved. Although there is no present intention to do so, the investment objective of the Funds may be altered by the Board of Directors without the approval of stockholders of the Fund. EQUITY FUND The investment objective of Equity Fund is to provide a medium for investment in equity securities to complement fixed-obligation types of investments. Emphasis will be placed upon selection of those securities which in the opinion of the Investment Manager offer basic value and have the most long-term capital growth potential. Income potential will be considered in selecting investments, to the extent doing so is consistent with Equity Fund's investment objective of long-term capital growth. Equity Fund ordinarily will have at least 90% of its total assets invested in a broadly diversified selection of common stocks (which may include ADRs) and of preferred stocks convertible into common stocks. However, the Fund reserves the right to invest temporarily in fixed income securities or in cash and money market instruments. Equity Fund may invest in certificates of deposit issued by banks or other bank demand accounts, pending investment in other securities or to meet potential redemptions or expenses. Equity Fund's investment policy, with emphasis on investing in securities for potential capital enhancement possibilities, may involve a more rapid portfolio turnover than other investment companies. The portfolio turnover rate of Class A shares of Equity Fund for fiscal years ended September 30, 1996, 1995 and 1994 was as follows: 1996 - 64%, 1995 - 95% and 1994 - 79%. The portfolio turnover rate for Class B shares of Equity Fund for the fiscal years ended September 30, 1996 and 1995 was 64% and 95%, respectively. The portfolio turnover rate of Class B shares for the period October 19, 1993 to September 30, 1994 was 80%. Portfolio turnover is the percentage of the lower of security sales or purchases to the average portfolio value and would be 100% if all securities in the Fund were replaced within a period of one year. It is not the policy of Equity Fund to purchase securities for trading purposes. Nevertheless, securities may be disposed of without regard to the length of time held if such sales are deemed advisable in order to meet the Fund's investment objective. Equity Fund does not intend to purchase restricted stock. GLOBAL FUND The investment objective of Global Fund is to seek long-term growth of capital primarily through investment in securities of companies domiciled in foreign countries and the United States. Global Fund will seek to achieve its objective through investment in a diversified portfolio of securities which under normal circumstances will consist primarily of various types of common stocks and equivalents (the following constitute equivalents: convertible debt securities, 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 4 securities are purchased or sold for settlement beyond customary settlement time (as described below). Neither type of foreign currency transaction will eliminate fluctuations in the prices of the Fund's portfolio or securities or prevent loss if the price of such securities should decline. PORTFOLIO HEDGING. When, in the opinion of the Fund's Sub-Adviser, Lexington Management Corporation ("Lexington"), it is desirable to limit or reduce exposure in a foreign currency in order to moderate potential changes in the United States dollar value of the portfolio, Global Fund may enter into a forward foreign currency exchange contract by which the United States dollar value of the underlying foreign portfolio securities can be approximately matched by an equivalent United States dollar liability. The Fund may also enter into forward currency exchange contracts to increase its exposure to a foreign currency that Lexington expects to increase in value relative to the United States dollar. The Fund will not attempt to hedge all of its portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by Lexington. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. The Fund intends to limit such transactions to not more than 70% of its total assets. FORWARD COMMITMENTS. Global Fund may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") because new issues of securities are typically offered to investors on that basis. Forward commitments involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. This risk is in addition to the risk of decline in value of the Fund's other assets. Although the Fund will enter into such contracts with the intention of acquiring the securities, it may dispose of a commitment prior to settlement if Lexington deems it appropriate to do so. COVERED CALL OPTIONS. Global Fund may seek to preserve capital by writing covered call options on securities which it owns. Such an option on an underlying security would obligate the Fund to sell, and give the purchaser of the option the right to buy, that security at a stated exercise price at any time until a stated expiration date of the option. REPURCHASE AGREEMENTS. A repurchase agreement is a contract under which Global Fund would acquire a security for a relatively short period (usually not more than 7 days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). Although the Fund may enter into repurchase agreements with respect to any portfolio securities which it may acquire consistent with its investment policies and restrictions, it is the Fund's present intention to enter into repurchase agreements only with respect to obligations of the United States Government or its agencies or instrumentalities to meet anticipated redemptions or pending investment or reinvestment of Fund assets in portfolio securities. The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in United States Government securities. Repurchase agreements will be fully collateralized including interest earned thereon during the entire term of the agreement. If the institution defaults on the repurchase agreement, the Fund will retain possession of the underlying securities. If bankruptcy proceedings are commenced with respect to the seller, realization on the collateral by Global Fund may be delayed or limited and the Fund may incur additional costs. In such case, the Fund will be subject to risks associated with changes in market value of the collateral securities. The Fund may enter into repurchase agreements only with (a) securities dealers that have a total capitalization of at least $40,000,000 and a ratio of aggregate indebtedness to net capital of no more than 4 to 1, or, alternatively, net capital equal to 6% of aggregate debit balances, or (b) banks that have at least $1,000,000,000 in assets and a net worth of at least $100,000,000 as of its most recent annual report. In addition, the aggregate repurchase price of all repurchase agreements held by the Fund with any broker shall not exceed 15% of the total assets of the Fund or $5,000,000, whichever is greater. The Fund will not enter into repurchase agreements maturing in more than seven days if the aggregate of such repurchase agreements and other illiquid investments would exceed 10%. The operating expenses of Global Fund can be expected to be higher than those of an investment company investing exclusively in United States securities. RULE 144A SECURITIES. Global Fund may purchase securities that are restricted as to disposition under the federal securities laws, provided that such restricted securities are eligible for resale to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933 and subject to the Fund's investment policy limitation that not more than 10% of its total assets will be invested in restricted securities. The Investment 5 Manager, under procedures adopted by the Board of Directors, will determine whether securities eligible for resale under Rule 144A are liquid or not. Portfolio turnover rates for Global Fund, Class A shares, for the fiscal years ended September 30, 1996 and 1995 was 142% and 141%, respectively. The portfolio turnover rate of Class A shares for the period October 5, 1993 to September 30, 1994 was 73%. The portfolio turnover rate for Global Fund, Class B shares, for the fiscal years ended September 30, 1996 and 1995 was 142% and 141%, respectively. The portfolio turnover rate of Class B shares for the period October 19, 1993 to September 30, 1994 was 73%. Portfolio turnover is the percentage of the lower of security sales or purchases to the average portfolio value and would be 100% if all securities in the Fund were replaced within a period of one year. ASSET ALLOCATION FUND The investment objective of Asset Allocation Fund is to seek high total return, consisting of capital appreciation and current income. The Fund seeks this objective by following an asset allocation strategy that contemplates shifts among a wide range of investment categories and market sectors. The Fund will invest in the following investment categories: equity securities of domestic and foreign issuers, including common stocks, ADRs, preferred stocks, convertible securities and warrants; debt securities of domestic and foreign issuers, including mortgage-related and other asset-backed securities; exchange-traded real estate investment trusts (REITs); equity securities of companies involved in the exploration, mining, development, production and distribution of gold ("gold stocks"); and domestic money market instruments. See "Investment Methods and Risk Factors" in the Prospectus for a discussion of the additional risks associated with investment in foreign securities, and see the discussion of the risks associated with investment in gold stocks and REITs below. Investment in gold stocks presents risks, because the prices of gold have fluctuated substantially over short periods of time. Prices may be affected by unpredictable monetary and political policies, such as currency devaluations or revaluations, economic and social conditions within an individual country, trade imbalances, or trade or currency restrictions between countries. The unstable political and social conditions in South Africa and unsettled political conditions prevailing in neighboring countries may have disruptive effects on the market prices of securities of South African companies. Asset Allocation Fund may invest in real estate investment trusts ("REITs"). A REIT is a trust that invests in a diversified portfolio of real estate holdings. Investment in REITs involves certain special risks. Equity REITs may be affected by any changes in the value of the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Further, equity and mortgage REITs are dependent upon management skill, are not diversified, and are therefore subject to the risk of financing single or a limited number of projects. Such trusts are also subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for special tax treatment under Subchapter M of the Internal Revenue Code and to maintain an exemption under the Investment Company Act of 1940. Finally, certain REITs may be self-liquidating in that a specific term of existence is provided for in the trust document. Such trusts run the risk of liquidating at an economically inopportune time. The Fund is not required to maintain a portion of its assets in each of the permitted investment categories. The Fund, however, will maintain under normal circumstances a minimum of 35% of its total assets in equity securities and 10% in debt securities. The Fund will not invest more than 55% of its total assets in money market instruments (except for temporary defensive purposes), more than 80% of its total assets in foreign securities, nor more than 20% of its total assets in gold stocks. The Fund will not invest 25% or more of its assets in the securities of any single country other than the United States. The Investment Manager receives quantitative investment research from Meridian Investment Management Corporation ("Meridian"), which research the Investment Manager uses in strategically allocating the Fund's assets among the investment categories identified above, primarily on the basis of a quantitative asset allocation model. With respect to equity securities, the model analyzes a large number of equity securities based on the following factors: current earnings, earnings history, long-term earnings projections, current price, and risk. The Investment Manager then determines (based on the results of Meridian's analysis) which sectors within an identified investment category are deemed to be the most attractive relative to other sectors. For example, the model may indicate that a portion of the Fund's assets should be invested in the domestic equity category of the market and within this category that pharmaceutical stocks represent a sector with an attractive total return potential. Although 6 the Investment Manager anticipates relying on much of the research provided by Meridian, the Investment Manager has ultimate responsibility for the selection of the investment categories and the sectors within those categories. The Investment Manager identifies sectors of the domestic and international economy (based on the research provided by Meridian) in which the Fund will invest and then determines which equity securities to purchase within the identified sectors. The Investment Manager may utilize certain analytical research provided by Templeton/Franklin Investment Services, Inc. ("Templeton") in selecting equity securities, including gold stocks, for Asset Allocation Fund. Templeton analyzes and monitors analytical research provided by third parties and makes recommendations regarding equity securities in the identified sectors based on such research. The Investment Manager has ultimate responsibility for all buy and sell decisions of Asset Allocation Fund and may determine not to use analytical research provided by Templeton. With respect to the selection of debt securities for the Fund, the asset allocation model provided by Meridian analyzes the prices of commodities and finished goods to arrive at an interest rate projection. The Investment Manager will determine the portion of the portfolio to allocate to debt securities and the duration of those securities based on the model's interest rate projections. Gold stocks and REITs will be analyzed in a manner similar to that used for equity securities. Money market instruments will be analyzed based on current returns and the current yield curve. The asset allocation model and stock selection techniques used by the Fund may evolve over time or be replaced by other asset allocation models and/or stock selection techniques. There is no assurance that the model will correctly predict market trends or enable the Fund to achieve its investment objective. The debt securities, including convertible securities, in which the Fund may invest will, at the time of investment, consist of "investment grade" bonds, which are bonds rated BBB or better by S&P or Baa or better by Moody's or that are unrated by S&P and Moody's but considered by the Investment Manager to be of equivalent credit quality. If the Fund holds a security whose rating drops below Baa or BBB, the Investment Manager will 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 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 7 New York or American Stock Exchange. Warrants acquired by the Fund in units or attached to securities are deemed to be without value. The portfolio turnover rate for Asset Allocation Fund, for the fiscal year ended September 30, 1996 was 75%. The portfolio turnover rate for Asset Allocation Fund, for the period June 1, 1995 (inception) to September 30, 1995 was 129%. Portfolio turnover is the percentage of the lower of security sales or 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 8 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. and Franklin Insight, Inc. 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. 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 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 total 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, Rule 144A securities and repurchase agreements under "Investment Methods and Risk Factors." SECURITY ULTRA FUND The investment objective of Ultra Fund is to seek capital appreciation. Investment securities will be selected on the basis of their appreciation possibilities. Current income will not be a factor in selecting investments and any such income should be considered incidental. There can be no assurance that the investment objective of Ultra Fund will be achieved. Nevertheless, Ultra Fund hopes, by careful selection of individual securities and by supervision of the investment portfolio, to increase the value of the Fund's shares. Stocks considered to have growth potential will include securities of newer, unseasoned companies and may involve greater risks than investments in companies with demonstrated earning power. At times Ultra Fund may invest in warrants to purchase (or securities convertible into) common stocks or in other classes of securities which the Investment Manager believes will contribute to the attainment of its investment objective. Securities other than common stock may be held, but Ultra Fund will not normally invest in fixed income securities except for defensive purposes or to employ uncommitted cash balances. Ultra Fund expects that it may invest in certificates of deposit issued by banks or other bank demand accounts, pending investment in other securities or to meet potential redemptions or expenses. Ultra Fund will not concentrate its investments in a particular industry or group of industries. As a matter of operating policy, Ultra Fund may not invest in illiquid securities in excess of 15% of its total assets. 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 9 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 of Class A shares of Ultra Fund for the fiscal years ended September 30, 1996, 1995 and 1994 was as follows: 1996 - 161%, 1995 - 180% and 1994 - 111%. The portfolio turnover rate of Class B shares of Ultra Fund for the fiscal years ended September 30, 1996 and 1995 was 161% and 180%, respectively. The portfolio turnover rate of Class B shares for the period October 19, 1993 to December 30, 1994 was 110%. Short-term investments increase portfolio turnover and brokerage costs to Ultra Fund and thus to its stockholders. Moreover, to the extent short-term transactions result in the realization of net gains in securities held less than one year, Ultra Fund's stockholders will be taxed on any such gains at ordinary income tax rates. Ultra Fund will not make short sales of securities unless at the time of such sales it owns or has the right to acquire, as a result of the ownership of convertible or exchangeable securities and without the payment of further consideration, an equal amount of such securities, and it will retain such securities so long as it is in a short position as to them. Should such securities be sold short, the underlying security will be valued at the asked price. Such short sales will be used by Ultra Fund only for the purpose of deferring recognition of gain or loss for federal income tax purposes. The foregoing investment objective and policies of Ultra Fund may be altered by the Board of Directors without the approval of stockholders. INVESTMENT METHODS AND RISK FACTORS Some of the risk factors related to certain securities, instruments and techniques that may be used by one or more of the Funds are described in the "Investment Objectives and Policies" and "Investment Methods and Risk Factors" sections of the applicable Prospectus and in this Statement of Additional Information. The following is a description of certain additional risk factors related to various securities, instruments and techniques. The risks so described only apply to those Funds which may invest in such securities and instruments or which use such techniques. Also included is a general description of some of the investment instruments, techniques and methods which may be used by one or more of the Funds. The methods described only apply to those Funds which may use such methods. Although a Fund may employ the techniques, instruments and methods described below, consistent with its investment objective and policies and any applicable law, no Fund will be required to do so. SHARES OF OTHER INVESTMENT COMPANIES. The Fund may invest in shares of other investment companies. The Fund's investment in shares of other investment companies may not exceed immediately after purchase 10 percent of the Fund's total assets and no more than 5 percent of its total assets may be invested in the shares of any one investment company. Investment in the shares of other investment companies has the effect of requiring shareholders to pay the operating expenses of two mutual funds. REPURCHASE AGREEMENTS. Each of the Funds may utilize repurchase agreements on an overnight basis (or with maturities of up to seven days in the case of Global Fund) wherein the Fund acquires a debt instrument for the short period, subject to the obligation of the seller to repurchase and the Fund to resell such debt instrument at a fixed price. The Funds will enter into repurchase agreements only with (i) banks which are members of the Federal Reserve System, or (ii) securities dealers (if permitted to do so under the Investment Company Act of 1940) who are members of a national securities exchange or market makers in government securities--in either case, only where the debt instrument subject to the repurchase agreement is a U.S. Treasury or agency 10 obligation. Such repurchase agreements may subject the Funds to the risks that (i) they may not be able to liquidate the securities immediately upon the insolvency of the other party, or (ii) that amounts received in closing out a repurchase transaction might be deemed voidable preferences upon the bankruptcy of the other party. In the opinion of the Investment Manager, such risks are not material. WHEN ISSUED AND FORWARD COMMITMENT SECURITIES. Purchase or sale of securities on a "forward commitment" basis may be used to hedge against anticipated changes in interest rates and prices. The price, 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. Although the Funds intend to invest only in nations which are considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization or confiscatory taxation, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), political or social instability or diplomatic developments which could affect investment in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the United States. Foreign investments may be subject to taxation abroad. In addition, the foreign securities markets of many of the countries in which the Funds may invest may also be smaller, less liquid, and subject to greater price volatility than those in the United States. RULE 144A SECURITIES. Certain of the Funds may invest in restricted securities which are 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. 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. In making the determination regarding the liquidity of Rule 144A Securities, the Investment Manager will consider trading markets for the specific security taking into 11 account the unregistered nature of a Rule 144A security. In addition, the Investment Manager may consider: (1) the frequency of trades and quotes; (2) the number of dealers and potential purchasers; (3) dealer undertakings to make a market; and (4) the nature of the security and of the market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Investing in Rule 144A Securities could have the effect of increasing the amount of a Fund's assets invested in illiquid securities to the extent that qualified institutional buyers become uninterested, for a time, in purchasing these securities. 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. BRADY BONDS. Growth and Income Fund may invest in "Brady Bonds," which are debt restructurings that provide for the exchange of cash and loans for newly issued bonds. Brady Bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructuring under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. Brady Bonds recently have been issued by the governments of Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Jordan, Mexico, Nigeria, The Philippines, Uruguay, Venezuela, Ecuador and Poland, and are expected to be issued by other emerging market countries. Approximately $150 billion in principal amount of Brady Bonds has been issued to date, the largest proportion having been issued by Mexico and Venezuela. Investors should recognize that Brady Bonds have been issued only recently and, accordingly, do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (primarily the U.S. dollar) and are actively traded in the secondary market for Latin American debt. The Salomon Brothers Brady Bond Index provides a benchmark that can be used to compare returns of emerging market Brady Bonds with returns in other bond markets, e.g., the U.S. bond market. Growth and Income Fund may invest 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. Growth and Income Fund 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 12 (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, Growth and Income 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 Growth and Income 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 Growth and Income Fund 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 Growth and Income Fund. As illustrations, certain countries require governmental approval prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investments by foreign persons to only a specific class of securities of a company that may have less advantageous terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sales by foreign investors. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation, as well as by the application to it of other restrictions on investments. NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION. Foreign companies are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. companies. In particular, the assets, liabilities and profits appearing on the financial statements of such a company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. generally accepted accounting principles. Such securities held by Growth and Income Fund will not be registered with the SEC or regulators of any foreign country, nor will the issuers thereof be subject to the SEC's reporting requirements. Thus, there will be less available information concerning foreign issuers of such securities held by the Fund than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, the Investment Manager will take appropriate steps to evaluate the proposed investment, which may include interviews with its management and consultations with accountants, bankers and other specialists. There is substantially less publicly available information about foreign companies than there are reports and ratings published about U.S. companies and the U.S. Government. In addition, where public information is available, it may be less reliable than such information regarding U.S. issuers. 13 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 Growth and Income 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 will consider such difficulties when determining the allocation of the Fund's assets. NON-U.S. WITHHOLDING TAXES. The Fund's investment income and gains from foreign issuers may be subject to non-U.S. withholding and other taxes, thereby reducing Growth and Income Fund's investment income and gains. 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. 14 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 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 15 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. 16 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, 17 can close out its position by effecting a closing transaction. If the Fund is unable to effect a closing purchase transaction, it cannot sell the underlying security until the option expires or the option is exercised. Accordingly, the Fund may not be able to sell the underlying security at a time when it might otherwise be advantageous to do so. Possible reasons for the absence of a liquid secondary market include the following: (i) insufficient trading interest in certain options; (ii) restrictions on transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to particular classes or series of options or underlying securities; (iv) inadequacy of the facilities of an exchange or the clearing corporation to handle trading volume; and (v) a decision by one or more exchanges to discontinue the trading of options or impose restrictions on orders. In addition, the hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. The purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary Fund securities transactions. Each exchange has established limitations governing the maximum number of call options, whether or not covered, which may be written by a single investor acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). An exchange may order the liquidation of positions found to be in violation of these limits and it may impose other sanctions or restrictions. OPTIONS ON STOCK INDICES. Options on stock indices are similar to options on specific securities except that, rather than the right to take or make delivery of the specific security at a specific price, an option on a stock index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of that stock index is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. This amount of cash is equal to such difference between the closing price of the index and the exercise price of the option expressed in dollars multiplied by a specified multiple. The writer of the option is obligated, in return for the premium received, to make delivery of this amount. Unlike options on specific securities, all settlements of options on stock indices are in cash and gain or loss depends on general movements in the stocks included in the index rather than price movements in particular stocks. A stock index futures contract is an agreement in which one party agrees to deliver to the other an amount of cash equal to a specific amount multiplied by the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of securities is made. RISK FACTORS IN OPTIONS ON INDICES. Because the value of an index option depends upon the movements in the level of the index rather than upon movements in the price of a particular security, whether the Fund will realize a gain or a loss on the purchase or sale of an option on an index depends upon the movements in the level of prices in the market generally or in an industry or market segment rather than upon movements in the price of the individual security. Accordingly, successful use of positions will depend upon the ability of the Investment Manager or relevant Sub-Adviser to predict correctly movements in the direction of the market generally or in the direction of a particular industry. This requires different skills and techniques than predicting changes in the prices of individual securities. Index prices may be distorted if trading of securities included in the index is interrupted. Trading in index options also may be interrupted in certain circumstances, such as if trading were halted in a substantial number of securities in the index. If this occurred, a Fund would not be able to close out options which it had written or purchased and, if restrictions on exercise were imposed, might be unable to exercise an option it purchased, which would result in substantial losses. Price movements in Fund securities will not correlate perfectly with movements in the level of the index and therefore, a Fund bears the risk that the price of the securities may not increase as much as the level of the index. In this event, the Fund would bear a loss on the call which would not be completely offset by movements in the prices of the securities. It is also possible that the index may rise when the value of the Fund's securities does not. If this occurred, a Fund would experience a loss on the call which would not be offset by an increase in the value of its securities and might also experience a loss in the market value of its securities. Unless a Fund has other liquid assets which are sufficient to satisfy the exercise of a call on the index, the Fund will be required to liquidate securities in order to satisfy the exercise. 18 When a Fund has written a call on an index, there is also the risk that the market may decline between the time the Fund has the call exercised against it, at a price which is fixed as of the closing level of the index on the date of exercise, and the time the Fund is able to sell securities. As with options on securities, the Investment Manager or relevant Sub-Adviser will not learn that a call has been exercised until the day following the exercise date, but, unlike a call on securities where the Fund would be able to deliver the underlying security in settlement, the Fund may have to sell part of its securities in order to make settlement in cash, and the price of such securities might decline before they could be sold. If a Fund exercises a put option on an index which it has purchased before final determination of the closing index value for the day, it runs the risk that the level of the underlying index may change before closing. If this change causes the exercised option to fall "out-of-the-money" the Fund will be required to pay the difference between the closing index value and the exercise price of the option (multiplied by the applicable multiplier) to the assigned writer. Although the Fund may be able to minimize this risk by withholding exercise instructions until just before the daily cutoff time or by selling rather than exercising an option when the index level is close to the exercise price, it may not be possible to eliminate this risk entirely because the cutoff time for index options may be earlier than those fixed for other types of options and may occur before definitive closing index values are announced. TRADING IN FUTURES. Certain Funds may enter into futures contracts, including stock index, interest rate and currency futures ("futures" or "futures contracts"). A futures contract provides for the future sale by one party and purchase by another party of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position. An example of a stock index futures contract follows. The Standard & Poor's 500 Stock Index ("S&P 500 Index") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 Index assigns relative weightings to the common stocks included in the Index, and the Index fluctuates with changes in the market values of those common stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stock making up the index will take place. Instead, settlement in cash occurs. Over the life of the contract, the gain or loss realized by the Fund will equal the difference between the purchase (or sale) price of the contract and the price at which the contract is terminated. For example, if the Fund enters into a futures contract to BUY 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to SELL 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2). Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash or 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 19 satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." The Fund expects to earn interest income on its margin deposits. Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract. Options on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Alternatively, settlement may be made totally in cash. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. The writer of an option on a futures contract is required to deposit margin pursuant to requirements similar to those applicable to futures contracts. Upon exercise of an option on a futures contract, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's margin account. This amount will be equal to the amount by which the market price of the futures contract at the time of exercise exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. Commissions on financial futures contracts and related options transactions may be higher than those which would apply to purchases and sales of securities directly. From time to time, a single order to purchase or sell futures contracts (or options thereon) may be made on behalf of the Fund and other mutual funds or series of mutual funds for which the Investment Manager or relevant Sub-Adviser serves as adviser or sub-adviser, respectively. Such aggregated orders would be allocated among the Fund and such other mutual funds or series of mutual funds in a fair and non-discriminatory manner. A public market exists in interest rate futures contracts covering primarily the following financial instruments: U.S. Treasury bonds; U.S. Treasury notes; Government National Mortgage Association ("GNMA") modified pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of deposit; and Eurodollar certificates of deposit. It is expected that futures contracts trading in additional financial instruments will be authorized. The standard contract size is generally $100,000 for futures contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA pass-through securities and $1,000,000 for the other designated futures contracts. A public market exists in futures contracts covering a number of indexes, including, but not limited to, the Standard & Poor's 500 Index, the Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite Index and the New York Stock Exchange Composite Index. Stock index futures contracts may be used to provide a hedge for a portion of the Fund's portfolio, as a cash management tool, or as an efficient way for the Investment Manager or relevant Sub-Adviser to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. Stock index futures contacts are currently traded with respect to the S&P 500 Index and other broad stock market indices, such as the New York Stock Exchange Composite Stock Index and the Value Line Composite Stock Index. The 20 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 21 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 22 on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders. REGULATORY LIMITATIONS. The Funds will engage in transactions in futures contracts and options thereon only for bona fide hedging, yield enhancement and risk management purposes, in each case in accordance with the rules and regulations of the CFTC. The Funds may not enter into futures contracts or options thereon if, with respect to positions which do not qualify as bona fide hedging under applicable CFTC rules, the sum of the amounts of initial margin deposits on the Fund's existing futures and premiums paid for options on futures would exceed 5% of the net asset value of the Funds after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. To the extent necessary to comply with applicable regulations, in instances involving the purchase of futures contracts or call options thereon or the writing of put options thereon by the Fund, an amount of cash or liquid securities, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified in an account with the Fund's custodian to cover the position, or alternative cover will be employed. In addition, CFTC regulations may impose limitations on the Funds' ability to engage in certain yield enhancement and risk management strategies. If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Funds would comply with such new restrictions. 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. 23 8. Not to mortgage, pledge or hypothecate any securities or funds of the Fund other than as might become necessary to furnish bond to governmental agencies required for the conduct of the business of the Fund. 9. Not to purchase any security other than securities listed on a national securities exchange registered under the Securities Exchange Act of 1934, or actively traded over-the-counter. 10. Not to invest in companies having a record of less than three years' continuous operation, which may include the operations of predecessor companies. 11. Not to invest in the securities of an issuer if the officers and directors of the Fund, Underwriter or Manager own more than 1/2 of 1% of such securities, or if all such persons together own more than 5% of such securities. 12. Not to invest in the securities of other investment companies except in the open market at ordinary broker's commissions. 13. Not to allow officers or directors of the Fund, Underwriter or Manager to purchase shares of the Fund except for investment at current net asset value. 14. Not to own, buy or sell real estate, commodities or commodity contracts. 15. Not to invest in puts, calls, straddles, spreads or any combination thereof. 16. Not to invest in limited partnerships or similar interests in oil, gas, mineral leases, and other mineral exploration development programs; provided, however, that the Fund may invest in the securities of other corporations whose activities include such exploration and development. Although Fundamental Policy 16 is intended to apply only to certain oil, gas and other mineral exploration development programs and not to securities traded on national securities exchanges, the Board of Directors reviewed and considered in 1986 the scope of this limitation. Prior to that time, the Fund had made an investment, which incurred a loss, in an oil and gas company which was organized as a limited partnership with its securities traded on the New York Stock Exchange. The directors concluded that the limitation was not intended to apply to such investments, but in order to avoid possible future questions regarding the permissibility of such investments, have determined that Growth and Income Fund will not purchase limited partnership securities of any type in the future. The Fund does not interpret Fundamental Policy 7 or 14 as prohibiting transactions in financial futures contracts. SECURITY EQUITY FUND'S FUNDAMENTAL POLICIES Security Equity Fund's fundamental policy limitations, which are applicable to each of Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness Fund and Value 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 and Value 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 and Global Fund, not to borrow money or securities for any purpose except to the extent that borrowing up to 10% of the Fund's total assets is permitted for emergency purposes on a temporary basis from banks and will not be made for investment purposes. Asset Allocation Fund, Social Awareness Fund and Value 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 and Value 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. 24 8. Not to issue senior securities; provided, however, that Asset Allocation Fund, Social Awareness Fund and Value 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 and Value 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 and Value 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. 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 and Value 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 and Value 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 and Value 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 and Value Fund which may invest in such instruments. (With respect to Equity Fund and Global Fund, there is no present intention to invest any of the Fund's assets in puts, calls, straddles, spreads, or any combination thereof.) 18. Not to invest in limited partnerships or similar interests in oil, gas, mineral leases or other mineral exploration development programs; provided, however, that the Funds may invest in the securities of other corporations whose activities include such exploration and development. The Fund interprets Fundamental Policy 14 to prohibit the purchase of real estate limited partnerships. The Fund does not interpret Fundamental Policy 7 or 14 as prohibiting transactions in options, financial futures contracts or options on financial futures contracts; however, with respect to Equity and Global Funds, transactions in options and options on financial futures contracts are subject to the limits set forth in Fundamental Policy 17. SECURITY ULTRA FUND'S FUNDAMENTAL POLICIES Ultra Fund's fundamental policy limitations are: 1. Not to invest more than 5% of its total assets in the securities of any one issuer (other than the United States of America). 2. Not to purchase more than 10% of the outstanding voting securities (or of any class of outstanding securities) of any one issuer. 3. Not to purchase securities for the purpose of exercising control over the issuers thereof. 4. Not to underwrite securities of other issuers. 5. Not to purchase restricted securities. 6. Not to pledge any portion of its assets. 25 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 AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS - ----------------------------------------------------- ------------------------------------------------------------- JOHN D. CLELAND,* President and Director Senior Vice President and Managing Member Representative, Security Management Company, LLC; Senior Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. WILLIS A. ANTON, JR., Director Partner, Classic Awning & Design. Prior to October 1991, 3616 Yorkway President, Classic Awning & Design. Topeka, Kansas 66604 DONALD A. CHUBB, JR.,** Director Business broker, Griffith & Blair Realtors. Prior to 1997, 2222 SW 29th Street President, Neon Tube Light Company, Inc. Topeka, Kansas 66611 DONALD L. HARDESTY, Director President, Central Research Corporation. 900 Bank IV Tower Topeka, Kansas 66603 PENNY A. LUMPKIN,** Director Vice President, Palmer News, Inc. Prior to October 1991, 3616 Canterbury Town Road Secretary and Director, Palmer Companies, Inc. (Wholesale Topeka, Kansas 66610 Periodicals). - ----------------------------------------------------- -------------------------------------------------------------
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- ----------------------------------------------------- ------------------------------------------------------------- NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS - ----------------------------------------------------- ------------------------------------------------------------- MARK L. MORRIS, JR.,** Director President, Mark Morris Associates (Veterinary Research and 5500 SW 7th Street Education). Topeka, Kansas 66606 JEFFREY B. PANTAGES,* Director Prior to June 1996, President, Chief Investment Officer and 1266 South Street Director, Security Management Company; Senior Vice Needham, MA 02192 President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. Prior to April 1992, Managing Director, Prudential Life. HUGH L. THOMPSON, Director President, Washburn University. 1700 College Topeka, KS 66621 JAMES R. SCHMANK, Vice President and Treasurer President (Interim), Treasurer, Chief Fiscal Officer and Managing Member Representative, Security Management Company, LLC; Vice President and Interim Chief Investment Officer, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. MARK E. YOUNG, Vice President Vice President - Operations, Security Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. JANE A. TEDDER, Vice President Vice President and Senior Portfolio Manager, Security (Equity Fund only) Management Company, LLC; Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. TERRY A. MILBERGER, Vice President Vice President and Senior Portfolio Manager, Security (Equity Fund only) Management Company, LLC; Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. AMY J. LEE, Secretary Secretary, Security Management Company, LLC; Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. BRENDA M. HARWOOD, Assistant Treasurer Assistant Vice President, Assistant Treasurer and Assistant and Assistant Secretary Secretary, Security Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. CINDY L. SHIELDS, Assistant Vice President Assistant Vice President and Portfolio Manager, Security (Ultra Fund only) Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. Prior to August 1994, Junior Portfolio Manager, Research Analyst, Junior Research Analyst and Portfolio Assistant, Security Management Company. GREGORY A. HAMILTON, Assistant Vice President Second Vice President, Security Management Company, LLC, (Equity Fund only) Security Benefit Group, Inc. and Security Benefit Life Insurance Company. Prior to December 1992, First Vice President and Manager of Investments Division, Mercantile National Bank. THOMAS A. SWANK, Assistant Vice President Second Vice President and Portfolio Manager, Security (Growth and Income Fund only) Management Company, LLC; Second Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. - ----------------------------------------------------- -------------------------------------------------------------
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- ----------------------------------------------------- ------------------------------------------------------------- NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS - ----------------------------------------------------- ------------------------------------------------------------- - ----------------------------------------------------- ------------------------------------------------------------- JIM SCHIER, Assistant Vice President Assistant Vice President and Portfolio Manager, Security (Equity Fund only) Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. Prior to February 1997, Assistant Vice President and Senior Research Analyst, Security Management Company, LLC. Prior to August 1995, Portfolio Manager, Mitchell Capital Management. Prior to March 1993, Vice President and Portfolio Manager, Fourth Financial. CHRISTOPHER D. SWICKARD, Assistant Secretary Assistant Counsel, Security Benefit Group, Inc. and Security Benefit Life Insurance Company. Prior to June 1992, student at Washburn University School of Law. - -------------------------------------------------------------------------------------------------------------------
* These directors are deemed to be "interested persons" of the Funds under the Investment Company Act of 1940, as amended, by reason of their positions with the Funds' Investment Manager and/or the parent of the Investment Manager. ** These directors serve on the Funds' joint audit committee, the purpose of which is to meet with the independent auditors, to review the work of the auditors, and to oversee the handling by Security Management Company, LLC of the accounting functions for the Funds. - -------------------------------------------------------------------------------- The directors and officers of the Funds hold identical offices in the other Funds managed by the Investment Manager, except Ms. Tedder who is also Vice President of SBL Fund and Security Income Fund, Mr. Milberger who is also Vice President of SBL Fund, Ms. Shields who is Assistant Vice President of SBL Fund, Messrs. Swank and Schier who are Assistant Vice President of SBL Fund, and Mr. Hamilton who is Assistant Vice President of SBL Fund, Security Tax-Exempt Fund and Security Income Fund. (See the table under "Investment Management," on page 34, for positions held by such persons with the Investment Manager.) Mr. Young and Ms. Lee hold identical offices for the Funds' distributor, Security Distributors, Inc., and Messrs. Cleland and Schmank serve as Vice President and Director, while Ms. Harwood serves as Treasurer of the distributor. REMUNERATION OF DIRECTORS AND OTHERS The Funds' directors, except those directors who are "interested persons" of the Funds, receive from each of Security Growth and Income Fund, Security Equity Fund and Security Ultra Fund an annual retainer of $1,042 and a fee of $133 per meeting, plus reasonable travel costs, for each meeting of the board attended. In addition, certain directors who are members of the Funds' joint audit committee receive a fee of $100 per hour with a minimum fee of $200 and reasonable travel costs for each meeting of the Funds' audit committee attended. Such fees and travel costs are paid by the Investment Manager for each Fund, except Asset Allocation Fund and Social Awareness Fund, pursuant to its Investment Management and Services Agreements with the Funds which provide that the Investment Manager will bear all Fund expenses except for its fee and the expenses of brokerage commissions, interest, taxes, extraordinary expenses approved by the Board of Directors and Class B distribution fees. Asset Allocation and Social Awareness Funds pay their respective share of directors' fees and travel costs. (See page 34, "Investment Management.") The Funds do not pay any fees to, or reimburse expenses of, directors who are considered "interested persons" of the Funds. The aggregate compensation paid by the Funds to each of the directors during the fiscal year ended September 30, 1996, and the aggregate compensation paid to each of the directors during calendar year 1996 by all seven of the registered investment companies to which the Investment Manager provides 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. 28
- -------------------------------------------------------------------------------------------------------------------------------- PENSION OR RETIREMENT BENEFITS ACCRUED AS TOTAL AGGREGATE COMPENSATION PART OF FUND EXPENSES COMPENSATION ----------------------------------- -------------------------------------------------------------------- SECURITY SECURITY ESTIMATED FROM THE GROWTH GROWTH ANNUAL SECURITY FUND AND SECURITY SECURITY AND SECURITY SECURITY BENEFITS COMPLEX, NAME OF DIRECTOR INCOME EQUITY ULTRA INCOME EQUITY ULTRA UPON INCLUDING OF THE FUND FUND FUND FUND FUND FUND FUND RETIREMENT THE FUNDS - -------------------------------------------------------------------------------------------------------------------------------- Willis A. Anton, Jr. $1,508 $1,508 $1,508 $0 $0 $0 $0 $18,100 Donald A. Chubb, Jr. 1,541 1,591 1,518 0 0 0 0 18,300 John D. Cleland 0 0 0 0 0 0 0 0 Donald L. Hardesty 1,508 1,508 1,508 0 0 0 0 18,100 Penny A. Lumpkin 1,541 1,591 1,518 0 0 0 0 18,300 Mark L. Morris, Jr. 1,541 1,591 1,518 0 0 0 0 18,300 Jeffrey B. Pantages 0 0 0 0 0 0 0 0 Hugh Thompson 788 788 788 0 0 0 0 9,450 - --------------------------------------------------------------------------------------------------------------------------------
The Investment Manager compensates its officers and directors who may also serve as officers or directors of the Funds. On January 31, 1997, the Funds' officers and directors (as a group) beneficially owned 26,490; 248,695; 12,762; 3,094; and 47,034 of Class A shares of Growth and Income Fund, Equity Fund, Global Fund, Asset Allocation Fund and Ultra Fund, respectively, which represented approximately .310%, .298%, .722%, 1.161% and .495% of the total outstanding Class A shares of each Fund on that date. HOW TO PURCHASE SHARES Investors may purchase shares of the Funds through authorized dealers who are members of the National Association of Securities Dealers, Inc. In addition, banks and other financial institutions may make shares of the Funds available to their customers. (Banks and other financial institutions that make shares of the Funds available to their customers in Texas must be registered with that state as securities dealers.) The minimum initial investment is $100. The minimum subsequent investment is $100 unless made through an Accumulation Plan which allows for subsequent investments of $20. (See "Accumulation Plan," page 33.) An application may be obtained from the Investment Manager. As a convenience to investors and to save operating expenses, the Funds do not issue certificates for full shares except upon written request by the investor or his or her investment dealer. Certificates will be issued at no cost to the stockholder. No certificates will be issued for fractional shares and fractional shares may be withdrawn only by redemption for cash. Orders for the purchase of shares of the Funds will be confirmed at an offering price equal to the net asset value per share next determined after receipt of the order in proper form by Security Distributors, Inc. (the "Distributor") (generally as of the close of the Exchange on that day) plus the sales charge in the case of Class A shares. Orders received by dealers or other firms prior to the close of the Exchange and received by the Distributor prior to the close of its business day will be confirmed at the offering price effective as of the close of the Exchange on that day. Dealers and other financial services firms are obligated to transmit orders promptly. The Funds reserve the right to withdraw all or any part of the offering made by this prospectus and to reject purchase orders. ALTERNATIVE PURCHASE OPTIONS The Funds offer two classes of shares: CLASS A SHARES - FRONT-END LOAD OPTION. Class A shares are sold with a sales charge at the time of purchase. Class A shares are not subject to a sales charge when they are redeemed (except that shares sold in an amount of $1,000,000 or more without a front-end sales charge will be subject to a contingent deferred sales charge for one year). See Appendix B for a discussion of "Rights of Accumulation" and "Statement of Intention," which options may serve to reduce the front-end sales charge. 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. 29 The decision as to which class is more beneficial to an investor depends on the amount and intended length of the investment. Investors who would rather pay the entire cost of distribution at the time of investment, rather than spreading such cost over time, might consider Class A shares. Other investors might consider Class B shares, in which case 100% of the purchase price is invested immediately, depending on the amount of the purchase and the intended length of investment. The Funds will not normally accept any purchase of Class B shares in the amount of $500,000 or more. Dealers or others may receive different levels of compensation depending on which class of shares they sell. CLASS A SHARES Class A shares are offered at net asset value plus an initial sales charge as follows:
- ------------------------------------------- --------------------------------------------------------------------------------- SALES CHARGE --------------------------------------------------------------------------------- PERCENTAGE AMOUNT OF PURCHASE PERCENTAGE OF PERCENTAGE OF NET REALLOWABLE AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED TO DEALERS - ------------------------------------------- -------------------- ----------------------------------------- ------------------ Less than $50,000........................ 5.75% 6.10% 5.00% $50,000 but less than $100,000........... 4.75 4.99 4.00 $100, 000 but less than $250,000......... 3.75 3.90 3.00 $250,000 but less than $500,000.......... 2.75 2.83 2.25 $500,000 but less than $1,000,000........ 2.00 2.04 1.75 $1,000,000 and over...................... None None (See below) - ------------------------------------------- -------------------- ----------------------------------------- ------------------
The Underwriter will pay a commission to dealers on purchases of $1,000,000 or more as follows: 1.00% on sales up to $5,000,000, plus .50% on sales of $5,000,000 or more up to $10,000,000, and .10% on any amount of $10,000,000 or more. The Investment Manager may, at its expense, pay a service fee to dealers who satisfy certain criteria established by the Investment Manager from time to time relating to the volume of their sales of Class A shares of the Funds and certain other Security Funds during prior periods and certain other factors, including providing to their clients who are stockholders of the Funds certain services, which include assisting in maintaining records, processing purchase and redemption requests and establishing shareholder accounts, assisting shareholders in changing account options or enrolling in specific plans, and providing shareholders with information regarding the Funds and related developments. Service fees are paid quarterly and may be discontinued at any time. 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% 30 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. CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES Any contingent deferred sales charge imposed upon redemption of Class A shares (purchased in amounts of $1,000,000 or more) and Class B shares is a percentage of the lesser of (1) the net asset value of the shares redeemed or (2) the net cost of such shares. No contingent deferred sales charge is imposed upon redemption of amounts derived from (1) increases in the value above the net cost of such shares due to increases in the net asset value per share of the Fund; (2) shares acquired through reinvestment of income dividends and capital gain distributions; or (3) Class A shares (purchased in amounts of $1,000,000 or more) held for more than one year or Class B shares held for more than five years. Upon request for redemption, shares not subject to the contingent deferred sales charge will be redeemed first. Thereafter, shares held the longest will be the first to be redeemed. 31 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 34.) ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS The Investment Manager or Distributor, from time to time, will provide promotional incentives or pay a bonus, to certain dealers whose representatives have sold or are expected to sell significant amounts of the Funds and/or certain other funds managed by the Investment Manager. Such promotional incentives will include payment for attendance (including travel and lodging expenses) by qualifying registered representatives (and members of their families) at sales seminars at luxury resorts within or without the United States. Bonus compensation may include reallowance of the entire sales charge and may also include, with respect to Class A shares, an amount which exceeds the entire sales charge and, with respect to Class B shares, an amount which exceeds the maximum commission. The Distributor, or the Investment Manager, may also provide financial assistance to certain dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns, and/or shareholder services and programs regarding one or more of the funds managed by the Investment Manager. Certain of the promotional incentives or bonuses may be financed by payments to the Distributor under a Rule 12b-1 Distribution Plan. The payment of promotional incentives and/or bonuses will not change the price an investor will pay for shares or the amount that the Funds will receive from such sale. No compensation will be offered to the extent it is prohibited by the laws of any state or self-regulatory agency, such as the National Association of Securities Dealers, Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A shares is reallowed may be deemed to be an "underwriter" under federal securities laws. The Distributor also may pay banks and other financial services firms that facilitate transactions in shares of the Funds for their clients a transaction fee up to the level of the payments made allowable to dealers for the sale of such shares as described above. Banks currently are prohibited under the Glass-Steagall Act from providing certain underwriting or distribution services. If banking firms were prohibited from acting in any capacity or providing any of the described services, the 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. 32 The Investment Manager or Distributor also may pay a marketing allowance to dealers who meet certain eligibility criteria. This allowance is paid with reference to new sales of Fund shares in a calendar year and may be discontinued at any time. To be eligible for this allowance in any given year, the dealer must sell a minimum of $2,000,000 of Class A and Class B shares during that year. The applicable marketing allowance factors are set forth below. - -------------------------------------------------------------------------------- APPLICABLE MARKETING AGGREGATE NEW SALES ALLOWANCE FACTOR* - -------------------------------------------------------------------------------- Less than $2 million................................ .00% $2 million but less than $5 million................. .15% $5 million but less than $10 million................ .25% $10 million but less than $15 million............... .35% $15 million but less than $20 million............... .50% or $20 million or more.............................. .75% - -------------------------------------------------------------------------------- * The maximum marketing allowance factor applicable per this schedule will be applied to all new sales in the calendar year to determine the marketing allowance payable for such year. - -------------------------------------------------------------------------------- PURCHASES AT NET ASSET VALUE Class A shares of the Funds may be purchased at net asset value by (1) directors, officers and employees of the Funds, the Funds' Investment Manager or Distributor; directors, officers and employees of Security Benefit Life Insurance Company and its subsidiaries; agents licensed with Security Benefit Life Insurance Company; spouses or minor children of any such agents; as well as the following relatives of any such directors, officers and employees (and their spouses): spouses, grandparents, parents, children, grandchildren, siblings, nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan established by any of the foregoing corporations for persons described above; (3) retirement plans where third party administrators of such plans have entered into certain arrangements with the Distributor or its affiliates provided that no commission is paid to dealers; and (4) officers, directors, partners or registered representatives (and their spouses and minor children) of broker-dealers who have a selling agreement with the Distributor. Such sales are made upon the written assurance of the purchaser that the purchase is made for investment purposes and that the securities will not be transferred or resold except through redemption or repurchase by or on behalf of the Fund. Class A shares of the Funds may also be purchased at net asset value when the purchase is made on the recommendation of (i) a registered investment adviser, trustee or financial intermediary who has authority to make investment decisions on behalf of the investor; or (ii) a certified financial planner or registered broker-dealer who 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. 33 SYSTEMATIC WITHDRAWAL PROGRAM A Systematic Withdrawal Program may be established by stockholders who wish to receive regular monthly, quarterly, semiannual or annual payments of $25 or more. A stockholder may elect a payment that is a specified percentage of the initial or current account value or a specified dollar amount. The Program may also be based upon the liquidation of a fixed or variable number of shares provided that the amount withdrawn monthly is at least $25. However, the Funds do not recommend this (or any other amount) as an appropriate monthly withdrawal. Shares with a current aggregate offering price of $5,000 or more must be deposited with the Investment Manager acting as agent for the stockholder under the Program. There is no service charge on the Program. Sufficient shares will be liquidated at net asset value to meet the specified withdrawals. Liquidation of shares may deplete the investment, particularly in the event of a market decline. Payments cannot be considered as actual yield or income since part of such payments is a return of capital. Such withdrawals constitute a taxable event to the stockholder. The maintenance of a Withdrawal Program concurrently with purchases of additional shares of the Fund would be disadvantageous because of the sales commission payable in respect to such purchases. During the withdrawal period, no payments will be accepted under an Accumulation Plan. Income dividends and capital gains distributions are automatically reinvested at net asset value. If an investor has an Accumulation Plan in effect, it must be terminated before a Systematic Withdrawal Program may be initiated. A stockholder may establish a Systematic Withdrawal Program with respect to Class B shares without the imposition of any applicable contingent deferred sales charge, provided that such withdrawals do not in any 12-month period, beginning on the date the Program is established, exceed 10% of the value of the account on that date ("Free Systematic Withdrawals"). Free Systematic Withdrawals are not available if a Program established with respect to Class B shares provides for withdrawals in excess of 10% of the value of the account in any Program year and, as a result, all withdrawals under such a Program are subject to any applicable contingent deferred sales charge. Free Systematic Withdrawals will be made first by redeeming those shares that are not subject to the contingent deferred sales charge and then by redeeming shares held the longest. The contingent deferred sales charge applicable to a redemption of Class B shares requested while Free Systematic Withdrawals are being made will be calculated as described under "Calculation and Waiver of Contingent Deferred Sales Charges," page 31. 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 Tax-Exempt Fund. The Investment Manager is a limited liability company controlled by its members, Security Benefit Life Insurance Company and Security Benefit Group, Inc. ("SBG"). SBG is an insurance and financial services holding company wholly-owned by Security Benefit Life Insurance Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001. Security Benefit Life, a mutual life insurance company with $15.5 billion of insurance in force, is incorporated under the laws of Kansas. The Investment Manager serves as investment adviser to Security Growth and Income Fund, Security Equity Fund and Security Ultra Fund, respectively, under Investment Management and Services Agreements, which were approved by the shareholders of the Funds on March 29, 1989, December 8, 1988 and December 30, 1988, and which became effective on March 31, 1989, January 31, 1989 and February 28, 1989. Security Equity Fund's Agreement was amended by its Board of Directors at a regular meeting held on July 23, 1993, to provide for the Investment Manager to serve as investment adviser to Global Fund and on April 3, 1995, July 26, 1996 and February 7, 1997, respectively, to provide for the Investment Manager to serve as investment adviser to Asset Allocation Fund, Social Awareness Fund and Value Fund. The Agreements were last renewed by the Funds' Board of Directors at a regular meeting held on November 1, 1996. Pursuant to the Investment Management and Services Agreements, the Investment Manager furnishes investment advisory, statistical and research services to the Funds, supervises and arranges for the purchase and 34 sale of securities on behalf of the Funds, and provides for the compilation and maintenance of records pertaining to the investment advisory function. The Investment Manager has retained Lexington Management Corporation ("Lexington"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to furnish certain advisory services to Global Fund pursuant to a Sub-Advisory Agreement, dated October 1, 1993. Pursuant to this agreement, Lexington furnishes investment advisory, statistical and research facilities, supervises and arranges for the purchase and sale of securities on behalf of Global Fund and provides for the compilation and maintenance of records pertaining to such investment advisory services, subject to the control and supervision of the Funds' Board of Directors and the Investment Manager. For such services, the Investment Manager pays Lexington an amount equal to .50% of the average net assets of Global Fund, computed on a daily basis and payable monthly. The Sub-Advisory Agreement may be terminated without penalty at any time by either party on 60 days' written notice and is automatically terminated in the event of its assignment or in the event that the Investment Advisory Contract between the Investment Manager and the Fund is terminated, assigned or not renewed. Lexington is a wholly-owned subsidiary of Lexington Global Asset Managers, Inc., a Delaware corporation with offices at Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other related entities have a majority voting control of the outstanding shares of Lexington Global Asset Managers, Inc. Lexington was established in 1938 and currently manages over $3.5 billion in assets. The Investment Manager has entered into a quantitative research agreement with Meridian Investment Management Corporation ("Meridian"), 12835 East Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112. Meridian provides research which the Investment Manager uses in strategically allocating the assets of Asset Allocation Fund among investment categories and market sectors. The Investment Manager pays Meridian an annual fee equal to .20% of the average daily net assets of Asset Allocation Fund, calculated daily and payable quarterly. Meridian is a wholly-owned subsidiary of Meridian Management & Research Corporation. The Investment Manager has entered into an agreement with Templeton/Franklin Investment Services, Inc. ("Templeton"), 777 Mariners Island Boulevard, San Mateo, California 94404, to provide analytical research used by the Investment Manager in the selection of equity securities for Asset Allocation Fund. The Investment manager pays Templeton an annual fee equal to .30% of the average net assets of Asset Allocation Fund invested in equity securities, calculated daily and payable monthly. Templeton is an indirect wholly-owned subsidiary of Templeton Worldwide, Inc., which in turn is a direct wholly-owned subsidiary of Franklin Resources, Inc. Pursuant to the Investment Management and Services Agreements, the Investment Manager also performs administrative functions and the bookkeeping, accounting and pricing functions for the Funds, and performs all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications and acting as the dividend disbursing agent. The Investment Manager has arranged for Lexington to provide certain administrative services to Global Fund, including certain accounting and pricing functions. The Investment Manager has also agreed to arrange for others (or itself) to provide to the Funds, except Asset Allocation, Social Awareness and Value 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 and Value Funds. Thus, those Funds' expenses include only fees paid to the Investment Manager as well as expenses of brokerage commissions, interest, taxes, extraordinary expenses approved by the Board of Directors, and Class B distribution fees. Asset Allocation, Social Awareness and Value Funds will pay all of their respective expenses not assumed by the Investment Manager or the Distributor, including organization expenses; directors' fees; fees of its custodian; taxes and governmental fees; interest charges; any membership dues; brokerage commissions; expenses of preparing and distributing reports to shareholders; costs of shareholder and other meetings; Class B distribution fees; and legal, auditing and accounting expenses. Asset Allocation, Social Awareness and Value 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 35 state securities laws. Asset Allocation, Social Awareness and Value Funds will pay nonrecurring expenses as may arise, including litigation expenses affecting them. The Investment Manager has agreed to reimburse the Funds or waive a portion of its management fee for any amount by which the total annual expenses of the Funds (including management fees, but excluding interest, taxes, brokerage commissions, extraordinary expenses and Class B distribution fees) for any fiscal year that exceeds the level of expenses which the Funds are permitted to bear under the most restrictive expense limitation imposed by any state in which shares of the Funds are then qualified for sale. The most restrictive expense limitation currently imposed by state securities regulation, of which the Investment Manager is aware, provides that the aggregate annual expenses of an investment company shall not exceed 2 1/2% of the first $30 million of the average net assets, 2% of the next $70 million of the average net assets, and 1 1/2% of the remaining average net assets of the investment company for any fiscal year, determined at least monthly. For this limitation, "aggregate annual expenses" include management fees, but exclude interest, taxes, brokerage commissions, extraordinary expenses (such as litigation) and Class B distribution fees. As compensation for its services, the Investment Manager receives with respect to Growth and Income, Equity and Ultra Funds, on an annual basis, 2% of the first $10 million of the average net assets, 1 1/2% of the next $20 million of the average net assets and 1% of the remaining average net assets of the Funds, determined daily and 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 and Value 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 (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. With respect to the Social Awareness and Value Funds, the Investment Manager receives, on an annual basis, an investment advisory fee equal to 1% of the average daily net assets of the respective Funds, calculated daily and payable monthly. The Investment Manager has agreed to waive the investment advisory fee of Social Awareness and Value Funds for the fiscal year ending September 30, 1997. The Investment Manager also receives, on an annual basis, an administrative fee equal to .09% of the average daily net assets of the Social Awareness and Value Funds. For transfer agency services provided to each of the Asset Allocation, Social Awareness and Value Funds, the Investment Manager receives an annual maintenance fee of $8.00 per account, and a transaction fee of $1.00 per transaction. During the fiscal years ended September 30, 1996, 1995 and 1994, the Funds paid the following amounts to the Investment Manager for its services: 1996 - $919,674, 1995 - $839,358 and 1994 - $948,953 for Growth and Income Fund; 1996 - $5,528,818, 1995 - $4,185,144 and 1994 - $3,926,084 for Equity Fund; and 1996 - $862,190, 1995 - $816,039 and 1994 - $819,550 for Ultra Fund. Global Fund paid the Investment Manager for its services for 1996 - $470,077, 1995 - $457,489, and for the period October 5, 1993 to September 30, 1994 - $346,421. Asset Allocation Fund paid the Investment Manager for its services for fiscal year ended September 30, 1996 - $39,560 and the period June 1, 1995 to September 30, 1995 - $10,134. The total expenses for Growth and Income Fund, Equity Fund, Global Fund, Asset Allocation Fund and Ultra Fund, respectively, for the fiscal year ended September 30, 1996 were 1.29%, 1.04%, 2.00%, 2.00% and 1.31% of the average net assets of each Fund's Class A shares for the fiscal year. Total expenses of Class B shares for Growth and Income Fund, Equity Fund, Global Fund, Asset Allocation Fund and Ultra Fund, respectively, for the fiscal year ended September 30, 1996 were 2.29%, 2.04%, 3.00%, 3.00% and 2.31% of the average net assets of each Fund's Class B shares for the fiscal year. Expense information is not yet available for Social Awareness Fund and Value Fund as they did not begin operations until November of 1996 and May of 1997, respectively. 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. 36 The following persons are affiliated with the Funds and also with the Funds' investment adviser, Security Management Company, LLC, in these capacities:
- ---------------------- ---------------------------------------------- ------------------------------------------------------- NAME POSITION(S) WITH THE FUNDS POSITION(S) WITH SECURITY MANAGEMENT COMPANY, LLC - ---------------------- ---------------------------------------------- ------------------------------------------------------- James R. Schmank Vice President and Treasurer President (Interim), Treasurer, Chief Fiscal Officer and Managing Member Representative John D. Cleland President and Director Senior Vice President and Managing Member Representative Jane A. Tedder Vice President (Equity Fund only) Vice President and Senior Portfolio Manager Terry A. Milberger Vice President (Equity Fund only) Vice President and Senior Portfolio Manager Mark E. Young Vice President Vice President-Operations Amy J. Lee Secretary Secretary Brenda M. Harwood Assistant Treasurer and Assistant Secretary Assistant Vice President, Assistant Treasurer and Assistant Secretary Cindy L. Shields Assistant Vice President (Ultra Fund only) Assistant Vice President and Portfolio Manager Gregory A. Hamilton Assistant Vice President (Equity Fund only) Second Vice President Thomas A. Swank Assistant Vice President Second Vice President and Portfolio Manager (Growth and Income Fund only) James P. Schier Assistant Vice President (Equity Fund only) Assistant Vice President and Portfolio Manager - ---------------------- ---------------------------------------------- -------------------------------------------------------
PORTFOLIO MANAGEMENT The common stock portion of the GROWTH AND INCOME FUND portfolio is managed by the Investment Manager's Large Capitalization Team consisting of John Cleland, Chief Investment Strategist, Terry Milberger, Jim Schier and Chuck Lauber. Terry Milberger, Senior Portfolio Manager has had day-to-day responsibility for managing this portion of the portfolio since 1995. The fixed income portion of the Growth and Income Fund portfolio is managed by the Fixed Income Team of the Investment Manager consisting of John Cleland, Chief Investment Strategist, Greg Hamilton, Jane Tedder, Tom Swank, Steve Bowser, Barb Davison and Elaine Miller. Tom Swank, Assistant Vice President and Portfolio Manager of the Investment Manager, has had day-to-day responsibility for managing the fixed income portion of the Growth and Income Fund portfolio since 1994. EQUITY FUND is managed by the Large Capitalization Team of the Investment Manager described above. Mr. Milberger has had day-to-day responsibility for managing the Equity Fund since 1981. GLOBAL FUND is managed by an investment management team of Lexington. Alan Wapnick and Richard T. Saler, the lead managers, have had day-to-day responsibility for managing Global Fund since 1994. ASSET ALLOCATION FUND is managed by an investment management team of Portfolio Managers and research analysts of the Investment Manager. The team is responsible for day-to-day management of the Fund. Jane Tedder, Senior Portfolio Manager, has day-to-day responsibility for managing the fixed-income portion of the Fund's portfolio and for supervising the services provided by Meridian and Templeton. She has had responsibility for the Fund since January 1996. SOCIAL AWARENESS FUND and ULTRA FUND are managed by the Investment Manager's Small Capitalization Team and Social Responsibility Team, respectively, each of which consists of John Cleland, Chief Investment Strategist, Cindy Shields, Larry Valencia and Frank Whitsell. Cindy Shields, Portfolio Manager, has had day-to-day responsibility for managing the Ultra Fund since 1994 and for managing Social Awareness Fund since its inception in 1996. VALUE FUND is managed by the Large Capitalization Team of the Investment Manager described above. Jim Schier, Portfolio Manager, has had day-to-day responsibility for managing the Value Fund since its inception in 1997. Terry A. Milberger is a Vice President and Senior Portfolio Manager of the Investment Manager. Mr. Milberger has more than 20 years of investment experience and has managed Equity Fund's portfolio since 1981. He began his career as an investment analyst in the insurance industry and from 1974 through 1978 he served as an assistant portfolio manager for the Investment Manager. He was then employed as Vice President of Texas Commerce Bank and managed its pension fund assets until he returned to the Investment Manager in 1981. Mr. Milberger holds a bachelor's degree in business and an M.B.A. from the University of Kansas and is a 37 Chartered Financial Analyst. His investment philosophy is based on patience and opportunity for the long-term investor. James P. Schier, Portfolio Manager of the Investment Manager, has 13 years experience in the investment field and is a Chartered Financial Analyst. Mr. Schier earned a Bachelor of Business degree from the University of Notre Dame and an M.B.A. from Washington University. Cindy L. Shields is Portfolio Manager of the Investment Manager. She has seven years experience in the securities field and joined the Investment Manager in 1989. Ms. Shields graduated from Washburn University with a Bachelor of Business Administration degree, majoring in finance and economics. She is a Chartered Financial Analyst. Tom Swank has over ten years of experience in the investment field. Prior to joining the Investment Manager in 1992, he was an Investment Underwriter and Portfolio Manager for U.S. West Financial Services, Inc. from 1986 to 1992. From 1984 to 1986, he was a Commercial Credit Officer for United Bank of Denver. From 1982 to 1984, he was employed as a Bank Holding Company Examiner for the Federal Reserve Bank of Kansas City - Denver Branch. Mr. Swank graduated from Miami University in Ohio with a Bachelor of Science degree in finance in 1982. He earned a Master of Business Administration degree from the University of Colorado and is a Chartered Financial Analyst. Jane Tedder, Vice President and Senior Portfolio Manager of the Investment Manager, has 20 years of experience in the investment field. Prior to joining the Investment Manager in 1983, she served as Vice President and Trust Officer of Douglas County Bank in Kansas. Ms. Tedder earned a bachelor's degree in education from Oklahoma State University and advanced diplomas from National Graduate Trust School, Northwestern University, and Stonier Graduate School of Banking, Rutgers University. She is a Chartered Financial Analyst. Alan Wapnick is a Senior Vice President of Lexington and is responsible for portfolio management. He has 27 years investment experience. Prior to joining Lexington in 1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J. & W. Seligman, Dean Witter and most recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth College and received a Master's degree in Business Administration from Columbia University. Richard Saler is a Senior Vice President of Lexington and is responsible for international investment analysis and portfolio management. He has eleven years of investment experience. Mr. Saler has focused on international markets since first joining Lexington in 1986. Most recently he was a strategist with Nomura Securities and rejoined Lexington in 1992. Mr. Saler is a graduate of New York University with a B.S. degree in Marketing and an M.B.A. in Finance from New York University's Graduate School of Business Administration. CODE OF ETHICS The Funds, the Investment Manager and the Distributor have a written Code of Ethics which requires all access persons to obtain prior clearance before engaging in any personal securities transactions. Access persons include officers and directors of the Funds and Investment Manager and employees that participate in, or obtain information regarding, the purchase or sale of securities by the Funds or whose job relates to the making of any recommendations with respect to such purchases or sales. All access persons must report their personal securities transactions within ten days of the end of each calendar quarter. Access persons will not be permitted to effect transactions in a security if it: (a) is being considered for purchase or sale by the Funds; (b) is being purchased or sold by the Funds; or (c) is being offered in an initial public offering. In addition, portfolio managers are prohibited from purchasing or selling a security within seven calendar days before or after a Fund that he or she manages trades in that security. Any material violation of the Code of Ethics is reported to the Board of the Funds. The Board also reviews the administration of the Code of Ethics on an annual basis. DISTRIBUTOR Security Distributors, Inc. (the "Distributor"), a Kansas corporation and wholly-owned subsidiary of Security Benefit Group, Inc., serves as the principal underwriter for shares of Growth and Income Fund, Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness Fund and Ultra Fund pursuant to Distribution Agreements with the Funds. The Distributor also acts as principal underwriter for the following investment companies: Security Income Fund, Security Tax-Exempt Fund, and The Parkstone Advantage Fund. The Distributor receives a maximum commission on sales of Class A shares of 5.75% and allows a maximum discount of 5% from the offering price to authorized dealers on the Fund shares sold. The discount is the same for 38 all dealers, but the Distributor at its discretion may increase the discount for specific periods. Salespersons employed by dealers may also be licensed to sell insurance with Security Benefit Life. For the fiscal years ended September 30, 1996, 1995 and 1994, the Distributor received gross underwriting commissions on the sale of Class A shares of the Funds as follows: 1996 - $38,156, 1995 - $30,840 and 1994 - $80,457 for Growth and Income Fund; 1996 - $869,310, 1995 - $610,460 and 1994 - $597,792 for Equity Fund; 1996 - $42,335, 1995 - $86,682 and 1994 - $75,084 for Ultra Fund. For these years, the Distributor retained net underwriting commissions as follows: 1996 - $7,615, 1995 - $5,020 and 1994 - $12,674 for Growth and Income Fund; 1996 - $107,976, 1995 - $96,169 and 1994 - $98,610 for Equity Fund; and 1996 - $9,163, 1995 - $14,803 and 1994 - $15,554 for Ultra Fund. For 1996, 1995 and the period October 5, 1993 through September 30, 1994, the Distributor received gross underwriting commissions on the sale of Class A shares of $29,472, $25,278 and $93,332, respectively, for Global Fund and retained net underwriting commissions of $,3,907, $4,002 and $14,560, respectively. For the fiscal year ended September 30, 1996 and the period June 1, 1995 through September 30, 1995, the Distributor received gross underwriting commissions on the sale of Class A shares of $7,393 and $819, respectively, for Asset Allocation Fund retained net underwriting commissions of $911 and $198, respectively. The Distributor also receives compensation from Lexington Management Corporation ("Lexington") to defray expenses it incurs in the distribution of certain mutual funds sub-advised by Lexington and variable insurance products certain underlying funds of which are sub-advised by Lexington and for the access which the Distributor permits Lexington to have to its network of brokers and dealers. The Agreement is currently in effect with respect to the Global Series of Security Equity Fund and Series D of SBL Fund, the underlying investment vehicle for certain variable insurance products distributed by the Distributor (collectively referred to as the "Sub-Advised Portfolios"). Pursuant to the terms of the Agreement, Lexington pays the Distributor a fee, ranging from 0% of the average daily net assets of the Sub-Advised Portfolios below $50 million to .25% of the average daily net assets of the Sub-Advised Portfolios of $400 million or more. The fee is calculated daily and payable monthly. The Distributor, on behalf of the Funds, may act as a broker in the purchase and sale of securities not effected on a securities exchange, provided that any such transactions and any commissions shall comply with 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, 39 viewed in terms of either that particular transaction or the overall responsibilities of the Investment Manager or relevant Sub-Adviser with respect to all accounts as to which it exercises investment discretion. The Investment Manager or relevant Sub-Adviser may use all, none, or some of such information and services in providing investment advisory services to each of the mutual funds under its management, including the Funds. In addition, brokerage transactions may be placed with broker-dealers who sell shares of the Funds managed by the Investment Manager and who may or may not also provide investment information and research services. The Investment Manager may, consistent with the NASD Rules of Fair Practice, consider sales of shares of the Funds in the selection of a broker. The Funds may also buy securities from, or sell securities to, dealers acting as principals or market makers. The Investment Manager generally will not purchase investment information or research services in connection with such principal transactions. Securities held by the Funds may also be held by other investment advisory clients of the Investment Manager and/or relevant Sub-Adviser, including other investment companies. In addition, Security Benefit Life Insurance Company ("SBL"), may also hold some of the same securities as the Funds. When selecting securities for purchase or sale for a Fund, the Investment Manager may at the same time be purchasing or selling the same securities for one or more of such other accounts, subject to the Investment Manager's obligation to seek best execution, such purchases or sales may be executed simultaneously or "bunched." It is the policy of the Investment Manager not to favor one account over the other. Any purchase or sale orders executed simultaneously (which may also include orders from SBL) are allocated at the average price and as nearly as practicable on a pro rata basis (transaction costs will also be shared on a pro rata basis) in proportion to the amounts desired to be purchased or sold by each account. In those instances where it is not practical to allocate purchase or sale orders on a pro rata basis, then the allocation will be made on a rotating or other equitable basis. While it is conceivable that in certain instances this procedure could adversely affect the price or number of shares involved in the Fund's transaction, it is believed that the procedure generally contributes to better overall execution of the Fund's portfolio transactions. The Board of Directors of the Funds has adopted guidelines governing this procedure and will monitor the procedure to determine that the guidelines are being followed and that the procedure continues to be in the best interest of the Fund and its stockholders. With respect to the allocation of initial public offerings ("IPOs"), the Investment Manager may determine not to purchase such offerings for certain of its clients (including investment company clients) due to the limited number of shares typically available to the Investment Manager in an IPO. 40 The following table sets forth the brokerage fees paid by the Funds during the last three fiscal years and certain other information:
- ----------------------- --------------------- ---------------------- --------------------- ----------------------------------- FUND TRANSACTIONS DIRECTED FUND BROKERAGE TO AND COMMISSIONS PAID TO COMMISSIONS PAID BROKER-DEALERS WHO ALSO CLASS A SHARES FUND TO SECURITY PERFORMED SERVICES ----------------------------------- ANNUAL PORTFOLIO TOTAL BROKERAGE DISTRIBUTORS INC., BROKERAGE YEAR TURNOVER RATE COMMISSIONS PAID THE UNDERWRITER TRANSACTIONS COMMISSIONS - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- Security Growth and Income Fund - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- 1996 69% $ 98,516 0 $ 15,375,167 $ 22,566 1995 130% 257,300 0 33,932,170 57,450 1994 163% 448,925 0 21,666,518 53,256 - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- Security Equity Fund Equity Series - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- 1996 64% $ 919,879 0 $181,146,205 $227,747 1995 95% 1,234,947 0 168,226,033 327,825 1994 79% 1,073,763 0 74,497,202 182,980 - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- Security Equity Fund Global Series - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- 1996 142% $ 194,768 0 $ 11,476,297 $ 20,493 1995 141% 193,540 0 11,472,063 32,292 1994 73% 186,281 0 7,774,273 16,685 - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- Security Equity Fund Asset Allocation Series - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- 1996 75% $ 10,674 0 $ 259,602 $ 724 1995* 129% 3,904 0 0 0 - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- Security Ultra Fund - ----------------------- --------------------- ---------------------- --------------------- ------------------ ---------------- 1996 161% $ 200,614 0 $ 45,866,810 $ 76,520 1995 180% 277,069 0 24,047,026 42,679 1994 111% 296,484 0 10,321,410 44,151 - ------------------------------------------------------------------------------------------------------------------------------
* Asset Allocation Fund's figures are based on the period June 1, 1995 (date of inception) to September 30, 1995. - -------------------------------------------------------------------------------- Class B shares' annual portfolio turnover rates for the fiscal years ended September 30, 1996 and 1995 were the same as Class A shares. Class B shares' annual portfolio turnover rates for the period October 19, 1993 to September 30, 1994 were 178%, 80%, 73% and 110% for Growth and Income Fund, Equity Fund, Global Fund and Ultra Fund, respectively. The annual portfolio turnover rate for the period June 1, 1995 to September 30, 1995 was 129% for Asset Allocation Fund. Portfolio turnover information is not yet available for Social Awareness Fund and Value Fund as they did not begin operations until November of 1996 and May of 1997, respectively. HOW NET ASSET VALUE IS DETERMINED The per share net asset value of each Fund is determined by dividing the total value of its securities and other assets, less liabilities, by the total number of shares outstanding. The public offering price for each Fund is its net asset value per share plus, in the case of Class A shares, the applicable sales charge. The net asset value and offering price are computed once daily as of the close of regular trading hours on the New York Stock Exchange (normally 3:00 p.m. Central time) on each day the Exchange is open for trading, which is Monday through Friday, except for the following dates when the exchange is closed in observance of federal holidays: New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The offering price determined at the close of business on the New York Stock Exchange on each day on which the Exchange is open will be applicable to all orders for the purchase of Fund shares received by the dealer prior to such close of business and transmitted to the Funds prior to the close of their business day (normally 5:00 p.m. Central time unless the Exchange closes early). Orders accepted by the dealer after the close of business of the Exchange or on a day when the Exchange is closed will be filled on the basis of the offering price determined as of the close of business of the Exchange on the next day on which the Exchange is open. It is the responsibility of the dealer to promptly transmit orders to the Funds. 41 In determining net asset value, securities listed or traded on a national securities exchange are valued on the basis of the last sale price. If there are no sales on a particular day, then the securities shall be valued at the last bid price. All other securities for which market quotations are available are valued on the basis of the last current bid price. If there is no bid price, or if the bid price is deemed to be unsatisfactory by the Board of Directors or the Funds' Investment Manager, then the securities shall be valued in good faith by such method as the Board of Directors determines will reflect their fair market value. Because the expenses of distribution are borne by Class A shares through a front-end sales charge and by Class B shares through an ongoing distribution fee, the expenses attributable to each class of shares will differ, resulting in different net asset values. The net asset value of Class B shares will generally be lower than the net asset value of Class A shares as a result of the distribution fee charged to Class B shares. It is expected, however, that the net asset value per share will tend to converge immediately after the payment of dividends which will differ in amount for Class A and B shares by approximately the amount of the different distribution expenses attributable to Class A and B shares. HOW TO REDEEM SHARES Stockholders may turn in their shares directly to the Investment Manager for redemption at net asset value (which may be more or less than the investor's cost, depending upon the market value of the portfolio securities at the time of redemption). The redemption price in cash will be the net asset value next determined after the time when such shares are tendered for redemption. Shares will be redeemed on request of the stockholder in proper order to the Investment Manager, which serves as the Funds' transfer agent. A request is made in proper order by submitting the following items to the Investment Manager: (1) a written request for redemption signed by all registered owners exactly as the account is registered, including fiduciary titles, if any, and specifying the account number and the dollar amount or number of shares to be redeemed; (2) a guarantee of all signatures on the written request or on the share certificate or accompanying stock power; (3) any share certificates issued for any of the shares to be redeemed; and (4) any additional documents which may be required by the Investment Manager for redemption by corporations or other organizations, executors, administrators, trustees, custodians or the like. Transfers of shares are subject to the same requirements. A signature guarantee is not required for redemptions of $10,000 or less, requested by and payable to all stockholders of record for an account, to be sent to the address of record. The signature guarantee must be provided by an eligible guarantor institution, such as a bank, broker, credit union, national securities exchange or savings association. The Investment Manager reserves the right to reject any signature guarantee pursuant to its written procedures which may be revised in the future. To avoid delay in redemption or transfer, stockholders having questions should contact the Investment Manager. The Articles of Incorporation of Security Equity Fund provide that the Board of Directors, without the vote or consent of the stockholders, may adopt a plan to redeem at net asset value all shares in any stockholder account in which there has been no investment (other than the reinvestment of income dividends or capital gains distributions) for the last six months and in which there are fewer than 25 shares or such fewer number of shares as may be specified by the Board of Directors. Any plan of involuntary redemption adopted by the Board of Directors shall provide that the plan is in the economic best interests of the Fund or is necessary to reduce disproportionately burdensome expenses in servicing stockholder accounts. Such plan shall further provide that prior notice of at least six months shall be given to a stockholder before involuntary redemption, and that the stockholder will have at least six months from the date of the notice to avoid redemption by increasing his or her 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 42 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 51.) At various times the Funds may be requested to redeem shares for which they have not yet received good payment. Accordingly, the Funds may delay the mailing of a redemption check until such time as they have assured themselves that good payment (e.g., cash or certified check on a U.S. bank) has been collected for the purchase of such shares. TELEPHONE REDEMPTIONS A stockholder may redeem uncertificated shares in amounts up to $10,000 by telephone request, provided the stockholder has completed the Telephone Redemption section of the application or a Telephone Redemption form which may be obtained from the Investment Manager. The proceeds of a telephone redemption will be sent to the stockholder at his or her address as set forth in the application or in a subsequent written authorization with a signature guarantee. Once authorization has been received by the Investment Manager, a stockholder may redeem shares by calling the Funds at (800) 888-2461, extension 3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Redemption requests received by telephone after the close of the New York Stock Exchange (normally 3:00 p.m. Central time) will be treated as if received on the next business day. A stockholder who authorizes telephone redemptions authorizes the Investment Manager to act upon the instructions of any person identifying themselves as the owner of the account or the owner's broker. The Investment Manager has established procedures to confirm that instructions communicated by telephone are genuine and may be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Investment Manager's procedures require that any person requesting a redemption by telephone provide the account registration and number, the owner's tax identification number, and the dollar amount or number of shares to be redeemed, and such instructions must be received on a recorded line. Neither the Fund, the Investment Manager, nor the Distributor will be liable for any loss, liability, cost or expense arising out of any redemption request provided that the Investment Manager complied with its procedures. Thus, a stockholder who authorizes telephone redemptions may bear the risk of loss from a fraudulent or unauthorized request. The telephone redemption privilege may be changed or discontinued at any time by the Investment Manager or the Funds. During periods of severe market or economic conditions, telephone redemptions may be difficult to implement and stockholders should make redemptions by mail as described under "How to Redeem Shares" above. HOW TO EXCHANGE SHARES Pursuant to arrangements with the Distributor (which also acts as principal underwriter for Security Income Fund and Security Tax-Exempt Fund) and with Security Cash Fund, stockholders of the Funds may exchange their shares for shares of another of the Funds, Security Income Fund, Security Tax-Exempt Fund or Security Cash Fund at net asset value. Exchanges may be made only in those states where shares of the fund into which an exchange is to be made are qualified for sale. Class A and Class B shares of the Funds may be exchanged for Class A and Class B shares, respectively, of another Fund or for shares of Security Cash Fund, a money market fund that offers a single class of shares. Any 43 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 42.) This privilege may be changed or discontinued at any time at the discretion of the management of the Funds upon 60 days' notice to stockholders. It is contemplated, however, that the privilege will be extended in the absence of objection by regulatory authorities and provided shares of the respective companies are available and may be legally sold in the jurisdiction in which the stockholder resides. A current prospectus of the Fund into which an exchange is made will be given each stockholder exercising this privilege. EXCHANGE BY TELEPHONE To exchange shares by telephone, a shareholder must have completed either the Telephone Exchange section of the application or a Telephone Transfer Authorization form which may be obtained from the Investment Manager. Authorization must be on file with the Investment Manager before exchanges may be made by telephone. Once authorization has been received by the Investment Manager, a stockholder may exchange shares by telephone by calling the Funds at (800) 888-2461, extension 3127 on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests received after the close of the New York Stock Exchange (normally 3:00 p.m. Central time) will be treated as if received on the next business day. Shares which are held in certificate form may not be exchanged by telephone. The telephone exchange privilege is only permitted between accounts with identical registration. The Investment Manager has established procedures to confirm that instructions communicated by telephone are genuine and may be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Investment Manager's procedures require that any person requesting an exchange by telephone provide the account registration and number, the tax identification number, the dollar amount or number of shares to be exchanged, and the names of the Security Funds from which and into which the exchange is to be made, and such instructions must be received on a recorded line. Neither the Funds, the Investment Manager nor the Distributor will be liable for any loss, liability, cost or expense arising out of any request, including any fraudulent request provided the Investment Manager complied with its procedures. Thus, a stockholder who authorizes telephone exchanges may bear the risk of loss in the event of a fraudulent or unauthorized request. This telephone exchange privilege may be changed or discontinued at any time at the discretion of the management of the Funds. In particular, the Funds may set limits on the amount and frequency of such exchanges, in general or as to any individual who abuses such privilege. DIVIDENDS AND TAXES It is each Fund's policy to pay dividends from net investment income as from time to time declared by the Board of Directors, and to distribute realized capital gains (if any) in excess of any capital losses and capital loss carryovers, at least once a year. Because Class A shares of the Funds bear most of the costs of distribution of such shares through payment of a front-end sales charge, while Class B shares of the Funds bear such costs through a higher distribution fee, expenses attributable to Class B shares, generally, will be higher and as a result, income distributions paid by the Funds with respect to Class B shares generally will be lower than those paid with respect to Class A shares. Because the value of a share is based directly on the amount of the net assets rather than on the principle of supply and demand, any distribution of capital gains or payment of an income dividend will result in a decrease in the value of a share equal to the amount paid. All such dividends and distributions are automatically reinvested on the payable date in shares of the Funds at net asset value as of the record date (reduced by an amount equal to the amount of the dividend or distribution), unless the Investment Manager is previously notified in writing by the stockholder that such dividends or distributions are to be received in cash. A 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 44 may, at any time within 30 days after the payment date, reinvest a dividend check without imposition of a sales charge. For federal income tax purposes, dividends paid by the Funds from net investment income may qualify for the corporate stockholder's dividends received deduction to the extent the Funds designate the amount distributed as a qualified dividend. The aggregate amount designated as a qualified dividend by the Funds cannot exceed the aggregate amount of dividends received by the Funds from domestic corporations for the taxable year. The corporate dividends received deduction will be limited if the shares with respect to which the dividends are received are treated as debt-financed or are deemed to have been held less than 46 days. In addition, a corporate stockholder must hold Fund shares for at least 46 days to be eligible to claim the dividends received deduction. All dividends from net investment income, together with distributions of any realized net short-term capital gains, whether paid direct to the stockholder or reinvested in shares of the Funds, are taxable as ordinary income. Stockholders will report as long-term capital gains income any realized net long-term capital gains in excess of any capital loss carryover which is distributed to them and designated by the Fund as a capital gain dividend, whether or not reinvested in the Fund, and regardless of the period of time such shares have been owned by the stockholders. Advice as to the tax status of each year's dividends and distributions will be mailed annually. A purchase of shares shortly before payment of a dividend or distribution is disadvantageous because the dividend or distribution to the purchaser has the effect of reducing the per share net asset value of the shares by the amount of the dividends or distributions. In addition, all or a portion of such dividends or distributions (although in effect a return of capital) may be taxable. Each Fund intends to qualify annually and to elect to be treated as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a regulated investment company, each Fund must, among other things: (i) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities, or currencies ("Qualifying Income Test"); (ii) derive in each taxable year less than 30% of its gross income from the sale or other disposition of certain assets held less than three months (namely (a) stock or securities, (b) options, futures and forward contracts (other than those on foreign currencies), and (c) foreign currencies (including options, futures, and forward contracts on such currencies) not directly related to a Fund's principal business of investing in stocks or securities (or options and futures with respect to stocks and securities)); (iii) diversify its holdings so that, at the end of each quarter of the taxable year, (a) at least 50% of the market value of the Fund's assets is represented by cash, cash items, U.S. Government securities, the securities of other regulated investment companies, and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or of two or more issuers which the Fund controls (as that term is defined in the relevant provisions of the Code) and which are determined to be engaged in the same or similar trades or businesses or related trades or businesses; and (iv) distribute at least 90% of the sum of its investment company taxable income (which includes, among other items, dividends, interest, and net short-term capital gains in excess of any net long-term capital losses) and its net tax-exempt interest each taxable year. The Treasury Department is authorized to promulgate regulations under which foreign currency gains would constitute qualifying income for purposes of the Qualifying Income Test only if such gains are directly related to investing in securities (or options and futures with respect to securities). To date, no such regulations have been issued. Certain requirements relating to the qualification of a Fund as a regulated investment company may limit the extent to which a Fund will be able to engage in certain investment practices, including transactions in futures contracts and other types of derivative securities transactions. In addition, if a Fund were unable to dispose of portfolio securities due to settlement problems relating to foreign investments or due to the holding of illiquid securities, the Fund's ability to qualify as a regulated investment company might be affected. 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 45 net short-term capital losses), if any, that it distributes to shareholders. Each Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and any net capital gains. Generally, regulated investment companies, like the Fund, must distribute amounts on a timely basis in accordance with a calendar year distribution requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid the tax, a regulated investment company must distribute during each calendar year, (i) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) at least 98% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the 12-month period ending on October 31 of the calendar year, and (iii) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, each Fund intends to make its distributions in accordance with the calendar year distribution requirement. A distribution is treated as paid on December 31 of the calendar year if it is declared by a Series in October, November or December of that year to shareholders of record on a date in such a month and paid by the Fund during January of the following calendar year. Such distributions are taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. If, as a result of exchange controls or other foreign laws or restrictions regarding repatriation of capital, a Fund were unable to distribute an amount equal to substantially all of its investment company taxable income (as determined for U.S. tax purposes) within applicable time periods, the Fund would not qualify for the favorable federal income tax treatment afforded regulated investment companies, or, even if it did so qualify, it might become liable for federal taxes on undistributed income. In addition, the ability of a Fund to obtain timely and accurate information relating to its investments is a significant factor in complying with the requirements applicable to regulated investment companies in making tax-related computations. Thus, if a Fund were unable to obtain accurate information on a timely basis, it might be unable to qualify as a regulated investment company, or its tax computations might be subject to revisions (which could result in the imposition of taxes, interest and penalties). Generally, gain or loss realized upon the sale or redemption of shares (including the exchange of shares for shares of another fund) will be capital gain or loss if the shares are capital assets in the shareholder's hands, and will be long-term capital gain or loss if the shares have been held for more than one year. Investors should be aware that any loss realized upon the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of any distribution of long-term capital gain to the shareholder with respect to such shares. In addition, any loss realized on a sale or exchange of shares will be disallowed to the extent the shares disposed of are replaced within a period of 61 days, beginning 30 days before and ending 30 days after the date the shares are disposed of, such as pursuant to the reinvestment of dividends. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Under certain circumstances, the sales charge incurred in acquiring Class A shares of the Funds may not be taken into account in determining the gain or loss on the disposition of those shares. This rule applies in circumstances when shares of the Fund are exchanged within 90 days after the date they were purchased and new shares in a regulated investment company are acquired without a sales charge or at a reduced sales charge. In that case, the gain or loss recognized on the exchange will be determined by excluding from the tax basis of the shares exchanged all or a portion of the sales charge incurred in acquiring those shares. This exclusion applies to the extent that the otherwise applicable sales charge with respect to the newly acquired shares is reduced as a result of having incurred the sales charge initially. Instead, the portion of the sales charge affected by this rule will be treated as an amount paid for the new shares. The Funds are required by law to withhold 31% of taxable dividends and distributions to shareholders who do not furnish their correct taxpayer identification numbers, or are otherwise subject to the backup withholding provisions of the Internal Revenue Code. Each series of Security Equity Fund will be treated separately in determining the amounts of income and capital gains distributions. For this purpose, each series will reflect only the income and gains, net of losses of that series. PASSIVE FOREIGN INVESTMENT COMPANIES. Some of the Funds may invest in stocks of foreign companies that are classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign 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 46 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. 47 The requirements applicable to a Fund's qualification as a regulated investment company may limit the extent to which a Fund will be able to engage in transactions in options, futures contracts, forward contracts, swap agreements and other financial contracts. FOREIGN TAXATION. Income received by a Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. FOREIGN CURRENCY TRANSACTIONS. Under the Code, gains or losses attributable to fluctuations in exchange rates which occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time that a Fund actually collects such receivables or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as "Section 988" gains or losses, may increase or decrease the amount of a Fund's investment company taxable income to be distributed to its shareholders as ordinary income. OTHER TAXES. The foregoing discussion is general in nature and is not intended to provide an exhaustive presentation of the tax consequences of investing in a Fund. Distributions may also be subject to additional state, local and foreign taxes, depending on each shareholder's particular situation. Depending upon the nature and extent of a Fund's contacts with a state or local jurisdiction, the Fund may be subject to the tax laws of such jurisdiction if it is regarded under applicable law as doing business in, or as having income derived from, the jurisdiction. Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund. ORGANIZATION The Articles of Incorporation of each Fund provide for the issuance of an indefinite number of shares of common stock in one or more classes or series. Security Equity Fund has authorized capital stock of $.25 par value and currently issues its shares in five series, Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness Fund and Value Fund. The shares of each series of Security Equity Fund represent a pro rata beneficial interest in that series' net assets and in the earnings and profits or losses derived from the investment of such assets. Growth and Income and Ultra Funds have not issued shares in any additional series at the present time. Growth and Income and Ultra Funds each have authorized capital stock of $1.00 par value and $.50 par value, respectively. Each of the Funds currently issues two classes of shares which participate proportionately based on their relative net asset values in dividends and distributions and have equal voting, liquidation and other rights except that (i) expenses related to the distribution of each class of shares or other expenses that the Board of Directors may designate as class expenses from time to time, are borne solely by each class; (ii) each class of shares has 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 43, but will have no other preference, conversion, exchange or preemptive rights. Shares are transferable, redeemable and assignable and have cumulative voting privileges for the election of directors. On certain matters, such as the election of directors, all shares of the Series of Security Equity Fund, Equity Fund, Global Fund, Asset Allocation Fund, Social Awareness Fund and Value Fund, vote together, with each share having one vote. On other matters affecting a particular series, such as the investment advisory contract or the fundamental policies, only shares of that series are entitled to vote, and a majority vote of the shares of that series is required for approval of the proposal. The Funds do not generally hold annual meetings of stockholders and will do so only when required by law. Stockholders may remove directors from office by vote cast in person or by proxy at a meeting of stockholders. Such a meeting will be called at the written request of 10% of a Fund's outstanding shares. 48 LEGAL PROCEEDINGS Ultra Fund has been named as a class defendant in an adversary proceeding filed on March 14, 1995 in a pending bankruptcy, captioned IN RE: INTEGRA REALTY RESOURCES, INC., INTEGRA-A HOTEL AND RESTAURANT COMPANY, AND BHC OF DENVER, INC., United States Bankruptcy Court for the District of Colorado. The adversary proceeding was brought by Jeffrey A. Weinman, as Trustee for the Integra Unsecured Creditors against the principal defendant Fidelity Capital Appreciation Fund and over 6,000 other class defendants, including the Ultra Fund. The Trustee alleges that the defendants, former shareholders of Integra Realty Resources, Inc., improperly received a distribution of Integra's assets in December 1988 when Integra distributed all of the shares of its subsidiary, ShowBiz Pizza Time, to its shareholders, leaving insufficient resources for Integra to continue to operate to the detriment of the Integra Unsecured Creditors. Ultra Fund has been advised that its maximum exposure in the lawsuit should be less than $361,000. CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri, acts as the custodian for the portfolio securities of Growth and Income Fund, Equity Fund, Social Awareness Fund, Value Fund and Ultra Fund. Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, New York 11245 acts as custodian for the portfolio securities of Global and Asset Allocation Funds, including those held by foreign banks and foreign securities depositories which qualify as eligible foreign custodians under the rules adopted by the SEC. Security Management Company, LLC acts as the Funds' transfer and dividend-paying agent. INDEPENDENT AUDITORS The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas City, Missouri, has been selected by the Funds' Board of Directors to serve as the Funds' independent auditors, and as such, the firm will perform the annual audit of the Funds' financial statements. PERFORMANCE INFORMATION The Funds may, from time to time, include performance information in advertisements, sales literature or reports to shareholders or prospective investors. Performance information in advertisements or sales literature may be expressed as average annual total return or aggregate total return. Quotations of average annual total return will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the Funds over periods of 1, 5 and 10 years (up to the life of the Fund), calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the average annual total return, n = the number of years, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures will reflect the deduction of the maximum initial sales load of 5.75% in the case of quotations of performance of Class A shares or the applicable contingent deferred sales charge in the case of quotations of performance of Class B shares and a proportional share of Fund expenses on an annual basis, and assume that all dividends and distributions are reinvested when paid. For the 1-, 5- and 10-year periods ended September 30, 1996, respectively, the average annual total return of Class A shares of Growth and Income Fund was 13.45%, 8.78% and 9.00%. For the 1-year period ended September 30, 1996, the average annual total return of Class B shares of Growth and Income Fund was 14.01%. For the period October 19, 1993 (date of inception) to September 30, 1996, the average annual total return for Class B shares of Growth and Income Fund was 8.55%. For the 1-, 5- and 10-year periods ended September 30, 1996, respectively, the average annual total return of Class A shares of Equity Fund was 17.71%, 15.70% and 15.24%. For the 1-year period ended September 30, 1996, the average annual total return of Class B shares of Equity Fund was 18.57%. For the period October 19, 1993 (date of inception) to September 30, 1996, the average annual total return for Class B shares of Equity Fund was 15.58%. For the 1-year period ended September 30, 1996, the average annual total return of Class A shares of Global Fund was 10.94%. For the period October 5, 1993 (date of inception) to September 30, 1996, the average annual 49 total return of Class A shares of Global Fund was 7.33%. For the 1-year period ended September 30, 1996, the average annual total return of Class B shares of Global Fund was 11.57%. For the period October 19, 1993 (date of inception) to September 30, 1996, the average annual total return of Class B shares of Global Fund was 7.88%. For the 1-, 5- and 10-year periods ended September 30, 1996, respectively, the average annual total return of Class A shares of Ultra Fund was 8.73%, 10.61% and 6.70%. For the 1-year period ended September 30, 1996, the average annual total return of Class B shares of Ultra Fund was 8.81%. For the period October 19, 1993 (date of inception) to September 30, 1996, the average annual total return for Class B shares of Ultra Fund was 8.56%. For the 1-year period ended September 30, 1996 the average annual total return of Class A and Class B shares of Asset Allocation Fund was 3.69% and 3.97%, respectively. For the period June 1, 1995 (date of inception) through September 30, 1996, the average annual total return of Class A and Class B shares of Asset Allocation Fund was 6.88% and 7.71%, respectively. Quotations of aggregate total return will be calculated for any specified period pursuant to the following formula: ERV - P = T ------------ P (where P = a hypothetical initial payment of $1,000, T = the total return, and ERV = the ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period). All total return figures will assume that all dividends and distributions are reinvested when paid. The Funds may, from time to time, include quotations of aggregate total return that do not reflect deduction of the sales load. The sales load, if reflected, would reduce the total return. The aggregate total return on an investment made in Class A shares of Growth and Income Fund, Equity Fund and Ultra Fund calculated as described above for the period from September 30, 1986 through September 30, 1996 was 136.82%, 313.00% and 91.27%, respectively. Aggregate total return on an investment made in Class A shares of Global Fund calculated as described above for the period October 1, 1993 through September 30, 1996 was 23.66%. Aggregate total return on an investment made in Class B shares of Growth and Income, Equity, Global and Ultra Funds calculated as described above for the period October 19, 1993 through September 30, 1996 was 27.40%, 53.31%, 25.07% and 27.42%, respectively. Aggregate total return made on an investment made in Class A and Class B shares of Asset Allocation Fund calculated as described above for the period June 1, 1995 through September 30, 1996 was 9.29% and 10.42%, respectively. These figures reflect deduction of the maximum sales load. Performance information is not yet available for Social Awareness Fund and Value Fund as they did not begin operations until November 1996 and May of 1997, respectively. In addition, quotations of total return will also be calculated for several consecutive one-year periods, expressing the total return as a percentage increase or decrease in the value of the investment for each year relative to the ending value for the previous year. Quotations of average annual total return and aggregate total return will reflect only the performance of a hypothetical investment in the Funds during the particular time period shown. Such quotations for the Funds will vary based on changes in market conditions and the level of the Funds' expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. In connection with communicating its average annual total return or aggregate total return to current or prospective shareholders, the Funds also may compare these figures to the performance of other mutual funds tracked by mutual fund rating services or to other unmanaged indexes which may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. Each Fund will include performance data for both Class A and Class B Shares of the Fund in any advertisement or report including performance data of the Fund. Such mutual fund rating services include the following: Lipper Analytical Services; Morningstar, Inc.; Investment Company Data; Schabacker Investment Management; Wiesenberger Investment Companies Service; Computer Directions Advisory (CDA); and Johnson's Charts. Such unmanaged indexes include the following: S&P 500; the Dow Jones Industrial Average; NASDAQ 100 and NASDAQ 200; Russell 2000 and Russell 2500; the Wilshire 1750 and Wilshire 4500; and the Domini Social Index. When comparing the Funds' performance with that of other alternatives, investors should understand that shares of the Funds may be subject to greater market risks than are certain other types of investments. 50 RETIREMENT PLANS The Funds offer tax-qualified retirement plans for individuals (Individual Retirement Accounts, known as IRAs), several prototype retirement plans for the self-employed (Keogh plans), pension and profit-sharing plans for corporations, and custodial account plans for employees of public school systems and organizations meeting the requirements of Section 501(c)(3) of the Internal Revenue Code. Actual documents and detailed materials about the plans will be provided upon request to the Distributor. Purchases of the Funds' shares under any of these plans are made at the public offering price next determined after contributions are received by the Distributor. The Funds' shares owned under any of the plans have full dividend, voting and redemption privileges. Depending on the terms of the particular plan, retirement benefits may be paid in a lump sum or in installment payments over a specified period. There are possible penalties for premature distributions from such plans. Security Management Company, LLC is available to act as custodian for the plans on a fee basis. For IRAs, SIMPLE IRAs, Section 403(b) Retirement Plans, and Simplified Employee Pension Plans (SEPPs), service fees for such custodial services currently are: (1) $10 for annual maintenance of the account and (2) benefit distribution fee of $5 per distribution. Service fees for other types of plans will vary. These fees will be deducted from the plan assets. Optional supplemental services are available from Security Benefit Life Insurance Company for additional charges. Retirement investment programs involve commitments covering future years. It is important that the investment objectives and structure of the Funds be considered by the investors for such plans. A brief description of the available tax-qualified retirement plans is provided below. However the tax rules applicable to such qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Therefore, no attempt is made to provide more than general information about the various types of qualified plans. Investors are urged to consult their own attorneys or tax advisers when considering the establishment and maintenance of any such plans. INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) Individual Retirement Account Custodial Agreements are available to provide investment in shares of the Funds or in other Funds in the Security Group. An individual may initiate an IRA through the Underwriter by executing the custodial agreement and making a minimum initial investment of at least $100. A $10 annual fee is charged for maintaining the account. An individual may make a contribution to an IRA each year of up to the lesser of $2,000 or 100% of earned income under current tax law. If contributions are also made to an IRA of a nonworking spouse, the maximum is raised to a total for the two accounts of $4,000; no more than $2,000 is contributed to either account. If both husband and wife work, each may establish his or her own IRA and contribute up to the maximum allowed for individuals. Deductions for IRA contributions are limited for taxpayers who are covered by an employer-sponsored retirement plan. However, these limitations do not apply to a single taxpayer with adjusted gross income of $25,000 or less or married taxpayers with adjusted gross income of $40,000 or less (if they file a joint tax return). Taxpayers with adjusted gross income less than $10,000 in excess of these amounts may deduct a portion of their IRA contributions. The nondeductible portion is calculated by reference to the amount of the taxpayer's income above $25,000 (single) or $40,000 (married) as a percentage of $10,000. Contributions must be made in cash no later than April 15 following the close of the tax year. No annual contribution is permitted for the year in which the investor reaches age 70 1/2 or any year thereafter. In addition to annual contributions, total distributions and certain partial distributions from certain employer-sponsored retirement plans may be eligible to be reinvested into an IRA if the reinvestment is made within 60 days of receipt of the distribution by the taxpayer. Such rollover contributions are not subject to the limitations on annual IRA contributions described above. SIMPLE IRAS The Small Business Job Protection Act of 1996 created a new retirement plan, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE Plans). SIMPLE Plan participants must establish a SIMPLE IRA into which plan contributions will be deposited. 51 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 statements of the Funds, which are contained in the Funds' September 30, 1996 Annual Report is incorporated herein by reference. A copy of the Annual Report dated September 30, 1996 is provided to every person requesting a Statement of Additional Information. 52 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. 53 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. 54 APPENDIX B REDUCED SALES CHARGES CLASS A SHARES Initial sales charges may be reduced or eliminated for persons or organizations purchasing Class A shares of the Funds alone or in combination with Class A shares of certain other Security Funds. For purposes of qualifying for reduced sales charges on purchases made pursuant to Rights of Accumulation or a Statement of Intention (also referred to as a "Letter of Intent"), the term "Purchaser" includes the following persons: an individual, his or her spouse and children under the age 21; a trustee or other fiduciary of a single trust estate or single fiduciary account established for their benefit; an organization exempt from federal income tax under Section 501(c)(3) or (13) of the Internal Revenue Code; or a pension, profit-sharing or other employee benefit plan whether or not qualified under Section 401 of the Internal Revenue Code. RIGHTS OF ACCUMULATION A Purchaser may combine all previous purchases with his or her contemplated current purchases of Class A Shares of a Fund, for the purpose of determining the sales charge applicable to the current purchase. For example, an investor who already owns Class A shares of a Fund either worth $30,000 at the applicable current offering price or purchased for $30,000 and who invests an additional $25,000, is entitled to a reduced front-end sales charge of 4.75% on the latter purchase. The Underwriter must be notified when a sale takes place which would qualify for the reduced charge on the basis of previous purchases subject to confirmation of the investor's holding through the Fund's records. Rights of accumulation apply also to purchases representing a combination of the Class A shares of the Funds, Security Income Fund or Security Tax-Exempt Fund in those states where shares of the Fund being purchased are qualified for sale. STATEMENT OF INTENTION A Purchaser may sign a Statement of Intention, which may be signed within 90 days after the first purchase to be included thereunder, in the form provided by the Underwriter covering purchases of Class A shares of the Funds, Security Income Fund or Security Tax-Exempt Fund to be made within a period of 13 months (or a 36-month period for purchases of $1 million or more) and thereby become eligible for the reduced front-end sales charge applicable to the actual amount purchased under the Statement. Five percent of the amount specified in the Statement of Intention will be held in escrow shares until the Statement is completed or terminated. The shares so held may be redeemed by the Funds if the investor is required to pay additional sales charges which may be due if the amount of purchases made by the Purchaser during the period the Statement is effective is less than the total specified in the Statement of Intention. A Statement of Intention may be revised during the 13-month period (or a 36-month period for purchases of $1 million or more). Additional Class A shares received from reinvestment of income dividends and capital gains distributions are included in the total amount used to determine reduced sales charges. The Statement is not a binding obligation upon the investor to purchase or any Fund to sell the full indicated amount. A Statement of Intention form may be obtained from the Funds. An investor considering signing such an agreement should read the Statement of Intention carefully. REINSTATEMENT PRIVILEGE Stockholders who redeem their Class A shares of the Funds have a one-time privilege (1) to reinstate their accounts by purchasing shares without a sales charge up to the dollar amount of the redemption proceeds, or (2) to the extent the redeemed shares would have been eligible for the exchange privilege, to purchase Class A shares of another of the Funds, Security Income Fund and Security Tax-Exempt Fund, without a sales charge up to the dollar amount of the redemption proceeds. Written notice and a check in the amount of the reinvestment from eligible stockholders wishing to exercise this reinstatement privilege must be received by a fund within 30 55 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. 56 SECURITY FUNDS ANNUAL REPORT SEPTEMBER 30, 1996 * SECURITY GROWTH AND INCOME FUND * SECURITY EQUITY FUND - EQUITY SERIES - GLOBAL SERIES - ASSET ALLOCATION SERIES * SECURITY ULTRA FUND [SDI LOGO] PRESIDENT'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY FUNDS To Our Shareholders: The fiscal year completed September 30 has been another very rewarding period for equity investors. The Dow Jones Industrial Average increased 23.54% in the past twelve months, the Standard & Poor's 500 gained 20.32%, and the Russell 2000 Index was up 12.83%. Your equity portfolios in the Security Funds family all turned in excellent performances, with double-digit total returns. ECONOMIC CONTRIBUTIONS TO EQUITY PERFORMANCE The leading contributor to strong markets this fiscal year was moderate but stable growth of the economy in an environment marked by the absence of accelerating inflation. Moreover, the global inflation story was positive as well, with declining rates of inflation in most of the world's major economies. This was a powerful contributor to global economic growth and interest rate stability throughout the year. Such a climate is extremely favorable for corporate earnings. A second factor encouraging equity growth was productivity improvement. As the technological revolution has progressed, both workers and plant assets have been employed more efficiently and costs have been reduced. This has generated uninterrupted growth in corporate earnings and accordingly, equity market growth. A CORRECTION MAY BE IN THE CARDS As the next fiscal year unfolds, we expect some changes to develop in the economic picture. An economic slowdown, while not necessarily inevitable, may take place in the second half of 1997 that might be sufficient to produce a short-lived consumer recession. This would be accompanied by declining corporate profits and the possibility of a correction in stock prices. [PHOTO OF JOHN CLELAND] JOHN CLELAND, PRESIDENT We expect, however, that the correction would be short in time. In our view, the globalization of the world's economy makes it unlikely that any one country's economic contraction would last very long. Many companies in Europe and Asia are early in their productivity improvement processes. Competitiveness, as well as earnings which are global in nature, will keep companies worldwide working hard at cost efficiency and earnings growth. OUR VIEW OF THE LONG TERM Volatility remains the constant companion of equity investors. Because of ever-growing liquidity in the financial markets, traders can more rapidly respond to reports of all kinds, moving markets oftentimes in wide swings. However, long-term investors are able to step back and view the broader upward trends in the market indexes without overreacting to daily changes. We believe that the long-term bull market for financial assets remains intact. The world in general is at peace with the United States, the only surviving global superpower. This continues to provide a positive outlook for financial markets as we approach the dawn of the twenty-first century. As always, we are pleased that you have chosen us to manage your investments. We invite your questions or comments at any time. Sincerely, JOHN CLELAND John Cleland President - -------------------------------------------------------------------------------- 1 MANAGER'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY GROWTH AND INCOME FUND To Our Shareholders: At the close of the fiscal year completed September 30 we look back with surprise at the strength of the market. A year ago we felt that corporate earnings in 1996 would slow, in turn limiting the stock market to a modest upside movement. Instead earnings remained strong even in the face of rising interest rates, and the stock markets reached record highs. Your Growth and Income Fund returned 20.31% for the year, topping last year's return and paralleling the 20.32% gain for the Standard & Poor's 500 Index.* CONTRIBUTORS TO STRONG PERFORMANCE The greatest exposure in the portfolio was to companies with high quality, consistently above-average earnings and low economic sensitivity. Our analytical efforts paid off as we worked to identify good earnings prospects. Many, such as Walgreens Company, a chain of retail drug stores, were in the consumer nondurable goods sector and had low economic sensitivity. Issues including Smithkline Beecham PLC ADR and Merck & Company, Inc. in the health care industry generated solid earnings as they felt little impact from rising interest rates. Albertson's, Inc., a food retailer, also was a strong performer, showing very little sensitivity to a moderating economy. Even though the technology sector was more volatile than many other areas, a strong-performing stock in the portfolio was Microsoft Corporation, increasing over 65% since purchase in early 1996. Another outstanding performer was U.S. Industries, Inc., a manufacturing and distribution conglomerate, which posted a 75% gain in its stock price since we added it to our holdings. THE FIXED INCOME PORTION OF THE PORTFOLIO Consistently throughout the fiscal year about 20% of the fund's portfolio was invested in high yield bonds. This portion contained both BB and B-rated issues, Standard & Poor's two highest rating categories in the high yield area of the fixed income market. Companies in these rating categories exhibit stronger balance sheets than their lower-rated counterparts, and generally will hold their value better in the event of an economic slowdown. Corporate buyouts played a substantial part in the total return contribution of the bond holdings. Cable television operator Continental Cablevision was purchased by U.S. West, Inc., a telecommunications service provider. Because U.S. West was rated higher, our Continental Cablevision bonds benefitted from an upgrade after the purchase. A similar situation in the finance industry involved Keystone Group, a mutual fund company, and its acquiror, a bank holding company called First Union Corporation. The perception that Keystone will soon be upgraded to First Union's ranking drove the price upward. [PHOTO OF THE SECURITY MANAGEMENT GROWTH-INCOME TEAM] THE SECURITY MANAGEMENT GROWTH-INCOME TEAM: (L-R) CHUCK LAUBER, TERRY MILBERGER, TOM SWANK, JIM SCHIER AND (SEATED) JOHN CLELAND LOOKING AHEAD We expect the long-awaited economic slowdown to unfold sometime in 1997. The path we pursued in 1996-focusing on stable growth companies-should continue to serve us well in that event. When economic strength resumes after this period of moderation, it is likely that we will increase our exposure to stocks of a more cyclical nature such as chemicals, paper producers, capital goods-related industries and the housing industry. Terry Milberger Senior Portfolio Manager Tom Swank Portfolio Manager *Performance figures are based on Class A shares and do not reflect deduction of the sales charge. - -------------------------------------------------------------------------------- 2 MANAGER'S COMMENTARY (CONTINUED) - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY GROWTH AND INCOME FUND PERFORMANCE ------------------------------------------------------------------- SECURITY GROWTH AND INCOME FUND VS. S&P 500 [LINE GRAPH WITH FOLLOWING INFORMATION CHARTED] BLENDED INDEX OF 80% S&P 500 AND 20% LEHMAN BROTHERS LONG BB SECURITY GROWTH HIGH YIELD AND INCOME FUND S&P 500 BOND INDEX ---------------------------------------------------------------- 12/31/86 9,647.52 10,558.65 10,539 3/31/87 11,073.61 12,811.51 12,471 6/30/87 11,466.66 13,452.05 12,960 9/30/87 11,765.21 14,340.79 13,608 12/31/87 9,732.90 11,108.76 11,213 3/31/88 10,287.69 11,639.74 11,898 6/30/88 10,629.71 12,411.48 12,607 9/30/88 10,482.14 12,450.80 12,732 12/31/88 10,776.56 12,830.71 13,152 3/31/89 11,437.43 13,738.04 13,920 6/30/89 12,146.18 14,948.76 15,054 9/30/89 12,714.35 16,546.27 16,427 12/31/89 12,978.10 16,882.45 16,783 3/31/90 12,493.36 16,371.56 16,418 6/30/90 12,572.14 17,396.25 17,347 9/30/90 11,978.80 15,017.92 15,365 12/31/90 12,589.17 16,355.85 16,483 3/31/91 13,681.07 18,723.54 18,691 6/30/91 13,895.14 18,684.26 19,449 9/30/91 14,645.95 19,683.96 19,743 12/31/91 15,341.48 21,321.71 21,257 3/31/92 15,050.76 20,786.06 20,991 6/30/92 14,903.63 21,182.53 21,434 9/30/92 15,329.00 21,683.89 22,092 12/31/92 16,079.63 22,770.27 23,126 3/31/93 16,803.06 23,758.75 24,163 6/30/93 16,955.43 23,873.65 24,497 9/30/93 17,721.93 24,488.58 25,191 12/31/93 17,394.03 25,053.11 25,820 3/31/94 16,974.35 24,111.23 24,852 6/30/94 15,908.79 24,217.77 24,838 9/30/94 16,368.88 25,402.86 25,888 12/31/94 16,027.39 25,397.70 25,924 3/31/95 16,967.16 27,864.59 28,376 6/30/95 18,571.77 30,516.98 31,107 9/30/95 19,683.37 32,938.57 33,285 12/31/95 20,475.35 34,917.17 35,236 3/31/96 21,867.19 36,787.15 36,693 6/30/96 22,730.29 38,433.91 38,018 9/30/96 23,681.51 39,610.93 39,196 $10,000 OVER TEN YEARS This chart assumes a $10,000 investment in Class A shares of Growth and Income Fund on September 30, 1986, and reflects deduction of the 5.75% sales load. On September 30, 1996, the value of your investment in Class A shares of the fund (with dividends reinvested) would have grown to $23,682. By comparison, the same $10,000 investment would have grown to $39,611 based on the S&P's performance. Comparison is also made to a blend of market indexes which reflect the asset classes in which the Fund invests. The blended index consists of 80% S&P 500 and 20% Lehman Brothers Long BB High Yield Index. The same $10,000 investment in the blended index would have grown to $39,005. The performance illustrated above is based on the performance of Class A shares. The performance of Class B shares, which were first offered on October 19, 1993, will be greater or less than the performance shown for Class A shares as a result of the different loads and fees associated with an investment in Class B shares. TOP 5 HOLDINGS** % OF NET ASSETS ---------- Monsanto Company 1.7% Oracle Corporation 1.7% American Home Products Corporation 1.7% Chase Manhattan Corporation 1.6% Eastman Kodak Company 1.6% **At September 30, 1996 AVERAGE ANNUAL RETURNS As of September 30, 1996 1 year 5 years 10 years ---------------------------- A Shares 20.31% 10.09% 9.65% A Shares with sales charge 13.45% 8.78% 9.00% B Shares 19.01% 9.41% N/A (10-19-93) B Shares with CDSC 14.01% 8.55% N/A (10-19-93) ONE YEAR RETURN PARALLELS INDEX A SHARES - 20.31% S&P 500 - 20.32% The performance data above represents past performance which is not predictive of future results. The investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for Class A shares or contingent deferred sales charge of 5% for Class B shares, as applicable, except where noted. Such figures would be lower if the maximum sales charge were deducted. - -------------------------------------------------------------------------------- 3 MANAGER'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - EQUITY SERIES To Our Shareholders: The stock markets during the fiscal year completed September 30 surprised us with their strength. Your Equity Series showed outstanding growth, returning 24.90% for the year compared with the Standard & Poor's 500 Index return of 20.32%.* A year ago at this time we anticipated that corporate earnings would slow in 1996, limiting the stock market to a modest rise at best. Instead earnings remained strong despite slightly higher interest rates, and the equity markets reached record high levels. GROWTH ORIENTATION PRODUCES EXCELLENT RETURNS Throughout the year we have maintained a preference for growth companies. The basic portfolio mix has been heavily weighted toward firms exhibiting high quality, above-average earnings growth. For example, one of our best performers has been Safeway, Inc. a grocery retailing chain which has been restructuring to improve their expense structure. This realignment has produced increasing profit margins, resulting in a stock price that more than doubled in the past twelve months. We have kept a large exposure to the healthcare industry, a sector which is now reaping the benefits of cost cutting and many promising new products. The stock of American Home Products Corporation has exhibited steady growth since the company purchased American Cyanamid. Investors perceive that the merger will bring cost efficiencies to the combined company which will lead to higher value. Another company in this sector, Shering-Plough Corporation, has an excellent outlook because of its new product flow. In the highly volatile technology sector we held Microsoft Corporation stock which appreciated over 65% since we purchased it. We also maintained an overweighted position in the aerospace/defense area, including such names as Lockheed Martin Corporation and McDonnell Douglas Corporation. On the negative side, we held a lower weighting than the S&P 500 Index in banking and in the energy sector. Banks were surprisingly strong performers despite rising interest rates, and oil prices have increased much more than anticipated. [PHOTO OF THE SECURITY MANAGEMENT LARGE CAP TEAM] THE SECURITY MANAGEMENT LARGE CAP TEAM JOHN CLELAND, TERRY MILBERGER, CHUCK LAUBER PLANS FOR THE COMING YEAR We think our blend of growth issues and selected value stocks is unique among growth funds. We believe that over time, this combination lowers the fund's volatility while increasing the potential for strong returns. We expect to continue our same strategy over the coming months, given our outlook for a moderating economy in 1997. We plan to maintain an emphasis on companies with above-average earnings growth, including those with exposure to foreign earnings. We think that many foreign economies have the potential to show better growth in the months ahead than the U.S. economy will generate. Terry Milberger Portfolio Manager *Performance figures are based on Class A shares and do not reflect deduction of the sales charge. - -------------------------------------------------------------------------------- 4 MANAGER'S COMMENTARY (CONTINUED) - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - EQUITY SERIES PERFORMANCE ------------------------------------------------------------------- SECURITY EQUITY SERIES VS. S&P 500 [LINE GRAPH WITH FOLLOWING INFORMATION CHARTED] Equity Series S&P 500 ------------------------------------------------------ 12/31/86 9,821.47 10,558.65 3/31/87 11,736.94 12,811.51 6/30/87 12,233.07 13,452.05 9/30/87 13,181.37 14,340.79 12/31/87 10,238.37 11,108.76 3/31/88 10,934.18 11,639.74 6/30/88 11,331.79 12,411.48 9/30/88 11,754.25 12,450.80 12/31/88 12,200.27 12,830.71 3/31/89 13,219.09 13,738.04 6/30/89 14,543.55 14,948.76 9/30/89 16,632.11 16,546.27 12/31/89 15,953.97 16,882.45 3/31/90 15,518.86 16,371.56 6/30/90 16,505.10 17,396.25 9/30/90 13,981.48 15,017.92 12/31/90 15,215.92 16,355.85 3/31/91 17,827.12 18,723.54 6/30/91 17,859.35 18,684.26 9/30/91 18,762.00 19,683.96 12/31/91 20,576.87 21,321.71 3/31/92 20,823.93 20,786.06 6/30/92 20,541.58 21,182.53 9/30/92 20,682.76 21,683.89 12/31/92 22,781.62 22,770.27 3/31/93 24,177.18 23,758.75 6/30/93 23,988.59 23,873.65 9/30/93 25,384.15 24,488.58 12/31/93 26,113.40 25,053.11 3/31/94 25,179.11 24,111.23 6/30/94 24,758.69 24,217.77 9/30/94 25,879.83 25,402.86 12/31/94 25,444.24 25,397.70 3/31/95 27,917.98 27,864.59 6/30/95 30,694.64 30,516.98 9/30/95 33,067.42 32,938.57 12/31/95 35,220.14 34,917.17 3/31/96 38,068.41 36,787.15 6/30/96 39,711.67 38,433.91 9/30/96 41,300.13 39,610.93 $10,000 OVER TEN YEARS This chart assumes a $10,000 investment in Class A shares of Equity Series on September 30, 1986, and reflects deduction of the 5.75% sales load. On September 30, 1996, the value of your investment in Class A shares of the Series (with dividends reinvested) would have grown to $41,300. By comparison, the same $10,000 investment would have grown to $39,611 based on the S&P's performance. The performance illustrated above is based on the performance of Class A shares. The performance of Class B shares, which were first offered on October 19, 1993, will be greater or less than the performance shown for Class A shares as a result of the different loads and fees associated with an investment in Class B shares. TOP 5 HOLDINGS** % OF NET ASSETS ---------- AlliedSignal, Inc. 1.7% American Home Products Corporation 1.7% U.S. Industries, Inc. 1.6% Bristol-Myers Squibb Company 1.6% Chase Manhattan Corporation 1.6% **At September 30, 1996 AVERAGE ANNUAL RETURNS As of September 30, 1996 1 year 5 years 10 years ---------------------------- A Shares 24.90% 17.09% 15.92% A Shares with sales charge 17.71% 15.70% 15.24% B Shares 23.57% 16.34% N/A (10-19-93) B Shares with CDSC 18.57% 15.58% N/A (10-19-93) The performance data above represents past performance which is not predictive of future results. The investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for Class A shares or contingent deferred sales charge of 5% for Class B shares, as applicable, except where noted. Such figures would be lower if the maximum sales charge were deducted. - -------------------------------------------------------------------------------- 5 MANAGER'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - GLOBAL SERIES [LEXINGTON LOGO] SUBADVISOR - LEXINGTON MANAGEMENT CORPORATION To Our Shareholders: The Global Series of Security Equity Fund had an outstanding year in the fiscal year completed September 30, posting a 17.73% gain.* This compares favorably with both the 13.01% average return of its peer group and the 12.98% advance of its benchmark, the Morgan Stanley Capital International World Index.** WORLD EQUITY MARKET PERFORMANCE Stock markets in both Europe and North America performed well the past year while many Far Eastern markets suffered. Japan and Thailand, for example, both declined over the most recent quarter. Hong Kong, conversely, continued to post strong gains due to an improving outlook for interest rates and property prices there. The Global Series portfolio benefitted from its overweighting in Europe. Interest sensitive stocks did well as weak economies and rising expectations for monetary union pushed interest rates lower. Our holdings in Greece and Poland also added to overall gains. The portfolio's underweighting in the United States dampened performance, however, as that market turned in strong results. THE GLOBAL ECONOMIC PICTURE The outlook for the global economy remains mixed. The U.S. economy is doing well with growth in the 2% to 3% range and inflation remaining subdued. Global equity markets should continue to enjoy a positive environment unless U.S. growth and inflation accelerate, forcing global bond yields higher. The U.S. stock market looks less appealing than those overseas due to an anemic profit outlook combined with high prices for stocks. [PHOTO OF RICHARD SALER] [PHOTO OF ALAN WAPNICK] RICHARD SALER ALAN WAPNICK PORTFOLIO MANAGER PORTFOLIO MANAGER European communities are struggling to maintain any growth at all. Governments are attempting to reduce budget deficits in order to qualify for European Monetary Union membership. This fiscal drag, along with double digit unemployment rates, is keeping growth to a minimum. Equity investors are benefitting from several factors. Because inflation remains low and deficits are being cut, interest rates continue to fall, propelling stock prices to record highs in many European markets. The European profit outlook is excellent as companies are aggressively cutting costs to improve competitiveness. The Japanese economy has finally emerged from recession, but with government fiscal stimulus slowing and a planned 2% increase in consumption taxes, the outlook going forward is muted. Most Japanese companies continue to be managed for the worker rather than the shareholder, reducing their long-term attractiveness. LOOKING FORWARD INTO 1997 We believe European stocks will continue to look attractive because interest rates should remain low for some time. Profits should continue to expand rapidly in many companies undergoing restructuring, as cost cutting will provide several years of margin expansion. The outlook for European monetary union has improved, and several sectors and countries will benefit from this. Japanese stocks are less exciting. Because of a subdued long-term profit outlook, their future remains cloudy. We believe that profits will surprise positively only if the yen continues to decline. In the emerging markets, Poland provides favorable opportunities. Greece is attractive also because of low equity valuations and the potential for falling interest rates if the newly elected government succeeds in bringing down the budget deficit. We feel that U.S. equities may underperform given their high valuations currently and the potential for profit disappointments. Richard Saler and Alan Wapnick Portfolio Managers *Performance figures are based on Class A shares and do not reflect deduction of the sales charge. **Peer group performance information based on data provided by Lipper Analytical Services, Inc. - -------------------------------------------------------------------------------- 6 MANAGER'S COMMENTARY (CONTINUED) - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - GLOBAL SERIES PERFORMANCE ------------------------------------------------------------------- SECURITY GLOBAL SERIES VS. MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX [LINE GRAPH WITH FOLLOWING INFORMATION CHARTED] Global Series MSCI ------------------------------------------ 12/93 9,745.28 9,899.23 3/94 9,773.58 9,971.48 6/94 10,009.43 10,282.89 9/94 10,226.42 10,515.81 12/94 9,869.12 10,451.79 3/95 9,744.20 10,954.69 6/95 9,955.61 11,436.49 9/95 10,512.97 12,089.93 12/95 10,892.47 12,679.75 3/96 11,590.07 13,210.98 6/96 12,217.90 13,609.02 9/96 12,377.35 14,189.26 This chart assumes a $10,000 investment in Class A shares of Global Series on October 1, 1993, and reflects deduction of the 5.75% sales load. On September 30, 1996, the value of your investment in Class A shares of the Series (with dividends reinvested) would have grown to $12,377. By comparison, the same $10,000 investment would have grown to $14,189 based on the MSCI's performance. The performance illustrated above is based on the performance of Class A shares. The performance of Class B shares, which were first offered on October 19, 1993, will be greater or less than the performance shown for Class A shares as a result of the different loads and fees associated with an investment in Class B shares. PORTFOLIO BREAKDOWN BY COUNTRY (TOP 5)** % OF NET ASSETS ---------- United States 17.9% Japan 12.8% United Kingdom 8.1% Germany 6.1% France 6.0% **At September 30, 1996 AVERAGE ANNUAL RETURNS As of September 30, 1996 1 year Since Inception ------ --------------- A Shares 17.73% 9.47% (10-1-93) A Shares with sales charge 10.94% 7.33% (10-1-93) B Shares 16.57% 8.75% (10-19-93) B Shares with CDSC 11.57% 7.88% (10-19-93) The performance data above represents past performance which is not predictive of future results. The investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for Class A shares or contingent deferred sales charge of 5% for Class B shares, as applicable, except where noted. Such figures would be lower if the maximum sales charge were deducted. Investing in foreign countries may involve risks, such as currency fluctuations and political instability, not associated with investing exclusively in the U.S. - -------------------------------------------------------------------------------- 7 MANAGER'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - ASSET ALLOCATION SERIES [TEMPLETON LOGO] [MERIDIAN INVESTMENT MANAGEMENT LOGO] [SECURITY MANAGEMENT COMPANY, LLC LOGO] MANAGED BY SECURITY MANAGEMENT COMPANY, LLC RESEARCH PROVIDED BY MERIDIAN INVESTMENT MANAGEMENT CORPORATION AND TEMPLETON/FRANKLIN INVESTMENT SERVICES, INC. TEMPLETON/FRANKLIN'S RESEARCH IS DERIVED FROM RESEARCH PROVIDED BY A THIRD PARTY WHICH IS ANALYZED AND MONITORED BY TEMPLETON/FRANKLIN. To Our Shareholders: The newest member of the Security Equity Fund family, the Asset Allocation Series, returned a respectable 10.01% to its shareholders in the fiscal year ended September 30.* It is difficult in years when one asset category far outperforms the others, as the U.S. stock market has done the past twelve months, to compare an allocation funds results with those of other types of portfolios. Over the longer term, however, we believe the theories of reduced risk and favorable return that spawned the asset allocation concept will reward its investors. PERFORMANCE IN FISCAL YEAR 1996 The portfolio for the Asset Allocation Series can be divided among seven asset categories: U.S. stocks, foreign stocks, U.S. bonds, foreign bonds, real estate (through Real Estate Investment Trusts), gold stocks, and cash.** For most of the past year we have used all of these categories except gold stocks and cash. The sector allocations recommended by our outside provider of research, Meridian Investment Management Corporation, have been timely. Country recommendations in the foreign equity sector have been strong. However, certain industry choices within the U.S. equity sector have been disappointing. It appears that some of these shifts were too early. Meridian remains positive in their outlook for the industries now held in the portfolio. ALLOCATION CHANGES SINCE MID-YEAR Since the semiannual report was written, Meridian has recommended four allocation changes. The first, in early May, was to sell completely our position in the United Kingdom, and to sell the chemical stock portion of the U.S. equity portfolio. Proceeds from these sales were invested in Italy, raising exposure there to 5.4% of the total portfolio. [PHOTO OF JANE TEDDER] JANE TEDDER PORTFOLIO MANAGER In mid-June Meridian suggested that the Fund's entire cash position (2.65% of the total portfolio) be moved into the real estate sector. They believed that yields were very attractive relative both to the sector's long-term averages and to interest rates in general. This move was followed in July by sales of holdings in the shoe and housing industries in the U.S. equity sector, reinvesting a month later in restaurant and broadcast stocks. THOUGHTS ABOUT NEXT YEAR Going forward, we are considering the value of increasing exposure to bonds, both in the U.S. and foreign sectors. The money would be taken from the U.S. equity sector, which may be nearing a correction as economic growth slows. The research we have been receiving from Meridian indicates that foreign equities will likely outperform U.S. stocks in coming months, especially in Italy and Germany. From an economic standpoint, we believe the potential for rising inflation is slim. Therefore a position in gold stocks, a traditional inflation hedge, is not expected to be added. Jane Tedder Portfolio Manager *Performance figures are based on Class A shares and do not reflect deduction of the sales charge. **Investing in foreign countries may involve risks, such as currency fluctuations and political instability, not associated with investing exclusively in the U.S. - -------------------------------------------------------------------------------- 8 MANAGER'S COMMENTARY (CONTINUED) - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY EQUITY FUND - ASSET ALLOCATION SERIES PERFORMANCE ------------------------------------------------------------------- SECURITY ASSET ALLOCATION SERIES VS. S&P 500 [LINE GRAPH WITH FOLLOWING INFORMATION CHARTED] ASSET MERIDIAN ALLOCATION SERIES S&P 500 BLENDED INDEX ----------------------------------------------------------------- 6/30/95 9,500.47 10,277.96 10,083 7/31/95 9,820.92 10,604.75 10,391 8/31/95 9,811.50 10,601.17 10,348 9/30/95 9,934.02 11,090.91 10,607 10/31/95 10,056.55 11,035.31 10,520 11/30/95 10,056.55 11,488.30 10,829 12/31/95 10,158.02 11,756.45 11,109 1/31/96 10,424.82 12,139.91 11,320 2/29/96 10,464.34 12,224.09 11,348 3/31/96 10,563.16 12,385.41 11,445 4/30/96 10,770.67 12,551.95 11,599 5/31/96 10,899.12 12,838.99 11,694 6/30/96 10,790.43 12,941.36 11,784 7/31/96 10,405.06 12,349.31 11,479 8/31/96 10,592.80 12,581.65 11,640 9/30/96 10,928.77 13,339.23 12,052 This chart assumes a $10,000 investment in Class A shares of Asset Allocation Series on June 1, 1995, and reflects deduction of the 5.75% sales load. On September 30, 1996, the value of your investment in Class A shares of the Series (with dividends reinvested) would have grown to $10,929. By comparison, the same $10,000 investment would have grown to $13,339, based on the S&P's performance. Comparison is also made to a blend of market indexes which reflect the asset classes in which the Series has invested over the past fiscal year. The blended index consists of 40% S&P 500, 5% U.S. 30-day Treasury, 20% Lehman Brothers Aggregate Bond, 25% Financial Times World Index (excluding U.S.), 10% Wilshire Real Estate Securities. The same $10,000 investment in the blended index would have grown to $12,052. The performance illustrated above is based on the performance of Class A shares. The performance of Class B shares will be greater or less than the performance shown for Class A shares as a result of the different loads and fees associated with an investment in Class B shares. ASSET MIX** % OF NET ASSETS ---------- International Equities & Equivalents 32.9% U. S. Equities 34.5% U. S. Bonds 15.9% Real Estate 14.8% Cash & Equivalents 1.9% **At September 30, 1996 AVERAGE ANNUAL RETURNS As of September 30, 1996 1 year Since Inception ------ --------------- A Shares 10.01% 11.73% (6-1-95) A Shares with sales charge 3.69% 6.88% (6-1-95) B Shares 8.97% 10.63% (6-1-95) B Shares with CDSC 3.97% 7.71% (6-1-95) The performance data above represents past performance which is not predictive of future results. The investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for Class A shares or contingent deferred sales charge of 5% for Class B shares, as applicable, except where noted. In addition, the investment manager is waiving a portion of the management fee for the Series. Performance figures would be lower if the maximum sales charge and advisory fee were deducted. - -------------------------------------------------------------------------------- 9 MANAGER'S COMMENTARY - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY ULTRA FUND To Our Shareholders: The strength of the stock markets in the fiscal year completed September 30 has surprised us all. Small-cap and mid-cap stocks have turned in a fine performance over the year. Your Ultra Fund shares generated a 15.36% total return, strongly outperforming the 12.32% return of the fund's benchmark, the Standard & Poor's 400 Midcap Growth Stock Index.* CONTRIBUTORS TO A SUCCESSFUL YEAR Our nearly 30% weighting in technology for most of the year has proven to be a wise decision. We reduced the position prior to the summer months when the market experienced a period of correction, and reinvested in late summer as the upward movement resumed. Many of our holdings in this sector generated very strong returns. A software manufacturer called Viasoft, Inc. gained over 280% since we purchased the stock in January. The company has developed software which helps correct the "millenium" issue in mainframe computers. Many applications which still run on the COBOL language (the Department of Motor Vehicles, for example, still uses this system) will read the two-digit "00" as the year 1900 instead of 2000. The Viasoft program determines how much of the code must be changed and where in the program it appears. Another issue which we purchased in February, Cascade Communications Corporation, rose over 130% during the balance of the year. Cascade specializes in the networking area, manufacturing switches which are used in wide-area networks. These systems allow companies to communicate more rapidly with remote sites by speeding up the flow of data through the telephone lines. OTHER STRONG PERFORMING SECTORS The health care area has helped portfolio performance this year also. Dura Pharmaceuticals, Inc. has capitalized on the mergers of major pharmaceutical manufacturers by buying smaller market-share drugs from them. These products usually receive little attention from the major companies in terms of sales efforts. Dura is purchasing these drugs after they have already received FDA approval, and can concentrate their sales efforts to increase market penetration. Another holding in the health care sector is Guidant Corporation, a manufacturer of cardiac defibrillators which can be implanted in pectoral muscles to regulate heartbeats. [PHOTO OF THE SECURITY MANAGEMENT SMALL CAP TEAM] THE SECURITY MANAGEMENT SMALL CAP TEAM LARRY VALENCIA, FRANK WHITSELL, CINDY SHIELDS, JOHN CLELAND In the business services arena, an outstanding performer is Cambridge Technology Partners (Massachusetts), Inc. The company performs information technology consulting and software development. They assist companies in projects such as moving from their old mainframe computer systems to newer client/server environments. Protecting their clients from cost overruns, Cambridge performs these services for a guaranteed fixed cost and within a guaranteed time period. A LOOK FORWARD TO THE NEXT YEAR We think the U.S. economy will be slowing and inflation will remain under control. We expect small- and mid-cap stocks to outperform the large-cap issues in the months ahead. Large companies have been achieving earnings growth through cutting costs, while small companies have been expanding earnings through sales growth. In our opinion, investors may be willing to pay more for companies showing revenue gains from sales increases than through cost reductions. Overall, we believe the fiscal year ahead will be another favorable one for equity investors. Cindy Shields Portfolio Manager *Performance figures are based on Class A shares and do not reflect deduction of the sales charge. - -------------------------------------------------------------------------------- 10 MANAGER'S COMMENTARY (CONTINUED) - -------------------------------------------------------------------------------- NOVEMBER 15, 1996 SECURITY ULTRA FUND PERFORMANCE ------------------------------------------------------------------- SECURITY ULTRA FUND VS. S&P MIDCAP 400 [LINE GRAPH WITH FOLLOWING INFORMATION CHARTED] Security Ultra Fund S&P Midcap 400 ---------------------------------------------------------------- Dec-86 9,349.19 10,231.21 Mar-87 11,076.90 12,371.30 Jun-87 11,076.90 12,266.45 Sep-87 11,480.96 12,816.07 Dec-87 7,654.05 10,023.15 Mar-88 8,687.99 11,328.66 Jun-88 9,492.16 11,951.35 Sep-88 9,075.72 11,794.81 Dec-88 9,414.11 12,114.83 Mar-89 9,774.53 13,271.13 Jun-89 10,178.20 14,599.23 Sep-89 11,374.78 16,192.45 Dec-89 10,538.74 16,420.52 Mar-90 10,492.52 15,908.44 Jun-90 11,678.90 16,852.55 Sep-90 6,871.76 13,856.38 Dec-90 7,647.54 15,580.30 Mar-91 10,450.55 19,156.41 Jun-91 9,948.29 19,015.77 Sep-91 10,888.02 20,826.68 Dec-91 12,215.99 23,385.48 Mar-92 12,332.17 23,267.27 Jun-92 10,606.01 22,543.45 Sep-92 11,054.15 23,419.84 Dec-92 13,157.80 26,171.07 Mar-93 13,261.27 27,028.62 Jun-93 13,209.53 27,659.14 Sep-93 14,020.03 29,051.46 Dec-93 14,464.52 29,825.72 Mar-94 13,671.95 28,694.22 Jun-94 12,443.46 27,648.94 Sep-94 13,513.43 29,521.48 Dec-94 13,506.57 28,759.69 Mar-95 13,971.61 31,112.96 Jun-95 14,901.70 33,826.76 Sep-95 16,579.92 37,128.28 Dec-95 16,112.61 37,658.64 Mar-96 17,248.61 39,976.91 Jun-96 18,662.81 41,128.06 Sep-96 19,126.48 42,325.44 $10,000 OVER TEN YEARS This chart assumes a $10,000 investment in Class A shares of Ultra Fund on September 30, 1986, and reflects deduction of the 5.75% sales load. On September 30, 1996, the value of your investment in Class A shares of the fund (with dividends reinvested) would have grown to $19,126. In comparison, the same $10,000 investment would have grown to $42,325 based on the S&P's performance. The performance illustrated above is based on the performance of Class A shares. The performance of Class B shares, which were first offered on October 19, 1993, will be greater or less than the performance shown for Class A shares as a result of the different loads and fees associated with an investment in Class B shares. TOP 5 HOLDINGS** % OF NET ASSETS ---------- Franklin Resources, Inc. 1.9% Viasoft, Inc. 1.8% Dura Pharmaceuticals, Inc. 1.7% Cognos, Inc. (Cl. F) 1.7% HFS, Inc. 1.6% **At September 30, 1996 AVERAGE ANNUAL RETURNS As of September 30, 1996 1 year 5 years 10 years ---------------------------- A Shares 15.36% 11.93% 7.34% A Shares with sales charge 8.73% 10.61% 6.70% B Shares 13.81% 9.42% N/A (10-19-93) B Shares with CDSC 8.81% 8.56% N/A (10-19-93) ONE YEAR RETURN BEATS INDEX A SHARES - 15.36% S&P MIDCAP 400 - 12.32% The performance data above represents past performance which is not predictive of future results. The investment return and principal value of an investment in the fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for Class A shares or contingent deferred sales charge of 5% for Class B shares, as applicable, except where noted. Such figures would be lower if the maximum sales charge were deducted. - -------------------------------------------------------------------------------- 11 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY GROWTH AND INCOME FUND PRINCIPAL MARKET AMOUNT CORPORATE BONDS VALUE - -------------------------------------------------------------------------------- AUTOMOTIVE - 0.4% $300,000 Exide Corporation, 10.75% - 2002 ...................................... $313,500 BUILDING MATERIALS - 0.4% 250,000 Knoll, Inc., 10.875% - 2006 ..................................... 265,000 CHEMICALS - 0.4% 250,000 Environdyne Industries, Inc., 12% - 2000 ......................................... 267,813 COMMUNICATIONS - 2.9% 250,000 Allbritton Communication Company, 11.5% - 2004 ....................................... 265,625 750,000 Century Communications Corporation, 9.5% - 2005 ........................................ 753,750 500,000 Comcast Corporation, 9.125% - 2006 ...................................... 496,250 250,000 Heritage Media Corporation, 8.75% - 2006 ....................................... 237,500 500,000 Rogers Cablesystems, Ltd., 9.625% - 2002 ...................................... 503,750 __________ 2,256,875 CONGLOMERATE - 1.0% 250,000 Jordan Industries, Inc., 10.375% - 2003 ..................................... 245,625 500,000 Sequa Corporation, 9.375% - 2003 ...................................... 503,750 __________ 749,375 CONSUMER GOODS & SERVICES - 0.6% 800,000 Semi-Tech Corporation, 0% - 2003(1) ....................................... 482,000 ELECTRIC & GAS COMPANIES - 0.8% 250,000 AES Corporation, 10.25% - 2006 ...................................... 265,000 300,000 CalEnergy Company, Inc., 9.5% - 2006(2) ..................................... 304,500 __________ 569,500 ENTERTAINMENT - 1.0% 250,000 AMF Group, Inc., 10.875% - 2006 ..................................... 256,875 500,000 Harrah's Operating Company, Inc., 8.75% - 2000 ....................................... 508,125 __________ 765,000 FINANCE - 1.0% 1,000,000 Home Holdings, 7.75% - 1998 ....................................... 765,000 PRINCIPAL MARKET AMOUNT CORPORATE BONDS (CONTINUED) VALUE - -------------------------------------------------------------------------------- FOOD & BEVERAGES - 1.4% $500,000 Cott Corporation, 9.375% - 2005 ...................................... $500,000 500,000 TLC Beatrice International Holdings, 11.5% - 2005 ....................................... 524,375 __________ 1,024,375 GROCERY STORES - 0.6% 500,000 Penn Traffic Company, 10.65% - 2004 ...................................... 443,750 INDUSTRIAL PRODUCT - 0.4% 300,000 Shop Vac Corporation, 10.625% - 2003(2) .................................. 308,250 MEDICAL & HEALTH SERVICES - 1.0% 500,000 Regency Health Services, 9.875% - 2002 ...................................... 503,750 250,000 Tenet Healthcare Corporation, 10.125% - 2005 ..................................... 271,250 __________ 775,000 OIL & GAS COMPANIES - 0.7% 500,000 Seagull Energy Corporation, 8.625% - 2005 ...................................... 503,750 PUBLISHING & PRINTING - 1.3% 250,000 Golden Books Publishing, 7.65% - 2002 ....................................... 224,375 1,000,000 Marvel Holdings, 0% - 1998 .......................................... 790,000 __________ 1,014,375 REFINERY - 0.7% 500,000 Crown Central Petroleum, 10.875% - 2005 ..................................... 508,125 RESTAURANTS - 0.7% 500,000 Carrols Corporation, 11.5% - 2003 ....................................... 525,000 TEXTILE - 0.7% 500,000 Westpoint Stevens Inc., 9.375% - 2005 ...................................... 501,250 TOBACCO PRODUCTS - 0.3% 250,000 Dimon, Inc., 8.875% - 2006 ...................................... 251,250 __________ Total corporate bonds - (cost $12,254,780) - 16.3% ......................... 12,289,188 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 12 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY GROWTH AND INCOME FUND (CONTINUED) NUMBER OF MARKET SHARES PREFERRED STOCKS VALUE - -------------------------------------------------------------------------------- BANKING & CREDIT - 1.2% 8,250 First Nationwide Bank ................................ $932,250 ENTERTAINMENT - 0.7% 524 Time Warner, Inc.,(2) ................................ 552,883 PUBLISHING & PRINTING - 0.6% 5,000 K-III Communications Corporation ..................... 467,500 RADIO & TELEVISION - 0.7% 5,139 Cablevision Systems Corporation ...................... 498,483 __________ Total preferred stocks (cost $2,344,749) - 3.2% ........................... 2,451,116 COMMON STOCKS ------------- ADVERTISING - 1.5% 25,000 Omnicom Group, Inc. .................................. 1,168,750 AEROSPACE & DEFENSE - 4.8% 10,000 Lockheed Martin Corporation .......................... 901,250 20,000 McDonnell Douglas Corporation ........................ 1,050,000 15,000 Raytheon Company ..................................... 834,375 15,000 Rockwell International Corporation ................... 845,625 __________ 3,631,250 BANKING & FINANCE - 1.6% 15,000 Chase Manhattan Corporation .......................... 1,201,875 CHEMICALS - BASIC - 3.6% 15,000 Hercules, Inc. ....................................... 821,250 35,000 Monsanto Company ..................................... 1,277,500 8,000 Olin Corporation ..................................... 672,000 __________ 2,770,750 CHEMICALS - SPECIALTY - 2.5% 20,000 Morton International, Inc. ........................... 795,000 25,000 Praxair, Inc. ........................................ 1,075,000 __________ 1,870,000 COMMUNICATION EQUIPMENT - 0.9% 10,000 U.S. Robotics Corporation* ........................... 646,250 COMPUTER SERVICES - 3.5% 20,000 Ceridian Corporation* ................................ 1,000,000 10,000 Computer Sciences Corporation* ....................... 768,750 15,000 Electronic Data Systems Corporation .................. 920,625 __________ 2,689,375 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- COMPUTER SOFTWARE - 3.1% 8,000 Microsoft Corporation* ............................... $1,055,000 30,000 Oracle Corporation* .................................. 1,276,875 __________ 2,331,875 CONGLOMERATE - 6.5% 15,000 AlliedSignal, Inc. ................................... 988,125 40,000 Canadian Pacific, Ltd. ............................... 925,000 20,000 Cooper Industries, Inc. .............................. 865,000 10,000 Tenneco, Inc. ........................................ 501,250 40,000 U.S. Industries, Inc.* ............................... 1,050,000 30,000 Westinghouse Electric Corporation .................... 558,750 __________ 4,888,125 CONSUMER SERVICES - 0.8% 30,000 ADT Ltd.* ............................................ 573,750 ELECTRICAL MACHINERY & ELECTRONIC COMPONENTS - 1.4% 12,000 General Electric Company ............................. 1,092,000 ENTERTAINMENT - 2.1% 30,000 Carnival Corporation (Cl. A) ......................... 930,000 10,000 The Walt Disney Company .............................. 633,750 __________ 1,563,750 FERTILIZER - 1.0% 10,000 Potash Corporation of Saskatchewan, Inc. ............. 731,250 FINANCIAL - 1.1% 24,000 Federal National Mortgage Association ................ 837,000 FOOD & BEVERAGES - 6.3% 30,000 Anheuser-Busch Companies, Inc. ....................... 1,128,750 15,000 CPC International, Inc. .............................. 1,123,125 20,000 ConAgra, Inc. ........................................ 985,000 30,000 PepsiCo, Inc. ........................................ 847,500 20,000 Sara Lee Corporation ................................. 715,000 __________ 4,799,375 HOSPITAL MANAGEMENT & SERVICES - 1.1% 15,000 Columbia/HCA Healthcare Corporation .................. 853,125 HOUSEHOLD FURNISHINGS - 1.6% 40,000 Leggett & Platt, Inc. ................................ 1,175,000 HOUSEHOLD PRODUCTS - 1.3% 10,000 Procter & Gamble Company ............................. 975,000 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 13 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY GROWTH AND INCOME FUND (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- INSURANCE - 2.6% 15,000 Allstate Corporation ................................. $738,750 20,000 Equitable Companies, Inc. ............................ 515,000 13,000 Jefferson-Pilot Corporation .......................... 672,750 __________ 1,926,500 MACHINERY - 1.4% 25,000 Deere & Company ...................................... 1,050,000 MANUFACTURING - 1.1% 30,000 Pall Corporation ..................................... 847,500 MEDICAL INSTRUMENTS & SUPPLIES - 2.1% 20,000 Baxter International, Inc. ........................... 935,000 10,000 Medtronic, Inc. ...................................... 641,250 __________ 1,576,250 NATURAL GAS - 2.8% 25,000 Coastal Corporation .................................. 1,031,250 25,000 El Paso Natural Gas Company .......................... 1,100,000 __________ 2,131,250 OIL & GAS PIPELINES - 0.8% 10,000 MAPCO, Inc. .......................................... 596,250 PHARMACEUTICALS - 8.3% 15,000 Allergan, Inc. ....................................... 571,875 20,000 American Home Products Corporation ................... 1,275,000 10,000 Bristol-Myers Squibb Company ......................... 963,750 20,000 Elan Corporation PLC ADR* ............................ 597,500 13,000 Merck & Company, Inc. ................................ 914,875 25,000 Pharmacia & Upjohn, Inc. ............................. 1,031,250 15,000 SmithKline Beecham PLC ADR ........................... 913,125 __________ 6,267,375 PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.6% 15,000 Eastman Kodak Company ................................ 1,177,500 PUBLISHING & PRINTING - 0.7% 13,000 McGraw-Hill Companies, Inc. .......................... 554,125 RESTAURANTS & FOOD SERVICE - 2.4% 20,000 McDonald's Corporation ............................... 947,500 40,000 Wendy's International, Inc. .......................... 860,000 __________ 1,807,500 RETAIL TRADE - 5.0% 20,000 Albertson's, Inc. .................................... 842,500 30,000 Federated Department Stores, Inc.* ................... 1,005,000 15,000 Kroger Company ....................................... 671,250 20,000 Walgreens Company .................................... 740,000 20,000 Wal-Mart Stores, Inc. ................................ 527,500 __________ 3,786,250 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- TELECOMMUNICATIONS - 1.2% 35,000 Frontier Corporation ................................. $931,875 TRANSPORTATION - 2.1% 10,000 Burlington Northern Santa Fe ......................... 843,750 10,000 Union Pacific Corporation ............................ 732,500 ___________ 1,576,250 ___________ Total common stocks - (cost $42,945,898) - 76.8% ......................... 58,027,125 ___________ Total investments - (cost $57,545,427) - 96.3% ......................... 72,767,429 Cash and other assets, less liabilities - 3.7% ............................ 2,752,865 ___________ Total net assets - 100.0% ............................ $75,520,294 =========== SECURITY EQUITY FUND - EQUITY SERIES COMMON STOCKS ------------- ADVERTISING - 1.5% 200,000 Omnicom Group, Inc. .................................. $9,350,000 AEROSPACE & DEFENSE - 5.1% 100,000 Lockheed Martin Corporation .......................... 9,012,500 160,000 McDonnell Douglas Corporation ........................ 8,400,000 100,000 Raytheon Company ..................................... 5,562,500 150,000 Rockwell International Corporation ................... 8,456,250 ___________ 31,431,250 BANKING & FINANCE - 3.5% 120,000 Chase Manhattan Corporation .......................... 9,615,000 60,000 Northern Trust Corporation ........................... 3,945,000 30,000 Wells Fargo & Company ................................ 7,800,000 ___________ 21,360,000 CHEMICALS - BASIC - 3.4% 120,000 Hercules, Inc. ....................................... 6,570,000 250,000 Monsanto Company ..................................... 9,125,000 60,000 Olin Corporation ..................................... 5,040,000 ___________ 20,735,000 CHEMICALS - SPECIALTY - 2.5% 170,000 Morton International, Inc. ........................... 6,757,500 200,000 Praxair, Inc. ........................................ 8,600,000 ___________ 15,357,500 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 14 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- COMMUNICATION EQUIPMENT - 0.8% 75,000 U.S. Robotics Corporation* ........................... $4,846,875 COMPUTER SERVICES - 4.0% 150,000 Ceridian Corporation* ................................ 7,500,000 100,000 Computer Sciences Corporation* ....................... 7,687,500 150,000 Electronic Data Systems Corporation .................. 9,206,250 ___________ 24,393,750 COMPUTER SOFTWARE - 2.2% 65,000 Microsoft Corporation* ............................... 8,571,875 112,500 Oracle Corporation* .................................. 4,788,281 ___________ 13,360,156 CONGLOMERATE - 6.9% 160,000 AlliedSignal, Inc. ................................... 10,540,000 400,000 Canadian Pacific, Ltd. ............................... 9,250,000 170,000 Cooper Industries, Inc. .............................. 7,352,500 380,000 U.S. Industries, Inc.* ............................... 9,975,000 300,000 Westinghouse Electric Corporation .................... 5,587,500 ___________ 42,705,000 CONSUMER SERVICES - 0.9% 300,000 ADT, Ltd.* ........................................... 5,737,500 ELECTRICAL MACHINERY & ELECTRONIC COMPONENTS - 1.5% 100,000 General Electric Company ............................. 9,100,000 ENTERTAINMENT - 3.2% 240,000 Carnival Corporation (Cl. A) ......................... 7,440,000 337,900 International Game Technology ........................ 6,926,950 80,000 The Walt Disney Company .............................. 5,070,000 ___________ 19,436,950 FERTILIZER - 1.0% 82,800 Potash Corporation of Saskatchewan, Inc. ............. 6,054,750 FINANCE - 1.3% 230,000 Federal National Mortgage Association ................ 8,021,250 FOOD & BEVERAGES - 6.3% 200,000 Anheuser-Busch Companies, Inc. ....................... 7,525,000 120,000 CPC International, Inc. .............................. 8,985,000 160,000 ConAgra, Inc. ........................................ 7,880,000 260,000 PepsiCo, Inc. ........................................ 7,345,000 200,000 Sara Lee Corporation ................................. 7,150,000 ___________ 38,885,000 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- HOSPITAL MANAGEMENT - 1.2% 125,000 Columbia/HCA Healthcare Corporation .................. $7,109,375 HOUSEHOLD PRODUCTS - 3.4% 75,000 Colgate-Palmolive Company ............................ 6,515,625 100,000 Gillette Company ..................................... 7,212,500 75,000 Procter & Gamble Company ............................. 7,312,500 ___________ 21,040,625 INSURANCE - 6.2% 175,000 Allstate Corporation ................................. 8,618,750 80,000 American International Group, Inc. ................... 8,060,000 270,000 Equitable Companies, Inc. ............................ 6,952,500 55,000 ITT Hartford Group, Inc. ............................. 3,245,000 111,400 Jefferson-Pilot Corporation .......................... 5,764,950 150,000 Provident Companies, Inc. ............................ 5,625,000 ___________ 38,266,200 MACHINERY - 1.4% 210,000 Deere & Company ...................................... 8,820,000 MANUFACTURING - 1.0% 217,500 Pall Corporation ..................................... 6,144,375 MEDICAL INSTRUMENTS - 2.8% 200,000 Baxter International, Inc. ........................... 9,350,000 120,000 Medtronic, Inc. ...................................... 7,695,000 ___________ 17,045,000 NATURAL GAS - 1.1% 170,000 Coastal Corporation .................................. 7,012,500 OIL & GAS COMPANIES - 0.7% 100,000 Noble Affiliates, Inc. ............................... 4,225,000 OIL & GAS PIPELINES - 1.2% 120,000 MAPCO, Inc. .......................................... 7,155,000 PAINT & ALLIED PRODUCTS - 1.3% 175,000 Sherwin-Williams Company ............................. 8,115,625 PERSONNEL SERVICES - 0.5% 100,000 Manpower, Inc. ....................................... 3,325,000 PETROLEUM REFINING - 2.6% 70,000 Mobil Corporation .................................... 8,102,500 50,000 Royal Dutch Petroleum Company ADR .................... 7,806,250 ___________ 15,908,750 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 15 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - EQUITY SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- PHARMACEUTICALS - 9.9% 200,000 Allergan, Inc. ....................................... $7,625,000 160,000 American Home Products Corporation ................... 10,200,000 100,000 Bristol-Myers Squibb Company ......................... 9,637,500 140,000 Elan Corporation PLC ADR* ............................ 4,182,500 115,000 Merck & Company, Inc. ................................ 8,093,125 200,000 Pharmacia & Upjohn, Inc. ............................. 8,250,000 110,000 Schering-Plough Corporation .......................... 6,765,000 100,000 SmithKline Beecham PLC ADR ........................... 6,087,500 ___________ 60,840,625 PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.8% 100,000 Eastman Kodak Company ................................ 7,850,000 60,000 Xerox Corporation .................................... 3,217,500 ___________ 11,067,500 PUBLISHING & PRINTING - 1.3% 30,000 Gannett Company, Inc. ................................ 2,111,250 145,000 McGraw-Hill Companies, Inc. .......................... 6,180,625 ___________ 8,291,875 RESTAURANTS & FOOD SERVICE - 2.4% 170,000 McDonald's Corporation ............................... 8,053,750 305,000 Wendy's International, Inc. .......................... 6,557,500 ___________ 14,611,250 RETAIL TRADE - 7.1% 200,000 Albertson's, Inc. .................................... 8,425,000 235,000 Federated Department Stores, Inc.* ................... 7,872,500 100,000 Kroger Company* ...................................... 4,475,000 170,000 Safeway, Inc.* ....................................... 7,246,250 90,000 TJX Companies, Inc. .................................. 3,228,750 180,000 Wal-Mart Stores, Inc. ................................ 4,747,500 200,000 Walgreens Company .................................... 7,400,000 ___________ 43,395,000 SEMICONDUCTORS - 1.0% 85,000 Linear Technology Corporation ........................ 3,134,375 85,000 Xilinx, Inc.* ........................................ 2,890,000 ___________ 6,024,375 TELECOMMUNICATIONS - 1.3% 300,000 Frontier Corporation ................................. 7,987,500 TOYS & SPORTING GOODS - 0.7% 162,500 Mattel, Inc. ......................................... 4,204,688 PRINCIPAL AMOUNT OR NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- TRANSPORTATION - 2.4% 85,000 Burlington Northern Santa Fe ......................... $7,171,875 100,000 Union Pacific Corporation ............................ 7,325,000 ____________ 14,496,875 ____________ Total common stocks (cost $413,186,524) - 95.4% ........................ 585,862,119 COMMERCIAL PAPER ---------------- $700,000 Philip Morris Companies, Inc. 5.255%, 10-15-96 ................................... 698,569 ____________ Total commercial paper (cost $698,569) - 0.1% ............................. 698,569 ____________ Total investments - (cost $413,885,093) - 95.5% ........................ 586,560,688 Cash and other assets, less liabilities - 4.5% ............................ 27,941,988 ____________ Total net assets - 100.0% ............................$614,502,676 ============ SECURITY EQUITY FUND - GLOBAL SERIES PREFERRED STOCKS ---------------- GERMANY - 2.5% 2,260 SAP AG ............................................... $380,099 618 Sto AG ............................................... 305,940 __________ Total preferred stocks - (cost $642,693) - 2.5% ............................. 686,039 COMMON STOCKS ------------- AUSTRALIA - 1.1% 55,625 QBE Insurance Group, Ltd. ............................ 299,271 AUSTRIA - 2.8% 3,700 Bank Austria AG ...................................... 144,517 3,300 Creditanstalt-Bankverein ............................. 203,029 2,200 Wienerberger Baustoff ................................ 403,188 __________ 750,734 BRAZIL - 0.8% 26,700 Aracruz Cellulose S.A. ADR ........................... 233,625 CANADA - 1.3% 9,600 Jetform Corporation .................................. 183,600 28,200 Noranda Forest, Inc. ................................. 177,039 __________ 360,639 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 16 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- CHILE - 2.1% 22,800 Antofagasta Holdings PLC ............................. $128,438 18,800 Banco Santander ADR .................................. 251,450 7,500 Santa Isabel S.A. ADR ................................ 192,188 __________ 572,076 FRANCE - 6.0% 3,570 Alcatel Alsthom ...................................... 301,084 8,600 Lafarge .............................................. 507,126 5,500 SGS-Thomson Microelectronics N.V. .................... 262,975 3,320 Sidel S.A. ........................................... 199,311 1,540 Societe Generale de Surveillance Holding S.A. "B" .... 170,289 2,000 Synthelabo ........................................... 170,649 __________ 1,611,434 GERMANY - 3.6% 10,800 Continental AG ....................................... 197,645 5,600 Daimler-Benz AG ...................................... 308,072 4,500 Duetsche Bank AG ..................................... 212,150 1,160 G.M. Pfaff AG ........................................ 22,819 6,100 Hoechst AG ........................................... 222,705 __________ 963,391 GREECE - 1.6% 3,900 Ergo Bank S.A. ....................................... 225,059 12,300 Hellenic Tellecommunications ......................... 207,068 __________ 432,127 HONG KONG - 0.6% 188,000 National Mutual Asia, Ltd. ........................... 165,321 HUNGARY - 0.4% 2,600 Pick Szeged Rt. ...................................... 120,129 INDONESIA - 0.5% 51,000 PT Semen Cibinong .................................... 131,794 IRELAND - 2.6% 38,000 Allied Irish Banks PLC ............................... 223,484 172,500 Jefferson Smurfit .................................... 469,933 __________ 693,417 ITALY - 0.6% 8,400 Bulgari SPA .......................................... 156,362 JAPAN - 12.8% 19,000 Amada Company, Ltd. .................................. 175,625 6,248 Amway Japan, Ltd. .................................... 271,385 4,000 CSK Corporation ...................................... 124,563 3,000 H.I.S. Company, Ltd. ................................. 176,883 28,000 Hino Motors, Ltd. .................................... 273,894 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- JAPAN (CONTINUED) 1,700 Kokusai Denshin Denwa Company ........................ $161,715 32,000 Komatsu Forklift Company, Ltd. ....................... 211,362 2,260 Maruco Company ....................................... 148,058 16,000 Marsushita Electric Industrial Company, Ltd. ......... 268,509 17,000 Matsushita Refrigeration Company, Ltd. ............... 122,049 38,000 Mazda Motor Corporation .............................. 185,175 80 NTT Data Communications Systems Corporation .......... 248,408 9,000 National House Industrial Corporation ................ 139,729 29,000 Nippon Chemi-Con Corporation ......................... 188,684 10,000 Nitto Denko Corporation .............................. 153,459 1,500 Ryohin Keikaku Company, Ltd. ......................... 127,075 4,700 Sony Corporation ..................................... 296,517 16,000 Yamato Kogyo Company, Ltd. ........................... 166,561 __________ 3,439,651 MALAYSIA - 0.9% 44,000 Malaysian Assurance .................................. 242,279 MEXICO - 1.1% 26,300 Tubos De Acero De Mexico S.A. ADR .................... 286,013 NETHERLANDS - 1.3% 9,350 Philips Electronics N.V. ............................. 337,912 NEW ZEALAND - 2.8% 215,100 Brierley Investments, Ltd. ........................... 207,489 85,500 Carter Holt Harvey, Ltd. ............................. 188,259 43,200 Fisher & Paykel Industries, Ltd. ..................... 147,964 91,900 Fletcher Challenge Building, Ltd. .................... 204,277 __________ 747,989 NORWAY - 2.5% 51,400 Fokus Banken AS ...................................... 287,208 23,500 Saga Petroleum AS .................................... 379,826 __________ 667,034 PHILIPPINES - 1.3% 277,100 C & P Homes, Inc. .................................... 187,729 462,750 Filinvest Land, Inc. ................................. 167,791 __________ 355,520 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 17 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- POLAND - 2.7% 8,700 Debica S.A. .......................................... $185,996 21,100 Elektrim S.A. ........................................ 206,753 4,403 Wedel S.A. ........................................... 235,328 1,520 Zaklady Piwowarski w Zywcu S.A. ...................... 90,447 __________ 718,524 PORTUGAL - 1.1% 11,500 Portugal Telecom S.A. ................................ 295,841 RUSSIA - 0.4% 3,600 Lukoil Oil Company ADR ............................... 131,688 SINGAPORE - 1.1% 31,000 Inchcape ............................................. 103,972 21,000 United Overseas Bank ................................. 204,434 __________ 308,406 SOUTH AFRICA - 0.6% 2,900 Rustenburg Platinum Holdings, Ltd. ................... 45,702 6,819 Rustenburg Platinum Holdings, Ltd. ADR ............... 107,476 __________ 153,178 SPAIN - 0.7% 5,500 Repsol S.A. .......................................... 180,805 SWEDEN - 0.4% 2,660 Astra AB ............................................. 112,524 SWITZERLAND - 2.9% 283 Nestle S.A. .......................................... 315,322 42 Roche Holdings AG .................................... 309,133 140 Union Bank of Switzerland ............................ 134,677 __________ 759,132 THAILAND - 2.4% 10,000 Avanced Info ......................................... 129,814 44,000 Krung Thai Bank Public Company, Ltd. ................. 188,663 9,000 Property Perfect Public Company ...................... 26,199 4,400 Securities One Public Company ........................ 31,415 16,200 Shinawatra Computer Company .......................... 278,084 __________ 654,175 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- UNITED KINGDOM - 8.1% 157,500 Aegis Group PLC ...................................... $160,813 9,700 Bluebird Toys PLC .................................... 21,326 57,900 British Telecommunication PLC ........................ 322,996 25,200 D.F.S. Furniture Company PLC ......................... 214,120 82,000 Grand Metropolitan PLC ............................... 611,415 10,700 RTZ Corporation PLC .................................. 163,833 3,300 SmithKline Beecham PLC ADR ........................... 200,888 110,900 Tomkins PLC .......................................... 480,695 __________ 2,176,086 UNITED STATES - 17.9% 1,000 AMR Corporation ...................................... 79,625 1,900 Abbott Laboratories .................................. 93,575 1,600 AlliedSignal, Inc. ................................... 105,400 1,000 American International Group ......................... 100,750 2,200 American Re Corporation .............................. 139,700 2,000 B.J. Services Company* ............................... 72,500 1,600 BMC Software, Inc.* .................................. 127,400 2,400 Becton Dickenson Company ............................. 106,200 1,200 Boeing Company ....................................... 113,400 2,800 Borders Group, Inc.* ................................. 104,300 2,000 Boston Scientific Corporation* ....................... 115,000 1,200 CPC International, Inc. .............................. 89,850 2,000 Cisco Systems, Inc. .................................. 124,125 1,200 Citicorp ............................................. 108,750 1,300 Colgate-Palmolive Company ............................ 112,939 1,950 Computer Associates International, Inc. .............. 116,514 2,800 Conseco, Inc. ........................................ 137,900 3,100 Crown Cork & Seal Company, Inc. ...................... 142,988 2,100 Diamond Offshore Drilling, Inc. ...................... 115,500 2,200 Dover Corporation .................................... 105,050 3,100 Ecolab, Inc. ......................................... 104,626 2,700 Federal National Mortgage Association ................ 94,164 3,300 Gap, Inc. ............................................ 95,288 2,800 Hershey Foods Corporation ............................ 140,700 1,900 Honeywell, Inc. ...................................... 119,938 2,200 Johnson & Johnson .................................... 112,750 1,300 Lockheed Martin Corporation .......................... 117,165 900 Mobil Corporation .................................... 104,175 4,200 Monsanto Company ..................................... 153,300 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 18 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - GLOBAL SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- UNITED STATES (CONTINUED) 2,500 NAC Re Corporation ................................... $90,000 1,200 NationsBank Corporation .............................. 104,250 1,300 Nike, Inc. (Cl. B) ................................... 157,950 3,200 PepsiCo, Inc. ........................................ 90,400 1,000 Procter & Gamble Company ............................. 97,500 1,500 Ralston-Purina Group ................................. 102,750 3,200 Safeway, Inc.* ....................................... 136,400 1,200 Schlumberger, Ltd. ................................... 101,400 4,200 Service Corporation International .................... 127,050 2,000 Union Pacific Corporation ............................ 146,500 2,700 WMX Technologies, Inc. ............................... 88,763 1,800 Warner-Lambert Company ............................... 118,800 1,400 Willamette Industries, Inc. .......................... 91,350 2,200 Williams Companies, Inc. ............................. 112,200 ___________ 4,818,885 ___________ Total common stocks - (cost $20,969,213) - 85.0% ......................... 22,875,962 ___________ Total investments - (cost $21,611,906) - 87.5% ......................... 23,562,001 Cash and other assets, less liabilities - 12.5% ........................... 3,366,511 ___________ Total net assets - 100.0% ............................ $26,928,512 =========== INVESTMENT CONCENTRATION - ------------------------- At September 30, 1996, Global Series' investment concentration, by industry, was as follows: Banking .......................................................... 8.7% Capital Equipment ................................................ 6.2% Chemicals ........................................................ 0.6% Construction and Housing ......................................... 1.2% Consumer Durables ................................................ 8.2% Consumer Nondurables ............................................. 9.1% Electrical and Electronics ....................................... 6.0% Energy Sources ................................................... 4.1% Financial Services ............................................... 6.3% Healthcare ....................................................... 5.0% Materials ........................................................ 13.1% Merchandising .................................................... 3.2% Metals and Mining ................................................ 0.2% Multi-Industry ................................................... 3.8% Real Estate ...................................................... 0.7% Services ......................................................... 5.8% Telecommunications ............................................... 3.7% Trade ............................................................ 0.8% Transportation ................................................... 0.8% Cash and other assets, less liabilities .......................... 12.5% _________ 100.0% ========= SECURITY EQUITY FUND - ASSET ALLOCATION SERIES PRINCIPAL AMOUNT OR NUMBER OF MARKET SHARES CORPORATE BONDS VALUE - -------------------------------------------------------------------------------- BROKERAGE - 1.0% $50,000 Merrill Lynch & Company, Inc., 8.0% - 2007 ........................................ $52,188 FINANCIAL SERVICES 0.5% $25,000 MCN Investment Corporation, 6.32% - 2003 ....................................... 24,031 __________ Total corporate bonds (cost $78,785) - 1.5% .............................. 76,219 COMMON STOCKS ------------- AUTO PARTS & SUPPLIES - 2.6% 600 Arvin Industries, Inc. ............................... 14,775 1,400 Dana Corporation ..................................... 42,350 400 Eaton Corporation .................................... 24,150 800 Modine Manufacturing Company ......................... 21,000 1,500 Simpson Industries ................................... 15,187 1,000 Walbro Corporation ................................... 19,000 __________ 136,462 BUILDING MATERIALS - 3.6% 900 Ameron International Corporation ..................... 34,650 700 Crane Company ........................................ 31,062 1,500 Jacobs Engineering Group* ............................ 33,750 600 Owens Corning Corporation ............................ 22,125 3,500 Schuller Corporation ................................. 33,688 300 TJ International, Inc. ............................... 5,475 1,400 Thomas Industries, Inc. .............................. 27,125 __________ 187,875 BROADCAST MEDIA - 2.7% 1,000 A.H. Belo Corporation - Series A ..................... 34,500 2,400 Tele-Communications, Inc.* ........................... 35,850 1,000 Time Warner, Inc. .................................... 38,625 2,000 U.S. West Media Group* ............................... 33,750 __________ 142,725 COMPUTER SYSTEMS - 4.5% 600 Compaq Computer Corporation* ......................... 38,475 400 Dell Computer Corporation* ........................... 31,100 600 Hewlett-Packard Company .............................. 29,250 400 International Business Machines Corporation .......... 49,800 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 19 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED) NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- COMPUTER SYSTEMS (CONTINUED) 1,000 Quantum Corporation* ................................. $17,562 600 SCI Systems, Inc.* ................................... 33,750 600 Sun Microsystems, Inc.* .............................. 37,275 __________ 237,212 ELECTRONICS - 3.9% 900 Arrow Electronics, Inc.* ............................. 40,050 800 Avnet, Inc. .......................................... 38,800 1,000 Core Industries, Inc. ................................ 13,625 900 Fluke (John) Manufacturing Company ................... 33,187 400 Harris Corporation ................................... 26,050 1,100 Pioneer Standard Electronics, Inc. ................... 12,375 600 Varian Associates, Inc. .............................. 28,800 400 Wyle Electronics ..................................... 12,850 __________ 205,737 HOUSING - HOME BUILDING - 0.2% 300 Centex Corporation ................................... 9,788 MACHINERY - 3.9% 900 Bearings, Inc. ....................................... 25,425 300 Briggs & Stratton Corporation ........................ 13,312 700 Dover Corporation .................................... 33,425 500 Duriron Company, Inc. ................................ 13,250 700 GATX Corporation ..................................... 32,725 1,300 Graco, Inc. .......................................... 24,375 200 Lindsay Manufacturing Company ........................ 8,300 600 Parker-Hannifin Corporation .......................... 25,200 900 Trinova Corporation .................................. 28,350 __________ 204,362 MINING & METALS - 2.3% 200 Aluminum Company of America .......................... 11,800 600 Asarco, Inc. ......................................... 15,975 1,400 Ashland Coal, Inc. ................................... 34,825 700 Phelps Dodge Corporation ............................. 44,888 300 Reynolds Metals Company .............................. 15,337 __________ 122,825 RECREATION - 4.0% 2,200 Brunswick Corporation ................................ 52,800 2,000 CPI Corporation ...................................... 37,500 400 Harcourt General, Inc. ............................... 22,100 1,100 Harley-Davidson, Inc. ................................ 47,300 1,300 King World Productions, Inc.* ........................ 47,938 __________ 207,638 PRINCIPAL AMOUNT OR NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- RESTAURANTS - 2.4% 600 Applebees International, Inc. ........................ $15,900 500 CKE Restaurants, Inc. ................................ 15,375 1,000 International Dairy Queen, Inc. (Cl. A)* ............. 20,500 1,000 Luby's Cafeterias, Inc. .............................. 24,000 1,500 Ruby Tuesday, Inc. ................................... 28,500 1,000 Wendy's International, Inc. .......................... 21,500 __________ 125,775 STEEL - 2.2% 400 Carpenter Technology ................................. 14,000 400 Cleveland Cliffs, Inc. ............................... 16,000 900 Commercial Metals Company ............................ 29,475 100 Nucor Corporation .................................... 5,075 900 Oregon Steel Mills, Inc. ............................. 13,838 800 Quanex Corporation ................................... 21,500 1,000 Steel Technologies, Inc. ............................. 12,500 __________ 112,388 TELECOMMUNICATIONS - 2.2% 400 Ameritech Corporation ................................ 21,050 500 Bell Atlantic Corporation ............................ 29,938 200 Bellsouth Corporation ................................ 7,400 500 GTE Corporation ...................................... 19,250 400 Nynex Corporation .................................... 17,400 300 Southern New England Telecommunications .............. 11,062 200 Sprint Corporation ................................... 7,775 __________ 113,875 __________ Total common stocks - (cost $1,749,717) - 34.5% .......................... 1,806,662 U.S. GOVERNMENT & AGENCIES -------------------------- FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.7% $150,000 5.27% - 10/15/96 ..................................... 149,692 $100,000 7.0% - 2020 .......................................... 98,562 $50,000 7.0% - 2021 .......................................... 48,177 __________ 296,431 FINANCING CORPORATION - 0.5% $75,000 0% - 2010 ............................................ 26,441 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 20 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED) PRINCIPAL AMOUNT OR NUMBER OF MARKET SHARES U.S. GOVERNMENT & AGENCIES (CONTINUED) VALUE - -------------------------------------------------------------------------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.9% $48,043 6.5% - 2018 .......................................... $45,191 $50,000 6.5% - 2018 .......................................... 47,955 $130,000 6.95% - 2020 ......................................... 125,042 $40,000 7.5% - 2020 .......................................... 39,392 $100,000 8.8% - 2025 .......................................... 102,875 __________ 360,455 U.S. TREASURY BONDS - 0.8% $50,000 6.00% - 2026 ......................................... 43,936 U.S. TREASURY NOTES - 0.5% $25,000 6.38% - 2002 ......................................... 24,819 __________ Total U.S. government & agencies (cost $759,730) - 14.4% ............................ 752,082 REAL ESTATE INVESTMENT TRUSTS ----------------------------- 2,200 Bre Properties, Inc. ................................. 44,000 3,400 Cambridge Shopping Centres, Ltd. ..................... 22,837 2,500 Federal Realty Investment Trust ...................... 58,750 4,000 First Union Real Estate Investment Trust ............. 26,000 1,700 HRE Properties ....................................... 25,925 2,500 MGI Properties, Inc. ................................. 46,875 5,500 New Plan Realty Trust ................................ 118,250 1,400 Pennsylvania Real Estate Investment Trust ............ 29,750 2,000 Santa Anita Realty Enterprises, Inc. ................. 36,500 6,800 Security Capital Pacific Trust ....................... 143,650 5,300 United Dominion Realty Trust ......................... 74,200 3,350 Washington Real Estate Investment Trust .............. 53,600 2,400 Weingarten Realty Investors .......................... 93,000 __________ Total real estate investment trusts (costs $747,996) - 14.8% ........................... 773,337 NUMBER OF MARKET SHARES FOREIGN STOCKS VALUE - -------------------------------------------------------------------------------- BELGIUM - 4.8% 500 Cementbedrijven Cimenteries .......................... $36,955 500 Delhaize - Le Lion ................................... 27,716 100 Electrabel ........................................... 22,332 200 Fortis AG ............................................ 28,162 250 Gevaert Photo Productions ............................ 16,486 100 Petrofina SA ......................................... 30,965 150 Royale Belgium ....................................... 29,818 100 Solvay SA ............................................ 60,210 __________ 252,644 GERMANY - 8.0% 36 Allianz AG Holdings .................................. 63,561 1,081 BASF AG .............................................. 33,736 735 Bayer AG ............................................. 26,851 202 Continental AG ....................................... 3,696 850 Daimler-Benz AG* ..................................... 46,672 14 Degussa AG ........................................... 5,101 692 Deutsche Bank AG ..................................... 32,552 1,211 Dresdner Bank AG ..................................... 31,957 7 Friedrich Grohe AG - Vorzugsak ....................... 1,923 79 Heidelberger Zement AG ............................... 5,490 180 Hochtief AG .......................................... 8,497 14 Linde AG ............................................. 8,931 187 Merck KGAA ........................................... 6,737 7 Muenchener Rueckversicherungs-Gesellschaft AG ........ 15,865 72 Preussag AG .......................................... 18,056 122 SAP AG ............................................... 20,149 1,038 Siemens AG ........................................... 54,627 634 Veba AG .............................................. 33,220 __________ 417,621 HONG KONG - 5.1% 3,600 Bank of East Asia .................................... 13,245 5,000 Cathay Pacific Airways ............................... 8,115 4,000 China Light and Power Company ........................ 18,622 8,000 Chinese Estates ...................................... 7,242 1,600 Dicksons Concept International ....................... 5,193 4,000 Hong Kong and Shanghai Hotels ........................ 7,216 18,410 Hong Kong Telecommunications ......................... 33,330 8,000 Hutchinson Whampoa Limited ........................... 53,795 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 21 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY EQUITY FUND - ASSET ALLOCATION SERIES (CONTINUED) NUMBER OF MARKET SHARES FOREIGN STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- HONG KONG (CONTINUED) 2,000 Kumagai Gumi ......................................... $1,862 2,000 Lai-Sun Garment International ........................ 2,741 3,000 Oriental Press Group ................................. 1,455 2,000 Peregrine Investments Holdings ....................... 3,168 8,000 Sun Hung Kai Properties .............................. 85,090 12,000 Tai Cheung Holdings .................................. 9,543 2,400 Wing Lung Bank ....................................... 14,121 __________ 264,738 ITALY - 5.4% 2,475 Assicurazioni Generali ............................... 52,685 11,000 Banco Commerciale Italiane ........................... 21,970 4,000 Edison Spa ........................................... 24,940 7,000 Fiat Spa ............................................. 19,684 16,638 Ina-Instituto Naz Assicuraz .......................... 24,104 3,208 Instituto Mobiliare Italiano ......................... 27,273 3,500 Mediobanca* .......................................... 20,236 29,600 Montedison Spa* ...................................... 19,136 18,821 Telecom Italia Mobile Spa ............................ 41,796 15,000 Telecom Italia-Spa ................................... 33,360 __________ 285,184 JAPAN - 9.6% 2,000 The Bank of Tokyo-Mitsubishi ......................... 43,636 1 East Japan Railway Company ........................... 4,831 1,000 Hitachi, Ltd. (Hit. Seisakusho) ...................... 9,697 1,000 Itoham Foods ......................................... 7,138 1,000 Japan Energy Corporation ............................. 3,529 3,000 Kawasaki Heavy Industries ............................ 14,465 1,000 Marui Company, Ltd. .................................. 19,304 1,000 Matsushita Electric Industrial Company, Ltd. ......... 16,790 2,000 Mitsubishi Corporation ............................... 25,499 2,000 Mitsubishi Heavy Industrial, Ltd. .................... 16,287 3,000 Mitsubishi Materials Corporation ..................... 14,384 1,000 Nippon Comsys Corporation ............................ 13,468 1,000 Nippon Shokubai K.K. Company ......................... 8,817 2,000 NSK Limited .......................................... 13,702 200 Oyo Corporation ...................................... 10,325 100 Sega Enterprises ..................................... 4,355 2,000 Sekisui House, Ltd. .................................. 21,908 3,000 Shimizu Corporation .................................. 29,630 1,000 Shin-Etsu Chemical Company ........................... 17,957 2,000 Sumitomo Bank ........................................ 36,992 NUMBER OF MARKET SHARES FOREIGN STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- JAPAN (CONTINUED) 4,000 Sumitomo Chemical Company ............................ $18,532 1,000 Sumitomo Marine and Fire ............................. 7,883 1,000 Tokyo Dome Corporation ............................... 20,651 1,800 Tokyo Electric Power ................................. 43,636 3,000 Tokyu Corporation .................................... 21,118 1,000 Toyoda Auto Loom Works ............................... 19,035 1,000 Toyota Motor Corporation ............................. 25,589 2,000 Yamaichi Securities .................................. 12,301 __________ 501,459 __________ Total foreign stocks (cost $1,667,743) - 32.9% .......................... 1,721,646 FOREIGN WARRANTS ---------------- HONG KONG - 0.0% 400 Kumagai Gumi - Warrants 6/30/98 77 200 Peregrine Investments Holdings - Warrants 5/15/98 37 __________ 114 __________ Total foreign warrants (cost $0) - 0.0% ................................... 114 TEMPORARY CASH INVESTMENTS 83,000 Chase Master Note .................................... 83,000 Total temporary cash investments (cost $83,000) - 1.6% .............................. 83,000 __________ Total investments - (cost $5,086,971) - 99.7% .......................... 5,213,060 Cash and other assets, liabilities - 0.3% ................................. 17,112 __________ Total net assets - 100.0% $5,230,172 ========== SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 22 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY ULTRA FUND NUMBER OF MARKET SHARES COMMON STOCKS VALUE - -------------------------------------------------------------------------------- ADVERTISING - 0.8% 13,500 Omnicom Group, Inc. .................................. $631,125 BANKS & TRUSTS - 1.3% 18,000 State Street Boston Corporation ...................... 1,032,750 BIOTECHNOLOGY - 1.0% 12,500 Amgen, Inc.* ......................................... 789,063 BROKERAGE - 1.4% 47,000 Schwab (Charles) Corporation ......................... 1,086,875 BUSINESS SERVICES - 9.7% 14,500 APAC Teleservices, Inc.* ............................. 743,125 11,000 Cintas Corporation ................................... 616,000 21,000 Concord EFS, Inc.* ................................... 540,750 12,750 Corestaff, Inc.* ..................................... 341,062 22,000 Corrections Corporation of America* .................. 687,500 31,500 Equifax, Inc. ........................................ 830,813 11,530 First Data Corporation ............................... 941,136 14,000 Ha-Lo Industries, Inc.* .............................. 406,000 35,250 PMT Services, Inc.* .................................. 713,813 16,500 Paychex, Inc. ........................................ 957,000 20,250 Snap-On, Inc. ........................................ 650,531 ___________ 7,427,730 CHEMICALS - SPECIALTY - 2.5% 16,000 IMC Global, Inc. ..................................... 626,000 16,000 Praxair, Inc. ........................................ 688,000 11,000 Sigma-Aldrich ........................................ 627,000 ___________ 1,941,000 COMMUNICATIONS - EQUIPMENT - 6.4% 11,000 Ascend Communications, Inc.* ......................... 727,375 15,500 Aspect Telecommunications* ........................... 964,875 12,500 Cascade Communications Corporation* .................. 1,018,750 14,500 Tellabs, Inc.* ....................................... 1,024,062 18,400 U.S. Robotics Corporation* ........................... 1,189,100 ___________ 4,924,162 COMPUTER SOFTWARE - 19.7% 7,500 BMC Software* ........................................ 596,250 8,000 CBT Group PLC ADR* ................................... 376,000 20,250 Cadence Design Systems, Inc.* ........................ 723,937 33,500 Cambridge Technology Partners (Massachusetts), Inc.* . 1,013,375 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- COMPUTER SOFTWARE (CONTINUED) 8,000 Clarify, Inc.* ....................................... $496,000 39,000 Cognos, Inc. (Cl. F)* ................................ 1,272,375 9,000 Electronics For Imaging, Inc.* ....................... 645,750 15,500 HBO & Company ........................................ 1,034,625 11,000 HCIA, Inc.* .......................................... 660,000 8,000 HNC Software, Inc.* .................................. 320,000 14,500 Informix Corporation* ................................ 404,188 9,500 INSO Corporation* .................................... 515,375 10,000 McAfee Associates* ................................... 690,000 13,000 Medic Computer Systems* .............................. 472,875 10,000 Pairgain Technologies, Inc.* ......................... 781,250 25,000 Parametric Technology Corporation* ................... 1,234,375 10,500 Peoplesoft, Inc.* .................................... 874,125 14,500 Project Software & Development* ...................... 612,625 15,446 Pure Atria Corporation* .............................. 583,086 6,500 Veritas Software Corporation* ........................ 459,875 33,500 Viasoft, Inc.* ....................................... 1,407,000 ___________ 15,173,086 COMPUTER SYSTEMS - 2.9% 14,500 Dell Computer Corporation* ........................... 1,127,375 14,000 SCI Systems, Inc.* ................................... 787,500 7,000 Verifone, Inc.* ...................................... 313,250 ___________ 2,228,125 CONSUMER SERVICES - 1.3% 15,000 Apollo Group, Inc.* .................................. 401,250 17,500 Stewart Enterprises, Inc. (Cl. A) .................... 590,625 ___________ 991,875 ELECTRONICS - 1.2% 22,500 Thermo Electron Corporation* ......................... 911,250 FINANCIAL SERVICES - 1.9% 22,000 Franklin Resources, Inc. ............................. 1,460,250 HEALTH CARE - 4.9% 13,500 Cardinal Health, Inc. ................................ 1,115,437 16,500 OccuSystems, Inc.* ................................... 495,000 24,000 Omnicare, Inc. ....................................... 732,000 20,250 PhyCor, Inc.* ........................................ 770,765 8,500 Quintiles Transnational Corporation* ................. 622,625 ___________ 3,735,827 HEALTH CARE - HMO - 0.5% 7,700 Oxford Health Plans* ................................. 383,075 SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 23 STATEMENTS OF NET ASSETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 SECURITY ULTRA FUND NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- HOSPITAL SUPPLIES/MANAGEMENT - 1.4% 28,500 HEALTHSOUTH Corporation* ............................. $1,093,687 HOTEL/MOTEL - 2.5% 18,500 HFS, Inc.* ........................................... 1,237,188 33,750 La Quinta Inns, Inc. ................................. 658,125 ___________ 1,895,313 INSURANCE - 2.7% 27,500 AFLAC, Inc. .......................................... 976,250 32,000 SunAmerica, Inc. ..................................... 1,104,000 ___________ 2,080,250 MANUFACTURING - 1.0% 10,500 Illinois Tool Works .................................. 757,313 MEDICAL PRODUCTS - 3.0% 15,500 Guidant Corporation .................................. 856,375 19,500 Hologic, Inc.* ....................................... 546,000 25,000 Rexall Sundown, Inc.* ................................ 912,500 ___________ 2,314,875 OFFICE EQUIPMENT & SUPPLIES - 2.5% 15,500 Corporate Express, Inc.* ............................. 602,563 11,000 Diebold, Inc. ........................................ 642,125 23,000 Viking Office Products, Inc.* ........................ 690,000 ___________ 1,934,688 OIL & GAS DRILLING - 1.6% 25,000 Global Marine, Inc.* ................................. 393,750 20,000 Noble Affiliates, Inc. ............................... 845,000 ___________ 1,238,750 OIL & GAS EXPLORATION - 0.9% 16,500 Sonat, Inc. .......................................... 730,125 PACKAGING & CONTAINERS - 0.4% 9,000 Sealed Air Corporation* .............................. 335,250 PHARMACEUTICALS - 2.9% 36,000 Dura Pharmaceuticals, Inc.* .......................... 1,327,500 19,000 Jones Medical Industries, Inc. ....................... 921,500 ___________ 2,249,000 POLLUTION CONTROL - 2.1% 19,500 Superior Services, Inc.* ............................. 312,000 16,500 United States Filter Corporation* .................... 563,063 21,000 United Waste Systems, Inc.* .......................... 729,750 ___________ 1,604,813 RESTAURANTS - 2.0% 29,500 Landry's Seafood Restaurants* ........................ 737,500 14,750 Papa John's International, Inc.* ..................... 774,375 ___________ 1,511,875 NUMBER OF MARKET SHARES COMMON STOCKS (CONTINUED) VALUE - -------------------------------------------------------------------------------- RETAIL - 9.5% 16,000 Bed Bath & Beyond, Inc.* ............................. $438,000 9,500 CDW Computer Centers, Inc.* .......................... 648,375 18,750 Claire's Stores* ..................................... 400,781 20,000 Dollar General Corporation ........................... 622,500 5,500 Fila Holdings SPA ADR ................................ 528,687 18,000 Gadzooks* ............................................ 625,500 6,500 Jones Apparel Group, Inc. ............................ 414,375 10,000 Just For Feet, Inc.* ................................. 501,250 20,000 Kohl's Corporation* .................................. 720,000 12,000 Nine West Group, Inc.* ............................... 651,000 46,375 Staples, Inc.* ....................................... 1,028,945 8,000 Tiffany & Company .................................... 320,000 11,000 West Marine, Inc.* ................................... 363,000 ___________ 7,262,413 SEMICONDUCTORS - 3.4% 11,000 Altera Corporation* .................................. 556,875 27,500 Analog Devices, Inc.* ................................ 745,937 11,000 Atmel Corporation* ................................... 339,625 10,000 Linear Technology Corporation ........................ 368,750 18,000 Xilinx, Inc.* ........................................ 612,000 ___________ 2,623,187 TEXTILES - APPAREL - 0.9% 11,500 Tommy Hilfiger Corporation* .......................... 681,375 TRANSPORTATION - 0.6% 13,500 Illinois Central Corporation ......................... 426,939 ___________ Total common stocks (cost $54,337,203) - 92.9% ......................... 71,456,046 ___________ Total investments (cost $54,337,203) - 92.9% ......................... 71,456,046 Cash and other assets, less liabilities - 7.1% ............................ 5,472,389 ___________ Total net assets - 100.0% ............................ $76,928,435 =========== The identified cost of investments owned at September 30, 1996, was the same for federal income tax and financial statement purposes, except for Ultra Fund for which the identified cost of investments for federal income tax purposes was $54,391,123. *Securities on which no cash dividend was paid during the preceding twelve months. ADR (American Depositary Receipt) (1) Deferred interest obligation; currently zero coupon under terms of initial offering. (2) Restricted Security (a portfolio security that may be sold privately, but that is required to be registered with the SEC or to be exempted from such registration before it may be sold in public distribution). The total value of restricted securities in Security Growth and Income Fund is 1.2% of total net assets. SEE ACCOMPANYING NOTES. - -------------------------------------------------------------------------------- 24 BALANCE SHEETS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996
SECURITY EQUITY FUND ------------------------------------------- SECURITY ASSET SECURITY GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ---------------------------------------------------------------------------------- ASSETS Investments, at value (identified cost $57,545,427, $413,186,524, $21,611,906, $5,086,971 and $54,337,203, respectively) .................. $72,767,429 $585,862,119 $23,562,001 $5,213,060 $71,456,046 Commercial paper, at amortized cost which approximates market value ............. -- 698,569 -- -- -- Cash ........................................... 2,626,784 30,227,821 3,300,894 986 5,576,094 Receivables: Fund shares sold ............................ 7,170 698,756 185,812 28,025 65,839 Securities sold ............................. 762,411 4,204,469 35,311 -- 54,911 Foreign forward exchange contracts .......... -- -- 73,725 -- -- Dividends ................................... 326,455 799,590 54,783 7,516 15,076 Interest .................................... 4,424 130,532 11,246 5,908 15,996 Foreign taxes recoverable ................... -- -- 27,074 927 -- Prepaid expenses ............................... -- -- -- 6,532 -- ___________ ____________ ___________ ____________ ___________ Total assets ......................... $76,494,673 $622,621,856 $27,250,846 $5,262,954 $77,183,962 =========== ============ =========== ============ =========== LIABILITIES AND NET ASSETS Liabilities: Payable for: Fund shares redeemed ...................... $92,842 $300,369 $64,517 $634 $34,798 Securities purchased ...................... 800,000 7,259,213 212,697 -- 137,437 Other Liabilities: Management fees ........................... 79,730 524,858 40,330 6,326 80,777 Custodian fees ............................ -- -- -- 361 -- Transfer and administration fees .......... -- -- -- 4,400 -- 12b-1 distribution plan fees .............. 1,807 30,977 4,790 2,279 2,515 Miscellaneous fees ........................ -- 3,763 -- 18,782 -- ___________ ____________ ___________ ____________ ___________ Total liabilities ....................... 974,379 8,119,180 322,334 32,782 255,527 Net Assets: Paid in capital ............................. 54,388,672 392,830,437 22,674,750 4,863,583 55,074,630 Undistributed net investment income ......... 182,698 2,728,863 671,849 112,622 -- Accumulated undistributed net realized gain on sale of investments, futures and foreign currency transactions ......... 5,726,922 46,267,781 1,558,961 127,889 4,734,962 Net unrealized appreciation in value of investments, futures and translation of assets and liabilities in foreign currencies ..................... 15,222,002 172,675,595 2,022,952 126,078 17,118,843 ___________ ____________ ___________ ____________ ___________ Net assets .............................. 75,520,294 614,502,676 26,928,512 5,230,172 76,928,435 ___________ ____________ ___________ ____________ ___________ Total liabilities and net assets ...... $76,494,673 $622,621,856 $27,250,846 $5,262,954 $77,183,962 =========== ============ =========== ============ =========== CLASS "A" SHARES Capital shares outstanding .................. 8,099,424 76,389,986 1,582,223 221,414 8,994,692 Net assets .................................. $73,273,461 $575,680,473 $19,643,985 $2,449,515 $74,230,177 Net asset value per share (net assets divided by shares outstanding) ..... $9.05 $7.54 $12.42 $11.06 $ 8.25 Add: Selling commission (5.75% of the offering price) ........................... 0.55 0.46 0.76 0.67 0.50 ___________ ____________ ___________ ____________ ___________ Offering price per share (net asset value divided by 94.25%) .................. $9.60 $8.00 $13.18 $11.73 $8.75 =========== ============ =========== ============ =========== CLASS "B" SHARES Capital shares outstanding .................. 251,446 5,275,526 598,242 253,411 336,000 Net assets .................................. $2,246,833 $38,822,203 $7,284,527 $2,780,657 $2,698,258 Net asset value per share (net assets divided by shares outstanding). $8.94 $7.36 $12.18 $10.97 $8.03 =========== ============ =========== ============ ===========
See accompanying notes. - -------------------------------------------------------------------------------- 25 STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 1996
SECURITY EQUITY FUND ------------------------------------------- SECURITY ASSET SECURITY GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ---------------------------------------------------------------------------------- INVESTMENT INCOME: Interest .................................... $1,348,538 $1,238,261 $80,041 $108,168 $198,794 Dividends ................................... 1,068,605 8,213,370 455,115 86,911 260,084 ___________ ____________ ___________ ____________ ___________ 2,417,143 9,451,631 535,156 195,079 458,878 Less foreign tax expense .................. -- -- (47,577) (1,779) -- ___________ ____________ ___________ ____________ ___________ Total investment income ................. 2,417,143 9,451,631 487,579 193,300 458,878 EXPENSES: Management fees ............................. 919,674 5,528,818 470,077 39,560 862,190 Custodian fees .............................. -- -- -- 3,674 -- Transfer/maintenance fees ................... -- -- -- 5,571 -- Administration fees ......................... -- -- -- 36,957 -- Directors' fees ............................. -- -- -- 72 -- Professional fees ........................... -- -- -- 11,284 -- Reports to shareholders ..................... -- -- -- 974 -- Registration fees ........................... -- -- -- 25,949 -- Other expenses .............................. -- -- -- 6,286 -- 12b-1 distribution plan fees (Class B) ...... 16,080 279,934 59,852 22,229 36,559 Interest .................................... -- -- -- 193 -- Reimbursement of expenses ................... -- -- -- (43,856) -- ___________ ____________ ___________ ____________ ___________ Total expenses ............................ 935,754 5,808,752 529,929 108,893 898,749 ___________ ____________ ___________ ____________ ___________ Net investment income (loss) ............ 1,481,389 3,642,879 (42,350) 84,407 (439,871) NET REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) during the year on: Investments ............................... 6,097,347 54,909,397 2,087,000 198,823 7,783,798 Foreign currency transactions ............. -- -- 580,735 (5,918) -- Futures contracts ......................... -- -- -- 59,868 81,216 ___________ ____________ ___________ ____________ ___________ Net realized gains ...................... 6,097,347 54,909,397 2,667,735 252,773 7,865,014 Net change in unrealized appreciation (depreciation) during the year on: Investments ............................... 5,572,992 59,008,440 1,018,925 36,071 2,292,201 Translation of assets and liabilities in foreign currencies ................... -- -- 72,857 (11) -- Futures contracts ......................... -- -- -- 13,545 -- ___________ ____________ ___________ ____________ ___________ Net unrealized appreciation ............. 5,572,992 59,008,440 1,091,782 49,605 2,292,201 ___________ ____________ ___________ ____________ ___________ Net gain .............................. 11,670,339 113,917,837 3,759,517 302,378 10,157,215 ___________ ____________ ___________ ____________ ___________ Net increase in net assets resulting from operations ......... $13,151,728 $117,560,716 $3,717,167 $386,785 $9,717,344 =========== ============ =========== ============ ===========
See accompanying notes. - -------------------------------------------------------------------------------- 26 STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 1996
SECURITY EQUITY FUND ------------------------------------------- SECURITY ASSET SECURITY GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ---------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) ................ $1,481,389 $3,642,879 $(42,350) $84,407 $(439,871) Net realized gain ........................... 6,097,347 54,909,397 2,667,735 252,773 7,865,014 Unrealized appreciation during the year ..... 5,572,992 59,008,440 1,091,782 49,605 2,292,201 ___________ ____________ ___________ ____________ ___________ Net increase in net assets resulting from operations ............... 13,151,728 117,560,716 3,717,167 386,785 9,717,344 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A ................................... (1,303,374) (4,154,225) (357,503) (59,841) -- Class B ................................... (16,567) (64,778) (72,239) (50,821) -- Net realized gain Class A ................................... (2,290,075) (33,371,334) (224,880) (30,468) (7,109,009) Class B ................................... (44,993) (1,836,652) (77,719) (31,088) (500,515) ___________ ____________ ___________ ____________ ___________ Total distributions to shareholders ....... (3,655,009) (39,426,989) (732,341) (172,218) (7,609,524) CAPITAL SHARE TRANSACTIONS (A): Proceeds from sale of shares Class A ................................... 3,975,290 299,520,899 5,778,490 682,087 27,602,365 Class B ................................... 1,200,271 93,534,094 2,179,465 1,119,612 3,050,423 Dividends reinvested Class A ................................... 3,265,411 34,973,081 570,969 89,987 6,772,088 Class B ................................... 60,327 1,882,247 149,212 81,908 500,487 Shares redeemed Class A ................................... (10,667,756) (273,412,317) (5,192,505) (337,484) (28,420,959) Class B ................................... (369,561) (79,755,552) (1,236,321) (55,397) (6,164,145) ___________ ____________ ___________ ____________ ___________ Net increase (decrease) from capital share transactions .............. (2,536,018) 76,742,452 2,249,310 1,580,713 3,340,259 ___________ ____________ ___________ ____________ ___________ Total increase in net assets .......... 6,960,701 154,876,179 5,234,136 1,795,280 5,448,079 NET ASSETS: Beginning of year ........................... 68,559,593 459,626,497 21,694,376 3,434,892 71,480,356 ___________ ____________ ___________ ____________ ___________ End of year ................................. $75,520,294 $614,502,676 $26,928,512 $5,230,172 $76,928,435 =========== ============ =========== ============ =========== Undistributed net investment income at end of year .............................. $182,698 $2,728,863 $671,849 $112,622 $-- =========== ============ =========== ============ =========== (a) Shares issued and redeemed Shares sold Class A ............................... 474,232 43,657,565 491,586 63,688 3,632,551 Class B ............................... 143,440 13,771,902 186,645 104,927 412,321 Dividends reinvested Class A ............................... 404,486 5,483,525 52,399 8,801 996,776 Class B ............................... 7,601 300,151 13,842 8,014 75,103 Shares redeemed Class A ............................... (1,281,262) (39,986,054) (447,772) (31,916) (3,688,397) Class B ............................... (43,575) (11,797,000) (107,952) (5,145) (820,769) ___________ ____________ ___________ ____________ ___________ Net increase (decrease) ............. (295,078) 11,430,089 188,748 148,369 (607,585) =========== ============ =========== ============ ===========
See accompanying notes. - -------------------------------------------------------------------------------- 27 STATEMENTS OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED SEPTEMBER 30, 1996
SECURITY EQUITY FUND ------------------------------------------- SECURITY ASSET SECURITY GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ---------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income (loss) ................ $1,407,287 $3,304,987 $(91,058) $13,792 $(223,015) Net realized gain ........................... 1,984,078 27,972,416 419,260 61,764 4,989,643 Unrealized appreciation during the period ......................... 8,482,309 69,736,879 95,995 76,473 8,466,565 ___________ ____________ ___________ ____________ ___________ Net increase in net assets resulting from operations ......................... 11,873,674 101,014,282 424,197 152,029 13,233,193 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income Class A ................................... (1,378,072) -- -- -- -- Class B ................................... (11,951) -- -- -- -- Net realized gain Class A ................................... (1,912,997) (26,300,092) (347,497) -- (1,149,264) Class B ................................... (23,632) (690,558) (84,333) -- (28,504) ___________ ____________ ___________ ____________ ___________ Total distributions to shareholders ....... (3,326,652) (26,990,650) (431,830) -- (1,177,768) CAPITAL SHARE TRANSACTIONS (A): Proceeds from sale of shares Class A ................................... 2,681,709 159,433,767 4,130,645 1,846,588 97,988,749 Class B ................................... 635,799 36,310,779 3,765,671 1,469,193 10,247,969 Dividends reinvested Class A ................................... 2,965,256 24,498,993 340,567 -- 1,088,376 Class B ................................... 34,468 690,184 84,001 -- 28,502 Shares redeemed Class A ................................... (11,959,939) (172,929,497) (8,249,891) (28,739) (105,077,941) Class B ................................... (340,406) (28,090,274) (2,457,097) (4,179) (6,799,714) ___________ ____________ ___________ ____________ ___________ Net increase (decrease) from capital share transactions ............ (5,983,113) 19,913,952 (2,386,104) 3,282,863 (2,524,059) ___________ ____________ ___________ ____________ ___________ Total increase (decrease) in net assets ....................... 2,563,909 93,937,584 (2,393,737) 3,434,892 9,531,366 NET ASSETS: Beginning of period ......................... 65,995,684 365,688,913 24,088,113 -- 61,948,990 ___________ ____________ ___________ ____________ ___________ End of period ............................... $68,559,593 $459,626,497 $21,694,376 $3,434,892 $71,480,356 =========== ============ =========== ============ =========== Undistributed net investment income at end of period ............................ $17,267 $3,304,987 $135,605 $13,792 $-- =========== ============ =========== ============ =========== (a) Shares issued and redeemed Shares sold Class A ............................... 380,257 27,957,351 395,288 183,574 13,881,834 Class B ............................... 91,007 6,432,534 366,335 146,016 1,427,321 Dividends reinvested Class A ............................... 434,705 4,858,020 33,389 -- 164,781 Class B ............................... 5,126 138,507 8,325 -- 4,328 Shares redeemed Class A ............................... (1,697,766) (30,292,120) (799,467) (2,733) (14,892,245) Class B ............................... (48,979) (4,927,928) (237,369) (401) (946,401) ___________ ____________ ___________ ____________ ___________ Net increase (decrease) ............. (835,650) 4,166,364 (233,499) 326,456 (360,382) =========== ============ =========== ============ =========== *Period June 1, 1995 (inception) through September 30, 1995.
See accompanying notes. - -------------------------------------------------------------------------------- 28 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AVERAGE NET RATIO COMMIS- GAINS OR DIVI- RATIO OF NET SION NET LOSSES TOTAL DENDS NET OF EX- INCOME PAID FISCAL ASSET NET ON SEC- FROM (FROM DISTRI- NET ASSETS PENSES (LOSS) PORT- PER YEAR VALUE INVEST- URITIES INVEST- NET BUTIONS ASSET END OF TO TO AVE- FOLIO INVEST- ENDED BEGIN- MENT (REALIZED MENT INVEST- (FROM TOTAL VALUE TOTAL PERIOD AVERAGE RAGE TURN- MENT SEPTEM- NING OF INCOME & UNREAL- OPERA- MENT REALIZED DISTRI- END OF RETURN (THOU- NET NET OVER SECURITY BER 30 PERIOD (LOSS) IZED) TIONS INCOME) GAINS) BUTIONS PERIOD (A) SANDS) ASSETS ASSETS RATE TRADED - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY GROWTH AND INCOME FUND (CLASS A)(b) 1992 $7.31 $0.35 $(0.016) $0.334 $(0.343) $(0.171) $(0.514) $7.13 4.70% $75,436 1.27% 4.79% 74% $--- 1993 7.13 0.21 0.876 1.086 (0.218) (0.158) (0.376) 7.84 15.60% 81,982 1.26% 2.80% 135% --- 1994(c) 7.84 0.13 (0.713) (0.583) (0.128) (0.169) (0.297) 6.96 (7.60)% 65,328 1.28% 1.70% 163% --- 1995(g) 6.96 0.16 1.183 1.343 (0.158) (0.215) (0.373) 7.93 20.25% 67,430 1.31% 2.21% 130% --- 1996(g) 7.93 0.18 1.373 1.553 (0.158) (0.275) (0.433) 9.05 20.31% 73,273 1.29% 2.09% 69% 0.0625 SECURITY GROWTH AND INCOME FUND (CLASS B) 1994(c) $7.83 $0.05 $(0.694) $(0.644) $(0.117) $(0.169) $(0.286) $6.90 (8.00%) $668 2.27% 1.03% 178% $--- 1995(g) 6.90 0.08 1.179 1.259 (0.094) (0.215) (0.309) 7.85 19.07% 1,130 2.31% 1.21% 130% --- 1996(g) 7.85 0.09 1.353 1.443 (0.078) (0.275) (0.353) 8.94 19.01% 2,247 2.29% 1.09% 69% 0.0625 SECURITY EQUITY SERIES (CLASS A) 1992 $5.82 $0.09 $.475 $0.565 $(0.132) $(0.393) $(0.525) $5.86 10.20% $313,582 1.06% 1.48% 83% $--- 1993 5.86 0.12 1.165 1.285 (0.053) (0.362) (0.415) 6.73 22.70% 375,565 1.06% 1.95% 95% --- 1994(c) 6.73 0.05 0.085 0.135 (0.120) (1.205) (1.325) 5.54 1.95% 358,237 1.06% 0.86% 79% --- 1995(g) 5.54 0.04 1.377 1.417 --- (0.407) (0.407) 6.55 27.77% 440,339 1.05% 0.87% 95% --- 1996(g) 6.55 0.05 1.482 1.532 (0.060) (0.482) (0.542) 7.54 24.90% 575,680 1.04% 0.75% 64% 0.0609 SECURITY EQUITY SERIES (CLASS B) 1994(c) $6.81 $0.01 $(0.005) $0.005 $(0.12) $(1.205) $(1.325) $5.49 (0.15%) $7,452 2.07% (0.01%) 80% $--- 1995(g) 5.49 (0.01) 1.357 1.347 --- (0.407) (0.407) 6.43 26.69% 19,288 2.05% (0.13%) 95% --- 1996(g) 6.43 (0.02) 1.449 1.429 (0.017) (0.482) (0.499) 7.36 23.57% 38,822 2.04% (0.25%) 64% 0.0609 SECURITY GLOBAL SERIES (CLASS A) 1994 $10.00 $(0.03) $0.87 $0.84 $--- $--- $--- $10.84 8.40% $20,128 2.00% (0.01%) 73% $--- (c)(d) 1995(g) 10.84 (0.02) 0.31 0.29 --- (0.19) (0.19) 10.94 2.80% 16,261 2.00% (0.17%) 141% --- 1996(g) 10.94 0.01 1.874 1.884 (0.248) (0.156) (0.404) 12.42 17.73% 19,644 2.00% 0.07% 142% 0.0338 SECURITY GLOBAL SERIES (CLASS B) 1994 $9.96 $(0.12) $0.91 $0.79 $--- $--- $--- $10.75 7.90% $3,960 3.00% (0.01%) 73% $--- (c)(d) 1995(g) 10.75 (0.12) 0.30 0.18 --- (0.19) (0.19) 10.74 1.79% 5,433 3.00% (1.17%) 141% --- 1996(g) 10.74 (0.10) 1.841 1.741 (0.145) (0.156) (0.301) 12.18 16.57% 7,285 3.00% (0.93%) 142% 0.0338 SECURITY ASSET ALLOCATION SERIES (CLASS A) 1995 $10.00 $0.04 $0.50 $0.54 $--- $--- $--- $10.54 5.40% $1,906 2.00% 1.33% 129% $--- (e)(f)(g) 1996(g) 10.54 0.25 0.765 1.015 (0.328) (0.167) (0.495) 11.06 10.01% 2,449 2.00% 2.32% 75% 0.0247 SECURITY ASSET ALLOCATION SERIES (CLASS B) 1995 $10.00 $0.01 $0.490 $0.500 $--- $--- $--- $10.50 5.00% $1,529 3.00% 0.31% 129% $--- (e)(f)(g) 1996(g) 10.50 0.14 0.77 0.91 (0.273) (0.167) (0.44) 10.97 8.97% 2,781 3.00% 1.32% 75% 0.0247
See accompanying notes. - -------------------------------------------------------------------------------- 29 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
AVERAGE NET RATIO COMMIS- GAINS OR DIVI- RATIO OF NET SION NET LOSSES TOTAL DENDS NET OF EX- INCOME PAID FISCAL ASSET NET ON SEC- FROM (FROM DISTRI- NET ASSETS PENSES (LOSS) PORT- PER YEAR VALUE INVEST- URITIES INVEST- NET BUTIONS ASSET END OF TO TO AVE- FOLIO INVEST- ENDED BEGIN- MENT (REALIZED MENT INVEST- (FROM TOTAL VALUE TOTAL PERIOD AVERAGE RAGE TURN- MENT SEPTEM- NING OF INCOME & UNREAL- OPERA- MENT REALIZED DISTRI- END OF RETURN (THOU- NET NET OVER SECURITY BER 30 PERIOD (LOSS) IZED) TIONS INCOME) GAINS) BUTIONS PERIOD (A) SANDS) ASSETS ASSETS RATE TRADED - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY ULTRA FUND (CLASS A) 1992 $6.72 $(0.090) $(0.202) $(0.292) $--- $(0.172) $(0.172) $6.66 1.50% $57,128 1.32% (0.46%) 142% $--- 1993 6.66 (0.028) 1.791 1.763 --- (0.293) (0.293) 8.13 26.80% 71,056 1.30% (0.50%) 101% --- 1994(c) 8.13 (0.056) (0.188) (0.244) --- (1.066) (1.066) 6.82 (3.60%) 60,695 1.33% (0.80%) 111% --- 1995(g) 6.82 (0.02) 1.535 1.515 --- (0.135) (0.135) 8.20 22.69% 66,052 1.32% (0.31%) 180% --- 1996(g) 8.20 (0.05) 1.096 1.046 --- (0.996) (0.996) 8.25 15.36% 74,230 1.31% (0.61%) 161% 0.0606 SECURITY ULTRA FUND (CLASS B) 1994(c) $8.30 $(0.103) $(0.321) $(0.424) $--- $(1.066) $(1.066) $6.81 (5.70%) $1,254 2.36% (1.76%) 110% $--- 1995(g) 6.81 (0.09) 1.525 1.435 --- (0.135) (0.135) 8.11 21.53% 5,428 2.32% (1.32%) 180% --- 1996(g) 8.11 (0.13) 1.046 0.916 --- (0.996) (0.996) 8.03 13.81% 2,698 2.31% (1.61%) 161% 0.0606
(a) Total return information does not reflect deduction of any sales charges imposed at the time of purchase for Class A shares or upon redemption for Class B shares. (b) Effective July 6, 1993, Security Growth and Income Fund changed its investment objective from investing for income with secondary emphasis on long-term capital growth to long-term capital growth with secondary emphasis on income. Effective the same date the fund changed its name from Security Investment Fund to Security Growth and Income Fund. (c) Class "B" Shares were initially capitalized on October 19, 1993. Percentage amounts for the period, except total return, have been annualized. Per share data has been calculated using the average month-end shares outstanding. (d) Security Global Series was initially capitalized on October 1, 1993, with a net asset value of $10 per share. Percentage amounts for the period, except for total return, have been annualized. (e) Security Asset Allocation Series was initially capitalized on June 1, 1995, with a net asset value of $10 per share. Percentage amounts for the period have been annualized, except for total return. Per share data has been calculated using average month-end shares outstanding. (f) Fund expenses were reduced by the Investment Manager during the period and expense ratios absent such reimbursement would have been as follows: 1995 1996 ---- ---- Asset Allocation Series Class A 3.6% 3.1% Class B 4.7% 3.9% (g) Net investment income (loss) was computed using average shares outstanding throughout the period. See accompanying notes. - -------------------------------------------------------------------------------- 30 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- SEPTEMBER 30, 1996 1. SIGNIFICANT ACCOUNTING POLICIES Security Growth and Income, Equity and Ultra Funds (the Funds) are registered under the Investment Company Act of 1940, as amended, as diversified open-end management investment companies. The shares of Security Equity Fund are currently issued in three Series, the Equity Series, the Global Series, and the Asset Allocation Series, with each Series, in effect representing a separate Fund. The Funds began offering an additional class of shares ("B" shares) to the public on October 19, 1993. The shares are offered without a front-end sales charge but incur additional class - specific expenses. Redemptions of the shares within five years of acquisition incur a contingent deferred sales charge. The following is a summary of the significant accounting policies followed by the Funds in the preparation of their financial statements. These policies are in conformity with generally accepted accounting principles. A. SECURITY VALUATION - Valuations of the Funds' securities are supplied by a pricing service approved by the Board of Directors. Securities listed or traded on a national securities exchange are valued on the basis of the last sales price. If there are no sales on a particular day, then the securities are valued at the last bid price. If a security is traded on multiple exchanges, its value will be based on prices from the principal exchange where it is traded. All other securities for which market quotations are available are valued on the basis of the current bid price. If there is no bid price or if the bid price is deemed to be unsatisfactory by the Board of Directors or the Funds' investment manager, then the securities are valued in good faith by such method as the Board of Directors determines will reflect the fair market value. The Funds generally will value short-term debt securities at prices based on market quotations for securities of similar type, yield, quality and duration, except those securities purchased with 60 days or less to maturity are valued on the basis of amortized cost which approximates market value. Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of foreign securities are determined as of the close of such foreign markets or the close of the New York Stock Exchange, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. The Global Series' and Asset Allocation Series' investments in foreign securities may involve risks not present in domestic investments. Since foreign securities may be denominated in a foreign currency and involve settlement and pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Global Series and Asset Allocation Series to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments. B. FOREIGN CURRENCY TRANSACTIONS - The accounting records of the Funds are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments. Net realized foreign exchange gains or losses arise from sales of portfolio securities, sales of foreign currencies, and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of portfolio securities and other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates. C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Global Series and Asset Allocation Series may enter into forward foreign exchange contracts in order to manage against foreign currency risk from purchase or sale of securities denominated in foreign currency. Global Series and Asset Allocation Series may also enter into such contracts to manage changes in foreign currency exchange rates on portfolio positions. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current market rate as unrealized gains or losses. Realized gains or losses are recognized when contracts are settled and are reflected in the statement of operations. These contracts involve market risk in excess of the amount reflected in the balance sheet. The face or contract amount in U.S. dollars reflects the total exposure the Global Series and Asset Allocation Series have in that particular currency contract. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. D. FUTURES - Asset Allocation Series and Ultra Fund utilize futures contracts to a limited extent, with the objectives of maintaining full exposure to the underlying stock markets, enhancing returns, maintaining liquidity, and minimizing transaction costs. Asset Allocation Series and Ultra Fund may purchase futures contracts to immediately position incoming cash in the market, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. In the event of redemptions, the Asset Allocation Series and Ultra Fund may pay departing shareholders from its cash balances and reduce their futures positions accordingly. Returns may be enhanced by purchasing futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks contained in the indexes and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Funds are required to deposit either cash or securities, representing the initial margin, equal to a certain percentage of the contract value. Subsequent changes in the value of the contract, or variation margin, are recorded as unrealized gains or losses. The variation margin is paid or received in cash daily by the Funds. The Funds realize a gain or loss when the contract is closed or expires. There were no futures contracts held by the Funds at September 30, 1996. - -------------------------------------------------------------------------------- 31 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- E. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are reported on an identified cost basis. Dividend income less foreign taxes withheld (if any) plus foreign taxes recoverable (if any) are recorded on the ex-dividend date. Interest income is recognized on the accrual basis. Premium and discounts (except original issue discounts) on debt securities are not amortized. F. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are recorded on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. These differences are primarily due to differing treatments relating to the expiration of net operating losses and the recharacterization of foreign currency gains and losses. G. TAXES - The Funds complied with the requirements of the Internal Revenue Code applicable to regulated investment companies and distributed all of their taxable net income and net realized gains sufficient to relieve them from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required. 2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Under terms of the investment advisory contract, Security Management Company (SMC) agrees to provide, or arrange for others to provide, all the services required by the Funds for a single fee (except for the Asset Allocation Series of Security Equity Fund), including investment advisory services, transfer agent services and certain other administrative services. For Growth and Income Fund, Equity Series and Ultra Fund this fee is equal to 2% of the first $10 million of the average daily closing value of each Fund's net assets, 1 1/2% of the next $20 million, and 1% of the remaining net assets of the Fund for the fiscal year. For Global Series this fee is equal to 2% of the first $70 million of the average daily closing value of the Series' net assets and 1 1/2% of the remaining average net assets of the Series for the fiscal year. Additionally, SMC agrees to assume all of the Funds' expenses, except for its fee and the expenses of interest, taxes, brokerage commissions and extraordinary items and Class B distribution fees. SMC also serves as Investment Advisor to the Asset Allocation Series, and accordingly receives a fee equal to 1% of the average net assets of this Series. SMC also acts as the administrative agent and transfer agent for the Asset Allocation Series, and as such performs administrative functions, transfer agency and dividend disbursing services, and the bookkeeping, accounting and pricing functions for the Series. For these services, the Investment Manager receives an administrative fee equal to .045% of the average daily net assets of the Series plus the greater of .10% of its average net assets or (i) $45,000 in the year ending June 1, 1997; and (ii) $60,000 thereafter. For transfer agent services, SMC is paid an annual fixed charge per account as well as a transaction fee for all shareholder and dividend payments. SMC pays a Sub-Advisor, Lexington Management Corporation (LMC), an annual fee in an amount equal to .50% of the average daily net assets of Global Series, for investment advisory and certain administrative services provided to the Global Series. SMC pays Templeton/Franklin Investment Services, Inc. for research provided to the Asset Allocation Series, an annual fee equal to .30% of the first $50 million of the average net assets of the Asset Allocation Series invested in equity securities and .25% of the average equity security assets in excess of $50 million. SMC also pays Meridian Management Corporation for research provided to the Asset Allocation Series an annual fee equal to .20% of the average net assets of that Series. SMC has agreed to limit the total expenses of the Asset Allocation Series to 2% of the average net assets, excluding 12b-1 fees. For the Asset Allocation Series, SMC and Meridian Management Corporation have agreed to waive their portions of the management fees to December 31, 1996. The Funds have adopted Distribution Plans related to the offering of Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plans provide for payments at an annual rate of 1.0% of the average net assets of each Fund's Class B shares. Security Distributors, Inc. (SDI), a wholly-owned subsidiary of SMC and the national distributor for the Funds, received net underwriting commissions after allowances to brokers and dealers in the amounts presented in the following table: ASSET GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ----------------------------------------------------------- SDI underwriting $7,615 $107,976 $3,907 $911 $9,163 Broker/Dealer $30,541 $761,334 $25,565 $6,482 $33,172 Certain officers and directors of the Funds are also officers and/or directors of Security Benefit Life Insurance Company and its subsidiaries, which include SMC and SDI. 3. FEDERAL INCOME TAX MATTERS For federal income tax purposes, the amounts of unrealized appreciation (depreciation) at September 30, 1996, were as follows: ASSET GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ------------------------------------------------------------- Gross unrealized appreciation $15,608,749 $173,772,495 $2,757,579 $266,330 $17,462,661 Gross unrealized depreciation (386,747) (1,096,900) (734,627) (140,252) (397,738) ------------------------------------------------------------- Net unrealized appreciation $15,222,002 $172,675,595 $2,022,952 $126,078 $17,064,923 ============================================================= The Growth and Income Fund, Equity Series, Global Series and Ultra Fund hereby respectively designate $959,581, $25,710,137, $19,397, and $6,430,082 as capital gain dividends paid during the fiscal year ended September 30, 1996, for the purpose of the dividends paid deduction on each Fund's federal income tax return. - -------------------------------------------------------------------------------- 32 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 4. INVESTMENT TRANSACTIONS Investment transactions for the year ended September 30, 1996, (excluding overnight investments and short-term commercial paper) are as follows: ASSET GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA INCOME FUND SERIES SERIES SERIES FUND ----------------------------------------------------------------- Purchases $47,200,987 $353,045,127 $30,917,967 $5,247,673 $100,294,618 Proceeds from sales $47,075,606 $320,288,296 $31,561,347 $2,947,521 $105,246,179 5. FORWARD FOREIGN EXCHANGE CONTRACTS At September 30, 1996, Global Series had the following open forward foreign exchange contracts to sell currency (excluding foreign currency contracts used for purchase and sale settlements): UNREALIZED SETTLEMENT CONTRACT CONTRACT CURRENT GAIN CURRENCY DATE AMOUNT RATE RATE (LOSS) - -------------------------------------------------------------------------------- French Franc 3-5-97 3,717,779 5.0379 5.11460 $11,067 Japanese Yen 10-11-97 93,628,967 105.6950 111.36000 45,064 Japanese Yen 1-6-97 9,067,305 106.4600 109.92000 2,681 Japanese Yen 1-6-97 81,674,489 107.7200 109.92000 15,175 Japanese Yen 1-6-97 1,204,051 107.4950 109.92000 247 New Zealand Dollar 4-1-97 771,335 0.6859 0.68656 (509) ------- $73,725 6. FEDERAL TAX STATUS OF DIVIDENDS The income dividends paid by the Funds are taxable as ordinary income on the shareholder's tax return. The portion of ordinary income of dividends (including net short-term capital gains) attributed to fiscal year ended September 30, 1996, that qualified for the dividends received deductions for corporate shareholders was 22%, 31%, 3%, 19% and 22% of the amount taxable as ordinary income for Growth and Income Fund, Equity Series, Global Series, Asset Allocation Series and Ultra Fund respectively, in accordance with the provisions of the Internal Revenue Code. - -------------------------------------------------------------------------------- 33 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- THE SHAREHOLDERS AND BOARD OF DIRECTORS SECURITY GROWTH AND INCOME FUND, SECURITY EQUITY FUND, AND SECURITY ULTRA FUND We have audited the accompanying balance sheets and statements of net assets of Security Growth and Income Fund, Security Equity Fund (comprised of the Equity, Global and Asset Allocation Series) and Security Ultra Fund (the Funds) as of September 30, 1996, the related statements of operations for the year then ended and statements of changes in net assets for each of the two years in the period then ended of Security Growth and Income Fund, Security Equity Series, Security Equity Global Series and Security Ultra Fund and the statements of changes in net assets for the year then ended and for the period June 1, 1995 (commencement of operations) to September 30, 1995 of Security Equity Asset Allocation Series and financial highlights for each of the five years in the period ended September 30, 1996. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of September 30, 1996, by correspondence with the custodian. As to securities relating to uncompleted transactions, we performed other audit procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Funds at September 30, 1996, and the results of their operations, changes in their net assets and the financial highlights for the periods indicated above in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Kansas City, Missouri November 1, 1996 - -------------------------------------------------------------------------------- 34 THE SECURITY GROUP OF MUTUAL FUNDS Security Growth and Income Fund Security Equity Fund * Equity Series * Global Series * Asset Allocation Series Security Ultra Fund Security Income Fund * Corporate Bond Series * U.S. Government Series * Limited Maturity Bond Series * Global Aggressive Bond Series * High Yield Series Security Tax-Exempt Fund Security Cash Fund This report is submitted for the general information of the shareholders of the Funds. The report is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective prospectus which contains details concerning the sales charges and other pertinent information. SECURITY FUNDS OFFICERS AND DIRECTORS DIRECTORS - --------- Willis A. Anton Donald A. Chubb, Jr. John D. Cleland Donald L. Hardesty Penny A. Lumpkin Mark L. Morris, Jr., D.V.M. Jeffrey B. Pantages Hugh L. Thompson, Ph.D. OFFICERS - -------- John D. Cleland, PRESIDENT James R. Schmank, VICE PRESIDENT AND TREASURER Mark E. Young, VICE PRESIDENT Terry A. Milberger, VICE PRESIDENT, EQUITY FUND Jane A. Tedder, VICE PRESIDENT Greg A. Hamilton, ASSISTANT VICE PRESIDENT Cindy L. Shields, ASSISTANT VICE PRESIDENT Thomas A. Swank, ASSISTANT VICE PRESIDENT Amy J. Lee, SECRETARY Christopher D. Swickard, ASSISTANT SECRETARY Brenda M. Luthi, ASSISTANT TREASURER AND ASSISTANT SECRETARY BULK RATE U.S. POSTAGE PAID [SDI LOGO] TOPEKA, KS PERMIT NO. 385 700 SW HARRISON ST. TOPEKA, KS 66636-0001 (913) 295-3127 (800) 888-2461 PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS a. Financial Statements Included in Part A of this Registration Statement: Per Share Income and Capital Changes Included in Part B of this Registration Statement: The audited financial statements contained in the most recent Annual Report of Security Equity Fund are incorporated by reference in Part B of this Registration Statement. b. Exhibits: (1) Articles of Incorporation. (2) Corporate Bylaws of Registrant.(b) (3) Not applicable. (4) Specimen copy of share certificates for Registrant's shares of capital stock.(a) (5) (a) Investment Management and Services Agreement. (b) Sub-Advisory Contract.(b) (6) (a) Distribution Agreement. (b) Class B Distribution Agreement. (7) Form of Non-Qualified Deferred Compensation Plan.(b) (8) (a) Custodian Agreement - UMB Bank. (b) Custodian Agreement - Chase Manhattan Bank (Global).(c) (c) Custodian Agreement - Chase Manhattan Bank (Asset Allocation).(c) (9) (a) Quantitative Research Agreement.(d) (b) Analytical Research Agreement.(d) (10) Opinion of counsel as to the legality of the securities offered.(a) (11) Consent of Independent Auditors. (12) Not applicable. (13) Not applicable. (14) Not applicable. (15) Distribution Plan.(b) (16) Schedule of Computation of Performance. (17) Financial Data Schedules. (18) Multiple Class Plan.(c) (a) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 71 to Registration Statement 2-19458 (June 1, 1995). (b) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 72 to Registration Statement 2-19458 (June 1, 1995). (c) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 73 to Registration Statement 2-19458 (December 1, 1995). (d) Incorporated herein by reference to the Exhibits filed with the Registrant's Post-Effective Amendment No. 74 to Registration Statement 2-19458 (November 1, 1996). ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. Not applicable. ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF DECEMBER 31, 1996. (1) (2) NUMBER OF RECORD TITLE OF CLASS SHAREHOLDERS Shares of Common Stock 33,279 Class A - Equity Series 4,077 Class B - Equity Series 2,525 Class A - Global Series 1,094 Class B - Global Series 270 Class A - Asset Allocation Series 136 Class B - Asset Allocation Series ITEM 27. INDEMNIFICATION. A policy of insurance covering Security Management Company, LLC 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 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER Security Management Company, LLC also acts as investment manager to SBL Fund, Security Cash Fund, Security Income Fund, Security Growth and Income Fund, Security Tax-Exempt Fund, and Security Ultra Fund.
Business* and Other Connections of the Executive Name Officers and Directors of Registrant's Adviser ----------------------------- ------------------------------------------------ James R. Schmank President (Interim), Treasurer, Chief Fiscal Officer and Managing Member Representative Security Management Company, LLC Vice President and Director Security Distributors, Inc. Vice President and Interim Chief Investment Officer Security Benefit Group, Inc. Security Benefit Life Insurance Company Vice President and Treasurer Security Growth and Income Fund, Security Income Fund, Security Cash Fund, Security Tax-Exempt Fund, Security Ultra Fund, Security Equity Fund, SBL Fund Jeffrey B. Pantages President, Chief Investment Officer and Director Security Management Company (until June 1996) Director Security Cash Fund, Security Income Fund, Security Tax-Exempt Fund, SBL Fund, Security Growth and Income Fund, Security Equity Fund, Security Ultra Fund Senior Vice President and Chief Investment Officer Security Benefit Life Insurance Company, Security Benefit Group, Inc. Director Mulvane Art Center Mulvane Art Museum Washburn University 17th & Jewell Topeka, Kansas United Way of Greater Topeka P.O. Box 4188 Topeka, Kansas John D. Cleland Senior Vice President and Managing Member Representative Security Management Company, LLC President and Director Security Cash Fund, Security Income Fund, Security Tax-Exempt Fund, SBL Fund, Security Growth and Income Fund, Security Equity Fund, Security Ultra Fund Senior Vice President Security Benefit Life Insurance Company Security Benefit Group, Inc. Vice President and Director Security Distributors, Inc. Trustee and Treasurer Mount Hope Cemetery Corporation 4700 SW 17th Topeka, Kansas Trustee and Investment Committee Chairman Topeka Community Foundation 5100 SW 10th Topeka, Kansas James W. Lammers Senior Vice President and Director Security Management Company, LLC Security Distributors, Inc. Director (until November 1996) Security Management Company Donald E. Caum Director (until November 1996) Security Management Company Senior Vice President Security Benefit Life Insurance Company Security Benefit Group, Inc. Director YMCA Metro, Topeka, Kansas Executive Director Jayhawk Area Council Boy Scouts of America, Topeka, Kansas Metropolitan Ballet, Topeka, Kansas James L. Woods Senior Vice President Security Management Company, LLC Security Benefit Life Insurance Company Security Benefit Group, Inc. Mark E. Young Vice President Security Growth and Income Fund, Security Income Fund, Security Cash Fund, Security Tax-Exempt Fund, Security Ultra Fund, Security Equity Fund, SBL Fund, Security Management Company, LLC, Security Distributors, Inc. Assistant Vice President Security Benefit Life Insurance Company First Security Benefit Life Insurance and Annuity Company of New York Security Benefit Group, Inc. Trustee Topeka Zoological Foundation, Topeka, Kansas Terry A. Milberger Senior Portfolio Manager and Vice President Security Management Company, LLC Vice President Security Equity Fund, SBL Fund Jane A. Tedder Vice President and Senior Portfolio Manager Security Management Company, LLC Vice President Security Income Fund, SBL Fund, Security Equity Fund Gregory A. Hamilton Second Vice President Security Management Company, LLC Assistant Vice President Security Income Fund, SBL Fund, Security Equity Fund, Security Tax-Exempt Fund Director Downtown Topeka, Inc., Topeka, Kansas Trustee Kansas State University Foundation, Manhattan, Kansas Amy J. Lee Vice President and Associate General Counsel Security Benefit Life Insurance Company, Security Benefit Group, Inc. Secretary Security Management Company, LLC, Security Distributors, Inc., Security Cash Fund, Security Equity Fund, Security Tax-Exempt Fund, Security Ultra Fund, SBL Fund, Security Growth and Income Fund, Security Income Fund Brenda M. Harwood Assistant Vice President, Assistant Treasurer and Assistant Secretary Security Management Company, LLC Assistant Treasurer and Assistant Secretary Security Equity Fund, Security Ultra Fund, Security Growth and Income Fund, Security Income Fund, Security Cash Fund, SBL Fund, Security Tax-Exempt Fund Treasurer Security Distributors, Inc. Steven M. Bowser Assistant Vice President and Portfolio Manager Security Management Company, LLC Assistant Vice President Security Benefit Life Insurance Company, Security Benefit Group, Inc. Thomas A. Swank Second Vice President and Portfolio Manager Security Management Company, LLC Second Vice President Security Benefit Life Insurance Company, Security Benefit Group, Inc. Barbara J. Davison Assistant Vice President and Portfolio Manager Security Management Company, LLC Assistant Vice President Security Benefit Life Insurance Company, Security Benefit Group, Inc. Vice-Chairman Topeka Chapter American Red Cross, Topeka, Kansas Cindy L. Shields Assistant Vice President and Portfolio Manager Security Management Company, LLC Assistant Vice President Security Ultra Fund, SBL Fund 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 Martha L. Sutherland Second Vice President Security Management Company, LLC Vice President Security Benefit Life Insurance Company Security Benefit Group, Inc. *Located at 700 Harrison, Topeka, Kansas 66636-0001.
LEXINGTON MANAGEMENT CORPORATION: Lexington Management Corporation, sub-adviser to Global Series, acts as investment adviser, sub-adviser and/or sponsor to 21 investment companies other than Registrant.
Business* and Other Connections of the Executive Name Officers and Directors of Registrant's Adviser ----------------------------- ------------------------------------------------ Robert M. DeMichele President and Director Lexington Global Asset Managers, Inc. Chairman and Chief Executive Officer Lexington Management Corporation, Lexington Funds Distributor, Inc. Director Chartwell Re Corporation, The Navigator's Insurance Group, Inc., Unione Italiana Reinsurance, Vanguard Cellular Systems, Inc. Chairman of the Board Lexington Group of Investment Companies, Market Systems Research, Inc., Market Systems Research Advisors, Inc. Richard M. Hisey Executive Vice President and Chief Financial Officer Lexington Global Asset Managers, Inc. Chief Financial Officer, Managing Director and Director Lexington Management Corporation Chief Financial Officer, Vice President and Director Lexington Funds Distributor, Inc. Vice President and Treasurer Market Systems Research Advisors, Inc. Chief Financial Officer and Vice President Lexington Group of Investment Companies Lawrence Kantor Executive Vice President and General Manager-Mutual Funds Lexington Global Asset Managers, Inc. Executive Vice President, Managing Director and Director Lexington Management Corporation Executive Vice President and Director Lexington Funds Distributor, Inc. Vice President and Director Lexington Group of Investment Companies Stuart S. Richardson Chairman of the Board Lexington Global Asset Managers, Inc. Director Lexington Management Corporation
*Located at P.O. Box 1515, Saddle Brook, New Jersey 07663. ITEM 29. PRINCIPAL UNDERWRITERS (a) SBL Fund Security Ultra Fund Security Income Fund Security Growth & Income Fund Security Tax-Exempt Fund Variflex Variable Annuity Account Varilife Variable Annuity Account Parkstone Variable Annuity Account Security Varilife Separate Account Variflex LS 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 W. Lammers Senior Vice President and None Director James R. Schmank Vice President and Director Vice President and Treasurer Louis R. Jicha Vice President and Director None Mark E. Young Vice President Vice President Amy J. Lee Secretary Secretary Brenda M. Harwood Treasurer Assistant Secretary and Assistant Treasurer Daniel J. McNichol Vice President None Robert L. Kirchner Regional Vice President None Ronald V. Vermillion Regional Vice President None Jennifer A. Zaat Regional Vice President None Kent N. Spillman Regional Vice President None Carla D. Griffin Regional Vice President None Anthony Hammock Regional Vice President None William G. Mancuso Regional Vice President None Clark A. Anderson Regional Vice President None
(1) (2) (3) NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT Paul Richardson Regional Vice President None Marek E. Lakotko Regional Vice President None
*700 Harrison, Topeka, Kansas 66636-0001 (c) Not applicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS. Certain accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder are maintained by Security Management Company, LLC, 700 Harrison, Topeka, Kansas 66636-0001; Lexington Management Corporation, Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663 and Templeton/Franklin Investment Services, Inc., 777 Mariners Island Boulevard, San Mateo, California 94404. Records relating to the duties of the Registrant's custodian are maintained by UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106 and Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, New York 11245. ITEM 31. MANAGEMENT SERVICES. Not applicable. ITEM 32. UNDERTAKINGS. a) Not applicable. b) Registrant hereby undertakes to file a post-effective amendment, using financial statements which need not be certified, within four to six months from the effective date of Registrant's 1933 Act Registration Statement. (c) Upon the inclusion of Item 5A's required performance information in the Registrant's annual report, the Registrant hereby undertakes to furnish each person, to whom a prospectus is delivered, a copy of the Registrant's latest report to shareholders upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Topeka, and State of Kansas on the 7th day of February, 1997. SECURITY EQUITY FUND (The Registrant) By: JOHN D. CLELAND, President ----------------------------- John D. Cleland, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated: Date: February 7, 1997 ----------------------------- WILLIS A. ANTON, JR. Director - ----------------------------- Willis A. Anton, Jr. DONALD A. CHUBB, JR. Director - ----------------------------- Donald A. Chubb, Jr. JOHN D. CLELAND President and Director - ----------------------------- John D. Cleland DONALD L. HARDESTY Director - ----------------------------- Donald L. Hardesty PENNY A. LUMPKIN Director - ----------------------------- Penny A. Lumpkin MARK L. MORRIS, JR. Director - ----------------------------- Mark L. Morris, Jr. JEFFREY B. PANTAGES Director - ----------------------------- Jeffrey B. Pantages HUGH L. THOMPSON Director - ----------------------------- Hugh L. Thompson EXHIBIT INDEX (1) Articles of Incorporation (2) None (3) None (4) None (5) (a) Investment Management and Services Agreement (b) None (6) (a) Distribution Agreement (b) Class B Distribution Agreement (7) None (8) (a) Custodian Agreement - UMB Bank (b) None (c) None (9) (a) None (b) None (10) None (11) Consent of Independent Auditors (12) None (13) None (14) None (15) None (16) Schedule of Computation of Performance (17) Financial Data Schedules (18) None EX-99.B1 2 ARTICLES OF INCORPORATION 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. Lang Dean L. Smith ------------------------------ Dean L. Smith Robert E. Jacoby ------------------------------ Robert E. Jacoby STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Personally appeared before me, a notary public in and for Shawnee County, Kansas, the above named HERBERT F. LAING, DEAN L. SMITH and ROBERT E. JACOBY, who are personally known to me to be the same persons who executed the foregoing instrument of writing, and such persons duly acknowledged the execution of the same. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official seal this 27th day of November, 1961. Geraldine Skinner ------------------------------ Notary Public (Notarial Seal) My commission expires: December 31, 1961. 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 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] 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 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 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 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 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 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 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 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 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 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. 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. 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. 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. 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 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 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 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 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 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. 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. 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 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 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. 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. 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 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. 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] 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 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 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 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 ______ day of ____________, 1997. ------------------------------ John D. Cleland, President ------------------------------ Amy J. Lee, Secretary STATE OF KANSAS ) ) ss. COUNTY OF SHAWNEE) Be it remembered, that before me __________________, 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 ______ day of ____________, 1997. ------------------------------ Notary Public My commission expires: EX-99.B5A 3 INVESTMENT MANAGEMENT AND SERVICES AGREEMENT 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 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 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 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 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 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 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 _____ day of ___________, 1997. SECURITY EQUITY FUND By: ------------------------------ John D. Cleland, President ATTEST: By: ------------------------------ Amy J. Lee, Secretary SECURITY MANAGEMENT COMPANY, LLC By: ------------------------------ James R. Schmank, President ATTEST: By: ------------------------------ Amy J. Lee, Secretary EX-99.B6A 4 DISTRIBUTION AGREEMENT 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) 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 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 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 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) 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 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 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 ______ day of ____________, 1997. SECURITY EQUITY FUND By: -------------------------------- James R. Schmank, Vice President and Treasurer ATTEST: By: ------------------------------- Amy J. Lee, Secretary SECURITY DISTRIBUTORS, INC. By: -------------------------------- Richard K Ryan, President ATTEST: By: ------------------------------- Amy J. Lee, Secretary EX-99.B6B 5 CLASS B DISTRIBUTION AGREEMENT 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) 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 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 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 ______ day of ____________, 1997. SECURITY EQUITY FUND By: -------------------------------- James R. Schmank, Vice President and Treasurer ATTEST: By: -------------------------------- Amy J. Lee, Secretary SECURITY DISTRIBUTORS, INC. By: -------------------------------- Richard K Ryan, President ATTEST: By: -------------------------------- Amy J. Lee, Secretary EX-99.B8A 6 CUSTODIAN AGREEMENT - UMB BANK CUSTODY AGREEMENT DATED JANUARY 1, 1995 BETWEEN UMB BANK, N.A. AND SECURITY MANAGEMENT COMPANY FAMILY OF FUNDS TABLE OF CONTENTS SECTION PAGE 1. APPOINTMENT OF CUSTODIAN 1 2. DEFINITIONS 1 (a) Securities 1 (b) Assets 1 (c) Instructions and Special Instructions 1 3. DELIVERY OF CORPORATE DOCUMENTS 2 4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN 3 (a) Safekeeping 3 (b) Manner of Holding Securities 4 (c) Free Delivery of Assets 6 (d) Exchange of Securities 6 (e) Purchases of Assets 6 (f) Sales of Assets 7 (g) Options 8 (h) Futures Contracts 8 (i) Segregated Accounts 9 (j) Depository Receipts 9 (k) Corporate Actions, Put Bonds, Called Bonds, Etc. 10 (l) Interest Bearing Deposits 10 (m) Foreign Exchange Transactions Other than as Principal 11 (n) Pledges or Loans of Securities 11 (o) Stock Dividends, Rights, Etc. 12 (p) Routine Dealings 12 (q) Collections 12 (r) Bank Accounts 13 (s) Dividends, Distributions and Redemptions 13 (t) Proceeds from Shares Sold 13 (u) Proxies and Notices; Compliance with the Shareholders Communication Act of 1985 14 (v) Books and Records 14 (w) Opinion of Fund's Independent Certified Public Accountants 14 (x) Reports by Independent Certified Public Accountants 14 (y) Bills and Other Disbursements 15 5. SUBCUSTODIANS 15 (a) Domestic Subcustodians 15 (b) Foreign Subcustodians 15 (c) Interim Subcustodians 16 (d) Special Subcustodians 17 (e) Termination of a Subcustodian 17 (f) Certification Regarding Foreign Subcustodians 17 6. STANDARD OF CARE 17 (a) General Standard of Care 17 (b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Armed Conflict, Sovereign Risk, Etc. 18 (c) Liability for Past Records 18 (d) Advice of Counsel 18 (e) Advice of the Fund and Others 19 (f) Instructions Appearing to be Genuine 19 (g) Exceptions from Liability 19 7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS 20 (a) Domestic Subcustodians 20 (b) Liability for Acts and Omissions of Foreign Subcustodians 20 (c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities Depositories and Clearing Agencies 20 (d) Defaults or Insolvencies of Brokers, Banks, Etc. 20 (e) Reimbursement of Expenses 20 8. INDEMNIFICATION 21 (a) Indemnification by Fund 21 (b) Indemnification by Custodian 21 9. ADVANCES 21 10. LIENS 22 11. COMPENSATION 22 12. POWERS OF ATTORNEY 22 13. TERMINATION AND ASSIGNMENT 23 14. ADDITIONAL FUNDS 23 15. NOTICES 23 16. MISCELLANEOUS 24 CUSTODY AGREEMENT This agreement made as of this 1st day of January, 1995, between UMB Bank, n.a., a national banking association with its principal place of business located at Kansas City, Missouri (hereinafter "Custodian"), and each of the Funds which have executed the signature page hereof together with such additional Funds which shall be made parties to this Agreement by the execution of a separate signature page hereto (individually, a "Fund" and collectively, the "Funds"). WITNESSETH: WHEREAS, each Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended; and WHEREAS, each Fund desires to appoint Custodian as its custodian for the custody of Assets (as hereinafter defined) owned by such Fund which Assets are to be held in such accounts as such Fund may establish from time to time; and WHEREAS, Custodian is willing to accept such appointment on the terms and conditions hereof. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, mutually covenant and agree as follows: 1. APPOINTMENT OF CUSTODIAN. Each Fund hereby constitutes and appoints the Custodian as custodian of Assets belonging to each such Fund which have been or may be from time to time deposited with the Custodian. Custodian accepts such appointment as a custodian and agrees to perform the duties and responsibilities of Custodian as set forth herein on the conditions set forth herein. 2. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings so indicated: (a) "Security" or "Securities" shall mean stocks, bonds, bills, rights, script, warrants, interim certificates and all negotiable or nonnegotiable paper commonly known as Securities and other instruments or obligations. (b) "Assets" shall mean Securities, monies and other property held by the Custodian for the benefit of a Fund. (c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a written (including, without limitation, facsimile transmission) request, direction, instruction or 1 certification signed or initialed by or on behalf of a Fund by an Authorized Person; (ii) a telephonic or other oral communication from a person the Custodian reasonably believes to be an Authorized Person; or (iii) a communication effected directly between an electro-mechanical or electronic device or system (including, without limitation, computers) on behalf of a Fund. Instructions in the form of oral communications shall be confirmed by the appropriate Fund by tested telex or in writing in the manner set forth in clause (i) above, but the lack of such confirmation shall in no way affect any action taken by the Custodian in reliance upon such oral Instructions prior to the Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to record any and all telephonic or other oral Instructions communicated to the Custodian. (c)(2) "Special Instructions", as used herein, shall mean Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of a Fund or any other person designated by the Treasurer of such Fund in writing, which countersignature or confirmation shall be included on the same instrument containing the Instructions or on a separate instrument relating thereto. (c)(3) Instructions and Special Instructions shall be delivered to the Custodian at the address and/or telephone, facsimile transmission or telex number agreed upon from time to time by the Custodian and each Fund. (c)(4) Where appropriate, Instructions and Special Instructions shall be continuing instructions. 3. DELIVERY OF CORPORATE DOCUMENTS. Each of the parties to this Agreement represents that its execution does not violate any of the provisions of its respective charter, articles of incorporation, articles of association or bylaws and all required corporate action to authorize the execution and delivery of this Agreement has been taken. Each Fund has furnished the Custodian with copies, properly certified or authenticated, with all amendments or supplements thereto, of the following documents: (a) Certificate of Incorporation (or equivalent document) of the Fund as in effect on the date hereof; (b) By-Laws of the Fund as in effect on the date hereof; (c) Resolutions of the Board of Directors of the Fund appointing the Custodian and approving the form of this Agreement; and (d) The Fund's current prospectus and statements of additional information. 2 Each Fund shall promptly furnish the Custodian with copies of any updates, amendments or supplements to the foregoing documents. In addition, each Fund has delivered or will promptly deliver to the Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and all amendments or supplements thereto, properly certified or authenticated, designating certain officers or employees of each such Fund who will have continuing authority to certify to the Custodian: (a) the names, titles, signatures and scope of authority of all persons authorized to give Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of each Fund, and (b) the names, titles and signatures of those persons authorized to countersign or confirm Special Instructions on behalf of each Fund (in both cases collectively, the "Authorized Persons" and individually, an "Authorized Person"). Such Resolutions and certificates may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until delivery to the Custodian of a similar Resolution or certificate to the contrary. Upon delivery of a certificate which deletes or does not include the name(s) of a person previously authorized to give Instructions or to countersign or confirm Special Instructions, such persons shall no longer be considered an Authorized Person authorized to give Instructions or to countersign or confirm Special Instructions. Unless the certificate specifically requires that the approval of anyone else will first have been obtained, the Custodian will be under no obligation to inquire into the right of the person giving such Instructions or Special Instructions to do so. Notwithstanding any of the foregoing, no Instructions or Special Instructions received by the Custodian from a Fund will be deemed to authorize or permit any director, trustee, officer, employee, or agent of such Fund to withdraw any of the Assets of such Fund upon the mere receipt of such authorization, Special Instructions or Instructions from such director, trustee, officer, employee or agent. 4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN. Except for Assets held by any Subcustodian appointed pursuant to Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the powers and duties hereinafter set forth in this Section 4. For purposes of this Section 4 all references to powers and duties of the "Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to Section 5(a). (a) SAFEKEEPING. The Custodian will keep safely the Assets of each Fund which are delivered to it from time to time. The Custodian shall not be responsible for any property of a Fund held or received by such Fund and not delivered to the Custodian. 3 (b) MANNER OF HOLDING SECURITIES. (1) The Custodian shall at all times hold Securities of each Fund either: (i) by physical possession of the share certificates or other instruments representing such Securities in registered or bearer form; or (ii) in book-entry form by a Securities System (as hereinafter defined) in accordance with the provisions of sub-paragraph (3) below. (2) The Custodian may hold registrable portfolio Securities which have been delivered to it in physical form, by registering the same in the name of the appropriate Fund or its nominee, or in the name of the Custodian or its nominee, for whose actions such Fund and Custodian, respectively, shall be fully responsible. Upon the receipt of Instructions, the Custodian shall hold such Securities in street certificate form, so called, with or without any indication of fiduciary capacity. However, unless it receives Instructions to the contrary, the Custodian will register all such portfolio Securities in the name of the Custodian's authorized nominee. All such Securities shall be held in an account of the Custodian containing only assets of the appropriate Fund or only assets held by the Custodian as a fiduciary, provided that the records of the Custodian shall indicate at all times the Fund or other customer for which such Securities are held in such accounts and the respective interests therein. (3) The Custodian may deposit and/or maintain domestic Securities owned by a Fund in, and each Fund hereby approves use of: (a) The Depository Trust Company; (b) The Participants Trust Company; and (c) any book-entry system as provided in (i) Subpart 0 of Treasury Circular No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially in the form of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may deposit and/or maintain domestic Securities owned by a Fund in any other domestic clearing agency registered with the Securities and Exchange Commission ("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the SEC to serve in the capacity of depository or clearing agent for the Securities or other assets of investment companies) which acts as a Securities depository. Each of the foregoing shall be referred to in this Agreement as a "Securities System", and all such Securities Systems shall be listed on the attached Appendix A. Use of a Securities System shall be in accordance with applicable Federal Reserve Board and SEC rules and regulations, if any, and subject to the following provisions: (i) The Custodian may deposit the Securities directly or through one or more agents or Subcustodians which are also qualified to act as custodians for investment companies. 4 (ii) The Custodian shall deposit and/or maintain the Securities in a Securities System, provided that such Securities are represented in an account ("Account") of the Custodian in the Securities System that includes only assets held by the Custodian as a fiduciary, custodian or otherwise for customers. (iii) The books and records of the Custodian shall at all times identify those Securities belonging to any one or more Funds which are maintained in a Securities System. (iv) The Custodian shall pay for Securities purchased for the account of a Fund only upon (a) receipt of advice from the Securities System that such Securities have been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of such Fund. The Custodian shall transfer Securities sold for the account of a Fund only upon (a) receipt of advice from the Securities System that payment for such Securities has been transferred to the Account of the Custodian in accordance with the rules of the Securities System, and (b) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of such Fund. Copies of all advices from the Securities System relating to transfers of Securities for the account of a Fund shall be maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund on the next succeeding business day daily transaction reports which shall include each day's transactions in the Securities System for the account of such Fund. Such transaction reports shall be delivered to such Fund or any agent designated by such Fund pursuant to Instructions, by computer or in such other manner as such Fund and Custodian may agree. (v) The Custodian shall, if requested by a Fund pursuant to Instructions, provide such Fund with reports obtained by the Custodian or any Subcustodian with respect to a Securities System's accounting system, internal accounting control and procedures for safeguarding Securities deposited in the Securities System. (vi) Upon receipt of Special Instructions, the Custodian shall terminate the use of any Securities System on behalf of a Fund as promptly as practicable and shall take all actions reasonably practicable to safeguard the Securities of such Fund maintained with such Securities System. 5 (c) FREE DELIVERY OF ASSETS. Notwithstanding any other provision of this Agreement and except as provided in Section 3 hereof, the Custodian, upon receipt of Special Instructions, will undertake to make free delivery of Assets, provided such Assets are on hand and available, in connection with a Fund's transactions and to transfer such Assets to such broker, dealer, Subcustodian, bank, agent, Securities System or otherwise as specified in such Special Instructions. (d) EXCHANGE OF SECURITIES. Upon receipt of Instructions, the Custodian will exchange portfolio Securities held by it for a Fund for other Securities or cash paid in connection with any reorganization, recapitalization, merger, consolidation, or conversion of convertible Securities, and will deposit any such Securities in accordance with the terms of any reorganization or protective plan. Without Instructions, the Custodian is authorized to exchange Securities held by it in temporary form for Securities in definitive form, to surrender Securities for transfer into a name or nominee name as permitted in Section 4(b)(2), to effect an exchange of shares in a stock split or when the par value of the stock is changed, to sell any fractional shares, and, upon receiving payment therefor, to surrender bonds or other Securities held by it at maturity or call. (e) PURCHASE OF ASSETS. (1) SECURITIES PURCHASES. In accordance with Instructions, the Custodian shall, with respect to a purchase of Securities, pay for such Securities out of monies held for a Fund's account for which the purchase was made, but only insofar as monies are available therein for such purpose, and receive the portfolio Securities so purchased. Unless the Custodian has received Special Instructions to the contrary, such payment will be made only upon receipt of Securities by the Custodian, a clearing corporation of a national Securities exchange of which the Custodian is a member, or a Securities System in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection with a repurchase agreement, the Custodian may release funds to a Securities System prior to the receipt of advice from the Securities System that the Securities underlying such repurchase agreement have been transferred by book-entry into the Account maintained with such Securities System by the Custodian, provided that the Custodian's instructions to the Securities System require that the Securities System may make payment of such funds to the other party to the repurchase agreement only upon transfer by book-entry of the Securities underlying the repurchase agreement into such Account; (ii) in the case of Interest Bearing Deposits, currency deposits, and 6 other deposits, foreign exchange transactions, futures contracts or options, pursuant to Sections 4(g), 4(h), 4(1), and 4(m) hereof, the Custodian may make payment therefor before receipt of an advice of transaction; and (iii) in the case of Securities as to which payment for the Security and receipt of the instrument evidencing the Security are under generally accepted trade practice or the terms of the instrument representing the Security expected to take place in different locations or through separate parties, such as commercial paper which is indexed to foreign currency exchange rates, derivatives and similar Securities, the Custodian may make payment for such Securities prior to delivery thereof in accordance with such generally accepted trade practice or the terms of the instrument representing such Security. (2) OTHER ASSETS PURCHASED. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall pay for and receive other Assets for the account of a Fund as provided in Instructions. (f) SALES OF ASSETS. (1) SECURITIES SOLD. In accordance with Instructions, the Custodian will, with respect to a sale, deliver or cause to be delivered the Securities thus designated as sold to the broker or other person specified in the Instructions relating to such sale. Unless the Custodian has received Special Instructions to the contrary, such delivery shall be made only upon receipt of payment therefor in the form of: (a) cash, certified check, bank cashier's check, bank credit, or bank wire transfer; (b) credit to the account of the Custodian with a clearing corporation of a national Securities exchange of which the Custodian is a member; or (c) credit to the Account of the Custodian with a Securities System, in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, Securities held in physical form may be delivered and paid for in accordance with "street delivery custom" to a broker or its clearing agent, against delivery to the Custodian of a receipt for such Securities, provided that the Custodian shall have taken reasonable steps to ensure prompt collection of the payment for, or return of, such Securities by the broker or its clearing agent, and provided further that the Custodian shall not be responsible for the selection of or the failure or inability to perform of such broker or its clearing agent or for any related loss arising from delivery or custody of such Securities prior to receiving payment therefor. (2) OTHER ASSETS SOLD. Upon receipt of Instructions and except as otherwise provided herein, the Custodian shall receive payment for and deliver other Assets for the account of a Fund as provided in Instructions. 7 (g) OPTIONS. (1) Upon receipt of Instructions relating to the purchase of an option or sale of a covered call option, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the purchase or writing of the option by a Fund; (b) if the transaction involves the sale of a covered call option, deposit and maintain in a segregated account the Securities (either physically or by book-entry in a Securities System) subject to the covered call option written on behalf of such Fund; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any notices or other communications evidencing the expiration, termination or exercise of such options which are furnished to the Custodian by the Options Clearing Corporation (the "OCC"), the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. (2) Upon receipt of Instructions relating to the sale of a naked option (including stock index and commodity options), the Custodian, the appropriate Fund and the broker-dealer shall enter into an agreement to comply with the rules of the OCC or of any registered national securities exchange or similar organizations(s). Pursuant to that agreement and such Fund's Instructions, the Custodian shall: (a) receive and retain confirmations or other documents, if any, evidencing the writing of the option; (b) deposit and maintain in a segregated account, Securities (either physically or by book-entry in a Securities System), cash and/or other Assets; and (c) pay, release and/or transfer such Securities, cash or other Assets in accordance with any such agreement and with any notices or other communications evidencing the expiration, termination or exercise of such option which are furnished to the Custodian by the OCC, the securities or options exchanges on which such options were traded, or such other organization as may be responsible for handling such option transactions. The appropriate Fund and the broker-dealer shall be responsible for determining the quality and quantity of assets held in any segregated account established in compliance with applicable margin maintenance requirements and the performance of other terms of any option contract. (h) FUTURES CONTRACTS. Upon receipt of Instructions, the Custodian shall enter into a futures margin procedural agreement among the appropriate Fund, the Custodian and the designated futures commission merchant (a "Procedural Agreement"). Under the Procedural Agreement the Custodian shall: (a) receive and retain confirmations, if any, evidencing the purchase or sale of a futures contract or an option on a futures contract by such Fund; (b) deposit and maintain in a segregated account cash, Securities and/or other Assets designated as initial, maintenance or variation 8 "margin" deposits intended to secure such Fund's performance of its obligations under any futures contracts purchased or sold, or any options on futures contracts written by such Fund, in accordance with the provisions of any Procedural Agreement designed to comply with the provisions of the Commodity Futures Trading Commission and/or any commodity exchange or contract market (such as the Chicago Board of Trade), or any similar organization(s), regarding such margin deposits; and (c) release Assets from and/or transfer Assets into such margin accounts only in accordance with any such Procedural Agreements. The appropriate Fund and such futures commission merchant shall be responsible for determining the type and amount of Assets held in the segregated account or paid to the broker-dealer in compliance with applicable margin maintenance requirements and the performance of any futures contract or option on a futures contract in accordance with its terms. (i) SEGREGATED ACCOUNTS. Upon receipt of Instructions, the Custodian shall establish and maintain on its books a segregated account or accounts for and on behalf of a Fund, into which account or accounts may be transferred Assets of such Fund, including Securities maintained by the Custodian in a Securities System pursuant to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained (i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by such Fund with the procedures required by the SEC Investment Company Act Release Number 10666 or any subsequent release or releases relating to the maintenance of segregated accounts by registered investment companies, or (iii) for such other purposes as may be set forth, from time to time, in Special Instructions. The Custodian shall not be responsible for the determination of the type or amount of Assets to be held in any segregated account referred to in this paragraph, or for compliance by the Fund with required procedures noted in (ii) above. (j) DEPOSITORY RECEIPTS. Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered Securities to the depositary used for such Securities by an issuer of American Depositary Receipts or International Depositary Receipts (hereinafter referred to, collectively, as "ADRs"), against a written receipt therefor adequately describing such Securities and written evidence satisfactory to the organization surrendering the same that the depositary has acknowledged receipt of instructions to issue ADRs with respect to such Securities in the name of the Custodian or a nominee of the Custodian, for delivery in accordance with such instructions. Upon receipt of Instructions, the Custodian shall surrender or cause to be surrendered ADRs to the issuer thereof, against a written receipt therefor adequately describing the ADRs surrendered and written evidence satisfactory to the organization surrendering the same that the issuer of the ADRs has 9 acknowledged receipt of instructions to cause its depository to deliver the Securities underlying such ADRs in accordance with such instructions. (k) CORPORATE ACTIONS, PUT BONDS, CALLED BONDS, ETC. Upon receipt of Instructions, the Custodian shall: (a) deliver warrants, puts, calls, rights or similar Securities to the issuer or trustee thereof (or to the agent of such issuer or trustee) for the purpose of exercise or sale, provided that the new Securities, cash or other Assets, if any, acquired as a result of such actions are to be delivered to the Custodian; and (b) deposit Securities upon invitations for tenders thereof, provided that the consideration for such Securities is to be paid or delivered to the Custodian, or the tendered Securities are to be returned to the Custodian. Notwithstanding any provision of this Agreement to the contrary, the Custodian shall take all necessary action, unless otherwise directed to the contrary in Instructions, to comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions, or similar rights of security ownership, and shall notify the appropriate Fund of such action in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing. The Fund agrees that if it gives an Instruction for the performance of an act on the last permissible date of a period established by any optional offer or on the last permissible date for the performance of such act, the Fund shall hold the Bank harmless from any adverse consequences in connection with acting upon or failing to act upon such Instructions. (l) INTEREST BEARING DEPOSITS. Upon receipt of Instructions directing the Custodian to purchase interest bearing fixed term and call deposits (hereinafter referred to, collectively, as "Interest Bearing Deposits") for the account of a Fund, the Custodian shall purchase such Interest Bearing Deposits in the name of such Fund with such banks or trust companies, including the Custodian, any Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter referred to as "Banking Institutions"), and in such amounts as such Fund may direct pursuant to Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars or other currencies, as such Fund may determine and direct pursuant to Instructions. The responsibilities of the Custodian to a Fund for Interest Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a similar deposit. With respect to Interest Bearing Deposits other than those issued by the Custodian, (a) the Custodian shall be responsible for the collection of income and the transmission of cash to and from such accounts; and (b) the Custodian shall have no duty with respect to the selection of the Banking Institution or for the failure of such Banking Institution to pay upon demand. 10 (m) FOREIGN EXCHANGE TRANSACTIONS OTHER THAN AS PRINCIPAL. (1) Upon receipt of Instructions, the Custodian shall settle foreign exchange contracts or options to purchase and sell foreign currencies for spot and future delivery on behalf of and for the account of a Fund with such currency brokers or Banking Institutions as such Fund may determine and direct pursuant to Instructions. Each Fund accepts full responsibility for its use of third party foreign exchange brokers and for execution of said foreign exchange contracts and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred as a result of the failure or delay of its third party broker to deliver foreign exchange. The Custodian shall have no responsibility with respect to the selection of the currency brokers or Banking Institutions with which a Fund deals or, so long as the Custodian acts in accordance with Instructions, for the failure of such brokers or Banking Institutions to comply with the terms of any contract or option. (2) Notwithstanding anything to the contrary contained herein, upon receipt of Instructions the Custodian may, in connection with a foreign exchange contract, make free outgoing payments of cash in the form of U.S. Dollars or foreign currency prior to receipt of confirmation of such foreign exchange contract or confirmation that the countervalue currency completing such contract has been delivered or received. (n) PLEDGES OR LOANS OF SECURITIES. (1) Upon receipt of Instructions from a Fund, the Custodian will release or cause to be released Securities held in custody to the pledgees designated in such Instructions by way of pledge or hypothecation to secure loans incurred by such Fund with various lenders including but not limited to UMB Bank, n.a.; provided, however, that the Securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure existing borrowings, further Securities may be released or delivered, or caused to be released or delivered for that purpose upon receipt of Instructions. Upon receipt of Instructions, the Custodian will pay, but only from funds available for such purpose, any such loan upon re-delivery to it of the Securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing such loan. In lieu of delivering collateral to a pledgee, the Custodian, on the receipt of Instructions, shall transfer the pledged Securities to a segregated account for the benefit of the pledgee. 11 (2) Upon receipt of Special Instructions, and execution of a separate Securities Lending Agreement, the Custodian will release Securities held in custody to the borrower designated in such Instructions and may, except as otherwise provided below, deliver such Securities prior to the receipt of collateral, if any, for such borrowing, provided that, in case of loans of Securities held by a Securities System that are secured by cash collateral, the Custodian's instructions to the Securities System shall require that the Securities System deliver the Securities of the appropriate Fund to the borrower thereof only upon receipt of the collateral for such borrowing. The Custodian shall have no responsibility or liability for any loss arising from the delivery of Securities prior to the receipt of collateral. Upon receipt of Instructions and the loaned Securities, the Custodian will release the collateral to the borrower. (o) STOCK DIVIDENDS, RIGHTS, ETC. The Custodian shall receive and collect all stock dividends, rights, and other items of like nature and, upon receipt of Instructions, take action with respect to the same as directed in such Instructions. (p) ROUTINE DEALINGS. The Custodian will, in general, attend to all routine and mechanical matters in accordance with industry standards in connection with the sale, exchange, substitution, purchase, transfer, or other dealings with Securities or other property of each Fund except as may be otherwise provided in this Agreement or directed from time to time by Instructions from any particular Fund. The Custodian may also make payments to itself or others from the Assets for disbursements and out-of-pocket expenses incidental to handling Securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the appropriate Fund. (q) COLLECTIONS. The Custodian shall (a) collect amounts due and payable to each Fund with respect to portfolio Securities and other Assets; (b) promptly credit to the account of each Fund all income and other payments relating to portfolio Securities and other Assets held by the Custodian hereunder upon Custodian's receipt of such income or payments or as otherwise agreed in writing by the Custodian and any particular Fund; (c) promptly endorse and deliver any instruments required to effect such collection; and (d) promptly execute ownership and other certificates and affidavits for all federal, state, local and foreign tax purposes in connection with receipt of income or other payments with respect to portfolio Securities and other Assets, or in connection with the transfer of such Securities or other Assets; provided, however, that with respect to portfolio Securities registered in so-called street name, or physical Securities with variable interest rates, the Custodian shall use its 12 best efforts to collect amounts due and payable to any such Fund. The Custodian shall notify a Fund in writing by facsimile transmission or in such other manner as such Fund and Custodian may agree in writing if any amount payable with respect to portfolio Securities or other Assets is not received by the Custodian when due. The Custodian shall not be responsible for the collection of amounts due and payable with respect to portfolio Securities or other Assets that are in default. (r) BANK ACCOUNTS. Upon Instructions, the Custodian shall open and operate a bank account or accounts on the books of the Custodian; provided that such bank account(s) shall be in the name of the Custodian or a nominee thereof, for the account of one or more Funds, and shall be subject only to draft or order of the Custodian. The responsibilities of the Custodian to any one or more such Funds for deposits accepted on the Custodian's books shall be that of a U.S. bank for a similar deposit. (s) DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. To enable each Fund to pay dividends or other distributions to shareholders of each such Fund and to make payment to shareholders who have requested repurchase or redemption of their shares of each such Fund (collectively, the "Shares"), the Custodian shall release cash or Securities insofar as available. In the case of cash, the Custodian shall, upon the receipt of Instructions, transfer such funds by check or wire transfer to any account at any bank or trust company designated by each such Fund in such Instructions. In the case of Securities, the Custodian shall, upon the receipt of Special Instructions, make such transfer to any entity or account designated by each such Fund in such Special Instructions. (t) PROCEEDS FROM SHARES SOLD. The Custodian shall receive funds representing cash payments received for shares issued or sold from time to time by each Fund, and shall credit such funds to the account of the appropriate Fund. The Custodian shall notify the appropriate Fund of Custodian's receipt of cash in payment for shares issued by such Fund by facsimile transmission or in such other manner as such Fund and the Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all federal funds received by the Custodian in payment for shares as may be set forth in such Instructions and at a time agreed upon between the Custodian and such Fund; and (b) make federal funds available to a Fund as of specified times agreed upon from time to time by such Fund and the Custodian, in the amount of checks received in payment for shares which are deposited to the accounts of such Fund. 13 (u) PROXIES AND NOTICES; COMPLIANCE WITH THE SHAREHOLDERS COMMUNICATION ACT OF 1985. The Custodian shall deliver or cause to be delivered to the appropriate Fund all forms of proxies, all notices of meetings, and any other notices or announcements affecting or relating to Securities owned by such Fund that are received by the Custodian, any Subcustodian, or any nominee of either of them, and, upon receipt of Instructions, the Custodian shall execute and deliver, or cause such Subcustodian or nominee to execute and deliver, such proxies or other authorizations as may be required. Except as directed pursuant to Instructions, neither the Custodian nor any Subcustodian or nominee shall vote upon any such Securities, or execute any proxy to vote thereon, or give any consent or take any other action with respect thereto. The Custodian will not release the identity of any Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and any such Fund unless a particular Fund directs the Custodian otherwise in writing. (v) BOOKS AND RECORDS. The Custodian shall maintain such records relating to its activities under this Agreement as are required to be maintained by Rule 31a-1 under the Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open for inspection by duly authorized officers, employees or agents (including independent public accountants) of the appropriate Fund during normal business hours of the Custodian. The Custodian shall provide accountings relating to its activities under this Agreement as shall be agreed upon by each Fund and the Custodian. (w) OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The Custodian shall take all reasonable action as each Fund may request to obtain from year to year favorable opinions from each such Fund's independent certified public accountants with respect to the Custodian's activities hereunder and in connection with the preparation of each such Fund's periodic reports to the SEC and with respect to any other requirements of the SEC. (x) REPORTS BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. At the request of a Fund, the Custodian shall deliver to such Fund a written report prepared by the Custodian's independent certified public accountants with respect to the services provided by the Custodian under this Agreement, including, without 14 limitation, the Custodian's accounting system, internal accounting control and procedures for safeguarding cash, Securities and other Assets, including cash, Securities and other Assets deposited and/or maintained in a Securities System or with a Subcustodian. Such report shall be of sufficient scope and in sufficient detail as may reasonably be required by such Fund and as may reasonably be obtained by the Custodian. (y) BILLS AND OTHER DISBURSEMENTS. Upon receipt of Instructions, the Custodian shall pay, or cause to be paid, all bills, statements, or other obligations of a Fund. 5. SUBCUSTODIANS. From time to time, in accordance with the relevant provisions of this Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are hereinafter defined) to act on behalf of any one or more Funds. A Domestic Subcustodian, in accordance with the provisions of this Agreement, may also appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to act on behalf of any one or more Funds. For purposes of this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim Subcustodians shall be referred to collectively as "Subcustodians". (a) DOMESTIC SUBCUSTODIANS. The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity, any of which meet the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act for the Custodian on behalf of any one or more Funds as a subcustodian for purposes of holding Assets of such Fund(s) and performing other functions of the Custodian within the United States (a "Domestic Subcustodian"). Each Fund shall approve in writing the appointment of the proposed Domestic Subcustodian; and the Custodian's appointment of any such Domestic Subcustodian shall not be effective without such prior written approval of the Fund(s). Each such duly approved Domestic Subcustodian shall be listed on Appendix A attached hereto, as it may be amended, from time to time. (b) FOREIGN SUBCUSTODIANS. The Custodian may at any time appoint, or cause a Domestic Subcustodian to appoint, any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules and regulations thereunder to act for the Custodian on behalf of any one or more Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic Subcustodian) 15 for purposes of holding Assets of the Fund(s) and performing other functions of the Custodian in countries other than the United States of America (hereinafter referred to as a "Foreign Subcustodian" in the context of either a subcustodian or a sub-subcustodian); provided that the Custodian shall have obtained written confirmation from each Fund of the approval of the Board of Directors or other governing body of each such Fund (which approval may be withheld in the sole discretion of such Board of Directors or other governing body or entity) with respect to (i) the identity of any proposed Foreign Subcustodian (including branch designation), (ii) the country or countries in which, and the securities depositories or clearing agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any, through which, the Custodian or any proposed Foreign Subcustodian is authorized to hold Securities and other Assets of each such Fund, and (iii) the form and terms of the subcustodian agreement to be entered into with such proposed Foreign Subcustodian. Each such duly approved Foreign Subcustodian and the countries where and the Securities Depositories and Clearing Agencies through which they may hold Securities and other Assets of the Fund(s) shall be listed on Appendix A attached hereto, as it may be amended, from time to time. Each Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Foreign Subcustodian is authorized to act, in order that there shall be sufficient time for the Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements with a proposed Foreign Subcustodian, including obtaining approval as provided in this Section 5(b). In connection with the appointment of any Foreign Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to, enter into a subcustodian agreement with the Foreign Subcustodian in form and substance approved by each such Fund. The Custodian shall not consent to the amendment of, and shall cause any Domestic Subcustodian not to consent to the amendment of, any agreement entered into with a Foreign Subcustodian, which materially affects any Fund's rights under such agreement, except upon prior written approval of such Fund pursuant to Special Instructions. (c) INTERIM SUBCUSTODIANS. Notwithstanding the foregoing, in the event that a Fund shall invest in an Asset to be held in a country in which no Foreign Subcustodian is authorized to act, the Custodian shall notify such Fund in writing by facsimile transmission or in such other manner as such Fund and the Custodian shall agree in writing of the unavailability of an approved Foreign Subcustodian in such country; and upon the receipt of Special Instructions from such Fund, the Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve an entity (referred to herein as an "Interim Subcustodian") designated in such Special Instructions to hold such Security or other Asset. 16 (d) SPECIAL SUBCUSTODIANS. Upon receipt of Special Instructions, the Custodian shall on behalf of a Fund, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act for the Custodian on behalf of such Fund as a subcustodian for purposes of: (i) effecting third-party repurchase transactions with banks, brokers, dealers or other entities through the use of a common custodian or subcustodian; (ii) providing depository and clearing agency services with respect to certain variable rate demand note Securities, (iii) providing depository and clearing agency services with respect to dollar denominated Securities, and (iv) effecting any other transactions designated by such Fund in such Special Instructions. Each such designated subcustodian (hereinafter referred to as a "Special Subcustodian") shall be listed on Appendix A attached hereto, as it may be amended from time to time. In connection with the appointment of any Special Subcustodian, the Custodian shall enter into a subcustodian agreement with the Special Subcustodian in form and substance approved by the appropriate Fund in Special Instructions. The Custodian shall not amend any subcustodian agreement entered into with a Special Subcustodian, or waive any rights under such agreement, except upon prior approval pursuant to Special Instructions. (e) TERMINATION OF A SUBCUSTODIAN. The Custodian may, at any time in its discretion upon notification to the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance with the termination provisions under the applicable subcustodian agreement, and upon the receipt of Special Instructions, the Custodian will terminate any Subcustodian in accordance with the termination provisions under the applicable subcustodian agreement. (f) CERTIFICATION REGARDING FOREIGN SUBCUSTODIANS. Upon request of a Fund, the Custodian shall deliver to such Fund a certificate stating: (i) the identity of each Foreign Subcustodian then acting on behalf of the Custodian; (ii) the countries in which and the Securities Depositories and Clearing Agencies through which each such Foreign Subcustodian is then holding cash, Securities and other Assets of such Fund; and (iii) such other information as may be requested by such Fund, and as the Custodian shall be reasonably able to obtain, to evidence compliance with rules and regulations under the 1940 Act. 6. STANDARD OF CARE. (a) GENERAL STANDARD OF CARE. The Custodian shall be liable to a Fund for all losses, damages and reasonable costs and expenses suffered or incurred by such Fund resulting from the gross 17 negligence or willful misfeasance of the Custodian; provided, however, in no event shall the Custodian be liable for special, indirect or consequential damages arising under or in connection with this Agreement. (b) ACTIONS PROHIBITED BY APPLICABLE LAW, EVENTS BEYOND CUSTODIAN'S CONTROL, SOVEREIGN RISK, ETC. In no event shall the Custodian or any Domestic Subcustodian incur liability hereunder if the Custodian or any Subcustodian or Securities System, or any subcustodian, Securities System, Securities Depository or Clearing Agency utilized by the Custodian or any such Subcustodian, or any nominee of the Custodian or any Subcustodian (individually, a "Person") is prevented, forbidden or delayed from performing, or omits to perform, any act or thing which this Agreement provides shall be performed or omitted to be performed, by reason of: (i) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or of any foreign country, or political subdivision thereof or of any court of competent jurisdiction (and neither the Custodian nor any other Person shall be obligated to take any action contrary thereto); or (ii) any event beyond the control of the Custodian or other Person such as armed conflict, riots, strikes, lockouts, labor disputes, equipment or transmission failures, natural disasters, or failure of the mails, transportation, communications or power supply; or (iii) any "Sovereign Risk." A "Sovereign Risk" shall mean nationalization, expropriation, devaluation, revaluation, confiscation, seizure, cancellation, destruction or similar action by any governmental authority, de facto or de jure; or enactment, promulgation, imposition or enforcement by any such governmental authority of currency restrictions, exchange controls, taxes, levies or other charges affecting a Fund's Assets; or acts of armed conflict, terrorism, insurrection or revolution; or any other act or event beyond the Custodian's or such other Person's control. (c) LIABILITY FOR PAST RECORDS. Neither the Custodian nor any Domestic Subcustodian shall have any liability in respect of any loss, damage or expense suffered by a Fund, insofar as such loss, damage or expense arises from the performance of the Custodian or any Domestic Subcustodian in reliance upon records that were maintained for such Fund by entities other than the Custodian or any Domestic Subcustodian prior to the Custodian's employment hereunder. (d) ADVICE OF COUNSEL. The Custodian and all Domestic Subcustodians shall be entitled to receive and act upon advice of counsel of its own choosing on all matters. The Custodian and all Domestic Subcustodians shall be without liability for any actions taken or omitted in good faith pursuant to the advice of counsel. 18 (e) ADVICE OF THE FUND AND OTHERS. The Custodian and any Domestic Subcustodian may rely upon the advice of any Fund and upon statements of such Fund's accountants and other persons believed by it in good faith to be expert in matters upon which they are consulted, and neither the Custodian nor any Domestic Subcustodian shall be liable for any actions taken or omitted, in good faith, pursuant to such advice or statements. (f) INSTRUCTIONS APPEARING TO BE GENUINE. The Custodian and all Domestic Subcustodians shall be fully protected and indemnified in acting as a custodian hereunder upon any Resolutions of the Board of Directors or Trustees, Instructions, Special Instructions, advice, notice, request, consent, certificate, instrument or paper appearing to it to be genuine and to have been properly executed and shall, unless otherwise specifically provided herein, be entitled to receive as conclusive proof of any fact or matter required to be ascertained from any Fund hereunder a certificate signed by any officer of such Fund authorized to countersign or confirm Special Instructions. (g) EXCEPTIONS FROM LIABILITY. Without limiting the generality of any other provisions hereof, neither the Custodian nor any Domestic Subcustodian shall be under any duty or obligation to inquire into, nor be liable for: (i) the validity of the issue of any Securities purchased by or for any Fund, the legality of the purchase thereof or evidence of ownership required to be received by any such Fund, or the propriety of the decision to purchase or amount paid therefor; (ii) the legality of the sale of any Securities by or for any Fund, or the propriety of the amount for which the same were sold; or (iii) any other expenditures, encumbrances of Securities, borrowings or similar actions with respect to any Fund's Assets; and may, until notified to the contrary, presume that all Instructions or Special Instructions received by it are not in conflict with or in any way contrary to any provisions of any such Fund's Declaration of Trust, Partnership Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the shareholders, trustees, partners or directors of any such Fund, or any such Fund's currently effective Registration Statement on file with the SEC. 19 7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS. (a) DOMESTIC SUBCUSTODIANS The Custodian shall be liable for the acts or omissions of any Domestic Subcustodian to the same extent as if such actions or omissions were performed by the Custodian itself. (b) LIABILITY FOR ACTS AND OMISSIONS OF FOREIGN SUBCUSTODIANS. The Custodian shall be liable to a Fund for any loss or damage to such Fund caused by or resulting from the acts or omissions of any Foreign Subcustodian to the extent that, under the terms set forth in the subcustodian agreement between the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the Foreign Subcustodian has failed to perform in accordance with the standard of conduct imposed under such subcustodian agreement and the Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under the applicable subcustodian agreement. (c) SECURITIES SYSTEMS, INTERIM SUBCUSTODIANS, SPECIAL SUBCUSTODIANS, SECURITIES DEPOSITORIES AND CLEARING AGENCIES. The Custodian shall not be liable to any Fund for any loss, damage or expense suffered or incurred by such Fund resulting from or occasioned by the actions or omissions of a Securities System, Interim Subcustodian, Special Subcustodian, or Securities Depository and Clearing Agency unless such loss, damage or expense is caused by, or results from, the gross negligence or willful misfeasance of the Custodian. (d) DEFAULTS OR INSOLVENCIES OF BROKERS, BANKS, ETC. The Custodian shall not be liable for any loss, damage or expense suffered or incurred by any Fund resulting from or occasioned by the actions, omissions, neglects, defaults or insolvency of any broker, bank, trust company or any other person with whom the Custodian may deal (other than any of such entities acting as a Subcustodian, Securities System or Securities Depository and Clearing Agency, for whose actions the liability of the Custodian is set out elsewhere in this Agreement) unless such loss, damage or expense is caused by, or results from, the gross negligence or willful misfeasance of the Custodian. (e) REIMBURSEMENT OF EXPENSES. Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses incurred by the Custodian in connection with this Agreement, but excluding salaries and usual overhead expenses. 20 8. INDEMNIFICATION. (a) INDEMNIFICATION BY FUND. Subject to the limitations set forth in this Agreement, each Fund agrees to indemnify and hold harmless the Custodian and its nominees from all losses, damages and expenses (including attorneys' fees) suffered or incurred by the Custodian or its nominee caused by or arising from actions taken by the Custodian, its employees or agents in the performance of its duties and obligations under this Agreement, including, but not limited to, any indemnification obligations undertaken by the Custodian under any relevant subcustodian agreement; provided, however, that such indemnity shall not apply to the extent the Custodian is liable under Sections 6 or 7 hereof. If any Fund requires the Custodian to take any action with respect to Securities, which action involves the payment of money or which may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to such Fund being liable for the payment of money or incurring liability of some other form, such Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. (b) INDEMNIFICATION BY CUSTODIAN. Subject to the limitations set forth in this Agreement and in addition to the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify and hold harmless each Fund from all losses, damages and expenses suffered or incurred by each such Fund caused by the gross negligence or willful misfeasance of the Custodian. 9. ADVANCES. In the event that, pursuant to Instructions, the Custodian or any Subcustodian, Securities System, or Securities Depository or Clearing Agency acting either directly or indirectly under agreement with the Custodian (each of which for purposes of this Section 9 shall be referred to as "Custodian"), makes any payment or transfer of funds on behalf of any Fund as to which there would be, at the close of business on the date of such payment or transfer, insufficient funds held by the Custodian on behalf of any such Fund, the Custodian may, in its discretion without further Instructions, provide an advance ("Advance") to any such Fund in an amount sufficient to allow the completion of the transaction by reason of which such payment or transfer of funds is to be made. In addition, in the event the Custodian is directed by Instructions to make any payment or transfer of funds on behalf of any Fund as to which it is subsequently determined that such Fund has overdrawn its cash account with the Custodian as of the close of business on the date of such payment or transfer, said overdraft shall constitute an Advance. Any 21 Advance shall be payable by the Fund on behalf of which the Advance was made on demand by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall accrue interest from the date of the Advance to the date of payment by such Fund to the Custodian at a rate agreed upon in writing from time to time by the Custodian and such Fund. It is understood that any transaction in respect of which the Custodian shall have made an Advance, including but not limited to a foreign exchange contract or transaction in respect of which the Custodian is not acting as a principal, is for the account of and at the risk of the Fund on behalf of which the Advance was made, and not, by reason of such Advance, deemed to be a transaction undertaken by the Custodian for its own account and risk. The Custodian and each of the Funds which are parties to this Agreement acknowledge that the purpose of Advances is to finance temporarily the purchase or sale of Securities for prompt delivery in accordance with the settlement terms of such transactions or to meet emergency expenses not reasonably foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund of any Advance. Such notification shall be sent by facsimile transmission or in such other manner as such Fund and the Custodian may agree. 10. LIENS. The Bank shall have a lien on the Property in the Custody Account to secure payment of fees and expenses for the services rendered under this Agreement. If the Bank advances cash or securities to the Fund for any purpose or in the event that the Bank or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of its duties hereunder, except such as may arise from its or its nominee's negligent action, negligent failure to act or willful misconduct, any Property at any time held for the Custody Account shall be security therefor and the Fund hereby grants a security interest therein to the Bank. The Fund shall promptly reimburse the Bank for any such advance of cash or securities or any such taxes, charges, expenses, assessments, claims or liabilities upon request for payment, but should the Fund fail to so reimburse the Bank, the Bank shall be entitled to dispose of such Property to the extent necessary to obtain reimbursement. The Bank shall be entitled to debit any account of the Fund with the Bank including, without limitation, the Custody Account, in connection with any such advance and any interest on such advance as the Bank deems reasonable. 11. COMPENSATION. Each Fund will pay to the Custodian such compensation as is agreed to in writing by the Custodian and each such Fund from time to time. Such compensation, together with all amounts for which the Custodian is to be reimbursed in accordance with Section 7(e), shall be billed to each such Fund and paid in cash to the Custodian. 12. POWERS OF ATTORNEY. Upon request, each Fund shall deliver to the Custodian such proxies, powers of attorney or other instruments as may be reasonable and necessary or desirable in connection with 22 the performance by the Custodian or any Subcustodian of their respective obligations under this Agreement or any applicable subcustodian agreement. 13. TERMINATION AND ASSIGNMENT. Any Fund or the Custodian may terminate this Agreement by notice in writing, delivered or mailed, postage prepaid (certified mail, return receipt requested) to the other not less than 90 days prior to the date upon which such termination shall take effect. Upon termination of this Agreement, the appropriate Fund shall pay to the Custodian such fees as may be due the Custodian hereunder as well as its reimbursable disbursements, costs and expenses paid or incurred. Upon termination of this Agreement, the Custodian shall deliver, at the terminating party's expense, all Assets held by it hereunder to the appropriate Fund or as otherwise designated by such Fund by Special Instructions. Upon such delivery, the Custodian shall have no further obligations or liabilities under this Agreement except as to the final resolution of matters relating to activity occurring prior to the effective date of termination. This Agreement may not be assigned by the Custodian or any Fund without the respective consent of the other, duly authorized by a resolution by its Board of Directors or Trustees. 14. ADDITIONAL FUNDS. An additional Fund or Funds may become a party to this Agreement after the date hereof by an instrument in writing to such effect signed by such Fund or Funds and the Custodian. If this Agreement is terminated as to one or more of the Funds (but less than all of the Funds) or if an additional Fund or Funds shall become a party to this Agreement, there shall be delivered to each party an Appendix B or an amended Appendix B, signed by each of the additional Funds (if any) and each of the remaining Funds as well as the Custodian, deleting or adding such Fund or Funds, as the case may be. The termination of this Agreement as to less than all of the Funds shall not affect the obligations of the Custodian and the remaining Funds hereunder as set forth on the signature page hereto and in Appendix B as revised from time to time. 15. NOTICES. As to each Fund, notices, requests, instructions and other writings delivered to THE SECURITY BENEFIT GROUP OF COMPANIES, 700 HARRISON, TOPEKA, KS 66636-0001, postage prepaid, or to such other address as any particular Fund may have designated to the Custodian in writing, shall be deemed to have been properly delivered or given to a Fund. Notices, requests, instructions and other writings delivered to the Securities Administration Department of the Custodian at its office at 928 Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's Securities Administration Department, Post Office Box 226, Kansas City, Missouri 64141, or to such other addresses as the Custodian may have designated to each Fund in writing, shall be deemed 23 to have been properly delivered or given to the Custodian hereunder; provided, however, that procedures for the delivery of Instructions and Special Instructions shall be governed by Section 2(c) hereof.. 16. MISCELLANEOUS. (a) This Agreement is executed and delivered in the State of Missouri and shall be governed by the laws of such state. (b) All of the terms and provisions of this Agreement shall be binding upon, and inure to the benefit of, and be enforceable by the respective successors and assigns of the parties hereto. (c) No provisions of this Agreement may be amended, modified or waived, in any manner except in writing, properly executed by both parties hereto; provided, however, Appendix A may be amended from time to time as Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities Depositories and Clearing Agencies are approved or terminated according to the terms of this Agreement. (d) The captions in this Agreement are included for convenience of reference only, and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (e) This Agreement shall be effective as of the date of execution hereof. (f) This Agreement may be executed simultaneously in two or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. (g) The following terms are defined terms within the meaning of this Agreement, and the definitions thereof are found in the following sections of the Agreement: 24 TERM SECTION Account 4(b)(3)(ii) ADR'S 4(j) Advance 9 Assets 2 Authorized Person 3 Banking Institution 4(l) Domestic Subcustodian 5(a) Foreign Subcustodian 5(b) Instruction 2 Interim Subcustodian 5(c) Interest Bearing Deposit 4(l) Liability 10 OCC 4(g)(2) Person 6(b) Procedural Agreement 4(h) SEC 4(b)(3) Securities 2 Securities Depositories and Clearing Agencies 5(b) Securities System 4(b)(3) Shares 4(s) Sovereign Risk 6(b) Special Instruction 2 Special Subcustodian 5(c) Subcustodian 5 1940 Act 4(v) (h) If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid by any court of competent jurisdiction, the remaining portion or portions shall be considered severable and shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if this Agreement did not contain the particular part, term or provision held to be illegal or invalid. (i) This Agreement constitutes the entire understanding and agreement of the parties hereto with respect to the subject matter hereof, and accordingly supersedes, as of the effective date of this Agreement, any custodian agreement heretofore in effect between the Fund and the Custodian. 25 IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to be executed by their respective duly authorized officers. ATTEST: Security Ultra Fund AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Equity Fund Equity Series AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Growth and Income Fund AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Income Fund Corporate Bond Series AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Income Series Limited Maturity Bond Series AMY J. LEE By: JOHN D. CLELAND Title: President 26 ATTEST: Security Income Fund U. S. Government Series AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Tax-Exempt Fund AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: Security Cash Fund AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: SBL Fund Series A, B, C, E, S and J AMY J. LEE By: JOHN D. CLELAND Title: President ATTEST: UMB BANK, N.A. R. WILLIAM BLOOM By: DAVID SWAN Title: Senior Vice President Date: 1/11/95 27 APPENDIX A CUSTODY AGREEMENT DOMESTIC SUBCUSTODIANS: United Missouri Trust Company of New York SECURITIES SYSTEMS: Federal Book Entry Depository Trust Company Participant's Trust Company SPECIAL SUBCUSTODIANS: Bank of New York SECURITIES DEPOSITORIES COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES Euroclear Security Income Fund Security Ultra Fund Limited Maturity Bond Series By: JOHN D. CLELAND By: JOHN D. CLELAND Title: President Title: President Security Equity Fund Security Income Fund Equity Series U. S. Government Series By: JOHN D. CLELAND By: JOHN D. CLELAND Title: President Title: President Security Growth and Income Fund SBL Fund By: JOHN D. CLELAND By: JOHN D. CLELAND Title: President Title: President Security Income Fund Corporate Bond Series UMB BANK, N.A. By: JOHN D. CLELAND By: DAVID SWAN Title: President Title: Senior Vice President Date: 1/11/95 28 AMENDMENT TO CUSTODY AGREEMENT The following open-end management investment companies ("Funds") are hereby made parties to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a. ("Custodian"), and agree to be bound by all the terms and conditions contained in said Agreement: List of Funds Security Income Fund, High Yield Series SBL Fund, Series P ATTEST: Security Income Fund High Yield Series AMY J. LEE - ----------------------------------- By: JOHN D. CLELAND ----------------------------------- Title: President ATTEST: SBL Fund Series P AMY J. LEE - ----------------------------------- By: JOHN D. CLELAND ----------------------------------- Title: President ATTEST: UMB BANK, N.A. R.WM. BLOOM By: DAVID SWAN - ----------------------------------- ----------------------------------- Title: Senior Vice President Date: April 29, 1996 AMENDMENT TO APPENDIX A CUSTODY AGREEMENT DOMESTIC SUBCUSTODIANS: United Missouri Trust Company of New York SECURITIES SYSTEMS: Federal Book Entry Depository Trust Company Participant's Trust Company SPECIAL SUBCUSTODIANS: Bank of New York SECURITIES DEPOSITORIES COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES Euroclear Security Income Fund High Yield Series By: JAMES R. SCHMANK ----------------------------------- Title: Vice President & Treasurer SBL Fund Series B Series E Series P By: JAMES R. SCHMANK ----------------------------------- Title: Vice President & Treasurer UMB BANK, N.A. By: RALPH SANTORO ----------------------------------- Title: Vice President Date: August 15, 1996 AMENDMENT TO CUSTODY AGREEMENT The following open-end management investment company ("Fund") is hereby made a party to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a. ("Custodian"), and agrees to be bound by all the terms and conditions contained in said Agreement: Security Equity Fund Social Awareness Series ATTEST: Security Equity Fund Social Awareness Series CHRIS SWICKARD - ----------------------------------- By: JAMES R. SCHMANK ----------------------------------- Title: Vice President and Treasurer ATTEST: UMB BANK, N.A. WILLIAM BLOEMKER By: RALPH SANTORO - ----------------------------------- ----------------------------------- Title: Vice President Date: August 15, 1996 UMB Financial Corporation CUSTODY FEE SCHEDULE Security Management Group of Mutual Funds - -------------------------------------------------------------------------------- NET ASSET VALUE CHARGES A fee to be computed as of month-end and payable on the last day of each month of the portfolios' fiscal year, at the annual rate of: 0.275 basis points on the combined net assets of all portfolios, subject to a $100.00 per month minimum per portfolio. PORTFOLIO TRANSACTION CHARGES DTC Book-Entry Transactions* $5.00 PTC Book-Entry Transactions* 11.50 Federal Book-Entry Transactions* 7.50 Physical Transactions* 18.00 Third Party (Bank Book-Entry) Transactions 15.00 Principal and Interest Paydowns 3.00 Options/Futures 25.00 Corporate Actions/Calls/Reorgs 30.00 *A TRANSACTION INCLUDES BUYS, SELLS, MATURITIES, AND FREE SECURITY MOVEMENTS. OUT OF POCKET EXPENSES Including, but not limited to, security transfer fees, certificate fees, shipping/courier fees or charges, FDIC insurance premiums, and remote system access charges. UMB Bank, N.A. agrees that the foregoing fees and charges will be in effect for a period of three years beginning December 1, 1996, unless otherwise agreed by the parties. IN WITNESS WHEREOF, the parties hereto have executed this amendment to the Custody Agreement dated January 1, 1995, this 26th day of November, 1996. ATTEST: Security Ultra Fund AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: Security Equity Fund Equity Series Social Awareness Series AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: Security Growth and Income Fund AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: Security Income Fund Corporate Bond Series Limited Maturity Bond Series U.S. Government Bond Series High Yield Series AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: Security Tax-Exempt Fund AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: Security Cash Fund AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: SBL Fund Series A, B, C, E, S, J and P AMY J. LEE By: JOHN D. CLELAND - -------------------------------- -------------------------------- Name: John D. Cleland Title: President ATTEST: UMB Bank, N.A. R. W. BLOOM By: PATRICIA A. PETERSON - -------------------------------- -------------------------------- Name: Patricia A. Peterson Title: Senior Vice President AMENDMENT TO APPENDIX A CUSTODY AGREEMENT DOMESTIC SUBCUSTODIANS: United Missouri Trust Company of New York SECURITIES SYSTEMS: Federal Book Entry Depository Trust Company Participant's Trust Company SPECIAL SUBCUSTODIANS: Bank of New York SECURITIES DEPOSITORIES COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES Euroclear Security Equity Fund Value Series By: -------------------------------- Title: -------------------------------- SBL Fund Series V By: -------------------------------- Title: -------------------------------- UMB BANK, N.A. By: -------------------------------- Title: -------------------------------- Date: -------------------------------- AMENDMENT TO CUSTODY AGREEMENT The following open-end management investment company ("Fund") is hereby made party to the Custody Agreement dated January 1, 1995, with UMB Bank, n.a. ("Custodian"), and agrees to be bound by all the terms and conditions contained in said Agreement: Security Equity Fund, Value Series SBL Fund, Series V Security Equity Fund ATTEST: Value Series By: - --------------------------------- --------------------------------- Title: ------------------------------ SBL Fund ATTEST: Series V By: - --------------------------------- --------------------------------- Title: ------------------------------ ATTEST: UMB BANK, N.A. By: - --------------------------------- --------------------------------- Title: ------------------------------ Date: ------------------------------- EX-99.B11 7 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Highlights" and "Independent Auditors" in the Registration Statement (Form N-1A) and related prospectus of Security Equity Fund and to the incorporation by reference therein of our report dated November 1, 1996, with respect to the financial statements of Security Equity Fund included in its Annual Report to Shareholders for the year ended September 30, 1996. Ernst & Young LLP Kansas City, Missouri February 14, 1997 EX-99.B16 8 SCHEDULE OF COMPUTATION OF PERFORMANCE Item 24.b. Exhibit (16) SECURITY EQUITY FUND EQUITY SERIES A SHARES Total Return from September 30, 1986, to September 30, 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/5.73 = 174.5201 shares. Ending value of initial investment at September 30, 1996, NAV price = 174.5201 shares x 7.54 = $1,315.88. Ending value of shares received from reinvestment of all dividends at NAV = 373.2237 shares x 7.54 = $2,814.11. Total ending redeemable value: 1,315.88 + 2,814.11 ---------- 4,129.99 Total Return: 4,129.99 - 1,000 = 3,129.99 3,129.99 / 1,000 = 313.00% ----------------------------------------------- Calendar 1996 % change from previous year = value at end of year............... 1,249 less value at beginning.............. 1,000 ----- 249 Change 249 ----- Beginning Value 1,000 = 24.9% Item 24.b. Exhibit (16) EQUITY SERIES B SHARES Total Return from October 19, 1993, to September 30, 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/6.81 = 146.8429 shares. Ending value of initial investment at September 30, 1996, NAV price = 146.8429 shares x 7.36= $1,080.76. Ending value of shares received from reinvestment of all dividends at NAV = 65.5339 shares x 7.36 = $482.33. Contingent deferred sales charge = 1,000 x .03 = $30.00. Total ending redeemable value: 1,080.76 482.33 (30.00) -------- 1,533.09 Total Return: 1,533.09 - 1,000 = 533.09 533.09 / 1,000 = 53.31% ----------------------------------------------- Calendar 1996 % change = value at end of year............... 1,236 less value at beginning.............. 1,000 ----- 236 Change 236 ----- Beginning Value 1,000 = 23.6% Item 24.b. Exhibit (16) AVERAGE ANNUAL TOTAL RETURN FOR SECURITY EQUITY FUND, EQUITY SERIES Total Return of Security Equity Fund, Equity Series, as of September 30, 1996, (according to the Form N-1A calculation). A SHARES 1. Average total return for 1 year = 17.71% ====== 1000 (1+T)1 = 1,177.09 (1+T)1 = 1.17709 1+T = 1.17709 T = .17709 2. Average total return for 5 years = 15.70% ====== 1000 (1+T)5 = 2,073.04 (1+T)5 = 2.07304 ((1+T)5)1/5 = (2.07304)1/5 1+T = 1.1570 T = .1570 3. Average total return for 10 years = 15.24% ====== 1000 (1+T)10 = 4,129.99 (1+T)10 = 4.12999 ((1+T)10)1/10 = (4.12999)1/10 1+T = 1.1524 T = .1524 B SHARES 1. Average total return for 1 year with CDSC = 18.57% ====== 1000 (1+T)1 = 1,185.72 (1+T)1 = (1.18572) 1+T = 1.18572 T = .18572 2. Average total return since October 19, 1993 (inception) with CDSC = 15.58% ====== 1000 (1+T) 2 19/20 = 1,533.09 ((1+T) 2 19/20 ) 20/59 = (1.53309)20/59 1+T = 1.1558 T = .1558 Item 24.b. Exhibit (16) SECURITY EQUITY FUND GLOBAL SERIES A SHARES Total Return from October 1, 1993, to September 30, 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/10.61 = 94.2507 shares. Ending value of initial investment at September 30, 1996, NAV price = 94.2507 shares x 12.42 = $1,170.59. Ending redeemable value of shares received from reinvestment of all dividends at NAV = 5.3114 x 12.42 = 65.97 Total ending redeemable value: 1,170.59 65.97 -------- 1,236.56 Total Return: 1,236.56 - 1,000 = 236.56 236.56 / 1,000 = 23.66% ----------------------------------------------- Calendar 1996 % change from previous year = value at end of year............... 1,177 less value at beginning.............. 1,000 ----- 177 Change 177 ----- Beginning Value 1,000 = +17.7% Item 24.b. Exhibit (16) GLOBAL SERIES B SHARES Total Return from October 19, 1993, to September 30 , 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/9.96 = 100.402 shares. Ending value of initial investment at September 30, 1996, NAV price = 100.402 shares x 12.18 = $1,222.90. Ending value of shares received from reinvestment of all dividends at NAV = 4.747 x 12.18 = $57.82. Contingent deferred sales charge = 1,000 x .03 = $30. Total ending redeemable value: 1,222.90 57.82 + (30.00) -------- 1,250.72 Total Return: 1,250.72 - 1,000 = 250.72 250.72 / 1,000 = 25.07% ----------------------------------------------- Calendar 1996 % change = value at end of year............... 1,166 less value at beginning.............. 1,000 ----- 166 Change 166 ----- Beginning Value 1,000 = +16.6% Item 24.b. Exhibit (16) AVERAGE ANNUAL TOTAL RETURN FOR SECURITY EQUITY FUND, GLOBAL SERIES Total Return of Security Equity Fund, Global Series, as of September 30, 1996, (according to the Form N-1A calculation). A SHARES 1. Average total return for 1 year = 10.94% ====== 1000 (1+T)1 = 1,109.40 (1+T)1 = 1.10940 1+T = 1.10940 T = .10940 2. Average total return since October 1, 1993 (inception) with CDSC = 7.33% ===== 1000 (1+T)3 = 1,236.56 (1+T)3 = 1.23656 ((1+T)3)1/3 = (1.23656) 1/3 1+T = 1.0733 T = .0733 B SHARES 1. Average annual return for 1 year with CDSC = 11.57% ====== 1000 (1+T)1 = 1,115.75 (1+T)1 = 1.11575 1+T = 1.11575 T = .1157 2. Average total return since October 19, 1993 (inception) with CDSC = 7.88% ===== 1000 (1+T)2 19/20 = 1,250.71 ((1+T)2 19/20)20/79 = (1.25071)20/79 1+T = 1.0788 T = .0788 Item 24.b. Exhibit (16) SECURITY EQUITY FUND ASSET ALLOCATION SERIES A SHARES Total Return from June 1, 1995, to September 30, 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/10.61 = 94.2507 shares. Ending value of initial investment at September 30, 1996, NAV price = 94.2507 shares x 11.06 = $1,042.41. Ending value of shares received from reinvestment of all dividends at NAV = 4.562 x 11.06 = $50.46. Total ending redeemable value: 1,042.41 + 50.46 -------- 1,092.87 Total Return: 1,092.87 - 1,000 = 92.87 92.87 / 1,000 = 9.29% ----------------------------------------------- Item 24.b. Exhibit (16) ASSET ALLOCATION SERIES B SHARES Total Return from June 1, 1995, to September 30, 1996. Assuming Initial Investment of $1,000 at offering price at the beginning of period $1,000/10.00 = 100 shares. Ending value of initial investment at September 30, 1996, NAV price = 100 shares x 10.66 = $1,066.00. Ending value of shares received from reinvestment of all dividends at NAV = 4.3053 x 10.66 = $45.89 Contingent deferred sales charge = 1,000 x .05 = $50. Total ending redeemable value: 1,066.00 + 45.89 (50.00) -------- 1,061.89 Total Return: 1,061.89 - 1,000 = 61.89 61.89 / 1,000 = 6.19% ----------------------------------------------- Item 24.b. Exhibit (16) AVERAGE ANNUAL TOTAL RETURN FOR SECURITY EQUITY FUND, ASSET ALLOCATION SERIES Total Return of Security Equity Fund Asset Allocation Series, as of September 30, 1996, (according to the Form N-1A calculation). A SHARES 1. Average total return for 1 year = 3.69% ===== 1000 (1+T)1 = 1,036.88 (1+T)1 = 1.03688 1+T = 1.03688 T = .03688 2. Average total return since June 1, 1995 (inception) = 6.83% ===== 1000 (1+T)83/100 = 1,056.37 (1+T)83/100)100/83 = (1.05637)100/83 1+T = 1.0683 T = .0683 B SHARES 1. Average total return for 1 year = 3.97% ===== 1000 (1+T)1 = 1,039.74 (1+T)1 = 1.03974 1+T = 1.03974 T = .03974 2. Average annual return since June 1, 1995 (inception) with CDSC = 7.51% ===== 1000 (1+T)83/100 = 1,061.95 ((1+T)83/100)100/83 = (1.06195)100/83 1+T = 1.0751 T = .0751 EX-27.11 9 FDS - EQUITY SERIES CLASS A
6 0000088525 SECURITY EQUITY FUND 011 EQUITY SERIES CLASS A 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 413,885 586,561 5,833 30,228 0 622,622 7,259 0 860 8,119 0 392,830 76,390 67,235 2,729 0 46,268 0 172,676 614,503 8,214 1,238 0 5,809 3,643 54,909 59,009 117,561 0 4,154 33,371 0 43,658 39,986 5,483 135,342 3,305 26,566 0 0 5,529 0 5,809 531,317 6.55 .05 1.482 .06 .482 0 7.54 1.04 0 0
EX-27.12 10 FDS - EQUITY SERIES CLASS B
6 0000088525 SECURITY EQUITY FUND 012 EQUITY SERIES CLASS B 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 413,885 586,561 5,833 30,228 0 622,622 7,259 0 860 8,119 0 392,830 5,276 3,000 2,729 0 46,268 0 172,676 614,503 8,214 1,238 0 5,809 3,643 54,909 59,009 117,561 0 65 1,837 0 13,772 11,797 301 19,534 3,305 26,566 0 0 5,529 0 5,909 531,317 6.43 (.02) 1.449 .017 .482 0 7.36 2.04 0 0
EX-27.21 11 FDS - GLOBAL SERIES CLASS A
6 0000088525 SECURITY EQUITY FUND 021 GLOBAL SERIES CLASS A 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 21,612 23,562 388 3,301 0 27,251 213 0 109 322 0 22,675 1,582 1,486 672 0 1,559 0 2,023 26,929 455 80 (47) 530 (42) 2,667 1,092 3,717 0 358 72 0 492 448 52 3,383 136 202 0 0 470 0 530 22,071 10.94 .01 1.874 .248 .156 0 12.42 2.00 0 0
EX-27.22 12 FDS - GLOBAL SERIES CLASS B
6 0000088525 SECURITY EQUITY FUND 022 GLOBAL SERIES CLASS B 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 21,612 23,562 388 3,301 0 27,251 213 0 109 322 0 22,675 598 506 672 0 1,559 0 2,023 26,929 455 80 (47) 530 (42) 2,667 1,092 3,717 0 72 78 0 186 108 14 1,851 136 202 0 0 470 0 530 22,071 10.74 (.10) 1.841 .145 .156 0 12.18 3.00 0 0
EX-27.31 13 FDS - ASSET ALLOC.SER. CL A
6 0000088525 SECURITY EQUITY FUND 031 ASSET ALLOCATION SERIES CL A 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 5,087 5,213 42 8 0 5,263 0 0 33 33 0 4,863 221 181 113 0 128 0 126 5,230 87 108 (2) 109 84 253 50 387 0 60 30 0 63 32 9 544 14 62 0 0 40 0 153 4,336 10.54 .25 .765 .328 .167 0 11.06 2.00 0 0
EX-27.32 14 FDS - ASSET ALLOC SER. CL. B
6 0000088525 SECURITY EQUITY FUND 032 ASSET ALLOCATION SERIES CL B 1,000 U.S. DOLLARS YEAR SEP-30-1996 OCT-01-1995 SEP-30-1996 1 5,087 5,213 42 8 0 5,263 0 0 33 33 0 4,863 253 146 113 0 128 0 126 5,230 87 108 (2) 109 84 253 50 387 0 51 31 0 105 6 8 1,795 14 62 0 0 40 0 153 4,336 10.50 .14 .77 .273 .167 0 10.97 3.00 0 0
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