-----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, MqIQadYAoKnHdEoc+FVd69BjWNvxbBL5L5IizOk0YMxSsXtBgIbr7hzWrejKM8Fl q9zpwTL3dTDtaSZRDNjX0w== 0000897101-04-002604.txt : 20041210 0000897101-04-002604.hdr.sgml : 20041210 20041209180744 ACCESSION NUMBER: 0000897101-04-002604 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041210 DATE AS OF CHANGE: 20041209 EFFECTIVENESS DATE: 20041210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY EQUITY FUND CENTRAL INDEX KEY: 0000088525 IRS NUMBER: 486104426 STATE OF INCORPORATION: KS FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01136 FILM NUMBER: 041194343 BUSINESS ADDRESS: STREET 1: SECURITY MANAGEMENT COMPANY, LLC STREET 2: ONE SECURITY BENEFIT PLACE CITY: TOPEKA STATE: KS ZIP: 66636-0001 BUSINESS PHONE: 7854383127 MAIL ADDRESS: STREET 1: SECURITY MANAGEMENT COMPANY, LLC STREET 2: ONE SECURITY BENEFIT PLACE CITY: TOPEKA STATE: KS ZIP: 66636-0001 N-CSR 1 sb045611_ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-01136 Security Equity Fund (Exact name of registrant as specified in charter) ONE SECURITY BENEFIT PLACE, TOPEKA, KANSAS 66636-0001 (Address of principal executive offices) (Zip code) MICHAEL G. ODLUM, PRESIDENT Security Equity Fund ONE SECURITY BENEFIT PLACE TOPEKA, KANSAS 66636-0001 (Name and address of agent for service) Registrant's telephone number, including area code: (785) 438-3000 Date of fiscal year end: September 30 Date of reporting period: September 30, 2004 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss.3507. ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC] SECURITY FUNDS(SM) ANNUAL REPORT SEPTEMBER 30, 2004 |_| SECURITY EQUITY FUND O ALPHA OPPORTUNITY SERIES O ENHANCED INDEX SERIES O EQUITY SERIES O GLOBAL SERIES O LARGE CAP GROWTH SERIES O MID CAP VALUE SERIES O SELECT 25(R) SERIES O SMALLCAP GROWTH SERIES O SOCIAL AWARENESS SERIES |_| SECURITY LARGE CAP VALUE FUND |_| SECURITY MID CAP GROWTH FUND [LOGO] Security Distributors, Inc. A Member of The Security Benefit Group of Companies SECURITY EQUITY FUND SECURITY LARGE CAP VALUE FUND SECURITY MID CAP GROWTH FUND SEPTEMBER 30, 2004 ANNUAL REPORT TABLE OF CONTENTS Security Equity Fund Alpha Opportunity Series ............................................... 2 Enhanced Index Series .................................................. 12 Equity Series .......................................................... 25 Global Series .......................................................... 34 Large Cap Growth Series ................................................ 44 Mid Cap Value Series ................................................... 53 Select 25(R) Series .................................................... 63 Small Cap Growth Series ................................................ 71 Social Awareness Series ................................................ 80 Security Large Cap Value Fund ............................................ 89 Security Mid Cap Growth Fund ............................................. 99 Notes to Financial Statements ............................................ 109 Report of Independent Registered Public Accounting Firm .................. 117 Director and Officers .................................................... 118 - -------------------------------------------------------------------------------- 1 Security Equity Fund Alpha Opportunity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Advised by: [LOGO] Security and Mainstream Subadvisor, Mainstream Funds Investment Advisors Investment Advisers [PHOTO OMITTED] Bill Jenkins Co-Portfolio Manager [PHOTO OMITTED] Mark Lamb Co-Portfolio Manager To Our Shareholders: A solid third quarter 2004 with a strong finish in September resulted in the Security Alpha Opportunity Fund returning 21.68%(1) versus a 13.87% return for the S&P 500 Total Return Index for the 12-month period ended September 30, 2004. During the period, the active investing strategy of the Fund exceeded the index, and the passive investing strategy performed as expected. The passive strategy replicates the index by investing in high-quality, short-term fixed income instruments and by being long the index futures. While the passive strategy provides the necessary liquidity, the active strategy focuses on adding value long term. Stock market boom/busts, like the one that occurred in the late 1990s and early 2000s, are rare and usually usher in change. The subsequent period is usually the opposite of what preceded it and lasts for five or so years. Prior to that, the boom/bust of the mid 1970s was followed by higher commodity prices, rising inflation and interest rates plus a weak U.S. dollar. Stocks struggled higher, but no one seemed to notice. The precious metals, energy and agriculture sectors moved up dramatically, but the widely held nifty fifty -type stocks marked time. Many stock investors became frustrated and disillusioned. In the period following a boom/bust, the key to success is recognizing the change and picking the stocks that are best suited to the new environment. We believe we are in that kind of environment. Performance will be difficult to come by, mostly because investors collectively will assume that it is business as usual and be long and/or short the wrong stocks. With China and India coming of age, these tendencies are likely to be exacerbated. Hopefully, our experience will serve the Fund well in these changing times. In constructing the Fund's portfolio, we continue to prefer basic materials, including energy and selected transportation equities. Basic material sectors that contributed handsomely to our recent positive results include chemicals, forest products, metals, coal, oil services and rails. The investment orientation strongly remains "long" equity positions, with cash and short sales representing less than 10% of our holdings. Investors continue to be preoccupied with risk-averse strategies. The recent memory of the severe bear market, fear of terrorism, the Iraq war, high energy prices, slowing corporate profit growth, anemic job creation, political uncertainties, a China problem and many other worries seem to prey on investors' judgments. Combine this mindset with the in-vogue proliferation of hedge funds that profess no, or preferably negative, correlation with the stock market, and you currently have both high cash levels and significant short stock positioning in the market. We continue to believe this half empty group is too large for its own good. More likely, events in the fourth quarter of 2004 will bring some of this money back into the equity market - possibly beginning with some simple short covering. A follow-on effect could occur as this large crowd falls over itself trying to buy stocks in an effort to realign portfolios. In such an environment, cyclical, small- cap and higher beta stocks should be emphasized. Over the longer term, the outperformance of natural resource issues, including energy, should continue for a number of years. Clearly, if events unfold in a different manner, we will adjust our thinking and portfolio accordingly. We remain actively focused on producing solid results in the coming year. Sincerely, Bill Jenkins Co-Portfolio Manager Mark Lamb Co-Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduced Fund expenses and in the absence of such waivers, the performance quoted would be reduced. - -------------------------------------------------------------------------------- 2 Security Equity Fund Alpha Opportunity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Alpha Opportunity Series vs. S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Alpha Opportunity Series $11,709 DATE VALUE ---- ----- 7/7/2003 9,425.00 7/31/03 9,509.90 8/31/03 9,868.05 9/30/03 9,632.42 10/31/2003 10,329.88 11/30/2003 10,546.65 12/31/2003 11,152.88 1/31/2004 11,252.19 2/28/2004 11,470.68 3/31/2004 11,381.30 4/30/2004 10,974.12 5/31/2004 11,093.29 6/30/2004 11,609.72 7/31/2004 11,272.06 8/31/2004 11,222.40 9/30/2004 11,709.03 S&P 500 Index $11,689 DATE VALUE ---- ----- 7/7/2003 $10,000.00 7/31/2003 10,176.34 8/31/2003 10,374.77 9/30/2003 10,264.66 10/31/2003 10,845.64 11/30/2003 10,941.08 12/31/2003 11,515.49 1/31/2004 11,727.37 2/29/2004 11,890.38 3/31/2004 11,710.84 4/30/2004 11,526.98 5/31/2004 11,684.90 6/30/2004 11,912.75 7/31/2004 11,518.44 8/31/2004 11,564.52 9/30/2004 11,689.41 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Alpha Opportunity Series on July 7, 2003 (date of inception), reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - -------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 2.52% - -------------------------------------------------------- Consumer Staples 2.12 - -------------------------------------------------------- Energy 1.10 - -------------------------------------------------------- Financials 1.24 - -------------------------------------------------------- Health Care 0.48 - -------------------------------------------------------- Industrials 9.72 - -------------------------------------------------------- Information Technology 2.52 - -------------------------------------------------------- Materials 35.70 - -------------------------------------------------------- Telecommunication Services 0.15 - -------------------------------------------------------- Unit Investment Trust 0.66 - -------------------------------------------------------- Warrants 0.17 - -------------------------------------------------------- U.S. Agency Bonds & Notes 35.47 - -------------------------------------------------------- Asset Backed Securities 3.33 - -------------------------------------------------------- Cash & other assets, less liabilities 4.82 - -------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 1 Year Since Inception - -------------------------------------------------------------------------------- A Shares 21.68% 19.29% (7-07-03) - -------------------------------------------------------------------------------- A Shares with sales charge 14.71% 13.71% (7-07-03) - -------------------------------------------------------------------------------- B Shares 20.68% 18.41% (7-07-03) - -------------------------------------------------------------------------------- B Shares with CDSC 16.68% 14.50% (7-07-03) - -------------------------------------------------------------------------------- C Shares 20.68% 18.41% (7-07-03) - -------------------------------------------------------------------------------- C Shares with CDSC 20.68% 17.63% (7-07-03) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 3 Security Equity Fund Alpha Opportunity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------- Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - ------------------------------------------------------------------------- Alpha Opportunity Series - Class A Actual $1,000.00 $1,029.70 $14.23 Hypothetical 1,000.00 1,011.11 14.10 - ------------------------------------------------------------------------- Alpha Opportunity Series - Class B Actual 1,000.00 1,025.40 18.02 Hypothetical 1,000.00 1,007.34 17.86 - ------------------------------------------------------------------------- Alpha Opportunity Series - Class C Actual 1,000.00 1,025.40 18.02 Hypothetical 1,000.00 1,007.34 17.86 - ------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was 2.97%, 2.54% and 2.54%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (2.79%, 3.54% and 3.54% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 4 Security Equity Fund Alpha Opportunity Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks - 56.5% Agricultural Products - 1.5% Archer-Daniels-Midland Company 5,600 $ 95,088 Bunge, Ltd. 2,100 83,958 ------------ 179,046 ------------ Air Freight & Logistics - 0.2% CNF, Inc. 700 28,693 ------------ 28,693 ------------ Airlines - 0.3% Alaska Air Group, Inc.* 1,500 37,170 ------------ 37,170 ------------ Aluminum - 2.4% Century Aluminum Company* 9,300 257,889 Commonwealth Industries, Inc.* 3,700 34,558 ------------ 292,447 ------------ Application Software - 0.2% Intuit, Inc.* 600 27,240 ------------ 27,240 ------------ Auto Parts & Equipment - 0.5% Wabtec Corporation 3,400 63,546 ------------ 63,546 ------------ Biotechnology - 0.1% MedImmune, Inc.* 400 9,480 ------------ 9,480 ------------ Commodity Chemicals - 0.3% Lyondell Chemical Company 1,000 22,460 Wellman, Inc. 1,200 10,176 ------------ 32,636 ------------ Communications Equipment - 0.7% Motorola, Inc. 5,000 90,200 ------------ 90,200 ------------ Computer Hardware - 0.6% Intergraph Corporation* 2,600 70,642 ------------ 70,642 ------------ Construction & Engineering - 3.3% Chicago Bridge & Iron Company N.V. 3,400 101,966 Fluor Corporation 6,600 293,832 ------------ 395,798 ------------ Construction & Farm Machinery - 0.9% CNH Global N.V. 1,300 25,454 Volvo AB ADR 2,400 84,552 ------------ 110,006 ------------ Construction Materials - 1.3% Vulcan Materials Company 3,000 152,850 ------------ 152,850 ------------ Diversified Chemicals - 2.3% Dow Chemical Company 2,700 121,986 Eastman Chemical Company 3,300 156,915 ------------ 278,901 ------------ Diversified Metals & Mining - 13.0% Anglo American plc ADR 8,700 210,975 BHP Billiton Ltd. ADR 5,700 118,275 Brush Engineered Materials, Inc.* 4,800 99,408 Freeport-McMoRan Copper & Gold, Inc. (Cl.B) 7,000 283,500 Massey Energy Company 8,800 254,584 Noranda, Inc. 4,200 73,290 Phelps Dodge Corporation* 1,600 147,248 Rio Tinto plc ADR 1,400 152,110 Stillwater Mining Company* 9,000 139,500 Titanium Metals Corporation 3,100 72,726 WMC Resources, Ltd. 400 6,272 ------------ 1,557,888 ------------ Exchange Traded Funds - 0.9% iShares MSCI Malaysia Index Fund 1,300 8,749 Materials Select Sector Trust 3,600 99,180 ------------ 107,929 ------------ Fertilizers & Agricultural Chemicals - 0.3% Monsanto Company 1,100 40,062 ------------ 40,062 ------------ Forest Products - 2.0% Weyerhaeuser Company 3,600 239,328 ------------ 239,328 ------------ Gold - 0.6% Newmont Mining Corporation 1,600 72,848 ------------ 72,848 ------------ Health Care Equipment - 0.4% Baxter International, Inc. 1,500 48,240 ------------ 48,240 ------------ Home Furnishings - 0.6% Kimball International, Inc. (Cl.B) 5,162 71,648 ------------ 71,648 ------------ Hotels, Resorts & Cruise Lines - 1.4% La Quinta Corporation* 1,300 10,140 Starwood Hotels & Resorts Worldwide, Inc. 3,400 157,828 ------------ 167,968 ------------ Industrial Gases - 0.6% Air Products & Chemicals, Inc. 1,300 70,694 ------------ 70,694 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 5 Security Equity Fund Alpha Opportunity Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Industrial Machinery - 1.4% Ampco-Pittsburgh Corporation 800 $ 10,608 Manitowoc Company, Inc. 2,500 88,650 Reliance Steel & Aluminum Company 1,200 47,640 Timken Company 1,100 27,082 ------------ 173,980 ------------ Marine - 0.9% Alexander & Baldwin, Inc. 1,556 52,811 Kirby Corporation* 1,300 52,195 ------------ 105,006 ------------ Oil & Gas Equipment & Services - 1.1% Input/Output, Inc.* 6,700 69,077 Technip S.A. ADR 200 8,142 Universal Compression Holdings, Inc.* 1,600 54,512 ------------ 131,731 ------------ Other Diversified Financial Services - 1.0% Brascan Corporation 3,800 114,760 ------------ 114,760 ------------ Packaged Foods & Meats - 0.6% Tyson Foods, Inc. 4,700 75,294 ------------ 75,294 ------------ Paper Packaging - 2.3% Longview Fibre Company 600 9,150 Temple-Inland, Inc. 3,900 261,885 ------------ 271,035 ------------ Paper Products - 1.4% Buckeye Technologies, Inc.* 3,700 41,255 MeadWestvaco Corporation 4,000 127,600 ------------ 168,855 ------------ Precious Metals & Mining - 0.1% Compass Minerals International, Inc. 500 11,100 ------------ 11,100 ------------ Railroads - 1.5% Genesee & Wyoming, Inc.* 3,000 75,960 Kansas City Southern* 4,000 60,680 Norfolk Southern Corporation 1,300 38,662 ------------ 175,302 ------------ Semiconductors - 0.4% Micron Technology, Inc.* 4,300 51,729 ------------ 51,729 ------------ Specialized Finance - 0.3% GATX Corporation 1,500 39,990 ------------ 39,990 ------------ Principal Amount or Number Market of Shares Value - ------------------------------------------------------------------------------- Specialty Chemicals - 5.1% A. Schulman, Inc. 3,300 $ 72,732 Arch Chemicals, Inc. 800 22,840 Cytec Industries, Inc. 2,200 107,690 Great Lakes Chemical Corporation 3,000 76,800 Imperial Chemical Industries plc ADR 1,600 24,640 Lubrizol Corporation 2,000 69,200 OM Group, Inc.* 2,100 76,776 PolyOne Corporation* 8,300 62,416 Rohm & Haas Company 800 34,376 Sigma-Aldrich Corporation 1,100 63,800 ------------ 611,270 ------------ Steel - 4.1% Companhia Siderurgica Nacional S.A. ADR 2,000 31,060 Gerdau S.A. ADR 1,800 29,430 International Steel Group, Inc.* 2,200 74,140 Posco ADR 2,700 102,195 United States Steel Corporation 6,800 255,816 ------------ 492,641 ------------ Technology Distributors - 0.5% Ingram Micro, Inc.* 3,900 62,790 ------------ 62,790 ------------ Trucking - 1.2% Arkansas Best Corporation 1,800 65,916 Overnite Corporation 1,900 59,717 Swift Transportation Company, Inc.* 1,000 16,820 ------------ 142,453 ------------ Wireless Telecommunication Services - 0.2% American Tower Corporation* 1,200 18,420 ------------ 18,420 ------------ Total common stocks (cost $6,618,000) 6,791,616 ------------ Warrants - 0.2% Inco, Ltd. 1,200 20,124 ------------ Total warrants (cost $15,306) 20,124 ------------ U.S. Government Sponsored Agencies - 35.5% Federal Farm Credit Bank, 1.60%, 11-02-04 $ 260,000 259,582 Federal Home Loan Mortgage Corporation: 1.49%, 10-12-04(2) $ 285,000 284,848 1.71%, 11-23-04 $ 425,000 423,867 1.92%, 12-28-04 $ 520,000 517,687 - -------------------------------------------------------------------------------- See accompanying notes. 6 Security Equity Fund Alpha Opportunity Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - ------------------------------------------------------------------------------- U.S. Government Sponsored Agencies (continued) Federal National Mortgage Association: 1.47%, 10-06-04 $ 150,000 $ 149,964 1.531%, 10-18-04 $ 250,000 249,794 1.636%, 11-12-04 $ 539,000 537,862 1.61%, 11-17-04 $ 500,000 498,818 1.756%, 12-01-04 $ 520,000 518,396 1.827%, 12-08-04 $ 122,000 121,581 1.828%, 12-15-04 $ 355,000 353,654 1.879%, 12-22-04 $ 350,000 348,549 ------------ Total U.S. Government sponsored agencies (cost $4,265,074) 4,264,602 ------------ Asset Backed Securities - 3.3% Auto - 3.3% Ford Credit Auto Owner Trust, 2002-D A4B, 1.88% - 2006(1) $ 400,000 400,348 ------------ Total asset backed securities (cost $400,481) 400,348 ------------ Repurchase Agreement - 2.7% State Street, 0.50%, dated 9-30-04, matures 10-01-04; repurchase amount of $323,744 (Collateralized by FNMA, 6.00%, 5-15-08 with a value of $333,000) $ 323,742 323,742 ------------ Total repurchase agreement (cost $323,742) 323,742 ------------ Total investments - 98.2% (cost $11,622,603) 11,800,432 ------------ Short Positions - (0.3%) Real Estate Investment Trusts - (0.1%) MFA Mortgage Investments, Inc. (600) (5,526) ------------ (5,526) ------------ Exchange Traded Funds - (0.2%) Financial Select Sector SPDR Fund (1,000) (28,460) ------------ (28,460) ------------ Total short positions (proceeds $33,877) (33,986) ------------ Cash & other assets, less liabilities - 2.1% 256,892 ------------ Total net assets - 100.0% $ 12,023,338 ============ For federal income tax purposes, the identified cost of investments owned at September 30, 2004 was $11,672,221. * Non-income producing security ADR (American Depositary Receipt) plc (public limited company) (1) Variable rate security. Rate indicated is rate effective at September 30, 2004. (2) Security is segregated as collateral for open futures contracts. - -------------------------------------------------------------------------------- See accompanying notes. 7 Security Equity Fund Alpha Opportunity Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ................................. $ 11,800,432 Cash ..................................................... 38,375 Restricted cash .......................................... 41,952 Receivables: Fund shares sold ...................................... 24,760 Securities sold ....................................... 2,069,631 Deposit for short sales ............................... 11,791 Interest .............................................. 334 Dividends ............................................. 3,880 Security Management Company ........................... 11,695 Prepaid expenses ......................................... 12,058 ------------ Total assets ............................................. 14,014,908 ------------ Liabilities: Securities sold short, at value(2) ....................... 33,986 Payable for: Securities purchased .................................. 1,897,221 Fund shares redeemed .................................. 18 Variation margin ...................................... 1,425 Management fees ....................................... 19,258 Custodian fees ........................................ 1,156 Transfer and administration fees ...................... 4,244 Professional fees ..................................... 8,540 12b-1 distribution plan fees .......................... 24,656 Other ................................................. 1,066 ------------ Total liabilities ........................................ 1,991,570 ------------ Net Assets ............................................... $ 12,023,338 ============ Net assets consist of: Paid in capital .......................................... $ 10,740,828 Accumulated undistributed net investment loss .................................................. (268) Accumulated undistributed net realized gain on sale of investments, short positions, and futures ........................................... 1,159,631 Net unrealized appreciation in value of investments, futures and short positions .............. 123,147 ------------ Net assets ............................................... $ 12,023,338 ============ Class A: Capital shares outstanding ............................... 555,905 Net assets ............................................... $ 6,555,624 Net asset value and redemption price per share ....................................... $ 11.79 ============ Maximum offering price per share (net asset value divided by 94.25%) ................... $ 12.51 ============ Class B: Capital shares outstanding ............................... 198,943 Net assets ............................................... $ 2,324,343 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ..................... $ 11.68 ============ Class C: Capital shares outstanding ............................... 269,022 Net assets ............................................... $ 3,143,371 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ..................... $ 11.68 ============ (1) Investments, at cost ................................. $ 11,622,603 (2) Securities sold short, at proceeds ................... 33,877 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ............................................. $ 72,924 Interest .............................................. 47,742 ------------ Total investment income ............................... 120,666 ------------ Expenses: Management fees ....................................... 189,739 Custodian fees ........................................ 3,494 Transfer agent/maintenance fees ....................... 15,996 Administration fees ................................... 23,173 Directors' fees ....................................... 294 Professional fees ..................................... 21,933 Reports to shareholders ............................... 1,000 Registration fees ..................................... 53,267 Other expenses ........................................ 1,101 12b-1 distribution plan fees - Class A ................ 11,800 12b-1 distribution plan fees - Class B ................ 20,613 12b-1 distribution plan fees - Class C ................ 25,735 ------------ Total expenses ........................................ 368,145 Less: Reimbursement of expenses - Class A ............... (37,019) Reimbursement of expenses - Class B ............... (15,689) Reimbursement of expenses - Class C ............... (19,851) Earnings credits .................................. (826) ------------ Net expenses .......................................... 294,760 ------------ Net investment loss ................................... (174,094) ------------ Net Realized and Unrealized Gain (Loss): Net realized gain (loss) during the period on Investments ........................................... 1,148,557 Securities sold short ................................. (36,638) Futures ............................................... 361,704 ------------ Net realized gain ..................................... 1,473,623 ------------ Net change in unrealized appreciation (depreciation) during the period on Investments ........................................... 255,072 Securities sold short ................................. (1,632) Futures ............................................... 35,505 ------------ Net unrealized appreciation ........................... 288,945 ------------ Net gain .............................................. 1,762,568 ------------ Net increase in net assets resulting from operations ........................... $ 1,588,474 ============ - -------------------------------------------------------------------------------- See accompanying notes. 8 Security Equity Fund Alpha Opportunity Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003* - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ............................................................ $ (174,094) $ (24,944) Net realized gain during the period on investments and futures ................. 1,473,623 307,216 Net change in unrealized appreciation (depreciation) during the period on investments, futures and securities sold short ............................... 288,945 (165,798) ------------ ----------- Net increase in net assets resulting from operations ........................... 1,588,474 116,474 ------------ ----------- Distributions to shareholders from: Net realized gain Class A ...................................................................... (199,700) -- Class B ...................................................................... (101,286) -- Class C ...................................................................... (121,452) -- ------------ ----------- Total distributions to shareholders .......................................... (422,438) -- ------------ ----------- Capital share transactions: Proceeds from sale of shares Class A ...................................................................... 3,466,497 3,210,618 Class B ...................................................................... 224,035 1,699,668 Class C ...................................................................... 1,024,036 1,690,408 Distributions reinvested Class A ...................................................................... 199,093 -- Class B ...................................................................... 101,286 -- Class C ...................................................................... 120,826 -- Cost of shares redeemed Class A ...................................................................... (633,085) (327,957) Class B ...................................................................... (400) -- Class C ...................................................................... (34,197) -- ------------ ----------- Net increase from capital share transactions ................................... 4,468,091 6,272,737 ------------ ----------- Net increase in net assets ..................................................... 5,634,127 6,389,211 ------------ ----------- Net assets: Beginning of period ............................................................ 6,389,211 -- ------------ ----------- End of period .................................................................. $ 12,023,338 $ 6,389,211 ============ =========== Accumulated undistributed net investment loss at end of period ................. $ (268) $ (78) ============ =========== Capital Share Activity: Shares sold Class A ...................................................................... 306,745 318,546 Class B ...................................................................... 19,998 169,772 Class C ...................................................................... 92,100 168,989 Shares reinvested Class A ...................................................................... 18,034 -- Class B ...................................................................... 9,208 -- Class C ...................................................................... 10,984 -- Shares redeemed Class A ...................................................................... (56,279) (31,141) Class B ...................................................................... (35) -- Class C ...................................................................... (3,051) --
* For the period beginning July 7, 2003 (commencement of operations) to September 30, 2004. - -------------------------------------------------------------------------------- See accompanying notes. 9 Security Equity Fund Alpha Opportunity Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003(e) - ------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.21 $ 10.00 - ------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.16) (0.03) Net gain (loss) on securities (realized and unrealized) 2.33 0.24 -------------------------- Total from investment operations 2.17 0.21 - ------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- Distributions from realized gains (0.59) -- -------------------------- Total distributions (0.59) -- - ------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.79 $ 10.21 ========================== - ------------------------------------------------------------------------------------------------- Total Return(a) 21.68% 2.10% - ------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 6,556 $ 2,935 - ------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.48%) (1.35%) Total expenses 2.79% 2.75% Gross expenses(b) 3.57% 3.25% Net expenses(d) 2.78% 2.75% - ------------------------------------------------------------------------------------------------- Portfolio turnover rate 1175% 867% Year Ended September 30, Class B 2004 2003(e) - ------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.20 $ 10.00 - ------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.25) (0.05) Net gain (loss) on securities (realized and unrealized) 2.32 0.25 -------------------------- Total from investment operations 2.07 0.20 - ------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- Distributions from realized gains (0.59) -- -------------------------- Total distributions (0.59) -- - ------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.68 $ 10.20 ========================== - ------------------------------------------------------------------------------------------------- Total Return(a) 20.68% 2.00% - ------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 2,324 $ 1,731 - ------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (2.25%) (2.11%) Total expenses 3.53% 3.50% Gross expenses(b) 4.29% 4.01% Net expenses(d) 3.53% 3.50% - ------------------------------------------------------------------------------------------------- Portfolio turnover rate 1175% 867%
- -------------------------------------------------------------------------------- See accompanying notes 10 Security Equity Fund Alpha Opportunity Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - -------------------------------------------------------------------------------- Year Ended September 30, Class C 2004 2003(e) - --------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.20 $ 10.00 - --------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.25) (0.05) Net gain (loss) on securities (realized and unrealized) 2.32 0.25 -------------------------- Total from investment operations 2.07 0.20 - --------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- Distributions from realized gains (0.59) -- -------------------------- Total distributions (0.59) -- - --------------------------------------------------------------------------------------- Net asset value, end of period $ 11.68 $ 10.20 ========================== - --------------------------------------------------------------------------------------- Total Return(a) 20.68% 2.00% - --------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 3,143 $ 1,723 - --------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (2.24%) (2.11%) Total expenses 3.53% 3.50% Gross expenses(b) 4.30% 4.01% Net expenses(d) 3.53% 3.50% - --------------------------------------------------------------------------------------- Portfolio turnover rate 1175% 867%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) Security Alpha Opportunity Series was initially capitalized on July 7, 2003 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. - -------------------------------------------------------------------------------- See accompanying notes. 11 Security Equity Fund Enhanced Index Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Northern Trust Subadvisor, Northern Trust To Our Shareholders: The Enhanced Index Fund began operations January 29, 1999. The core portfolio is designed to outperform the Standard & Poor's 500 Stock Index while retaining similar risk characteristics to the index. Through the use of a proprietary multi-factor model, stocks that in our view have above-average potential for appreciation are overweighted, while stocks that have less than average potential are underweighted. During the one- year period ended September 30, 2004, the portfolio was up 12.22%1 versus 13.87% for the S&P 500 benchmark. Since inception in 1999, the Fund is down 2.24% versus a negative 0.95% for the benchmark. The Northern Trust Investments Quantitative Management group uses a proprietary model to overweight or underweight stocks relative to the index. Based on our model, stocks are weighted based on a variety of factors our research has shown to be predictive of future relative performance. The model's factors are based on valuation, earnings and momentum characteristics. These factor-based stock selection criteria are combined with sector, style and company size constraints to manage the overall risk profile of the portfolio. The model was successful in selecting stocks that outperformed the benchmark (prior to deduction of Fund expenses) during the 12 months ending September 30, 2004. The model's valuation factors proved to be the most consistently successful this past year, while price momentum based factors were the least successful. Performance differences were also evident among economic sectors and market capitalization strata. The portfolio benefited from the strong performance of companies in the industrials, materials and utilities sectors, traditionally associated as having strong valuation characteristics. The model's stock selection was also strong among companies in the telecom and healthcare sectors, despite a market environment generally less accommodating to these growth dominated sectors. Performance among companies with smaller relative capitalization was stronger than the largest companies in the index. Additionally, the portfolio was able to take advantage of shorter-term opportunities related to changes in index constituents or in corporate actions through careful trading of issues involved in these events. Economic Update Growth in consumer spending is expected to slow from its third-quarter burst as boosts from prior tax cuts and mortgage refinancing wane. The Federal Interest Rate Committee is likely to pause in raising interest rates in early 2005, as economic activity moderates and underlying inflation levels off. U.S. Equities Outlook The economic and business performance outlook continues to indicate that equities will remain the asset of choice when higher risks can be tolerated. Strong profitability and free cash flow continue to support equity investments. We favor the industrial side of the economy, due to its stronger financial position and pent-up demand. Sincerely, Enhanced Index Team (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduced Fund expenses and in the absence of such waivers, the performance quoted would be reduced. - -------------------------------------------------------------------------------- 12 Security Equity Fund Enhanced Index Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Enhanced Index Series vs. S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Enhanced Index Series $8,291 DATE VALUE ---- ----- 1/29/1999 9,425.00 3/31/1999 9,443.92 6/30/1999 10,103.68 9/30/1999 9,462.77 12/31/1999 10,954.87 3/31/2000 11,231.12 6/30/2000 10,878.66 9/30/2000 10,754.82 12/31/2000 9,846.96 3/31/2001 8,617.29 6/30/2001 9,097.63 9/30/2001 7,714.25 12/31/2001 8,521.22 3/31/2002 8,521.22 6/30/2002 7,339.59 9/30/2002 6,052.28 12/31/2002 6,523.01 3/31/2003 6,292.45 6/30/2003 7,224.30 9/30/2003 7,387.62 12/31/2003 8,281.05 3/31/2004 8,405.94 6/30/2004 8,511.61 9/30/2004 8,290.66 S&P 500 Index $9,474 DATE VALUE ---- ----- 1/29/1999 $10,000.00 3/31/1999 10,075.52 6/30/1999 10,785.58 9/30/1999 10,111.95 12/31/1999 11,616.46 3/31/2000 11,883.45 6/30/2000 11,568.33 9/30/2000 11,456.43 12/31/2000 10,560.83 3/31/2001 9,309.30 6/30/2001 9,854.43 9/30/2001 8,408.85 12/31/2001 9,307.93 3/31/2002 9,333.23 6/30/2002 8,083.12 9/30/2002 6,687.10 12/31/2002 7,251.86 3/31/2003 7,023.47 6/30/2003 8,104.60 9/30/2003 8,319.10 12/31/2003 9,332.84 3/31/2004 9,491.17 6/30/2004 9,654.81 9/30/2004 9,473.80 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Enhanced Index Series on January 29, 1999, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - -------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 10.49% - -------------------------------------------------------- Consumer Staples 10.33 - -------------------------------------------------------- Energy 7.35 - -------------------------------------------------------- Financials 20.02 - -------------------------------------------------------- Health Care 13.09 - -------------------------------------------------------- Industrials 11.58 - -------------------------------------------------------- Information Technology 15.22 - -------------------------------------------------------- Materials 3.30 - -------------------------------------------------------- Telecommunication Services 3.69 - -------------------------------------------------------- Utilities 2.72 - -------------------------------------------------------- U.S. Government Securities 0.32 - -------------------------------------------------------- Cash & other assets, less liabilities 1.89 - -------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 1 Year 5 Years Since Inception - -------------------------------------------------------------------------------- A Shares 12.22% (2.61%) (2.24%) (1-29-99) - -------------------------------------------------------------------------------- A Shares with sales charge 5.77% (3.76%) (3.25%) (1-29-99) - -------------------------------------------------------------------------------- B Shares 11.49% (3.38%) (3.01%) (1-29-99) - -------------------------------------------------------------------------------- B Shares with CDSC 7.49% (3.38%) (3.01%) (1-29-99) - -------------------------------------------------------------------------------- C Shares 11.46% (3.36%) (2.97%) (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 11.46% (3.36%) (2.97%) (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 13 Security Equity Fund Enhanced Index Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------ Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - ------------------------------------------------------------------------ Enhanced Index Series - Class A Actual $1,000.00 $ 986.30 $ 7.59 Hypothetical 1,000.00 1,017.50 7.51 - ------------------------------------------------------------------------ Enhanced Index Series - Class B Actual 1,000.00 984.50 11.32 Hypothetical 1,000.00 1,013.72 11.49 - ------------------------------------------------------------------------ Enhanced Index Series - Class C Actual 1,000.00 983.40 11.32 Hypothetical 1,000.00 1,013.72 11.49 - ------------------------------------------------------------------------ (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -1.37%, -1.55% and -1.66%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.52%, 2.27% and 2.27% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 14 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks - 97.8% Advertising - 0.3% Omnicom Group, Inc. 688 $ 50,265 ------------ 50,265 ------------ Aerospace & Defense - 1.7% Boeing Company 647 33,398 General Dynamics Corporation 591 60,341 Honeywell International, Inc. 385 13,806 Lockheed Martin Corporation 288 16,065 Northrop Grumman Corporation 1,080 57,597 Rockwell Colllins, Inc. 1,000 37,140 United Technologies Corporation 440 41,087 ------------ 259,434 ------------ Agricultural Products - 0.3% Archer-Daniels-Midland Company 2,766 46,967 ------------ 46,967 ------------ Air Freight & Logistics - 1.0% FedEx Corporation 358 30,677 United Parcel Service, Inc. (Cl.B) 1,558 118,283 ------------ 148,960 ------------ Aluminum - 0.2% Alcoa, Inc. 874 29,358 ------------ 29,358 ------------ Apparel Retail - 0.6% Gap, Inc. 100 1,870 Limited Brands 1,745 38,896 TJX Companies, Inc. 2,059 45,380 ------------ 86,146 ------------ Apparel, Accessories & Luxury Goods - 0.1% Coach, Inc.* 100 4,242 Jones Apparel Group, Inc. 400 14,320 ------------ 18,562 ------------ Application Software - 0.3% Compuware Corporation* 3,575 18,411 Parametric Technology Corporation* 5,993 31,643 ------------ 50,054 ------------ Asset Management & Custody Banks - 0.9% Bank of New York Company, Inc. 136 3,967 Franklin Resources, Inc. 700 39,032 Mellon Financial Corporation 1,711 47,378 State Street Corporation 1,158 49,458 ------------ 139,835 ------------ Auto Parts & Equipment - 0.2% Visteon Corporation 3,249 25,960 ------------ 25,960 ------------ Automobile Manufacturers - 0.4% Ford Motor Company 2,907 40,844 General Motors Corporation 559 23,746 ------------ 64,590 ------------ Biotechnology - 1.3% Amgen, Inc.* 1,764 99,983 Applera Corporation - Applied Biosystems Group 1,900 35,853 Biogen Idec, Inc.* 200 12,234 Chiron Corporation* 742 32,796 Genzyme Corporation* 216 11,753 Gilead Sciences, Inc.* 400 14,952 ------------ 207,571 ------------ Brewers - 0.4% Adolph Coors Company (Cl.B) 266 18,067 Anheuser-Busch Companies, Inc. 824 41,159 ------------ 59,226 ------------ Broadcasting & Cable TV - 0.8% Clear Channel Communications, Inc. 1,736 54,111 Comcast Corporation* 2,279 64,359 ------------ 118,470 ------------ Building Products - 0.3% Masco Corporation 1,504 51,933 ------------ 51,933 ------------ Casinos & Gaming - 0.3% Harrah's Entertainment, Inc. 761 40,318 ------------ 40,318 ------------ Communications Equipment - 2.6% Avaya, Inc.* 1,575 21,956 Cisco Systems, Inc.* 11,502 208,186 Lucent Technologies, Inc.* 5,871 18,611 Motorola, Inc. 3,053 55,076 Qualcomm, Inc. 1,758 68,632 Tellabs, Inc.* 3,200 29,408 ------------ 401,869 ------------ Computer & Electronics Retail - 0.4% Circuit City Stores, Inc. 2,000 30,680 RadioShack Corporation 1,262 36,144 ------------ 66,824 ------------ Computer Hardware - 3.1% Dell, Inc.* 2,884 102,670 Hewlett-Packard Company 4,508 84,525 International Business Machines Corporation 2,863 245,474 NCR Corporation* 435 21,572 Sun Microsystems, Inc.* 5,565 22,482 ------------ 476,723 ------------ Computer Storage & Peripherals - 0.3% EMC Corporation* 4,310 49,737 ------------ 49,737 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 15 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Construction & Farm Machinery - 1.0% Caterpillar, Inc. 893 $ 71,842 Deere & Company 600 38,730 Paccar, Inc. 698 48,246 ------------ 158,818 ------------ Consumer Finance - 1.4% American Express Company 1,623 83,519 MBNA Corporation 3,148 79,330 SLM Corporation 1,413 63,020 ------------ 225,869 ------------ Data Processing & Outsourced Services - 0.6% Automatic Data Processing, Inc. 617 25,494 Convergys Corporation* 1,194 16,035 First Data Corporation 549 23,882 SunGard Data Systems, Inc.* 856 20,347 ------------ 85,758 ------------ Department Stores - 0.5% Federated Department Stores, Inc. 882 40,069 May Department Stores Company 1,575 40,368 ------------ 80,437 ------------ Distillers & Vintners - 0.2% Brown-Forman Corporation (Cl.B) 800 36,640 ------------ 36,640 ------------ Diversified Banks - 3.8% Bank of America Corporation 5,692 246,634 U.S. Bancorp 1,734 50,113 Wachovia Corporation 2,597 121,929 Wells Fargo & Company 3,006 179,248 ------------ 597,924 ------------ Diversified Capital Markets - 1.1% J.P. Morgan Chase & Company 4,433 176,123 ------------ 176,123 ------------ Diversified Chemicals - 1.6% Dow Chemical Company 2,041 92,212 E.I. du Pont de Nemours & Company 2,074 88,767 Eastman Chemical Company 800 38,040 PPG Industries, Inc. 439 26,902 ------------ 245,921 ------------ Diversified Commercial Services - 1.0% Cendant Corporation 2,917 63,007 Cintas Corporation 200 8,408 Equifax, Inc. 1,425 37,563 H & R Block, Inc. 900 44,478 ------------ 153,456 ------------ Diversified Metals & Mining - 0.2% Phelps Dodge Corporation* 300 27,609 ------------ 27,609 ------------ Drug Retail - 0.2% Walgreen Company 655 23,469 ------------ 23,469 ------------ Electric Utilities - 2.0% Allegheny Energy, Inc.* 1,500 23,940 CenterPoint Energy, Inc. 3,300 34,188 DTE Energy Company 1,000 42,190 Edison International 1,494 39,606 Entergy Corporation 846 51,276 Exelon Corporation 194 7,118 Pinnacle West Captial Corporation 300 12,450 Progress Energy, Inc. 1,070 45,304 Progress Energy, Inc. - Contingent Value Obligation*(2) 400 56 Southern Company 61 1,828 TXU Corporation 1,200 57,504 ------------ 315,460 ------------ Electrical Components & Equipment - 0.4% American Power Conversion Corporation 500 8,695 Emerson Electric Company 738 45,675 Power-One, Inc.* 2,234 14,476 ------------ 68,846 ------------ Electronic Equipment Manufacturers - 0.5% Agilent Technologies, Inc.* 1,994 43,011 Tektronix, Inc. 1,200 39,900 ------------ 82,911 ------------ Electronic Manufacturing Services - 0.2% Jabil Circuit, Inc.* 557 12,811 Molex, Inc. (Voting) 600 17,892 ------------ 30,703 ------------ Employment Services - 0.2% Robert Half International, Inc. 1,444 37,212 ------------ 37,212 ------------ Environmental Services - 0.3% Waste Management, Inc. 1,773 48,474 ------------ 48,474 ------------ Food Distributors - 0.4% Sysco Corporation 1,881 56,280 ------------ 56,280 ------------ Food Retail - 0.5% Kroger Company* 1,620 25,143 Safeway, Inc.* 698 13,478 Supervalu, Inc. 1,300 35,815 ------------ 74,436 ------------ Footwear - 0.2% Reebok International, Ltd. 1,000 36,720 ------------ 36,720 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 16 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Forest Products - 0.4% Louisiana-Pacific Corporation 1,313 $ 34,072 Weyerhaeuser Company 460 30,581 ------------ 64,653 ------------ General Merchandise Stores - 0.3% Family Dollar Stores, Inc. 500 13,550 Target Corporation 706 31,946 ------------ 45,496 ------------ Gold - 0.1% Newmont Mining Corporation 214 9,743 ------------ 9,743 ------------ Health Care Distributors - 0.4% Cardinal Health, Inc. 1,282 56,113 ------------ 56,113 ------------ Health Care Equipment - 1.5% Becton, Dickinson & Company 999 51,648 Biomet, Inc. 200 9,376 Boston Scientific Corporation* 499 19,825 Fisher Scientific International, Inc.* 192 11,199 Guidant Corporation 584 38,568 Medtronic, Inc. 1,393 72,297 Thermo Electron Corporation* 499 13,483 Zimmer Holdings, Inc.* 204 16,124 ------------ 232,520 ------------ Health Care Facilities - 0.7% HCA, Inc. 1,523 58,102 Health Management Associates, Inc. 1,327 27,111 Manor Care, Inc. 1,048 31,398 ------------ 116,611 ------------ Health Care Services - 0.2% IMS Health, Inc. 689 16,481 Medco Health Solutions, Inc.* 719 22,217 ------------ 38,698 ------------ Health Care Supplies - 0.2% Bausch & Lomb, Inc. 500 33,225 Caremark Rx, Inc.* 1 16 ------------ 33,241 ------------ Home Improvement Retail - 1.5% Home Depot, Inc. 4,008 157,114 Lowe's Companies, Inc. 1,472 80,003 ------------ 237,117 ------------ Homebuilding - 0.2% Centex Corporation 700 35,322 ------------ 35,322 ------------ Hotels, Resorts & Cruise Lines - 0.1% Carnival Corporation 228 10,782 ------------ 10,782 ------------ Household Products - 2.4% Clorox Company 849 45,252 Colgate-Palmolive Company 843 38,087 Kimberly-Clark Corporation 1,096 70,790 Procter & Gamble Company 3,924 212,367 ------------ 366,496 ------------ Housewares & Specialties - 0.0% Newell Rubbermaid, Inc. 100 2,004 ------------ 2,004 ------------ Hypermarkets & Supercenters - 2.3% Costco Wholesale Corporation 253 10,515 Wal-Mart Stores, Inc. 6,583 350,215 ------------ 360,730 ------------ Industrial Conglomerates - 4.2% 3M Company 827 66,135 General Electric Company 14,441 484,929 Textron, Inc. 309 19,860 Tyco International, Ltd. 2,879 88,270 ------------ 659,194 ------------ Industrial Machinery - 0.7% Crane Company 1,073 31,031 Dover Corporation 1,000 38,870 Illinois Tool Works, Inc. 92 8,572 Parker-Hannifin Corporation 400 23,544 ------------ 102,017 ------------ Insurance Brokers - 0.3% Marsh & McLennan Companies, Inc. 1,025 46,904 ------------ 46,904 ------------ Integrated Oil & Gas - 4.9% ChevronTexaco Corporation 3,564 191,173 ConocoPhillips 1,049 86,909 Exxon Mobil Corporation 10,215 493,691 Occidental Petroleum Corporation 1 56 ------------ 771,829 ------------ Integrated Telecommunication Services - 2.8% AT&T Corporation 255 3,652 Alltel Corporation 5 275 BellSouth Corporation 3,821 103,625 CenturyTel, Inc. 300 10,272 Citizens Communications Company* 2,300 30,797 Qwest Communications International, Inc.* 2,838 9,450 SBC Communications, Inc. 5,344 138,677 Sprint Corporation 589 11,857 Verizon Communications, Inc. 3,430 135,073 ------------ 443,678 ------------ Internet Retail - 0.5% eBay, Inc.* 836 76,862 ------------ 76,862 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 17 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Internet Software & Services - 0.3% Yahoo!, Inc.* 1,384 $ 46,931 ------------ 46,931 ------------ Investment Banking & Brokerage - 1.8% Charles Schwab Corporation 3,534 32,477 Goldman Sachs Group, Inc. 838 78,135 Merrill Lynch & Company, Inc. 1,725 85,767 Morgan Stanley 1,582 77,993 ------------ 274,372 ------------ Leisure Products - 0.2% Hasbro, Inc. 1,900 35,720 ------------ 35,720 ------------ Life & Health Insurance - 1.0% AFLAC, Inc. 171 6,705 Jefferson-Pilot Corporation 832 41,317 Lincoln National Corporation 726 34,122 MetLife, Inc. 1,813 70,072 Prudential Financial, Inc. 167 7,856 ------------ 160,072 ------------ Managed Health Care - 1.0% Cigna Corporation 500 34,815 UnitedHealth Group, Inc. 816 60,172 WellPoint Health Networks, Inc.* 519 54,542 ------------ 149,529 ------------ Metal & Glass Containers - 0.1% Ball Corporation 500 18,715 ------------ 18,715 ------------ Motorcycle Manufacturers - 0.3% Harley-Davidson, Inc. 847 50,346 ------------ 50,346 ------------ Movies & Entertainment - 2.1% Time Warner, Inc.* 7,713 124,488 Viacom, Inc. (Cl.B) 3,413 114,540 Walt Disney Company 3,933 88,689 ------------ 327,717 ------------ Multi-Line Insurance - 2.1% American International Group, Inc. 4,219 286,850 Loews Corporation 700 40,950 ------------ 327,800 ------------ Multi-Utilities & Unregulated Power - 0.7% Constellation Energy Group 1,013 40,358 Dominion Resources, Inc. 500 32,625 Duke Energy Corporation 1,090 24,950 Dynegy, Inc.* 2,200 10,978 ------------ 108,911 ------------ Office Electronics - 0.2% Xerox Corporation* 2,494 35,116 ------------ 35,116 ------------ Oil & Gas Drilling - 0.2% Nabors Industries, Ltd.* 600 28,410 ------------ 28,410 ------------ Oil & Gas Equipment & Services - 0.6% BJ Services Company 873 45,754 Schlumberger, Ltd. 683 45,973 ------------ 91,727 ------------ Oil & Gas Exploration & Production - 1.1% Anadarko Petroleum Corporation 900 59,724 Burlington Resources, Inc. 962 39,250 Devon Energy Corporation 300 21,303 Unocal Corporation 1,170 50,310 ------------ 170,587 ------------ Oil & Gas Refining, Marketing & Transportation - 0.5% Kinder Morgan, Inc. 600 37,692 Sunoco, Inc. 500 36,990 Williams Companies, Inc. 800 9,680 ------------ 84,362 ------------ Other Diversified Financial Services - 2.6% Citigroup, Inc. 8,227 362,975 Principal Financial Group, Inc. 1,092 39,279 ------------ 402,254 ------------ Packaged Foods & Meats - 0.4% Sara Lee Corporation 2,519 57,584 ------------ 57,584 ------------ Paper Packaging - 0.4% Bemis Company, Inc. 500 13,290 Georgia-Pacific Corporation 639 22,972 International Paper Company 740 29,903 ------------ 66,165 ------------ Personal Products - 0.2% Gillette Company 767 32,015 ------------ 32,015 ------------ Pharmaceuticals - 7.7% Abbott Laboratories 2,303 97,555 Bristol-Myers Squibb Company 3,787 89,638 Eli Lilly & Company 1,843 110,672 Forest Laboratories, Inc.* 1,238 55,685 Hospira, Inc.* 1,300 39,780 Johnson & Johnson 4,847 273,032 Merck & Company, Inc. 2,976 98,208 Mylan Laboratories, Inc. 1,100 19,800 Pfizer, Inc. 12,080 369,648 Schering-Plough Corporation 527 10,045 Wyeth 1,160 43,384 ------------ 1,207,447 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 18 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Property & Casualty Insurance - 1.6% Ace, Ltd. 834 $ 33,410 Allstate Corporation 1,710 82,063 Cincinnati Financial Corporation 940 38,747 MBIA, Inc. 735 42,784 Progressive Corporation 529 44,833 St. Paul Travelers Companies, Inc. 83 2,744 XL Capital, Ltd. 103 7,621 ------------ 252,202 ------------ Publishing - 0.5% Gannett Company, Inc. 20 1,675 Knight-Ridder, Inc. 330 21,599 New York Times Company 300 11,730 Tribune Company 1,100 45,265 ------------ 80,269 ------------ Railroads - 0.5% Burlington Northern Santa Fe Corporation 1,424 54,553 Norfolk Southern Corporation 800 23,792 ------------ 78,345 ------------ Real Estate Investment Trusts - 0.3% Apartment Investment & Management Company 184 6,400 Equity Office Properties Trust 4 109 Equity Residential 1,300 40,300 ------------ 46,809 ------------ Regional Banks - 1.7% BB&T Corporation 100 3,969 Fifth Third Bancorp 1,389 68,367 First Horizon National Corporation 807 34,992 KeyCorp 1,100 34,760 National City Corporation 162 6,256 North Fork Bancorporation, Inc. 210 9,334 PNC Financial Services Group 126 6,817 SunTrust Banks, Inc. 907 63,862 Zions Bancorporation 530 32,351 ------------ 260,708 ------------ Restaurants - 0.8% Darden Restaurants, Inc. 200 4,664 McDonald's Corporation 2,887 80,922 Wendy's International, Inc. 1,028 34,541 ------------ 120,127 ------------ Semiconductor Equipment - 0.3% Applied Materials, Inc.* 943 15,550 Teradyne, Inc.* 1,785 23,919 ------------ 39,469 ------------ Semiconductors - 2.9% Advanced Micro Devices, Inc.* 2,500 32,500 Analog Devices, Inc. 1,058 41,029 Intel Corporation 10,923 219,115 National Semiconductor Corporation* 1,920 29,741 Texas Instruments, Inc. 3,925 83,524 Xilinx, Inc. 1,520 41,040 ------------ 446,949 ------------ Soft Drinks - 2.1% Coca-Cola Company 4,215 168,811 Coca-Cola Enterprises, Inc. 1,100 20,790 Pepsi Bottling Group, Inc. 1,500 40,725 PepsiCo, Inc. 2,036 99,051 ------------ 329,377 ------------ Specialized Finance - 0.0% Moody's Corporation 100 7,325 ------------ 7,325 ------------ Specialty Chemicals - 0.3% Rohm & Haas Company 461 19,809 Sigma-Aldrich Corporation 417 24,186 ------------ 43,995 ------------ Specialty Stores - 0.2% Office Depot, Inc.* 1,800 27,054 ------------ 27,054 ------------ Steel - 0.1% Nucor Corporation 100 9,137 ------------ 9,137 ------------ Systems Software - 4.0% BMC Software, Inc.* 2,300 36,363 Microsoft Corporation 15,605 431,478 Novell, Inc.* 2,400 15,144 Oracle Corporation* 9,006 101,588 Symantec Corporation* 300 16,464 Veritas Software Corporation* 1,517 27,003 ------------ 628,040 ------------ Thrifts & Mortgage Finance - 1.3% Fannie Mae 1,621 102,772 Freddie Mac 555 36,208 Golden West Financial Corporation 415 46,044 Washington Mutual, Inc. 525 20,517 ------------ 205,541 ------------ Tobacco - 1.1% Altria Group, Inc. 3,581 168,450 ------------ 168,450 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 19 Security Equity Fund Enhanced Index Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Trading Companies & Distributors - 0.3% W. W. Grainger, Inc. 700 $ 40,355 ------------ 40,355 ------------ Wireless Telecommunication Services - 0.8% AT&T Wireless Services, Inc.* 5,302 78,364 Nextel Communications, Inc.* 2,262 53,926 ------------ 132,290 ------------ Total common stocks (cost $14,511,420) 15,258,100 ------------ U.S. Government Securities - 0.3% U.S. Treasury Bill, 1.60% - 2004(1) $ 50,000 49,809 ------------ Total U.S. Government securities (cost $49,819) 49,809 ------------ Repurchase Agreement - 2.7% United Missouri Bank, 1.35%, dated 9-30-04, matures 10-01-04; repurchase amount of $418,016 (Collateralized by U.S. Treasury Note, 2.125%, 10-31-04 with a value of $426,870) $418,000 418,000 ------------ Total repurchase agreement (cost $418,000) 418,000 ------------ Total investments - 100.8% (cost $14,979,239) 15,725,909 Liabilities, less cash & other assets - (0.8%) (122,600) ------------ Total net assets - 100% $ 15,603,309 ============ For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $15,663,628. * Non-income producing security (1) Security is segregated as collateral for futures contracts. (2) Security is restricted. The total market value of restricted securities is $56 (cost $190), or 0.0% of total net assets. The acquisition dates range from November 8, 1999 to September 28, 2000. - -------------------------------------------------------------------------------- See accompanying notes. 20 Security Equity Fund Enhanced Index Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ................................. $ 15,725,909 Cash ..................................................... 1,965 Receivables: Fund shares sold ...................................... 11,937 Dividends ............................................. 18,828 Prepaid expenses ......................................... 11,602 ------------ Total assets ............................................. 15,770,241 ------------ Liabilities: Payable for: Variation margin ...................................... 50 Management fees ....................................... 6,415 Custodian fees ........................................ 2,470 Transfer and administration fees ...................... 4,746 Professional fees ..................................... 7,714 12b-1 distribution plan fees .......................... 143,511 Other ................................................. 2,026 ------------ Total liabilities ........................................ 166,932 ------------ Net Assets ............................................... $ 15,603,309 ============ Net assets consist of: Paid in capital .......................................... $ 20,708,599 Accumulated undistributed net investment income ................................................ -- Accumulated undistributed net realized loss on sale of investments and futures ........................................... (5,848,635) Net unrealized appreciation in value of investments and futures ............................... 743,345 ------------ Net assets ............................................... $ 15,603,309 ============ Class A: Capital shares outstanding ............................... 812,643 Net assets ............................................... $ 7,017,166 Net asset value and redemption price per share ............................................. $ 8.63 ============ Maximum offering price per share (net asset value divided by 94.25%) .............................. $ 9.16 ============ Class B: Capital shares outstanding ............................... 643,394 Net assets ............................................... $ 5,304,968 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ..................... $ 8.25 ============ Class C: Capital shares outstanding ............................... 396,877 Net assets ............................................... $ 3,281,175 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ..................... $ 8.27 ============ (1) Investments, at cost ................................. $ 14,979,239 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ............................................. $ 274,532 Interest .............................................. 3,059 ------------ Total investment income ............................... 277,591 ------------ Expenses: Management fees ....................................... 120,171 Custodian fees ........................................ 20,167 Transfer agent/maintenance fees ....................... 37,164 Administration fees ................................... 29,199 Directors' fees ....................................... 457 Professional fees ..................................... 9,224 Reports to shareholders ............................... 1,766 Registration fees ..................................... 28,066 Other expenses ........................................ 1,298 12b-1 distribution plan fees - Class A ................ 17,929 12b-1 distribution plan fees - Class B ................ 54,113 12b-1 distribution plan fees - Class C ................ 34,399 ------------ Total expenses ........................................ 353,953 Less: Expenses waived ................................ (40,057) Earnings credits ................................ (836) ------------ Net expenses .......................................... 313,060 ------------ Net investment loss ................................... (35,469) ------------ Net Realized and Unrealized Gain: Net realized loss during the period on Investments ........................................... 1,081,474 Futures ............................................... 33,495 ------------ Net realized gain ..................................... 1,114,969 ------------ Net change in unrealized appreciation during the period on Investments ........................................... 607,447 Futures ............................................... 4,828 ------------ Net unrealized appreciation ........................... 612,275 ------------ Net gain .............................................. 1,727,244 ------------ Net increase in net assets resulting from operations ........................... $ 1,691,775 ============ - -------------------------------------------------------------------------------- See accompanying notes. 21 Security Equity Fund Enhanced Index Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations: Net investment loss ............................................................. $ (35,469) $ (56,631) Net realized gain (loss) during the period on investments and futures ........... 1,114,969 (2,930,280) Net change in unrealized appreciation during the period on investments and futures .................................................... 612,275 6,120,571 ------------ ------------ Net increase in net assets resulting from operations ............................ 1,691,775 3,133,660 ------------ ------------ Capital share transactions: Proceeds from sale of shares Class A .................................................................... 1,834,103 2,367,320 Class B .................................................................... 912,388 1,206,524 Class C .................................................................... 1,337,801 1,120,893 Cost of shares redeemed Class A .................................................................... (1,977,745) (4,508,312) Class B .................................................................... (1,094,636) (3,498,690) Class C .................................................................... (1,397,756) (2,949,239) ------------ ------------ Net decrease from capital share transactions .................................... (385,845) (6,261,504) ------------ ------------ Net increase (decrease) in net assets ........................................... 1,305,930 (3,127,844) ------------ ------------ Net assets: Beginning of period ............................................................. 14,297,379 17,425,223 ------------ ------------ End of period ................................................................... $ 15,603,309 $ 14,297,379 ============ ============ Accumulated undistributed net investment income at end of period .............................................................. $ -- $ -- ============ ============ Capital Share Activity: Shares sold Class A .................................................................... 214,183 333,447 Class B .................................................................... 110,168 177,203 Class C .................................................................... 163,235 159,884 Shares redeemed Class A .................................................................... (230,862) (642,114) Class B .................................................................... (132,909) (513,292) Class C .................................................................... (169,518) (430,959)
- -------------------------------------------------------------------------------- See accompanying notes. 22 Security Equity Fund Enhanced Index Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended, September 30, Class A 2004 2003(f) 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.69 $ 6.30 $ 8.03 $ 11.29 $ 10.04 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) 0.02 -- (0.01) -- -- Net gain (loss) on securities (realized and unrealized) 0.92 1.39 (1.72) (3.17) 1.37 --------------------------------------------------------------------- Total from investment operations 0.94 1.39 (1.73) (3.17) 1.37 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.09) (0.12) --------------------------------------------------------------------- Total distributions -- -- -- (0.09) (0.12) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.63 $ 7.69 $ 6.30 $ 8.03 $ 11.29 ===================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 12.22% 22.06% (21.54%) (28.27%) 13.65% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 7,017 $ 6,377 $ 7,171 $ 6,699 $ 8,219 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) 0.19% 0.00% (0.10%) 0.02% (0.05%) Total expenses 1.55% 1.73% 1.61% 1.42% 1.44% Gross expenses(b) 1.80% 1.83% 1.61% 1.42% 1.44% Net expenses(d) 1.54% 1.73% 1.61% 1.42% 1.44% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 79% 60% 62% 40% 73% Year Ended, September 30, Class B 2004 2003(f) 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.40 $ 6.11 $ 7.87 $ 11.15 $ 9.99 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.05) (0.05) (0.07) (0.08) (0.09) Net gain (loss) on securities (realized and unrealized) 0.90 1.34 (1.69) (3.11) 1.37 --------------------------------------------------------------------- Total from investment operations 0.85 1.29 (1.76) (3.19) 1.28 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.09) (0.12) --------------------------------------------------------------------- Total distributions -- -- -- (0.09) (0.12) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.25 $ 7.40 $ 6.11 $ 7.87 $ 11.15 ===================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.49% 21.11% (22.36%) (28.81%) 12.82% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 5,305 $ 4,929 $ 6,125 $ 7,360 $ 10,960 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.56%) (0.75%) (0.84%) (0.74%) (0.79%) Total expenses 2.30% 2.48% 2.35% 2.17% 2.18% Gross expenses(b) 2.55% 2.58% 2.35% 2.17% 2.18% Net expenses(d) 2.29% 2.48% 2.35% 2.17% 2.18% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 79% 60% 62% 40% 73%
- -------------------------------------------------------------------------------- See accompanying notes 23 Security Equity Fund Enhanced Index Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended, September 30, Class C 2004 2003(f) 2002(e) 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.42 $ 6.12 $ 7.88 $ 11.16 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.05) (0.05) (0.07) (0.08) (0.09) Net gain (loss) on securities (realized and unrealized) 0.90 1.35 (1.69) (3.11) 1.37 -------------------------------------------------------------------- Total from investment operations 0.85 1.30 (1.76) (3.19) 1.28 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.09) (0.12) -------------------------------------------------------------------- Total distributions -- -- -- (0.09) (0.12) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 8.27 $ 7.42 $ 6.12 $ 7.88 $ 11.16 ==================================================================== - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.46% 21.24% (22.34%) (28.78%) 12.69% - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 3,281 $ 2,991 $ 4,129 $ 4,840 $ 7,092 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.56%) (0.74%) (0.85%) (0.74%) (0.77%) Total expenses 2.30% 2.47% 2.35% 2.17% 2.15% Gross expenses(b) 2.55% 2.57% 2.35% 2.17% 2.15% Net expenses(d) 2.29% 2.47% 2.35% 2.17% 2.15% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 79% 60% 62% 40% 73%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. (f) Northern Trust became the sub-adviser for Enhanced Index Series effective May 1, 2003. Prior to May 1, 2003 Security Management Company, LLC paid Deutsch Asset Management, Inc. for sub-advisory services. - -------------------------------------------------------------------------------- See accompanying notes. 24 Security Equity Fund Equity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] Mark Mitchell Portfolio Manager To Our Shareholders: With the retirement of Terry Milberger in February 2004, this marks my first annual letter to the Equity Series shareholders. Fiscal year 2004 was a normal year in many respects; market returns were positive, but not as spectacular as in fiscal year 2003. The Equity Series returned 8.87%(1) for the period ended September 30, 2004, lagging the benchmark S&P 500 Index's return of 13.87% and the Fund's peer group median return of 10.40%. As in 2003, the market favored lower-quality, higher-beta stocks, and in that environment, the Fund tends to underperform. Although disappointing for this particular period, we believe that our investing approach delivers positive performance over the long term. Our approach to managing Security Equity Fund is based on the investment philosophy described below. We understand a company's growth potential over the long term based on our bottom-up fundamental investment process. We invest today based on future potential. We concentrate our investments in companies with sustainable competitive advantages when they are undervalued. Companies must demonstrate management ability by consistently adding shareholder value. They must have strong financial positions and be well positioned for growth. We are patient buyers and sellers focused on the long term, and we take advantage of investor uncertainty and short-term thinking. For this Fund, we apply this philosophy to a broad range of both growth and value companies. Industrials and Consumer Discretionary Stocks are Top Performers The Fund's industrial holdings were up 25% compared to 23% for the index. Positions in General Dynamics and Federal Express contributed positively to the Fund. General Dynamics benefited from a recovery in its aircraft business and strong defense spending. Federal Express had strong results driven by continued economic growth and business model efficiencies. The Fund's consumer discretionary holdings performed well, besting the index sector return of 14%. Carnival Cruise Lines appreciated 46%, driven by solid operating fundamentals and recognition of an upcoming industry capacity slowdown. Harley Davidson was up 24% largely as a result of executing well against near-term concerns about a slowdown in its business. Technology and Financials Disappointing Following an extremely strong year in 2003, technology stocks had a difficult time in 2004. Adverse stock selection in ADC Telecom and not owning Qualcomm had a negative impact on the Fund. ADC Telecom was down 48% as a result of a slower broadband build out than was expected. Conversely, Qualcomm was up over 88% as it benefited from strong wireless handset demand. Further consolidation in the financial sector had a negative impact on the Fund. Fleet Boston, not owned in the Fund, was up over 50% due to being acquired by Bank America. And JP Morgan was up approximately 20% as it improved its competitive position by acquiring Bank One. 2005 Market Outlook Our outlook for the equity market continues to be guardedly optimistic. As in prior years, there are many potential positive and negative influences. We believe the most significant issue in 2005 will be a slowing profit cycle. In such an environment, more normal equity returns are likely. Skilled stock picking versus owning the market index will be critical. This favors our focus on identifying good companies at attractive valuations. We continue to believe that investing is a long-term pursuit that requires patience and a consistent approach. Dollar cost averaging is a sound way to build long-term value.(2) We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us. Sincerely, Mark Mitchell Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. (2) Dollar cost averaging does not assure profits or protect against loss in a declining market. - -------------------------------------------------------------------------------- 25 Security Equity Fund Equity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Equity Series vs. S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Equity Series $21,564 DATE VALUE ---- ----- 9/30/1994 9,425.00 12/31/1994 9,831.69 3/31/1995 10,787.55 6/30/1995 11,860.45 9/30/1995 12,777.30 12/31/1995 13,609.13 3/31/1996 14,709.71 6/30/1996 15,344.66 9/30/1996 15,958.45 12/31/1996 16,694.89 3/31/1997 16,810.82 6/30/1997 19,662.86 9/30/1997 21,077.29 12/31/1997 21,636.32 3/31/1998 24,727.22 6/30/1998 25,493.56 9/30/1998 22,632.56 12/31/1998 27,363.02 3/31/1999 27,637.20 6/30/1999 29,172.60 9/30/1999 27,308.18 12/31/1999 30,369.32 3/31/2000 30,681.53 6/30/2000 29,801.67 9/30/2000 29,120.49 12/31/2000 26,565.59 3/31/2001 23,220.05 6/30/2001 24,776.88 9/30/2001 21,066.97 12/31/2001 23,418.79 3/31/2002 23,286.29 6/30/2002 19,874.50 9/30/2002 16,860.20 12/31/2002 17,887.05 3/31/2003 17,390.19 6/30/2003 19,543.26 9/30/2003 19,808.26 12/31/2003 21,630.71 3/31/2004 21,862.94 6/30/2004 22,161.52 9/30/2004 21,564.35 S&P 500 Index $28,636 DATE VALUE ---- ----- 9/30/1994 $10,000.00 12/31/1994 9,998.63 3/31/1995 10,972.04 6/30/1995 12,020.09 9/30/1995 12,975.60 12/31/1995 13,756.95 3/31/1996 14,494.80 6/30/1996 15,144.67 9/30/1996 15,612.86 12/31/1996 16,915.00 3/31/1997 17,367.96 6/30/1997 20,400.43 9/30/1997 21,930.28 12/31/1997 22,560.75 3/31/1998 25,708.00 6/30/1998 26,557.16 9/30/1998 23,914.50 12/31/1998 29,005.52 3/31/1999 30,454.92 6/30/1999 32,601.21 9/30/1999 30,565.05 12/31/1999 35,112.66 3/31/2000 35,919.68 6/30/2000 34,967.18 9/30/2000 34,628.95 12/31/2000 31,921.86 3/31/2001 28,138.90 6/30/2001 29,786.63 9/30/2001 25,417.13 12/31/2001 28,134.75 3/31/2002 28,211.22 6/30/2002 24,432.55 9/30/2002 20,212.86 12/31/2002 21,919.95 3/31/2003 21,229.60 6/30/2003 24,497.49 9/30/2003 25,145.84 12/31/2003 28,210.06 3/31/2004 28,688.62 6/30/2004 29,183.26 9/30/2004 28,636.13 $10,000 Over Ten Years This chart assumes a $10,000 investment in Class A shares of Equity Series on September 30, 1994, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - -------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 13.77% - -------------------------------------------------------- Consumer Staples 10.74 - -------------------------------------------------------- Energy 5.86 - -------------------------------------------------------- Financials 17.93 - -------------------------------------------------------- Health Care 17.24 - -------------------------------------------------------- Industrials 13.28 - -------------------------------------------------------- Information Technology 14.03 - -------------------------------------------------------- Materials 3.34 - -------------------------------------------------------- Telecommunication Services 1.87 - -------------------------------------------------------- U.S. Government Agency 2.62 - -------------------------------------------------------- Liabilities, less cash & other assets (0.68) - -------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 Since 1 Year 5 Years 10 Years Inception - -------------------------------------------------------------------------------- A Shares 8.87% (4.56%) 8.02% N/A - -------------------------------------------------------------------------------- A Shares with sales charge 2.61% (5.68%) 7.38% N/A - -------------------------------------------------------------------------------- B Shares 8.13% (5.38%) 7.02% N/A - -------------------------------------------------------------------------------- B Shares with CDSC 4.13% (5.38%) 7.02% N/A - -------------------------------------------------------------------------------- C Shares 8.26% (5.43%) N/A (5.26%) (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 8.26% (5.43%) N/A (5.23%) (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. - -------------------------------------------------------------------------------- See accompanying notes. 26 Security Equity Fund Equity Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------- Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - ------------------------------------------------------------------------- Equity Series - Class A Actual $1,000.00 $ 986.30 $ 6.44 Hypothetical 1,000.00 1,018.65 6.55 - ------------------------------------------------------------------------- Equity Series - Class B Actual 1,000.00 983.20 10.12 Hypothetical 1,000.00 1,014.93 10.28 - ------------------------------------------------------------------------- Equity Series - Class C Actual 1,000.00 984.00 10.12 Hypothetical 1,000.00 1,014.93 10.28 - ------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -1.37%, -1.68% and -1.60%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.29%, 2.03% and 2.03% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 27 Security Equity Fund Equity Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks - 98.1% Aerospace & Defense - 4.3% General Dynamics Corporation 88,400 $ 9,025,640 L-3 Communications Holdings, Inc. 42,000 2,814,000 United Technologies Corporation 79,400 7,414,372 ------------- 19,254,012 ------------- Air Freight & Logistics - 1.9% FedEx Corporation 99,000 8,483,310 ------------- 8,483,310 ------------- Airlines - 1.0% Southwest Airlines Company 327,800 4,464,636 ------------- 4,464,636 ------------- Aluminum - 1.1% Alcoa, Inc. 145,000 4,870,550 ------------- 4,870,550 ------------- Asset Management & Custody Banks - 1.3% Bank of New York Company, Inc. 200,000 5,834,000 ------------- 5,834,000 ------------- Biotechnology - 3.0% Amgen, Inc.* 237,100 13,438,828 ------------- 13,438,828 ------------- Brewers - 1.6% Anheuser-Busch Companies, Inc. 140,000 6,993,000 ------------- 6,993,000 ------------- Broadcasting & Cable TV - 1.2% Comcast Corporation* 195,100 5,509,624 ------------- 5,509,624 ------------- Communications Equipment - 1.8% ADC Telecommunications, Inc.* 1,500,000 2,715,000 Cisco Systems, Inc.* 293,800 5,317,780 ------------- 8,032,780 ------------- Computer Hardware - 3.2% Dell, Inc.* 222,600 7,924,560 International Business Machines Corporation 77,000 6,601,980 ------------- 14,526,540 ------------- Consumer Finance - 1.3% MBNA Corporation 239,000 6,022,800 ------------- 6,022,800 ------------- Data Processing & Outsourced Services - 2.8% Computer Sciences Corporation* 55,000 2,590,500 First Data Corporation 230,000 10,005,000 ------------- 12,595,500 ------------- Department Stores - 2.4% Kohl's Corporation* 220,800 10,640,352 ------------- 10,640,352 ------------- Diversified Banks - 3.3% Bank of America Corporation 120,000 5,199,600 Wells Fargo & Company 160,000 9,540,800 ------------- 14,740,400 ------------- Diversified Chemicals - 0.7% E.I. du Pont de Nemours & Company 75,000 3,210,000 ------------- 3,210,000 ------------- Drug Retail - 1.7% CVS Corporation 178,600 7,524,418 ------------- 7,524,418 ------------- General Merchandise Stores - 0.8% Target Corporation 81,200 3,674,300 ------------- 3,674,300 ------------- Health Care Equipment - 2.3% Boston Scientific Corporation* 194,300 7,719,539 Medtronic, Inc. 53,600 2,781,840 ------------- 10,501,379 ------------- Home Improvement Retail - 2.8% Home Depot, Inc. 254,500 9,976,400 Lowe's Companies, Inc. 43,000 2,337,050 ------------- 12,313,450 ------------- Hotels, Resorts & Cruise Lines - 1.6% Carnival Corporation 155,000 7,329,950 ------------- 7,329,950 ------------- Household Products - 2.7% Colgate-Palmolive Company 100,000 4,518,000 Procter & Gamble Company 140,000 7,576,800 ------------- 12,094,800 ------------- Hypermarkets & Supercenters - 2.6% Wal-Mart Stores, Inc. 220,000 11,704,000 ------------- 11,704,000 ------------- Industrial Conglomerates - 6.1% 3M Company 52,700 4,214,419 General Electric Company 550,000 18,469,000 Tyco International, Ltd. 147,800 4,531,548 ------------- 27,214,967 ------------- Industrial Gases - 1.5% Praxair, Inc. 160,000 6,838,400 ------------- 6,838,400 ------------- Integrated Oil & Gas - 3.8% ChevronTexaco Corporation 120,000 6,436,800 Exxon Mobil Corporation 221,100 10,685,763 ------------- 17,122,563 ------------- - -------------------------------------------------------------------------------- See accompanying notes. 28 Security Equity Fund Equity Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Integrated Telecommunication Services - 1.9% SBC Communications, Inc. 170,000 $ 4,411,500 Verizon Communications, Inc. 100,000 3,938,000 ------------- 8,349,500 ------------- Investment Banking & Brokerage - 2.8% Goldman Sachs Group, Inc. 50,000 4,662,000 Merrill Lynch & Company, Inc. 90,500 4,499,660 Morgan Stanley 67,500 3,327,750 ------------- 12,489,410 ------------- Life & Health Insurance - 0.9% AFLAC, Inc. 101,800 3,991,578 ------------- 3,991,578 ------------- Managed Health Care - 2.8% Anthem, Inc.* 55,000 4,798,750 UnitedHealth Group, Inc. 106,500 7,853,310 ------------- 12,652,060 ------------- Motorcycle Manufacturers - 1.3% Harley-Davidson, Inc. 94,100 5,593,304 ------------- 5,593,304 ------------- Movies & Entertainment - 3.7% Time Warner, Inc.* 460,000 7,424,400 Viacom, Inc. (Cl.B) 271,700 9,118,252 ------------- 16,542,652 ------------- Multi-Line Insurance - 3.3% American International Group, Inc. 220,000 14,957,800 ------------- 14,957,800 ------------- Oil & Gas Equipment & Services - 1.1% BJ Services Company 8,700 455,967 Halliburton Company 133,500 4,497,615 ------------- 4,953,582 ------------- Oil & Gas Exploration & Production - 0.9% Anadarko Petroleum Corporation 62,500 4,147,500 ------------- 4,147,500 ------------- Other Diversified Financial Services - 3.6% Citigroup, Inc. 360,500 15,905,260 ------------- 15,905,260 ------------- Pharmaceuticals - 9.1% Abbott Laboratories 130,000 5,506,800 Eli Lilly & Company 37,000 2,221,850 Johnson & Johnson 187,300 10,550,609 Merck & Company, Inc. 101,600 3,352,800 Pfizer, Inc. 544,300 16,655,580 Wyeth 60,000 2,244,000 ------------- 40,531,639 ------------- Property & Casualty Insurance - 1.4% Chubb Corporation 89,200 6,268,976 ------------- 6,268,976 ------------- Principal Amount or Number Market of Shares Value - ------------------------------------------------------------------------------- Semiconductor Equipment - 0.3% Applied Materials, Inc.* 73,900 $ 1,218,611 ------------- 1,218,611 ------------- Semiconductors - 1.5% Intel Corporation 323,400 6,487,404 ------------- 6,487,404 ------------- Soft Drinks - 2.2% PepsiCo, Inc. 200,000 9,730,000 ------------- 9,730,000 ------------- Systems Software - 4.5% Microsoft Corporation 600,900 16,614,885 Oracle Corporation* 290,900 3,281,352 ------------- 19,896,237 ------------- Total common stocks (cost $382,532,751) 438,650,072 ------------- U. S. Government Sponsored Agencies - 2.6% Federal Home Loan Bank, 1.60%, 10-01-04 $ 3,800,000 3,800,000 Federal National Mortgage Association: 1.53%, 10-01-04 $ 2,117,000 2,117,000 1.67%, 10-05-04 $ 2,200,000 2,199,592 1.72%, 10-07-04 $ 2,270,000 2,269,349 1.73%, 10-13-04 $ 1,341,000 1,340,227 ------------- Total U. S. Government sponsored agencies (cost $11,726,168) - 2.6% 11,726,168 ------------- Total investments (cost $394,258,919) - 100.7% 450,376,240 Liabilities, less cash and other assets - (0.7%) (3,062,839) ------------- Total net assets - 100.0% $ 447,313,401 ============= The identified cost of investments owned at September 30, 2004 was the same for federal income tax and financial statement purposes. * Non-income producing security - -------------------------------------------------------------------------------- See accompanying notes. 29 Security Equity Fund Equity Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ............................... $ 450,376,240 Receivables: Fund shares sold .................................... 36,963 Securities sold ..................................... 1,327,756 Dividends ........................................... 207,252 Prepaid expenses ....................................... 22,559 ------------- Total assets ........................................... 451,970,770 ------------- Liabilities: Cash overdraft ......................................... 31,061 Payable for: Securities purchased ................................ 3,403,986 Fund shares redeemed ................................ 623,094 Management fees ..................................... 278,679 Custodian fees ...................................... 3,050 Transfer and administration fees .................... 79,396 Professional fees ................................... 39,405 12b-1 distribution plan fees ........................ 134,911 Other ............................................... 63,787 ------------- Total liabilities ...................................... 4,657,369 ------------- Net Assets ............................................. $ 447,313,401 ============= Net assets consist of: Paid in capital ........................................ $ 362,191,150 Accumulated undistributed net investment income .............................................. -- Accumulated undistributed net realized gain on sale of investments ......................... 29,004,930 Net unrealized appreciation in value of investments ...................................... 56,117,321 ------------- Net assets ............................................. $ 447,313,401 ============= Class A: Capital shares outstanding ............................. 60,169,380 Net assets ............................................. $ 391,384,476 Net asset value and redemption price per share ........................................... $ 6.50 ============= Maximum offering price per share (net asset value divided by 94.25%) ................. $ 6.90 ============= Class B: Capital shares outstanding ............................. 8,476,185 Net assets ............................................. $ 49,600,169 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ................... $ 5.85 ============= Class C: Capital shares outstanding ............................. 1,027,884 Net assets ............................................. $ 6,328,756 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ................... $ 6.16 ============= (1) Investments, at cost ............................... $ 394,258,919 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ........................................... $ 6,521,925 Interest ............................................ 84,638 ------------- Total investment income ............................. 6,606,563 ------------- Expenses: Management fees ..................................... 3,657,792 Custodian fees ...................................... 18,509 Transfer agent/maintenance fees ..................... 676,118 Administration fees ................................. 440,031 Directors' fees ..................................... 14,476 Professional fees ................................... 60,865 Reports to shareholders ............................. 62,486 Registration fees ................................... 49,071 Other expenses ...................................... 21,803 12b-1 distribution plan fees - Class A .............. 1,056,740 12b-1 distribution plan fees - Class B .............. 581,114 12b-1 distribution plan fees - Class C .............. 68,982 ------------- Total expenses ...................................... 6,707,987 Less: Earnings credits .............................. (826) ------------- Net expenses ........................................ 6,707,161 ------------- Net investment loss ................................. (100,598) ------------- Net Realized and Unrealized Gain: Net realized gain during the period on Investments ......................................... 53,906,512 ------------- Net realized gain ................................... 53,906,512 ------------- Net change in unrealized depreciation during the period on Investments ......................................... (10,398,098) ------------- Net unrealized depreciation ......................... (10,398,098) ------------- Net gain ............................................ 43,508,414 ------------- Net increase in net assets resulting from operations ......................... $ 43,407,816 ============= - -------------------------------------------------------------------------------- See accompanying notes. 30 Security Equity Fund Equity Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations: Net investment income (loss) ...................................................... $ (100,598) $ 607,081 Net realized gain (loss) during the period on investments ......................... 53,906,512 (8,071,790) Net change in unrealized appreciation (depreciation) during the period on investments ................................................ (10,398,098) 89,930,127 ------------- ------------- Net increase in net assets resulting from operations ............................ 43,407,816 82,465,418 ------------- ------------- Distributions to shareholders from: Net investment income Class A ......................................................................... (684,512) -- Class B ......................................................................... -- -- Class C ......................................................................... -- -- ------------- ------------- Total distributions to shareholders ............................................. (684,512) -- ------------- ------------- Capital share transactions: Proceeds from sale of shares Class A ......................................................................... 34,438,875 52,599,625 Class B ......................................................................... 8,956,642 19,942,502 Class C ......................................................................... 2,153,270 3,455,973 Distributions reinvested Class A ......................................................................... 627,027 -- Class B ......................................................................... -- -- Class C ......................................................................... -- -- Cost of shares redeemed Class A ......................................................................... (111,058,761) (105,856,454) Class B ......................................................................... (26,061,410) (35,443,343) Class C ......................................................................... (3,010,496) (2,656,042) ------------- ------------- Net decrease from capital share transactions .................................... (93,954,853) (67,957,739) ------------- ------------- Net increase (decrease) in net assets ........................................... (51,231,549) 14,507,679 ------------- ------------- Net assets: Beginning of period ............................................................... 498,544,950 484,037,271 ------------- ------------- End of period ..................................................................... $ 447,313,401 $ 498,544,950 ============= ============= Accumulated undistributed net investment income (loss) at end of period ........... $ -- $ 607,081 ============= ============= Capital Share Activity: Shares sold Class A ......................................................................... 5,383,103 9,525,481 Class B ......................................................................... 1,534,595 3,963,505 Class C ......................................................................... 351,499 647,916 Shares reinvested Class A ......................................................................... 97,974 -- Class B ......................................................................... -- -- Class C ......................................................................... -- -- Shares redeemed Class A ......................................................................... (17,251,738) (18,674,422) Class B ......................................................................... (4,466,840) (6,830,650) Class C ......................................................................... (491,760) (499,324)
- -------------------------------------------------------------------------------- See accompanying notes. 31 Security Equity Fund Equity Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002(e),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.98 $ 5.09 $ 6.36 $ 10.26 $ 9.96 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) 0.01 0.01 0.01 -- -- Net gain (loss) on securities (realized and unrealized) 0.52 0.88 (1.28) (2.49) 0.66 ---------------------------------------------------------------------- Total from investment operations 0.53 0.89 (1.27) (2.49) 0.66 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) -- -- -- -- Distributions from realized gains -- -- -- (1.40) (0.36) Return of capital -- -- -- (0.01) -- ---------------------------------------------------------------------- Total distributions (0.01) -- -- (1.41) (0.36) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.50 $ 5.98 $ 5.09 $ 6.36 $ 10.26 ====================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 8.87% 17.49% (19.97%) (27.66%) 6.64% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 391,384 $ 430,161 $ 412,791 $ 563,553 $ 853,126 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) 0.08% 0.23% 0.13% 0.03% 0.03% Total expenses 1.28% 1.25% 1.11% 1.02% 1.02% Gross expenses(b) 1.28% 1.25% 1.11% 1.02% 1.02% Net expensesd 1.28% 1.25% 1.11% 1.02% 1.02% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 54% 30% 23% 54% Year Ended, September 30, Class B 2004 2003 2002(e),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.41 $ 4.64 $ 5.86 $ 9.65 $ 9.47 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.04) (0.03) (0.05) (0.07) (0.10) Net gain (loss) on securities (realized and unrealized) 0.48 0.80 (1.17) (.31) 0.64 ---------------------------------------------------------------------- Total from investment operations 0.44 0.77 (1.22) (2.38) 0.54 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (1.40) (0.36) Return of capital -- -- -- (0.01) -- ---------------------------------------------------------------------- Total distributions -- -- -- (1.41) (0.36) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.85 $ 5.41 $ 4.64 $ 5.86 $ 9.65 ====================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 8.13% 16.59% (20.82%) (28.34%) 5.69% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 49,600 $ 61,733 $ 66,267 $ 96,067 $ 156,633 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.67%) (0.52%) (0.78%) (0.97%) (0.97%) Total expenses 2.03% 2.00% 2.02% 2.02% 2.02% Gross expenses(b) 2.03% 2.00% 2.02% 2.02% 2.02% Net expenses(d) 2.03% 2.00% 2.02% 2.02% 2.02% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 54% 30% 23% 54%
- -------------------------------------------------------------------------------- See accompanying notes. 32 Security Equity Fund Equity Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(e),(f),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.69 $ 4.88 $ 6.16 $ 10.07 $ 9.89 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.04) (0.03) (0.05) (0.07) (0.10) Net gain (loss) on securities (realized and unrealized) 0.51 0.84 (1.23) (2.43) 0.64 ------------------------------------------------------------------------ Total from investment operations 0.47 0.81 (1.28) (2.50) 0.54 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (1.40) (0.36) Return of capital -- -- -- (0.01) -- ------------------------------------------------------------------------ Total distributions -- -- -- (1.41) (0.36) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 6.16 $ 5.69 $ 4.88 $ 6.16 $ 10.07 ======================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 8.26% 16.60% (20.78%) (28.35%) 5.55% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 6,329 $ 6,651 $ 4,979 $ 4,230 $ 5,426 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.67%) (0.52%) (0.76%) (0.97%) (0.96%) Total expenses 2.03% 2.00% 2.02% 2.02% 2.02% Gross expenses(b) 2.03% 2.00% 2.02% 2.02% 2.02% Net expenses(d) 2.03% 2.00% 2.02% 2.02% 2.02% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 54% 30% 23% 54%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Equity Series exclude the historical financial highlights of the Total Return series Class A, B and C shares. The assets of the Total Return Series were acquired by the Equity Series on August 27, 2002. (f) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. (g) Effective May 1, 2002 the fee structure for Equity Series changed. Per share information reflects this change. - -------------------------------------------------------------------------------- See accompanying notes. 33 Security Equity Fund Global Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO OppenheimerFunds(R) Subadvisor, OppenheimerFunds, Inc. [PHOTO OMITTED] William L. Wilby Co-Portfolio Manager [PHOTO OMITTED] Rajeev Bhaman Co-Portfolio Manager To Our Shareholders: During the fiscal year ended September 30, 2004, the Security Global Fund's strong performance was primarily driven by its holdings within the information technology and consumer discretionary sectors. For the period, the Fund returned 19.26%(1), outpacing the 17.10% returned by the MSCI World Index, the Fund's benchmark. Markets worldwide turned in strong performances during the fourth quarter of 2003, and stayed relatively robust into the first quarter of 2004. By spring, however, investor sentiment weakened as the background media noise focused on a worsening situation in Iraq, rising deficits in the US, and the threat of an oil-led rise in inflation. While these broader issues did not affect many of the portfolio's holdings directly, they did influence overall investor psychology. Consequently, any negative news regarding a specific industry or company was typically followed by a significant sell-off. Internationally, Japan continued to enjoy a remarkable turnaround. However, China's efforts to decelerate its overheated economy and its ability to carefully manage the slowdown raised concerns for investors. Another emerging concern is the recent spike in oil prices. Strong demand in China, coupled with tensions in the Middle East, drove oil from $35 a barrel to more than $50 a barrel by the end of September. In Europe, companies such as Siemens and Daimler Chrysler have had success in negotiating concessions from their labor unions. Given their success, there is reason for optimism that long-needed restructuring on the continent will finally gain some momentum. The new technology and mass affluence themes were the Fund's clear outperformers during this reporting period. Both Qualcomm and Ericsson are telecommunication equipment companies that have outperformed in a relatively weak market. Sirius, a subscription-based radio system that broadcasts digital-quality audio throughout the continental U.S. from orbiting satellites, was another great performer over this period. Fund detractors of the last 12 months included a Taiwanese semiconductor manufacturer that suffered during the industry's sell-off. Another drag on performance was a Japanese mobile phone carrier, whose stock was hit hard when operating margins got squeezed in the company's attempts to gain market share earlier in the year. Rather than wait out the stock's recovery, we recognized our miscalculation and sold the position. During this period we also began building several positions, including oil service companies Transocean, Inc. and Technip S.A., both of which should benefit from a rebound in oil exploration spurred by the hike in energy prices. Another acquisition, Toyota Motor Corporation, was a play within our mass affluence investment theme. We are not confined to a particular country or region nor are we compelled to replicate an index. Our mandate is to invest in well-managed companies with strong competitive positions and high product demand, wherever we may find them. Sincerely, William L. Wilby Co-Portfolio Manager Rajeev Bhaman Co-Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. Investment in international securities entail greater risks than investment in domestic securities. - -------------------------------------------------------------------------------- 34 Security Equity Fund Global Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Global Series vs. Morgan Stanley Capital International World Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Global Series $24,042 DATE VALUE ---- ----- 9/30/1994 9,425.00 12/31/1994 9,650.65 3/31/1995 9,528.49 6/30/1995 9,735.22 9/30/1995 10,280.24 12/31/1995 10,651.32 3/31/1996 11,333.47 6/30/1996 11,947.41 9/30/1996 12,103.33 12/31/1996 12,468.84 3/31/1997 12,769.30 6/30/1997 14,056.96 9/30/1997 14,550.56 12/31/1997 13,330.32 3/31/1998 15,370.20 6/30/1998 15,038.12 9/30/1998 13,318.47 12/31/1998 15,890.04 3/31/1999 16,184.30 6/30/1999 17,617.21 9/30/1999 17,898.68 12/31/1999 24,601.67 3/31/2000 27,894.92 6/30/2000 26,876.25 9/30/2000 26,318.07 12/31/2000 25,353.66 3/31/2001 21,711.99 6/30/2001 23,248.05 9/30/2001 19,054.08 12/31/2001 22,005.39 3/31/2002 22,316.06 6/30/2002 20,210.44 9/30/2002 16,378.91 12/31/2002 16,689.58 3/31/2003 15,291.59 6/30/2003 18,467.27 9/30/2003 20,158.66 12/31/2003 23,627.75 3/31/2004 24,594.26 6/30/2004 24,283.60 9/30/2004 24,041.97 MSCI World Index $20,118 DATE VALUE ---- ----- 9/30/1904 $10,000.00 12/31/1994 9,939.08 3/31/1995 10,417.85 6/30/1995 10,875.19 9/30/1995 11,495.96 12/31/1995 12,055.90 3/31/1996 12,561.40 6/30/1996 12,938.90 9/30/1996 13,125.85 12/31/1996 13,742.72 3/31/1997 13,797.30 6/30/1997 15,890.05 9/30/1997 16,360.92 12/31/1997 15,973.55 3/31/1998 18,277.59 6/30/1998 18,665.34 9/30/1998 16,444.02 12/31/1998 19,933.83 3/31/1999 20,661.51 6/30/1999 21,666.50 9/30/1999 21,362.04 12/31/1999 24,985.35 3/31/2000 25,256.80 6/30/2000 24,378.40 9/30/2000 23,171.27 12/31/2000 21,754.67 3/31/2001 18,975.02 6/30/2001 19,502.15 9/30/2001 16,712.24 12/31/2001 18,160.44 3/31/2002 18,237.62 6/30/2002 16,596.61 9/30/2002 13,558.72 12/31/2002 14,608.48 3/31/2003 13,886.05 6/30/2003 16,280.49 9/30/2003 17,083.38 12/31/2003 19,519.62 3/31/2004 20,113.52 6/30/2004 20,216.26 9/30/2004 20,118.37 $10,000 Over Ten Years This chart assumes a $10,000 investment in Class A shares of Global Series on September 30, 1994, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 16.44% - ------------------------------------------------------- Consumer Staples 9.77 - ------------------------------------------------------- Energy 7.19 - ------------------------------------------------------- Financials 18.12 - ------------------------------------------------------- Health Care 14.15 - ------------------------------------------------------- Industrials 4.99 - ------------------------------------------------------- Information Technology 15.95 - ------------------------------------------------------- Materials 1.48 - ------------------------------------------------------- Telecommunication Services 8.22 - ------------------------------------------------------- Utilities 0.90 - ------------------------------------------------------- Cash & other assets, less liabilities 2.79 - ------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 Since 1 Year 5 Years 10 Years Inception - -------------------------------------------------------------------------------- A Shares 19.26% 6.09% 9.16% N/A - -------------------------------------------------------------------------------- A Shares with sales charge 12.41% 4.84% 8.52% N/A - -------------------------------------------------------------------------------- B Shares 18.30% 5.66% 8.39% N/A - -------------------------------------------------------------------------------- B Shares with CDSC 14.30% 5.66% 8.39% N/A - -------------------------------------------------------------------------------- C Shares 18.35% 5.23% N/A 6.30% (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 18.35% 5.23% N/A 6.30% (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. - -------------------------------------------------------------------------------- See accompanying notes. 35 Security Equity Fund Global Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------- Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - ------------------------------------------------------------------------- Global Series - Class A Actual $1,000.00 $ 977.50 $ 8.75 Hypothetical 1,000.00 1,016.29 8.92 - ------------------------------------------------------------------------- Global Series - Class B Actual 1,000.00 972.90 12.40 Hypothetical 1,000.00 1,012.57 12.65 - ------------------------------------------------------------------------- Global Series - Class C Actual 1,000.00 973.50 12.40 Hypothetical 1,000.00 1,012.57 12.65 - ------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -2.25%, -2.71% and -2.65%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.76%, 2.50% and 2.50% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 36 Security Equity Fund Global Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Foreign Bond - 0.0% India - 0.0% Hindustan Lever, Ltd., 9.00% - 2005(1) 1,036,800 $ 1,379 ------------ Total foreign bond (cost $15,941) 1,379 ------------ Common Stocks - 95.9% Australia - 0.5% Australia & New Zealand Banking Group, Ltd. 41,181 567,349 Leighton Holdings Ltd. 10,302 71,488 ------------ 638,837 ------------ Bermuda - 0.7% Ace, Ltd. 24,540 983,072 ------------ 983,072 ------------ Brazil - 1.2% Companhia de Bebidas das Americas ADR 27,357 612,797 Empresa Brasileira de Aeronautica S.A. ADR 39,068 1,031,395 Tele Norte Leste Participacoes S.A. 3 40 ------------ 1,644,232 ------------ Canada - 2.1% Alcan, Inc. 687 32,842 EnCana Corporation 16,008 738,072 Husky Energy, Inc. 52,280 1,271,938 Manulife Financial Corporation 18,073 791,154 ------------ 2,834,006 ------------ Finland - 0.1% Stora Enso Oyj (Cl.R) 11,580 156,480 ------------ 156,480 ------------ France - 7.2% Alcatel S.A.* 51,860 606,099 Axa 7,000 141,625 Carrefour S.A. 9,040 425,192 Essilor International S.A. 8,630 554,680 France Telecom S.A. 44,165 1,100,350 JC Decaux S.A.* 23,850 542,077 Sanofi-Aventis 34,635 2,512,204 Societe Generale 14,210 1,257,478 Societe Television Francaise(1) 17,190 487,634 Technip S.A. 8,750 1,412,775 Total S.A. 2,825 575,419 ------------ 9,615,533 ------------ Germany - 2.9% Allianz AG 10,646 1,072,199 BASF AG 2,992 176,327 Deutsche Post AG 10,780 209,266 MLP AG 16,949 272,395 Muenchener Rueckversicherungs- Gesellschaft AG 800 77,064 SAP AG 8,549 1,328,294 Siemens AG 9,756 717,445 ------------ 3,852,990 ------------ Hong Kong - 2.8% HSBC Holdings plc 91,600 1,456,569 Hong Kong & China Gas Company, Ltd. 391,400 730,294 Hutchison Whampoa, Ltd. 71,082 556,037 Television Broadcasts, Ltd. 238,991 1,069,599 ------------ 3,812,499 ------------ India - 2.8% Gail India, Ltd. 14,490 60,102 Hindustan Lever, Ltd. 271,300 739,882 Icici Bank, Ltd. ADR 52,350 722,430 Infosys Technologies, Ltd. 35,532 1,309,432 Oil & Natural Gas Corporation, Ltd. 9,450 153,778 Zee Telefilms, Ltd. 229,600 758,928 ------------ 3,744,552 ------------ Ireland - 0.5% Anglo Irish Bank Corporation plc 38,300 707,821 ------------ 707,821 ------------ Israel - 0.3% Teva Pharmaceutical Industries, Ltd. ADR 17,140 444,783 ------------ 444,783 ------------ Italy - 0.4% Eni SpA 26,189 586,782 ------------ 586,782 ------------ Japan - 8.3% Canon, Inc. 10,000 469,991 Chugai Pharmaceutical Company, Ltd. 35,900 517,580 Credit Saison Company, Ltd.** 23,700 728,966 JGC Corporation 23,000 233,934 KDDI Corporation 433 2,101,846 Keyence Corporation 2,400 504,759 Murata Manufacturing Company, Ltd. 10,900 524,157 NEC Corporation 16,750 100,152 Nikon Corporation 61,114 575,569 Nippon Telegraph & Telephone Corporation 29 115,511 Resona Holdings, Inc.* 293,000 441,301 Seven-Eleven Japan Company, Ltd. 17,000 485,869 Sharp Corporation 41,000 563,952 Shionogi & Company, Ltd. 62,000 888,246 Shiseido Company, Ltd. 34,000 418,001 Sony Corporation 3,300 112,580 Toyota Motor Corporation 34,300 1,313,306 Trend Micro, Inc. 17,000 731,116 Yahoo Japan Corporation* 39 173,388 Yahoo Japan Corporation (Deferred Settlement)* 39 171,973 ------------ 11,172,197 ------------ Korea - 1.8% Hyundai Heavy Industries Company, Ltd. 17,369 467,598 SK Telecom Company, Ltd. 2,040 310,916 SK Telecom Company, Ltd. ADR 19,700 383,165 Samsung Electronics Company, Ltd. 3,165 1,258,854 ------------ 2,420,533 ------------ - -------------------------------------------------------------------------------- 37 Security Equity Fund Global Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Mexico - 1.7% Fomento Economico Mexicano, S.A. de C.V. 138,400 $ 610,526 Grupo Modelo, S.A. de C.V. (Cl.C) 191,700 465,695 Grupo Televisa S.A. ADR 20,664 1,089,613 Telefonos de Mexico S.A. de C.V. ADR 5,050 162,963 ------------ 2,328,797 ------------ Netherlands - 2.5% ABN Amro Holding N.V. 56,400 1,281,192 Aegon N.V. 81,987 883,866 ING Groep N.V. 7,442 187,817 Koninklijke (Royal) Philips Electronics N.V. 7,980 182,762 Unilever N.V. 3,256 187,316 Wolters Kluwer N.V. 36,028 606,319 ------------ 3,329,272 ------------ Norway - 0.5% Tandberg ASA 70,900 639,854 ------------ 639,854 ------------ Portugal - 0.2% Electricidade de Portugal S.A. 68,100 198,763 ------------ 198,763 ------------ Singapore - 0.6% Singapore Press Holdings, Ltd. 291,848 821,668 ------------ 821,668 ------------ Spain - 0.9% Amadeus Global Travel Distribution S.A. 71,572 566,245 Antena 3 de Television S.A.* 62 3,690 Endesa S.A. 6,580 125,282 Iberdrola S.A. 7,680 159,294 Telefonica S.A. 19,203 287,394 ------------ 1,141,905 ------------ Sweden - 4.2% Hennes & Mauritz AB (Cl.B) 98,500 2,712,735 Telefonaktiebolaget LM Ericsson (Cl.B)* 927,600 2,879,558 ------------ 5,592,293 ------------ Switzerland - 2.1% Nestle S.A. 882 202,012 Novartis AG 19,945 929,606 Roche Holding AG 15,604 1,612,009 Swiss Re 2,137 122,963 ------------ 2,866,590 ------------ Taiwan - 0.7% Taiwan Semiconductor Manufacturing Company, Ltd. ADR 138,387 988,083 ------------ 988,083 ------------ United Kingdom - 14.3% 3i Group plc** 45,534 458,946 AstraZeneca plc 13,190 540,609 BAE Systems plc 54,185 220,613 BP plc ADR 20,167 1,160,207 Boots Group plc 48,462 563,436 Cable & Wireless plc* 41,750 73,849 Cadbury Schweppes plc 164,540 1,264,664 Diageo plc 20,010 249,842 Dixons Group plc 446,693 1,380,194 Lloyds TSB Group plc 16,287 127,172 Pearson plc 97,400 1,041,638 Peninsular & Oriental Steam Navigation Company 29,370 139,244 Reckitt Benckiser plc 94,902 2,328,656 Reed Elsevier plc 73,355 644,450 Royal Bank of Scotland Group plc 92,019 2,657,545 Shell Transport & Trading Company plc 22,052 161,911 Smith & Nephew plc 88,400 812,618 Vodafone Group plc 2,059,090 4,936,981 WPP Group plc ADR 54,440 506,351 ------------ 19,268,926 ------------ United States - 36.6% Advanced Micro Devices, Inc.* 95,600 1,242,800 Affymetrix, Inc.* 20,700 635,697 Altera Corporation* 6,600 129,162 Amazon.com, Inc.* 13,800 563,868 American Express Company 20,900 1,075,514 Amgen, Inc.* 23,500 1,331,980 Applera Corporation - Applied Biosystems Group 24,200 456,654 BEA Systems, Inc.* 71,200 491,992 Berkshire Hathaway, Inc. (Cl.B)* 350 1,004,850 Boeing Company 14,000 722,680 Burlington Resources, Inc. 16,400 669,120 Cadence Design Systems, Inc.* 44,964 586,330 Charles Schwab Corporation 44,400 408,036 ChevronTexaco Corporation 23,166 1,242,624 Circuit City Stores, Inc. 63,371 972,111 Cisco Systems, Inc.* 46,000 832,600 Citigroup, Inc. 9,966 439,700 Coach, Inc.* 8,100 343,602 Commerce Bancorp, Inc. 4,400 242,880 Corning, Inc.* 62,500 692,500 Electronic Arts, Inc.* 3,828 176,050 Eli Lilly & Company 8,000 480,400 Everest Re Group, Ltd. 6,200 460,846 Express Scripts, Inc.* 8,200 535,788 Gap, Inc. 26,200 489,940 Genentech, Inc.* 12,900 676,218 Genzyme Corporation* 12,200 663,802 Gilead Sciences, Inc.* 35,000 1,308,300 Gillette Company 25,700 1,072,718 GlobalSantaFe Corporation 44,900 1,376,185 Human Genome Sciences, Inc.* 15,300 166,923 IMS Health, Inc. 26,400 631,488 International Business Machines Corporation 15,767 1,351,863 International Game Technology 28,500 1,024,575 J.P. Morgan Chase & Company 61,769 2,454,082 JDS Uniphase Corporation* 226,000 761,620 Juniper Networks, Inc.* 20,800 490,880 Lockheed Martin Corporation 11,700 652,626 MBNA Corporation 48,300 1,217,160 Millennium Pharmaceuticals, Inc.* 14,500 198,795 National Semiconductor Corporation* 52,000 805,480 Nektar Therapeutics* 3,000 43,440 - -------------------------------------------------------------------------------- See accompanying notes. 38 Security Equity Fund Global Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) United States (continued) Nektar Therapeutics*(2) 10,308 $ 119,412 Northern Trust Corporation 9,600 391,680 Northrop Grumman Corporation 12,400 661,292 Novell, Inc.* 94,400 595,664 Pfizer, Inc. 33,038 1,010,963 Qualcomm, Inc. 34,540 1,348,442 Quest Diagnostics, Inc. 13,700 1,208,614 RadioShack Corporation 15,700 449,648 Raytheon Company 29,000 1,101,420 Red Hat, Inc.* 20,000 244,800 Schering-Plough Corporation 38,600 735,716 Scientific Atlanta, Inc. 15,800 409,536 Silicon Laboratories, Inc.* 3,700 122,433 Sirius Satellite Radio, Inc.* 1,240,796 3,970,547 Starbucks Corporation* 16,800 763,728 Sun Microsystems, Inc.* 175,300 708,212 Symantec Corporation* 15,700 861,616 Transocean, Inc.* 45,600 1,631,568 Veritas Software Corporation* 15,600 277,680 Wachovia Corporation 29,908 1,404,181 ------------ 49,141,031 ------------ Total common stocks (cost $109,780,128) 128,931,499 ------------ Preferred Stocks - 1.3% Brazil - 0.7% Tele Norte Leste Participacoes S.A. 69,840 920,938 ------------ 920,938 ------------ Germany - 0.6% Porsche AG 1,175 763,488 ------------ 763,488 ------------ Total preferred stocks (cost $1,725,126) 1,684,426 ------------ Repurchase Agreement - 2.4% State Street, 0.50%, dated 9-30-04, matures 10-01-04; repurchase amount of $3,183,964 (Collateralized by FNMA, 1.875%, 02-15-05 with a value of $3,249,562) $3,183,963 3,183,963 ------------ Total repurchase agreement (cost $3,183,963) 3,183,963 ------------ Total investments - 99.6% (cost $114,705,158) 133,801,267 Cash & other assets, less liabilities - 0.4% 566,199 ------------ Total net assets - 100.0% $134,367,466 ============ Investment Concentration At September 30, 2004, Global Series' investment concentration by industry was as follows: Aerospace & Defense 0.2% Air Freight & Logistics 3.3% Automobiles 1.5% Beverages 2.4% Biotechnology 3.7% Capital Markets 0.9% Chemicals 0.3% Commercial Banks 2.0% Commercial Services & Supplies 0.4% Communications Equipment 6.1% Computers & Peripherals 1.5% Construction & Engineering 0.2% Consumer Finance 2.3% Diversified Financial Services 8.8% Diversified Telecommunications 4.0% Electric Utilities 0.4% Electronic Equipment & Instruments 0.8% Energy Equipment & Services 1.1% Food & Staples Retailing 1.1% Food Products 0.3% Gas Utilities 0.5% Health Care Equipment & Services 1.4% Health Care Providers & Services 1.8% Hotels, Restaurants & Leisure Products 1.8% Household Durables 2.6% Household Products 2.3% Industrial Conglomerates 0.5% Insurance 4.1% Internet & Catalog Retail 0.4% Internet Software & Services 1.2% IT Services 1.0% Leisure Equipment & Products 0.4% Machinery 0.3% Marine 0.1% Media 8.6% Oil & Gas 6.1% Paper & Forest Products 1.1% Personal Products 1.1% Pharmaceuticals 7.3% Semiconductors & Semiconductor Equipment 2.4% Software 3.0% Specialty Retail 1.1% Textiles, Apparel & Luxury Goods 2.6% Wireless Telecommunications 4.2% Repurchase agreement 2.4% Cash & other assets, less liabilities 0.4% ------------ 100.0% ============ For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $116,271,272. * Non-income producing security ** Passive Foreign Investment Company ADR (American Depositary Receipt) plc (public limited company) (1) Principal amount on foreign bond is reflected in local currency (e.g. Indian Rupee) while market value is reflected in U.S. dollars. (2) Security is restricted. The total market value of restricted securities is $119,412 (cost $117,000), or 0.0% of total net assets. The acquisition date was August 5, 2004. - -------------------------------------------------------------------------------- See accompanying notes. 39 Security Equity Fund Global Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ................................ $ 133,801,267 Cash ................................................... 161,514 Cash denominated in a foreign currency, at value(2) .......................................... 154,854 Receivables: Fund shares sold ..................................... 59,871 Securities sold ...................................... 563,845 Interest ............................................. 3,027 Dividends ............................................ 156,340 Foreign taxes recoverable ............................... 14,400 Prepaid expenses ........................................ 17,417 ------------- Total assets ............................................ 134,932,535 ------------- Liabilities: Payable for: Securities purchased ................................. 128,347 Fund shares redeemed ................................. 99,669 Management fees ...................................... 108,363 Transfer and administration fees ..................... 47,856 Professional fees .................................... 7,513 12b-1 distribution plan fees ......................... 162,534 Other ................................................ 10,787 ------------- Total liabilities ....................................... 565,069 ------------- Net Assets .............................................. $ 134,367,466 ============= Net assets consist of: Paid in capital ......................................... $ 133,885,738 Accumulated net investment loss ......................... (315,022) Accumulated undistributed net realized loss on sale of investments and foreign currency transactions .................... (18,303,047) Net unrealized appreciation in value of investments and translation of assets and liabilities in foreign currency .................. 19,099,797 ------------- Net assets .............................................. $ 134,367,466 ============= Class A: Capital shares outstanding .............................. 7,069,081 Net assets .............................................. $ 98,450,117 Net asset value and redemption price per share ............................................ $ 13.93 ============= Maximum offering price per share (net asset value divided by 94.25%) ..................... $ 14.78 ============= Class B: Capital shares outstanding .............................. 2,193,037 Net assets .............................................. $ 28,360,067 Net asset value, offering and redemption price per share (excluding applicable contingent deferred sales charge) .................... $ 12.93 ============= Class C: Capital shares outstanding .............................. 571,720 Net assets .............................................. $ 7,557,282 Net asset value, offering and redemption price per share (excluding applicable contingent deferred sales charge) .................... $ 13.22 ============= (1) Investments, at cost ................................ $ 114,705,158 (2) Cash denominated in a foreign currency, at cost ............................................. 150,746 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ............................................ $ 1,903,155 Interest ............................................. 19,313 ------------- 1,922,468 Less: Foreign tax expense ............................ (134,753) ------------- Total investment income .............................. 1,787,715 ------------- Expenses: Management fees ...................................... 1,134,113 Custodian fees ....................................... 82,133 Transfer agent/maintenance fees ...................... 251,505 Administration fees .................................. 174,941 Directors' fees ...................................... 3,504 Professional fees .................................... 38,568 Reports to shareholders .............................. 15,520 Registration fees .................................... 46,905 Other expenses ....................................... 4,213 12b-1 distribution plan fees - Class A ............... 203,110 12b-1 distribution plan fees - Class B ............... 243,589 12b-1 distribution plan fees - Class C ............... 78,082 ------------- Total expenses ....................................... 2,276,183 Less: Earnings credits ............................... (921) ------------- Net expenses ......................................... 2,275,262 ------------- Net investment loss .................................. (487,547) ------------- Net Realized and Unrealized Gain (Loss): Net realized gain (loss) during the period on Investments .......................................... 4,102,643 Foreign currency transactions ........................ (87,256) ------------- Net realized gain .................................. 4,015,387 ------------- Net change in unrealized appreciation (depreciation) during the period on Investments .......................................... 13,437,501 Translation of assets and liabilities denominated in foreign currencies .................... (3,102) ------------- Net unrealized appreciation .......................... 13,434,399 ------------- Net gain ............................................. 17,449,786 ------------- Net increase in net assets resulting from operations .......................... $ 16,962,239 ============= - -------------------------------------------------------------------------------- See accompanying notes. 40 Security Equity Fund Global Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations: Net investment loss ................................................................. $ (487,547) $ (219,964) Net realized gain (loss) during the period on investments and foreign currency transactions ................................................. 4,015,387 (8,868,831) Net change in unrealized appreciation during the period on investments and translation of assets and liabilities in foreign currencies ....... 13,434,399 22,337,055 ------------- ------------- Net increase in net assets resulting from operations ................................ 16,962,239 13,248,260 ------------- ------------- Capital share transactions: Proceeds from sale of shares Class A ........................................................................... 62,153,125 170,505,008 Class B ........................................................................... 13,008,655 2,446,819 Class C ........................................................................... 2,011,154 1,296,276 Issuance of shares in connection with international Series Merger (Note 8) Class A ........................................................................... 4,450,969 -- Class B ........................................................................... 2,248,383 -- Class C ........................................................................... 2,646,183 -- Cost of shares redeemed Class A ........................................................................... (22,537,310) (187,958,287) Class B ........................................................................... (7,327,595) (8,037,983) Class C ........................................................................... (3,745,740) (993,174) ------------- ------------- Net increase (decrease) from capital share transactions ............................. 52,907,824 (22,741,341) ------------- ------------- Net increase (decrease) in net assets ............................................... 69,870,063 (9,493,081) ------------- ------------- Net assets: Beginning of period ................................................................. 64,497,403 73,990,484 ------------- ------------- End of period ....................................................................... $ 134,367,466 $ 64,497,403 ============= ============= Accumulated net investment loss at end of period .................................... $ (315,022) $ (277,637) ============= ============= Capital Share Activity: Shares sold Class A ........................................................................... 4,739,362 17,102,956 Class B ........................................................................... 1,072,788 259,359 Class C ........................................................................... 162,899 135,732 Shares issued in connection with International Series merger Class A ........................................................................... 366,909 -- Class B ........................................................................... 198,022 -- Class C ........................................................................... 228,231 -- Shares redeemed Class A ........................................................................... (1,693,741) (18,807,897) Class B ........................................................................... (584,090) (891,673) Class C ........................................................................... (296,232) (104,715)
- -------------------------------------------------------------------------------- See accompanying notes. 41 Security Equity Fund Global Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004(h) 2003 2002(e),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 11.68 $ 9.49 $ 11.04 $ 18.86 $ 13.99 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.03) (0.03) (0.05) (0.08) (0.11) Net gain (loss) on securities (realized and unrealized) 2.28 2.22 (1.50) (4.33) 6.47 ----------------------------------------------------------------------- Total from investment operations 2.25 2.19 (1.55) (4.41) 6.36 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (3.41) (1.49) ----------------------------------------------------------------------- Total distributions -- -- -- (3.41) (1.49) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 13.93 $ 11.68 $ 9.49 $ 11.04 $ 18.86 ======================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 19.26% 23.08% (14.04%) (27.60%) 47.04% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 98,450 $ 42,711 $ 50,893 $ 48,089 $ 60,909 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.20%) (0.26%) (0.46%) (0.57%) (0.62%) Total expenses 1.79% 2.00% 1.85% 1.90% 1.92% Gross expenses(b) 1.79% 2.00% 1.85% 1.90% 1.92% Net expenses(d) 1.79% 2.00% 1.85% 1.90% 1.92% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 25% 62% 36% 38% 92% Year Ended September 30, Class B 2004(h) 2003 2002(e),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.93 $ 8.89 $ 10.38 $ 18.00 $ 13.45 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.13) (0.04) (0.10) (0.14) (0.17) Net gain (loss) on securities (realized and unrealized) 2.13 2.08 (1.39) (4.07) 6.21 ----------------------------------------------------------------------- Total from investment operations 2.00 2.04 (1.49) (4.21) 6.04 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (3.41) (1.49) ----------------------------------------------------------------------- Total distributions -- -- -- (3.41) (1.49) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.93 $ 10.93 $ 8.89 $ 10.38 $ 18.00 ======================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 18.30% 22.95% (14.35%) (27.86%) 46.53% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 28,360 $ 16,461 $ 19,021 $ 23,533 $ 30,951 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.00%) (0.42%) (0.89%) (1.07%) (0.96%) Total expenses 2.54% 2.18% 2.28% 2.39% 2.29% Gross expenses(b) 2.54% 2.18% 2.28% 2.39% 2.29% Net expenses(d) 2.54% 2.18% 2.28% 2.39% 2.29% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 25% 62% 36% 38% 92%
- -------------------------------------------------------------------------------- See accompanying notes. 42 Security Equity Fund Global Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004(h) 2003 2002(e),(f),(g) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 11.17 $ 9.14 $ 10.72 $ 18.55 $ 13.90 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.13) (0.09) (0.15) (0.21) (0.26) Net gain (loss) on securities (realized and unrealized) 2.18 2.12 (1.43) (4.21) 6.40 ------------------------------------------------------------------------ Total from investment operations 2.05 2.03 (1.58) (4.42) 6.14 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (3.41) (1.49) ------------------------------------------------------------------------ Total distributions -- -- -- (3.41) (1.49) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 13.22 $ 11.17 $ 9.14 $ 10.72 $ 18.55 ======================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 18.35% 22.21% (14.74%) (28.20%) 45.67% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 7,557 $ 5,326 $ 4,076 $ 3,569 $ 2,691 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.02%) (0.96%) (1.33%) (1.57%) (1.53%) Total expenses 2.54% 2.77% 2.74% 2.91% 2.92% Gross expenses(b) 2.54% 2.77% 2.74% 2.91% 2.92% Net expenses(d) 2.54% 2.77% 2.74% 2.91% 2.92% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 25% 62% 36% 38% 92%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) As required, effective October 1, 2001, the Funds adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premiums on fixed income securities. The effect of this change for the period ended September 30, 2002, was to increase net investment income per share by less than 1/2 of a cent, decrease net realized and unrealized gains and losses per share by less than 1/2 of a cent and increase the ratio of net investment income to average net assets from 0.06% to 0.07%. Per share, ratios and supplemental data for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. (f) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. (g) Effective May 1, 2002 the fee structure for Global Series changed. Per share information reflects this change. (h) The financial highlights for the Global Series exclude the historical financial highlights of the International Series Class A, B and C shares. The assets of the International Series were acquired by the Global Series on October 3, 2003. - -------------------------------------------------------------------------------- See accompanying notes. 43 Security Equity Fund Large Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] Mark Mitchell Portfolio Manager To Our Shareholders: Fiscal year 2004 was a normal year in many respects. Market returns were positive, but not as spectacular as in fiscal year 2003. The Large Cap Growth Series returned 4.27%(1) over the one-year period ended September 30, 2004, lagging the benchmark Russell 1000 Growth Index's return of 7.51% and the Fund's peer group median return of 6.92%. As in 2003, the market favored lower-quality, higher-beta stocks, and in that environment, the Fund tends to underperform. Although disappointing for this particular period, we believe that our approach delivers positive performance over the long term. Our approach to managing Security Large Cap Growth Fund is based on our investment philosophy described below. We understand a company's growth potential over the long-term based on our bottom-up fundamental investment process. We invest today based on future potential. We concentrate our investments in companies with sustainable competitive advantages when they are undervalued. Companies must demonstrate management ability by consistently adding shareholder value. They must have strong financial positions and be well positioned for growth. We are patient buyers and sellers focused on the long-term, and we take advantage of investor uncertainty and short-term thinking. For this Fund, we apply this philosophy to a broad range of growth companies. Industrials and Consumer Staples Stocks are Top Performers The Fund's industrial holdings were up 21% compared to 14% for the index. Positions in General Dynamics and Federal Express contributed positively to the Fund. General Dynamics benefited from a recovery in its aircraft business and strong defense spending. Federal Express had strong results driven by continued economic growth and business model efficiencies. The Fund's consumer staples holdings performed well, appreciating 9% compared to 6% for the index. Avon Products benefited from continued operational execution, and CVS was strong due to a continued turnaround and the belief in its ability to add shareholder value through the acquisition of Eckerd. Technology and Healthcare Disappointing Following an extremely strong year in 2003, technology stocks had a difficult time in 2004. Texas Instruments and Emulex had a negative impact on the Fund. Texas Instruments was down 17% as a result of an industry-wide slowdown and a corresponding inventory correction in semiconductors. Emulex experienced unexpected new competition that eroded part of its core business, thus reducing its future growth opportunities. Overall, healthcare as a sector underperformed the index. Cardinal Health and Amgen both had a negative impact on the fund. Cardinal was down more than 18% as a result of the industry undergoing a significant change in how pharmaceutical manufacturers price and distribute their products. Amgen was down more than 12% due to fears about reimbursement for some of their key products. 2005 Market Outlook Our outlook for the equity market continues to be guardedly optimistic. As in prior years, there are many potential positive and negative influences. We believe the most significant issue in 2005 will be a slowing profit cycle. In such an environment more normal equity returns are likely. Skilled stock picking versus owning the market index will be critical. This favors our focus on identifying good companies at attractive valuations. We continue to believe that investing is a long-term pursuit that requires patience and a consistent approach. Dollar cost averaging(2) is a sound way to build long-term value. We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us. Sincerely, Mark Mitchell Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. Fee waivers and/or reimbursements reduced Fund expenses and in the absence of such waivers, the performance quoted would be reduced. (2) Dollar cost averaging does not assure profits or protect against loss in a declining market. - -------------------------------------------------------------------------------- 44 Security Equity Fund Large Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Large Cap Growth Series vs. Russell 1000 Growth Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Large Cap Growth Series $5,523 DATE VALUE ---- ----- 5/1/2000 9,425.00 6/30/2000 9,641.85 9/30/2000 9,151.74 12/31/2000 7,558.91 3/31/2001 6,314.80 6/30/2001 6,767.20 9/30/2001 5,655.04 12/31/2001 6,380.77 3/31/2002 6,164.00 6/30/2002 5,023.56 9/30/2002 4,335.53 12/31/2002 4,646.56 3/31/2003 4,618.28 6/30/2003 5,221.49 9/30/2003 5,296.89 12/31/2003 5,739.87 3/31/2004 5,739.87 6/30/2004 5,824.69 9/30/2004 5,523.09 Russell 1000 Growth Index $5,513 DATE VALUE ---- ----- 5/1/2000 $10,000.00 6/30/2000 10,215.80 9/30/2000 9,665.85 12/31/2000 7,603.20 3/31/2001 6,014.12 6/30/2001 6,520.45 9/30/2001 5,254.83 12/31/2001 6,050.69 3/31/2002 5,894.05 6/30/2002 4,793.50 9/30/2002 4,072.29 12/31/2002 4,363.25 3/31/2003 4,316.46 6/30/2003 4,933.91 9/30/2003 5,127.23 12/31/2003 5,661.58 3/31/2004 5,705.90 6/30/2004 5,816.42 9/30/2004 5,512.78 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Large Cap Growth Series on May 1, 2000, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 16.38% - ------------------------------------------------------- Consumer Staples 10.97 - ------------------------------------------------------- Energy 1.20 - ------------------------------------------------------- Exchange Traded Funds 3.00 - ------------------------------------------------------- Financials 8.81 - ------------------------------------------------------- Health Care 23.64 - ------------------------------------------------------- Industrials 11.83 - ------------------------------------------------------- Information Technology 21.54 - ------------------------------------------------------- Cash & other assets, less liabilities 2.63 - ------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 1 Year Since Inception - -------------------------------------------------------------------------------- A Shares 4.27% (11.39%) (5-1-00) - -------------------------------------------------------------------------------- A Shares with sales charge (1.73%) (12.57%) (5-1-00) - -------------------------------------------------------------------------------- B Shares 3.67% (12.12%) (5-1-00) - -------------------------------------------------------------------------------- B Shares with CDSC (0.33%) (12.52%) (5-1-00) - -------------------------------------------------------------------------------- C Shares 3.47% (12.05%) (5-1-00) - -------------------------------------------------------------------------------- C Shares with CDSC 3.47% (12.05%) (5-1-00) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. - -------------------------------------------------------------------------------- See accompanying notes. 45 Security Equity Fund Large Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - ------------------------------------------------------------------------ Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - ------------------------------------------------------------------------ Large Cap Growth Series - Class A Actual $1,000.00 $ 962.20 $ 9.17 Hypothetical 1,000.00 1,015.79 9.42 - ------------------------------------------------------------------------ Large Cap Growth Series - Class B Actual 1,000.00 959.30 12.56 Hypothetical 1,000.00 1,012.32 12.90 - ------------------------------------------------------------------------ Large Cap Growth Series - Class C Actual 1,000.00 957.80 12.55 Hypothetical 1,000.00 1,012.32 12.90 - ------------------------------------------------------------------------ (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -3.78%, -4.07% and -4.22%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.86%, 2.55% and 2.55% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 46 Security Equity Fund Large Cap Growth Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks - 97.4% Aerospace & Defense - 4.3% General Dynamics Corporation 3,700 $ 377,770 United Technologies Corporation 4,300 401,534 ------------ 779,304 ------------ Air Freight & Logistics - 2.1% FedEx Corporation 4,500 385,605 ------------ 385,605 ------------ Airlines - 1.6% Southwest Airlines Company 20,700 281,934 ------------ 281,934 ------------ Biotechnology - 5.5% Amgen, Inc.* 14,400 816,192 Chiron Corporation* 4,100 181,220 ------------ 997,412 ------------ Brewers - 2.0% Anheuser-Busch Companies, Inc. 7,200 359,640 ------------ 359,640 ------------ Broadcasting & Cable TV - 1.6% Comcast Corporation* 10,200 288,048 ------------ 288,048 ------------ Communications Equipment - 3.5% ADC Telecommunications, Inc.* 112,500 203,625 Cisco Systems, Inc.* 23,400 423,540 ------------ 627,165 ------------ Computer Hardware - 2.9% Dell, Inc.* 14,700 523,320 ------------ 523,320 ------------ Consumer Finance - 1.5% MBNA Corporation 10,900 274,680 ------------ 274,680 ------------ Data Processing & Outsourced Services - 4.0% First Data Corporation 16,500 717,750 ------------ 717,750 ------------ Department Stores - 1.8% Kohl's Corporation* 6,750 325,283 ------------ 325,283 ------------ Drug Retail - 2.1% CVS Corporation 9,000 379,170 ------------ 379,170 ------------ Exchange Traded Funds - 3.0% iShares Russell 1000 Growth Index Fund 12,000 543,360 ------------ 543,360 ------------ General Merchandise Stores - 1.7% Target Corporation 6,600 298,650 ------------ 298,650 ------------ Health Care Equipment - 3.1% Boston Scientific Corporation* 14,200 564,166 ------------ 564,166 ------------ Home Improvement Retail - 4.5% Home Depot, Inc. 11,800 462,560 Lowe's Companies, Inc. 6,600 358,710 ------------ 821,270 ------------ Hotels, Resorts & Cruise Lines - 1.4% Carnival Corporation 5,500 260,095 ------------ 260,095 ------------ Hypermarkets & Supercenters - 3.8% Wal-Mart Stores, Inc. 12,500 665,000 ------------ 665,000 ------------ Industrial Conglomerates - 3.8% 3M Company 1,500 119,955 General Electric Company 17,100 574,218 ------------ 694,173 ------------ Internet Retail - 1.0% eBay, Inc.* 1,900 174,686 ------------ 174,686 ------------ Investment Banking & Brokerage - 1.1% Goldman Sachs Group, Inc. 2,200 205,128 ------------ 205,128 ------------ Managed Health Care - 2.0% UnitedHealth Group, Inc. 4,900 361,326 ------------ 361,326 ------------ Motorcycle Manufacturers - 1.1% Harley-Davidson, Inc. 3,200 190,208 ------------ 190,208 ------------ Movies & Entertainment - 3.4% Viacom, Inc. (Cl.B) 18,100 607,436 ------------ 607,436 ------------ Multi-Line Insurance - 3.7% American International Group, Inc. 9,900 673,101 ------------ 673,101 ------------ Oil & Gas Equipment & Services - 1.2% BJ Services Company 3,000 157,230 Halliburton Company 1,800 60,642 ------------ 217,872 ------------ Other Diversified Financial Services - 2.4% Citigroup, Inc. 10,000 441,200 ------------ 441,200 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 47 Security Equity Fund Large Cap Growth Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - ------------------------------------------------------------------------------- Common Stocks (continued) Pharmaceuticals - 13.0% Eli Lilly & Company 2,400 $ 144,120 Johnson & Johnson 10,600 597,098 Merck & Company, Inc. 4,100 135,300 Pfizer, Inc. 42,000 1,285,200 Wyeth 5,200 194,480 ------------ 2,356,198 ------------ Semiconductor Equipment - 0.5% Applied Materials, Inc.* 5,800 95,642 ------------ 95,642 ------------ Semiconductors - 2.9% Analog Devices, Inc. 1,400 54,292 Applied Micro Circuits Corporation* 14,500 45,385 Intel Corporation 20,800 417,248 ------------ 516,925 ------------ Soft Drinks - 3.2% Cott Corporation* 3,500 100,940 PepsiCo, Inc. 9,900 481,635 ------------ 582,575 ------------ Systems Software - 7.8% Microsoft Corporation 32,100 887,565 Oracle Corporation* 31,900 359,832 Veritas Software Corporation* 9,600 170,880 ------------ 1,418,277 ------------ Total common stocks (cost $17,188,460) 17,626,599 ------------ Repurchase Agreement - 6.5% State Street, 0.50%, dated 9-30-04, matures 10-01-04; repurchase amount of $1,172,650 (Collateralized by FHLB 1.875%, 02-15-05 with a value of $1,196,680) $ 1,172,634 1,172,634 ------------ Total repurchase agreement (cost $1,172,634) - 6.5% 1,172,634 ------------ Total investments (cost $18,361,094) - 103.9% 18,799,233 Liabilities, less cash & other assets - (3.9%) (696,898) ------------ Total net assets - 100.0% $ 18,102,335 ============ For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $18,643,515. * Non-income producing security - -------------------------------------------------------------------------------- See accompanying notes. 48 Security Equity Fund Large Cap Growth Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ................................ $ 18,799,233 Receivables: Fund shares sold ..................................... 6,085 Securities sold ...................................... 82,268 Dividends ............................................ 6,328 Prepaid expenses ........................................ 15,549 ------------ Total assets ............................................ 18,909,463 ------------ Liabilities: Cash overdraft .......................................... 17 Payable for: Securities purchased ................................. 673,058 Fund shares redeemed ................................. 20,568 Management fees ...................................... 11,164 Custodian fees ....................................... 506 Transfer and administration fees ..................... 19,608 Professional fees .................................... 7,325 12b-1 distribution plan fees ......................... 72,945 Other ................................................ 1,937 ------------ Total liabilities ....................................... 807,128 ------------ Net Assets .............................................. $ 18,102,335 ============ Net assets consist of: Paid in capital ......................................... $ 20,345,442 Accumulated undistributed net investment income ............................................... -- Accumulated undistributed net realized loss on sale of investments .......................... (2,681,246) Net unrealized appreciation in value of investments ....................................... 438,139 ------------ Net assets .............................................. $ 18,102,335 ============ Class A: Capital shares outstanding .............................. 1,955,034 Net assets .............................................. $ 11,455,236 Net asset value and redemption price per share ............................................ $ 5.86 ============ Maximum offering price per share (net asset value divided by 94.25%) .................. $ 6.22 ============ Class B: Capital shares outstanding .............................. 630,283 Net assets .............................................. $ 3,559,241 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) .................... $ 5.65 ============ Class C: Capital shares outstanding .............................. 544,307 Net assets .............................................. $ 3,087,858 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) .................... $ 5.67 ============ (1) Investments, at cost ................................ $ 18,361,094 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ............................................ $ 266,177 Interest ............................................. 2,122 ------------ Total investment income .............................. 268,299 ------------ Expenses: Management fees ...................................... 262,722 Custodian fees ....................................... 7,503 Transfer agent/maintenance fees ...................... 119,966 Administration fees .................................. 25,529 Directors' fees ...................................... 912 Professional fees .................................... 9,186 Reports to shareholders .............................. 2,818 Registration fees .................................... 28,110 Other expenses ....................................... 1,789 12b-1 distribution plan fees - Class A ............... 39,926 12b-1 distribution plan fees - Class B ............... 67,969 12b-1 distribution plan fees - Class C ............... 35,048 ------------ Total expenses ....................................... 601,478 Less: Expenses waived ................................ (43,011) Earnings credits ............................... (871) ------------ Net expenses ............................................ 557,596 ------------ Net investment loss ..................................... (289,297) ------------ Net Realized and Unrealized Gain (Loss): Net realized gain during the period on Investments .......................................... 1,338,820 ------------ Net realized gain .................................. 1,338,820 ------------ Net change in unrealized depreciation during the period on Investments .......................................... (146,746) ------------ Net unrealized depreciation .......................... (146,746) ------------ Net gain ............................................. 1,192,074 ------------ Net increase in net assets resulting from operations .......................... $ 902,777 ============ - -------------------------------------------------------------------------------- See accompanying notes. 49 Security Equity Fund Large Cap Growth Series Statement of Changes in Net Assets - -------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ......................................................... $ (289,297) $ (183,113) Net realized gain (loss) during the period on investments ................... 1,338,820 (2,266,684) Net change in unrealized appreciation (depreciation) during the period on investments .......................................... (146,746) 5,276,183 ------------ ------------ Net increase in net assets resulting from operations ........................ 902,777 2,826,386 ------------ ------------ Capital share transactions: Proceeds from sale of shares Class A ................................................................... 11,629,566 9,276,514 Class B ................................................................... 2,089,630 5,959,453 Class C ................................................................... 906,174 790,028 Cost of shares redeemed Class A ................................................................... (16,966,073) (4,326,342) Class B ................................................................... (5,250,568) (1,646,003) Class C ................................................................... (1,376,326) (451,972) ------------ ------------ Net increase (decrease) from capital share transactions ..................... (8,967,597) 9,601,678 ------------ ------------ Net increase (decrease) in net assets ....................................... (8,064,820) 12,428,064 ------------ ------------ Net assets: Beginning of period ......................................................... 26,167,155 13,739,091 ------------ ------------ End of period ............................................................... $ 18,102,335 $ 26,167,155 ============ ============ Accumulated net investment income at end of period .......................... $ -- $ -- ============ ============ Capital Share Activity: Shares sold Class A ................................................................... 1,956,772 1,662,989 Class B ................................................................... 358,069 1,088,511 Class C ................................................................... 153,643 152,477 Shares redeemed Class A ................................................................... (2,880,964) (793,945) Class B ................................................................... (930,168) (319,346) Class C ................................................................... (235,580) (89,726)
- -------------------------------------------------------------------------------- See accompanying notes. 50 Security Equity Fund LargeCap Growth Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002 2001 2000(d) - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.62 $ 4.60 $ 6.00 $ 9.71 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.05) (0.04) (0.05) (0.08) (0.05) Net gain (loss) on securities (realized and unrealized) 0.29 1.06 (1.35) (3.63) (0.24) ----------------------------------------------------------------------- Total from investment operations 0.24 1.02 (1.40) (3.71) (0.29) - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ----------------------------------------------------------------------- Total distributions -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.86 $ 5.62 $ 4.60 $ 6.00 $ 9.71 ======================================================================= - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 4.27% 22.17% (22.33%) (38.21%) (2.90%) - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 11,455 $ 16,179 $ 9,243 $ 2,436 $ 2,405 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.81%) (0.71%) (1.00%) (1.10%) (1.25%) Total expenses 1.84% 1.83% 1.99% 2.00% 1.92% Gross expenses(b) 2.00% 1.83% 1.99% 2.15% 1.92% Net expenses(e) 1.83% 1.83% 1.99% 1.99% 1.85% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 39% 12% 6% 5% Year Ended September 30, Class B 2004 2003 2002 2001 2000(d) - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.45 $ 4.50 $ 5.92 $ 9.65 $ 10.00 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.09) (0.07) (0.11) (0.14) (0.08) Net gain (loss) on securities (realized and unrealized) 0.29 1.02 (1.31) (3.59) (0.27) ----------------------------------------------------------------------- Total from investment operations 0.20 0.95 (1.42) (3.73) (0.35) - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ----------------------------------------------------------------------- Total distributions -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.65 $ 5.45 $ 4.50 $ 5.92 $ 9.65 ======================================================================= - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 3.67% 21.11% (23.99%) (38.65%) (3.50%) - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 3,559 $ 6,557 $ 1,949 $ 1,955 $ 2,039 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.55%) (1.49%) (1.88%) (1.85%) (2.02%) Total expenses 2.56% 2.59% 2.82% 2.75% 2.68% Gross expenses(b) 2.72% 2.59% 2.82% 2.92% 2.68% Net expenses(e) 2.56% 2.59% 2.82% 2.75% 2.61% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 39% 12% 6% 5%
- -------------------------------------------------------------------------------- See accompanying notes. 51 Security Equity Fund Large Cap Growth Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(f) 2001 2000(d) - ---------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.48 $ 4.52 $ 5.93 $ 9.65 $ 10.00 - ---------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.09) (0.07) (0.11) (0.13) (0.08) Net gain (loss) on securities (realized and unrealized) 0.28 1.03 (1.30) (3.59) (0.27) ----------------------------------------------------------------- Total from investment operations 0.19 0.96 (1.41) (3.72) (0.35) - ---------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ----------------------------------------------------------------- Total distributions -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.67 $ 5.48 $ 4.52 $ 5.93 $ 9.65 ================================================================= - ---------------------------------------------------------------------------------------------------------------------------- Total Return(a) 3.47% 21.24% (23.78%) (38.55%) (3.50%) - ---------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 3,088 $ 3,432 $ 2,547 $ 2,577 $ 2,102 - ---------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.58%) (1.44%) (1.88%) (1.85%) (2.00%) Total expenses 2.61% 2.58% 2.82% 2.75% 2.66% Gross expenses(b) 2.77% 2.58% 2.82% 2.92% 2.66% Net expenses(e) 2.61% 2.58% 2.82% 2.75% 2.60% - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 39% 12% 6% 5%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Security Large Cap Growth Series was initially capitalized on May 1, 2000, with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. (e) Net expense information reflects expense ratios after expense reductions or fee waivers and reduction to custodian expenses. (f) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. See accompanying notes. - -------------------------------------------------------------------------------- 52 Security Equity Fund Mid Cap Value Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] James P. Schier Senior Portfolio Manager To Our Shareholders: The year ended September 30, 2004 was another solid year for the Mid Cap Value Series. The Fund gained 25.59%(1) versus a gain of 23.43% for the S&P Mid Cap Value Index for the 12-month period ended September 30, 2004. Our strategy for the Mid Cap Value Series is to seek appreciable securities of companies that are able to grow and/or reinvest in increasingly profitable ventures and hold them over three to five years to capture the better part of the improvements in profitability. We are focused on investing in securities when we find opportunities, with our individual position sizes reflecting the magnitude and the confidence in the opportunity. For the Fund, we target securities generally priced at or below a market multiple that we believe are able to increase their return on capital over time. Materials, Energy, and Consumer Discretionary Stocks are Top Performers Stock selection in the materials sector advanced 58% with the Fund overweight the index in this sector. Potash, Phelps Dodge, Arch Coal and USEC each gained more than 60% as tightening supply conditions helped all of these companies. In May, we took advantage of the weakness in this sector, caused by fears of a slowing Chinese economy, to add to positions in Phelps Dodge and to initiate a position in Inco. Very tight supply conditions in copper and energy, combined with limited new supply should benefit these companies extremely well in a low positive growth environment. With a 15.7% weight in this sector, almost twice the benchmark, our energy names gained approximately 50%. Given oil's accelerating strength due to the hurricanes, political disruptions and strategic inventory building, we have reduced the Fund exposure to 11%. Besides materials and energy, the consumer discretionary holdings gained 39%. Coldwater Creek advanced 252% during the year as this apparel company's catalog continues to be well received by the market and the company adds a store base. Healthcare and Capital Goods Disappoint In healthcare, the Fund's holdings declined 23% in value with one stock accounting for the damage. Hollis-Eden Pharmaceuticals fell approximately 55% on profit taking after other companies announced new therapeutic agents targeting some of the company's areas of focus. Stock selection in capital goods was also sub par as the Fund's holdings in this sector gained only 11%. Quanta Services, a company that provides maintenance and infrastructure build-out services to the electric, phone and cable industries, declined 27%. Capstone Turbine declined 26% as the market has been slow to respond to the company's new micro turbine products. And finally, Stonepath, a freight logistics company, declined 64% on news that the company will be restating financials from prior years. We believe the weakness is temporary in nature for all three holdings. Muted Outlook for 2005 With 2004 being the second up year in the market, the equity market is not offering compelling opportunities and sectors lack dramatic mispricing. Our proprietary valuation work continues to suggest there are better opportunities in smaller capitalization names, however, the valuation discounts are less than they were five to seven years ago. Growth names appear to offer slightly better opportunity than value names, but equity valuations are not cheap. Profit margins are high, and there is little opportunity for expanding earnings growth. New issuances and secondary offerings have been abundant this past year, and it is discomforting to find corporations so eager to sell stock. >From a macro standpoint, we believe the economy will slow in 2005, as the benefits of stimulus from tax cuts and mortgage refinancing seem largely spent. At this point, the best catalyst for growth may be a significant drop in crude oil prices and a rebound in capital deployment by corporations. Although there are many exciting small and mid-cap companies to choose from, we believe investors should have exposure to this portion of the equity market. With low fixed income rates providing a significant prop to equity valuations, it is hard to believe that equities are priced to provide double-digit returns in the year ahead. Sincerely, James P. Schier Senior Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. - -------------------------------------------------------------------------------- 53 Security Equity Fund Mid Cap Value Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Mid Cap Value Series vs. Mid Cap Value Index [THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.] Mid Cap Value Series $34,743 DATE VALUE ---- ----- 5/1/1997 9,425.00 6/30/1997 10,386.43 9/30/1997 12,205.47 12/31/1997 12,202.23 3/31/1998 13,982.73 6/30/1998 13,915.00 9/30/1998 11,679.70 12/31/1998 14,172.13 3/31/1999 13,968.14 6/30/1999 16,872.51 9/30/1999 16,124.56 12/31/1999 17,264.18 3/31/2000 19,149.76 6/30/2000 18,997.70 9/30/2000 21,035.34 12/31/2000 21,872.71 3/31/2001 22,618.49 6/30/2001 24,688.89 9/30/2001 20,080.59 12/31/2001 24,342.16 3/31/2002 26,771.85 6/30/2002 24,635.98 9/30/2002 19,098.54 12/31/2002 20,725.87 3/31/2003 20,228.63 6/30/2003 25,732.17 9/30/2003 27,664.63 12/31/2003 31,468.20 3/31/2004 33,864.25 6/30/2004 34,754.22 9/30/2004 34,742.81 S&P Mid Cap Value Index $25,763 DATE VALUE ---- ----- 5/1/1997 $10,000.00 6/30/1997 10,925.23 9/30/1997 12,471.40 12/31/1997 13,146.38 3/31/1998 14,440.15 6/30/1998 13,842.25 9/30/1998 11,932.74 12/31/1998 13,761.77 3/31/1999 12,653.42 6/30/1999 14,543.13 9/30/1999 13,126.61 12/31/1999 14,081.67 3/31/2000 14,964.64 6/30/2000 14,567.38 9/30/2000 16,467.23 12/31/2000 18,001.12 3/31/2001 17,381.57 6/30/2001 19,360.83 9/30/2001 16,839.62 12/31/2001 19,286.99 3/31/2002 21,200.92 6/30/2002 19,956.18 9/30/2002 16,268.59 12/31/2002 17,337.54 3/31/2003 16,331.37 6/30/2003 19,462.62 9/30/2003 20,862.99 12/31/2003 24,305.58 3/31/2004 25,646.95 6/30/2004 25,966.12 9/30/2004 25,763.46 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Mid Cap Value Series on May 1, 1997, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - -------------------------------------------------------- Portfolio Composition by Sector Consumer Discretionary 2.19% - -------------------------------------------------------- Consumer Staples 5.90 - -------------------------------------------------------- Energy 11.14 - -------------------------------------------------------- Exchange Traded Funds 2.38 - -------------------------------------------------------- Financials 16.15 - -------------------------------------------------------- Health Care 6.04 - -------------------------------------------------------- Industrials 16.86 - -------------------------------------------------------- Information Technology 14.13 - -------------------------------------------------------- Materials 15.48 - -------------------------------------------------------- Pharmaceuticals 0.64 - -------------------------------------------------------- Telecommunication Services 0.83 - -------------------------------------------------------- Utilities 3.93 - -------------------------------------------------------- Cash & other assets, less liabilities 4.33 - -------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns Periods Ended 9-30-04 1 Year 5 Years Since Inception - -------------------------------------------------------------------------------- A Shares 25.59% 16.57% 19.21% (5-1-97) - -------------------------------------------------------------------------------- A Shares with sales charge 18.38% 15.20% 18.26% (5-1-97) - -------------------------------------------------------------------------------- B Shares 24.67% 15.54% 18.11% (5-1-97) - -------------------------------------------------------------------------------- B Shares with CDSC 20.67% 15.54% 18.11% (5-1-97) - -------------------------------------------------------------------------------- C Shares 24.70% 15.52% 16.14% (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 24.70% 15.52% 16.14% (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. - -------------------------------------------------------------------------------- See accompanying notes. 54 Security Equity Fund Mid Cap Value Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------- Fund Expenses Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------- Mid Cap Value Series - Class A Actual $1,000.00 $1,025.60 $ 7.38 Hypothetical 1,000.00 1,017.85 7.35 - -------------------------------------------------------------------------- Mid Cap Value Series - Class B Actual 1,000.00 1,021.60 11.13 Hypothetical 1,000.00 1,014.13 11.09 - -------------------------------------------------------------------------- Mid Cap Value Series - Class C Actual 1,000.00 1,022.00 11.13 Hypothetical 1,000.00 1,014.13 11.09 - -------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was 2.56%, 2.16% and 2.20%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.45%, 2.19% and 2.19% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 55 Security Equity Fund Mid Cap Value Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Convertible Bond - 0.6% Pharmaceuticals - 0.6% Ligand Pharmaceuticals, 6.00% - 2007(2) $ 1,250,000 $ 2,198,438 ------------ Total convertible bond (cost $1,250,000) 2,198,438 ------------ Preferred Stock - 0.1% Diversified Metals & Mining - 0.1% Arch Coal, Inc., 5.00% - 2049 4,600 411,700 ------------ Total preferred stock (cost $230,000) 411,700 ------------ Common Stocks 95.0% Aerospace & Defense - 1.3% Aviall, Inc.* 103,600 2,113,440 Curtiss-Wright Corporation 40,000 2,289,200 ------------ 4,402,640 ------------ Agricultural Products - 3.6% Archer-Daniels-Midland Company 420,000 7,131,600 Corn Products International, Inc. 116,000 5,347,600 ------------ 12,479,200 ------------ Air Freight & Logistics - 0.3% Airnet Systems, Inc.* 168,000 722,400 Stonepath Group, Inc.*(3),(4) 480,000 393,120 ------------ 1,115,520 ------------ Apparel Retail - 0.4% Children's Place Retail Stores, Inc.* 49,800 1,190,718 ------------ 1,190,718 ------------ Application Software - 0.4% Ulticom, Inc.* 97,000 1,432,690 ------------ 1,432,690 ------------ Biotechnology - 1.0% Millennium Pharmaceuticals, Inc.* 240,000 3,290,400 ------------ 3,290,400 ------------ Communications Equipment - 0.8% Avanex Corporation* 1,112,400 2,269,296 Ciena Corporation* 250,000 495,000 ------------ 2,764,296 ------------ Computer Storage & Peripherals - 0.7% Adaptec, Inc.* 312,600 2,375,760 ------------ 2,375,760 ------------ Construction & Engineering - 6.2% Dycom Industries, Inc.* 100,000 2,839,000 MasTec, Inc.* 452,900 2,377,725 Quanta Services, Inc.* 877,600 5,309,480 Shaw Group, Inc.* 895,000 10,740,000 ------------ 21,266,205 ------------ Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Data Processing & Outsourced Services - 3.0% Computer Sciences Corporation* 218,000 $ 10,267,800 ------------ 10,267,800 ------------ Diversified Commercial Services - 1.8% Angelica Corporation 6,100 151,768 FTI Consulting, Inc.* 320,000 6,048,000 ------------ 6,199,768 ------------ Diversified Metals & Mining - 10.3% Arch Coal, Inc. 185,100 6,569,199 Consol Energy, Inc. 54,300 1,894,527 Inco, Ltd.* 360,000 14,058,000 Phelps Dodge Corporation*(1) 75,000 6,902,250 Usec, Inc. 580,000 6,014,600 ------------ 35,438,576 ------------ Electric Utilites - 3.9% Cinergy Corporation 85,000 3,366,000 KFx Inc.* 1,320,000 10,177,200 ------------ 13,543,200 ------------ Electrical Components & Equipment - 1.7% Electric City Corporation* 1,518,000 2,094,840 Power-One, Inc.* 150,000 972,000 Preformed Line Products Company 1,900 57,342 Thomas & Betts Corporation* 100,000 2,682,000 ------------ 5,806,182 ------------ Electronic Equipment Manufacturers - 3.1% Maxwell Technologies, Inc.* 392,500 4,046,675 Merix Corporation* 453,000 4,693,080 Powell Industries, Inc.* 105,300 1,774,305 ------------ 10,514,060 ------------ Environmental Services - 1.2% Republic Services, Inc. 59,000 1,755,840 TRC Companies, Inc.* 120,000 2,252,400 ------------ 4,008,240 ------------ Exchange Traded Funds - 2.4% iShares Russell 2000 Value Index Fund 19,000 3,250,900 iShares S&P MidCap 400/Barra Value Index Fund 43,000 4,956,610 ------------ 8,207,510 ------------ Fertilizers & Agricultural Chemicals - 1.7% Potash Corporation of Saskatchewan, Inc. 90,000 5,775,300 ------------ 5,775,300 ------------ Footwear - 0.8% Brown Shoe Company, Inc. 115,000 2,881,900 ------------ 2,881,900 ------------ Health Care Facilities - 2.1% Community Health Systems, Inc.* 130,000 3,468,400 Triad Hospitals, Inc.* 112,000 3,857,280 ------------ 7,325,680 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 56 Security Equity Fund Mid Cap Value Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Health Care Services - 1.7% Hooper Holmes, Inc. 1,076,900 $ 4,824,512 NDCHealth Corporation 62,600 1,004,730 ------------ 5,829,242 ------------ Home Furnishings - 0.4% Mohawk Industries, Inc.* 18,000 1,429,020 ------------ 1,429,020 ------------ Industrial Conglomerates - 0.9% Alleghany Corporation* 11,526 3,145,445 ------------ 3,145,445 ------------ Industrial Machinery - 1.4% Capstone Turbine Corporation* 1,350,000 2,065,500 Quixote Corporation 123,300 2,377,224 Valmont Industries, Inc. 12,900 269,223 ------------ 4,711,947 ------------ Insurance Brokers - 2.3% AON Corporation(1) 232,000 6,667,680 Hub International, Ltd. 64,000 1,157,120 ------------ 7,824,800 ------------ Integrated Oil & Gas - 2.9% Murphy Oil Corporation 116,000 10,065,320 ------------ 10,065,320 ------------ Internet Software & Services - 0.5% Global Crossing, Ltd.* 101,900 1,683,388 S1 Corporation* 11,550 92,169 ------------ 1,775,557 ------------ Investment Banking & Brokerage - 1.0% American Capital Strategies, Ltd. 106,600 3,340,844 ------------ 3,340,844 ------------ IT Consulting & Other Services - 2.1% Acxiom Corporation(1) 225,000 5,341,500 Keane, Inc.* 125,000 1,920,000 ------------ 7,261,500 ------------ Marine - 0.8% Frontline, Ltd. 53,000 2,501,070 Ship Finance International, Ltd. 18,550 372,855 ------------ 2,873,925 ------------ Multi-Line Insurance - 1.4% American Financial Group, Inc. 155,000 4,632,950 ------------ 4,632,950 ------------ Oil & Gas Drilling - 0.7% Nabors Industries, Ltd.* 53,000 2,509,550 ------------ 2,509,550 ------------ Oil & Gas Equipment & Services - 1.4% Key Energy Services, Inc.* 438,000 4,839,900 ------------ 4,839,900 ------------ Oil & Gas Exploration & Production - 3.9% Denbury Resources, Inc.* 264,600 6,720,840 Pioneer Natural Resources Company 188,870 6,490,373 ------------ 13,211,213 ------------ Oil & Gas Refining, Marketing & Transportation - 2.2% Williams Companies, Inc. 630,000 7,623,000 ------------ 7,623,000 ------------ Other Diversified Financial Services - 1.7% Principal Financial Group, Inc. 160,000 5,755,200 ------------ 5,755,200 ------------ Packaged Foods & Meats - 2.3% Hain Celestial Group, Inc.* 110,000 1,944,800 Hormel Foods Corporation 220,000 5,891,600 ------------ 7,836,400 ------------ Paper Packaging - 2.0% Bemis Company, Inc. 116,000 3,083,280 Sonoco Products Company 145,000 3,833,800 ------------ 6,917,080 ------------ Pharmaceuticals - 1.3% Hollis-Eden Pharmaceuticals, Inc.* 192,403 2,072,180 Ligand Pharmaceuticals, Inc. (Cl.B)* 226,800 2,272,536 ------------ 4,344,716 ------------ Property & Casualty Insurance - 4.3% First American Corporation 238,500 7,352,955 W.R. Berkley Corporation 180,000 7,588,800 ------------ 14,941,755 ------------ Real Estate Investment Trusts - 2.9% Bimini Mortgage Management, Inc.* 125,000 1,970,000 HomeBanc Corporation* 434,400 3,909,600 MortgageIt Holdings, Inc.* 291,800 4,216,510 ------------ 10,096,110 ------------ Regional Banks - 2.6% Corus Bankshares, Inc. 13,600 586,568 Iberiabank Corporation 20,100 1,160,172 Mercantile Bankshares Corporation 67,000 3,213,320 Wilmington Trust Corporation 48,200 1,745,322 Zions Bancorporation 38,000 2,319,520 ------------ 9,024,902 ------------ Semiconductor Equipment - 1.5% Ultratech, Inc.* 331,000 5,186,770 ------------ 5,186,770 ------------ Semiconductors - 2.1% Applied Micro Circuits Corporation* 760,000 2,378,800 IXYS Corporation* 435,100 3,124,018 MIPS Technologies, Inc.* 6,300 35,910 Stats Chippac, Ltd. ADR* 261,000 1,560,780 ------------ 7,099,508 ------------ - -------------------------------------------------------------------------------- See accompanying notes. 57 Security Equity Fund Mid Cap Value Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Specialty Chemicals - 1.4% H.B. Fuller Company 100,000 $ 2,740,000 Material Sciences Corporation* 85,700 1,156,093 Minerals Technologies, Inc. 15,000 882,900 ------------ 4,778,993 ------------ Specialty Stores - 0.5% Linens 'n Things, Inc.* 81,600 1,890,672 ------------ 1,890,672 ------------ Tires & Rubber - 0.0% Bandag, Inc. 3,400 148,920 ------------ 148,920 ------------ Trucking - 1.3% SCS Transportation, Inc.* 11,000 208,340 Werner Enterprises, Inc. 225,000 4,344,750 ------------ 4,553,090 ------------ Wireless Telecommunication Services - 0.8% Wireless Facilities, Inc.* 411,400 2,867,458 ------------ 2,867,458 ------------ Total common stocks (cost $261,084,863) 326,801,432 ------------ Warrants - 0.0% Electric City Corporation 442,750 130,620 ------------ Total warrants (cost $414,564) 130,620 ------------ U.S. Government Sponsored Agencies - 4.1% Federal Home Loan Bank, 1.74%, 10-22-04 $ 2,000,000 1,997,970 Federal Home Loan Mortgage Corporation, 1.735%, 10-20-04 $ 1,600,000 1,598,535 Federal National Mortgage Association: 1.67%, 10-05-04 $ 2,000,000 1,999,629 1.72%, 10-07-04 $ 3,398,000 3,397,026 1.73%, 10-08-04 $ 1,692,000 1,691,431 1.72%, 10-12-04 $ 1,426,000 1,425,250 1.73%, 10-13-04 $ 1,993,000 1,991,851 ------------ 10,505,187 ------------ Total U.S. Government sponsored agencies (cost $14,101,692) 14,101,692 ------------ Principal Market Amount or Value - -------------------------------------------------------------------------------- Repurchase Agreement - 0.2% United Missouri Bank, 1.35%, dated 9-30-04, matures 10-01-04; repurchase amount of $528,020 (Collateralized by US Treasury Note, 10-31-04 with a value of $544,000) $ 538,000 $ 538,000 ------------ Total repurchase agreement (cost $538,000) 538,000 ------------ Total investments (cost $277,619,119) - 100.0% 344,181,882 Cash & other assets, less liabilities - 0.0% 259,726 ------------ Total net assets - 100.0% $344,441,608 ============ For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $277,853,097. * Non-income producing security ADR (American Depositary Receipt) (1) Security is segregated as collateral for written option contracts. (2) Security is a 144A Series. The total market value of 144A securities is $2,198,438 (cost $1,250,000), or 0.6% of total net assets. (3) Security is a restricted security. The total market value of restricted securities is $393,120 (cost $648,000), or 0.1% of total net assets. The acquisition date was February 25, 2003. (4) Security is fair valued by the Board of Directors. The total market value of the fair valued securities is $393,120 (cost $648,000), or 0.1% of total net asets. - -------------------------------------------------------------------------------- See accompanying notes. 58 Security Equity Fund Mid Cap Value Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ............................... $ 344,181,882 Cash ................................................... 6,144 Receivables: Fund shares sold .................................... 775,897 Securities sold ..................................... 3,114,220 Interest ............................................ 28,125 Dividends ........................................... 207,010 Prepaid expenses ....................................... 28,514 ------------- Total assets ........................................... 348,341,792 ------------- Liabilities: Payable for: Securities purchased ................................ 2,356,409 Fund shares redeemed ................................ 323,490 Written options, at value ........................... 659,350 Management fees ..................................... 247,004 Custodian fees ...................................... 3,200 Transfer and administration fees .................... 66,064 Professional fees ................................... 23,760 12b-1 distribution plan fees ........................ 193,390 Other ............................................... 27,517 ------------- Total liabilities ...................................... 3,900,184 ------------- Net Assets ............................................. $ 344,441,608 ============= Net assets consist of: Paid in capital ........................................ $ 250,254,292 Accumulated undistributed net investment income .............................................. -- Accumulated undistributed net realized gain on sale of investments and options ......................................... 27,920,496 Net unrealized appreciation in value of investments and options .................... 66,266,820 ------------- Net assets ............................................. $ 344,441,608 ============= Class A: Capital shares outstanding ............................. 7,083,432 Net assets ............................................. $ 215,658,374 Net asset value and redemption price per share ........................................... $ 30.45 ============= Maximum offering price per share (net asset value divided by 94.25%) ................. $ 32.31 ============= Class B: Capital shares outstanding ............................. 2,631,592 Net assets ............................................. $ 74,650,296 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ................... $ 28.37 ============= Class C: Capital shares outstanding ............................. 1,876,655 Net assets ............................................. $ 54,132,938 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ................... $ 28.85 ============= (1) Investments, at cost ............................... $ 277,619,119 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ........................................... $ 3,165,062 Interest ............................................ 341,154 ------------- Total investment income ............................. 3,506,216 ------------- Expenses: Management fees ..................................... 2,785,747 Custodian fees ...................................... 16,337 Transfer agent/maintenance fees ..................... 491,278 Administration fees ................................. 269,513 Directors' fees ..................................... 9,704 Professional fees ................................... 34,086 Reports to shareholders ............................. 33,188 Registration fees ................................... 49,150 Other expenses ...................................... 8,317 12b-1 distribution plan fees - Class A .............. 462,233 12b-1 distribution plan fees - Class B .............. 686,953 12b-1 distribution plan fees - Class C .............. 458,708 ------------- Total expenses ...................................... 5,305,214 Less: Earnings credits ................................ (973) ------------- Net expenses ....................................... 5,304,241 ------------- Net investment loss ................................ (1,798,025) ------------- Net Realized and Unrealized Gain (Loss): Net realized gain during the period on Investments ......................................... 28,591,187 Options written ..................................... 1,345,369 ------------- Net realized gain ................................. 29,936,556 ------------- Net change in unrealized appreciation (depreciation) during the period on Investments ......................................... 29,761,033 Options written ..................................... (399,771) ------------- Net unrealized appreciation ......................... 29,361,262 ------------- Net gain ............................................ 59,297,818 ------------- Net increase in net assets resulting from operations ....................... $ 57,499,793 ============= - -------------------------------------------------------------------------------- See accompanying notes. 59 Security Equity Fund Mid Cap Value Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations: Net investment loss ............................................................. $ (1,798,025) $ (994,030) Net realized gain during the period on investments and options written .......... 29,936,556 2,854,877 Net change in unrealized appreciation during the period on investments and options written ............................................... 29,361,262 53,000,947 ------------- ------------- Net increase in net assets resulting from operations ............................ 57,499,793 54,861,794 ------------- ------------- Distributions to shareholders from: Net realized gain Class A ....................................................................... (1,473,564) -- Class B ....................................................................... (633,167) -- Class C ....................................................................... (407,446) -- ------------- ------------- Total distributions to shareholders ........................................... (2,514,177) -- ------------- ------------- Capital share transactions: Proceeds from sale of shares Class A ....................................................................... 132,501,639 65,771,619 Class B ....................................................................... 19,430,639 14,474,911 Class C ....................................................................... 21,596,162 10,825,157 Distributions reinvested Class A ....................................................................... 1,356,918 -- Class B ....................................................................... 610,765 -- Class C ....................................................................... 381,240 -- Cost of shares redeemed Class A ....................................................................... (65,062,200) (51,319,933) Class B ....................................................................... (12,576,287) (13,136,730) Class C ....................................................................... (9,550,640) (5,174,008) ------------- ------------- Net increase from capital share transactions .................................. 88,688,236 21,441,016 ------------- ------------- Net increase in net assets .................................................... 143,673,852 76,302,810 Net assets: Beginning of period ............................................................. 200,767,756 124,464,946 ------------- ------------- End of period ................................................................... $ 344,441,608 $ 200,767,756 ============= ============= Accumulated undistributed net investment income (loss) at end of period ......... $ -- $ 146,960 ============= ============= Capital Share Activity: Shares sold Class A ....................................................................... 4,668,091 3,192,088 Class B ....................................................................... 736,445 756,268 Class C ....................................................................... 801,556 540,730 Shares reinvested Class A ....................................................................... 50,089 -- Class B ....................................................................... 24,065 -- Class C ....................................................................... 14,771 -- Shares redeemed Class A ....................................................................... (2,285,236) (2,597,504) Class B ....................................................................... (475,742) (731,230) Class C ....................................................................... (351,589) (284,240)
- -------------------------------------------------------------------------------- See accompanying notes. 60 Security Equity Fund Mid Cap Value Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended, September 30, Class A 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 24.48 $ 16.90 $ 18.04 $ 20.75 $ 16.60 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.09) (0.07) (0.04) -- (0.04) Net gain (loss) on securities (realized and unrealized) 6.32 7.65 (0.78) (0.90) 4.89 ----------------------------------------------------------------------- Total from investment operations 6.23 7.58 (0.82) (0.90) 4.85 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70) Return of capital -- -- (0.11) -- -- ----------------------------------------------------------------------- Total distributions (0.26) -- (0.32) (1.81) (0.70) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 30.45 $ 24.48 $ 16.90 $ 18.04 $ 20.75 ======================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 25.59% 44.85% (4.89%) (4.54%) 30.46% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 215,659 $ 113,822 $ 68,544 $ 50,541 $ 34,458 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.31%) (0.33%) (0.20%) 0.01% (0.25%) Total expenses 1.48% 1.65% 1.45% 1.30% 1.29% Gross expenses(b) 1.48% 1.65% 1.45% 1.30% 1.29% Net expenses(d) 1.48% 1.65% 1.45% 1.30% 1.29% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 45% 52% 51% 55% 69% Year Ended, September 30, Class B 2004 2003 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 22.99 $ 15.99 $ 17.26 $ 20.11 $ 16.26 - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.28) (0.20) (0.21) (0.19) (0.22) Net gain (loss) on securities (realized and unrealized) 5.92 7.20 (0.74) (0.85) 4.77 ----------------------------------------------------------------------- Total from investment operations 5.64 7.00 (0.95) (1.04) 4.55 - ---------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70) Return of capital -- -- (0.11) -- _ ----------------------------------------------------------------------- Total distributions (0.26) -- (0.32) (1.81) (0.70) - ---------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 28.37 $ 22.99 $ 15.99 $ 17.26 $ 20.11 ======================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 24.67% 43.78% (5.88%) (5.45%) 29.21% - ---------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 74,650 $ 53,947 $ 37,136 $ 26,967 $ 14,041 - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.07%) (1.08%) (1.09%) (0.98%) (1.27%) Total expenses 2.23% 2.40% 2.34% 2.30% 2.32% Gross expenses(b) 2.23% 2.40% 2.34% 2.30% 2.32% Net expenses(d) 2.23% 2.40% 2.34% 2.30% 2.32% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 45% 52% 51% 55% 69%
- -------------------------------------------------------------------------------- See accompanying notes. 61 Security Equity Fund Mid Cap Value Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended, September 30, Class C 2004 2003 2002(e) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ Per Share Data Net asset value, beginning of period $ 23.37 $ 16.26 $ 17.53 $ 20.39 $ 16.51 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income (loss)(c) (0.29) (0.21) (0.21) (0.19) (0.22) Net gain (loss) on securities (realized and unrealized) 6.03 7.32 (0.74) (0.86) 4.80 ------------------------------------------------------------------- Total from investment operations 5.74 7.11 (0.95) (1.05) 4.58 - ------------------------------------------------------------------------------------------------------------------------------ Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70) Return of capital -- -- (0.11) -- _ ------------------------------------------------------------------- Total distributions (0.26) -- (0.32) (1.81) (0.70) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 28.85 $ 23.37 $ 16.26 $ 17.53 $ 20.39 =================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Total Return(a) 24.70% 43.73% (5.79%) (5.42%) 28.93% - ------------------------------------------------------------------------------------------------------------------------------ Ratios/Supplemental Data Net assets, end of period (in thousands) $ 54,133 $ 32,999 $ 18,785 $ 6,976 $ 3,069 - ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net investment income (loss) (1.06%) (1.08%) (1.06%) (0.98%) (1.28%) Total expenses 2.23% 2.40% 2.35% 2.30% 2.36% Gross expenses(b) 2.23% 2.40% 2.35% 2.30% 2.36% Net expenses(d) 2.23% 2.40% 2.35% 2.30% 2.36% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate 45% 52% 51% 55% 69%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. - -------------------------------------------------------------------------------- See accompanying notes. 62 Security Equity Fund Select 25(R) Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] Mark Mitchell Portfolio Manager To Our Shareholders: With the retirement of Terry Milberger in February 2004, this marks my first annual letter to the Select 25 Series shareholders. Fiscal year 2004 was a normal year in many respects; market returns were positive, but not as spectacular as in fiscal year 2003. Select 25 Series returned 7.43%(1) for the period ended September 30, 2004, lagging the benchmark S&P 500 Index's return of 13.87%, but outperforming the Fund's peer group median return of 6.92%. As in 2003, the market favored lower- quality, higher-beta stocks, and in that environment, the Fund tends to underperform. Although disappointing for this particular period, we believe that our investing approach delivers positive performance over the long term. Our approach to managing Select 25 Series is based on our investment philosophy described below. We understand a company's growth potential over the long term based on our bottom-up fundamental investment process. We invest today based on future potential. We concentrate our investments in companies with sustainable competitive advantages when they are undervalued. Companies must demonstrate management ability by consistently adding shareholder value. They must have strong financial positions and be well positioned for growth. We are patient buyers and sellers focused on the long term, and we take advantage of investor uncertainty and short-term thinking. This philosophy is applied to a broad range of growth companies. Each of our research analysts recommends his or her favorite stocks based on this analysis. We then narrow the list to our select 25-30 names that are included in the portfolio. Industrials and Energy Stocks are Top Performers The Fund's industrial holdings were up 35% compared to 23% for the index. Positions in Federal Express and L-3 Communications contributed positively to the Fund. Federal Express had strong results driven by continued economic growth and business model efficiencies. L-3 Communications benefited from strong defense-related spending as a result of military action in multiple global theatres. The Fund's energy holdings performed well, appreciating nearly 54% compared to 45% for the index. BJ Services was our best performing energy stock, appreciating over 53%. The energy sector benefited significantly from the increase in the price of crude oil. Technology and Healthcare Disappointing Following an extremely strong year in 2003, technology stocks had a difficult time in 2004. Adverse stock selection in ADC Telecom and Mindspeed Technologies had a negative impact on the Fund. ADC Telecom was down 48% as a result of a slower broadband build-out than was expected, while Mindspeed's earnings breakeven was pushed out as the expected upcoming wave of telecomm-related spending has yet to materialize. Overall, healthcare as a sector underperformed the index. Cardinal Health and Amgen both had a negative impact on the fund. Cardinal was down more than 18% as a result of undergoing a substantial industry change in how pharmaceutical manufacturers distribute and price their products. Amgen was down over 12% due to fears about reimbursement for some of its key products. 2005 Market Outlook Our outlook for the equity market continues to be guardedly optimistic. As in prior years, there are many potential positive and negative influences. We believe the most significant issue in 2005 will be a slowing profit cycle. In such an environment, more normal equity returns are likely. Skilled stock picking versus owning the market index will be critical. This favors our focus on identifying good companies at attractive valuations. We continue to believe that investing is a long-term pursuit that requires patience and a consistent approach. Dollar cost averaging is a sound way to build long-term value.(2) We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us. Sincerely, Mark Mitchell Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. (2) Dollar cost averaging does not assure profits or protect against loss in a declining market. - -------------------------------------------------------------------------------- 63 Security Equity Fund Select 25(R) Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Select 25(R) Series vs. S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] Select 25(R) Series $7,361 DATE VALUE ---- ----- 1/29/1999 9,425.00 3/31/1999 9,802.07 6/30/1999 9,915.17 9/30/1999 9,924.60 12/31/1999 11,734.21 3/31/2000 11,573.99 6/30/2000 11,065.03 9/30/2000 10,688.03 12/31/2000 9,660.70 3/31/2001 8,228.09 6/30/2001 8,793.59 9/30/2001 7,144.20 12/31/2001 8,605.09 3/31/2002 8,539.11 6/30/2002 7,002.83 9/30/2002 6,145.15 12/31/2002 6,343.07 3/31/2003 6,173.42 6/30/2003 6,776.63 9/30/2003 6,852.03 12/31/2003 7,417.53 3/31/2004 7,719.13 6/30/2004 7,775.68 9/30/2004 7,360.98 S&P 500 Index $9,474 DATE VALUE ---- ----- 1/29/1999 $10,000.00 3/31/1999 10,075.52 6/30/1999 10,785.58 9/30/1999 10,111.95 12/31/1999 11,616.46 3/31/2000 11,883.45 6/30/2000 11,568.33 9/30/2000 11,456.43 12/31/2000 10,560.83 3/31/2001 9,309.30 6/30/2001 9,854.43 9/30/2001 8,408.85 12/31/2001 9,307.93 3/31/2002 9,333.23 6/30/2002 8,083.12 9/30/2002 6,687.10 12/31/2002 7,251.86 3/31/2003 7,023.47 6/30/2003 8,104.60 9/30/2003 8,319.10 12/31/2003 9,332.84 3/31/2004 9,491.17 6/30/2004 9,654.81 9/30/2004 9,473.80 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Select 25(R) Series on January 29, 1999, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ----------------------------------------------------- Portfolio Composition by Sector - ----------------------------------------------------- Consumer Discretionary 18.75% - ----------------------------------------------------- Consumer Staples 12.14 - ----------------------------------------------------- Energy 10.03 - ----------------------------------------------------- Financials 8.43 - ----------------------------------------------------- Health Care 14.45 - ----------------------------------------------------- Industrials 13.50 - ----------------------------------------------------- Information Technology 11.80 - ----------------------------------------------------- Materials 3.81 - ----------------------------------------------------- Utilities 3.59 - ----------------------------------------------------- Cash & other assets, less liabilities 3.50 - ----------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns - -------------------------------------------------------------------------------- Periods Ended 9-30-04 1 Year 5 Years Since Inception - -------------------------------------------------------------------------------- A Shares 7.43% (5.80%) (4.27%) (1-29-99) - -------------------------------------------------------------------------------- A Shares with sales charge 1.25% (6.91%) (5.26%) (1-29-99) - -------------------------------------------------------------------------------- B Shares 6.53% (6.54%) (4.95%) (1-29-99) - -------------------------------------------------------------------------------- B Shares with CDSC 2.53% (6.54%) (4.95%) (1-29-99) - -------------------------------------------------------------------------------- C Shares 6.52% (6.55%) (4.90%) (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 6.52% (6.55%) (4.90%) (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 64 Security Equity Fund Select 25(R) Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including manage-ment fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- Fund Expenses - -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------------- Select 25(R) Series - Class A Actual $1,000.00 $ 953.60 $ 7.91 Hypothetical 1,000.00 1,017.04 8.16 - -------------------------------------------------------------------------------- Select 25(R) Series - Class B Actual 1,000.00 949.40 11.52 Hypothetical 1,000.00 1,013.32 11.89 - -------------------------------------------------------------------------------- Select 25(R) Series - Class C Actual 1,000.00 949.50 11.52 Hypothetical 1,000.00 1,013.32 11.89 - -------------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -4.64%, -5.06% and -5.05%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.61%, 2.35% and 2.35% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 65 Security Equity Fund Select 25(R) Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks - 96.5% Aerospace & Defense - 4.8% L-3 Communications Holdings, Inc. 16,000 $ 1,072,000 ----------- 1,072,000 ----------- Air Freight & Logistics - 5.1% FedEx Corporation 13,300 1,139,677 ----------- 1,139,677 ----------- Biotechnology - 4.1% Amgen, Inc.* 16,100 912,548 ----------- 912,548 ----------- Brewers - 4.0% Anheuser-Busch Companies, Inc. 18,000 899,100 ----------- 899,100 ----------- Communications Equipment - 3.6% ADC Telecommunications, Inc.* 292,800 529,968 Cisco Systems, Inc.* 15,000 271,500 ----------- 801,468 ----------- Construction & Engineering - 3.6% Shaw Group, Inc.* 68,000 816,000 ----------- 816,000 ----------- Data Processing & Outsourced Services - 3.9% First Data Corporation 20,000 870,000 ----------- 870,000 ----------- Department Stores - 3.9% Kohl's Corporation* 18,000 867,420 ----------- 867,420 ----------- Electric Utilities - 3.6% KFx Inc.* 104,300 804,153 ----------- 804,153 ----------- Health Care Equipment - 3.2% Boston Scientific Corporation* 18,100 719,113 ----------- 719,113 ----------- Home Improvement Retail - 2.6% Home Depot, Inc. 15,000 588,000 ----------- 588,000 ----------- Hotels, Resorts & Cruise Lines - 4.0% Carnival Corporation 19,000 898,510 ----------- 898,510 ----------- Hypermarkets & Supercenters - 3.8% Wal-Mart Stores, Inc. 16,000 851,200 ----------- 851,200 ----------- Industrial Gases - 3.8% Praxair, Inc. 20,000 854,800 ----------- 854,800 ----------- Motorcycle Manufacturers - 2.1% Harley-Davidson, Inc. 8,100 481,464 ----------- 481,464 ----------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Movies & Entertainment - 6.1% Time Warner, Inc.* 30,600 $ 493,884 Viacom, Inc. (Cl.B) 26,100 875,916 ----------- 1,369,800 ----------- Multi-Line Insurance - 4.2% American International Group, Inc. 14,000 951,860 ----------- 951,860 ----------- Oil & Gas Equipment & Services - 5.6% BJ Services Company 24,000 1,257,840 ----------- 1,257,840 ----------- Oil & Gas Refining, Marketing & Transportation - 4.4% Williams Companies, Inc. 82,000 992,200 ----------- 992,200 ----------- Other Diversified Financial Services - 4.2% Citigroup, Inc. 21,300 939,756 ----------- 939,756 ----------- Pharmaceuticals - 7.2% Johnson & Johnson 15,000 844,950 Pfizer, Inc. 25,000 765,000 ----------- 1,609,950 ----------- Semiconductor Equipment - 0.9% Mindspeed Technologies, Inc.* 100,000 200,000 ----------- 200,000 ----------- Semiconductors - 3.5% Analog Devices, Inc. 20,000 775,600 ----------- 775,600 ----------- Soft Drinks - 4.3% PepsiCo, Inc. 20,000 973,000 ----------- 973,000 ----------- Total common stocks (cost $20,399,748) 21,645,459 ----------- Repurchase Agreement - 3.5% United Missouri Bank, 1.35%, dated 9-30-04, matures 10-01-04; repurchase amount of $783,029 (Collateralized by U.S. Treasury Note, 10-31-04 with a value of $799,245) $783,000 783,000 ----------- Total repurchase agreement (cost $783,000) 783,000 ----------- Total investments (cost $21,182,748) - 100.0% 22,428,459 Liabilities, less cash & other assets - 0.0% (961) ----------- Total net assets - 100.0% $22,427,498 =========== The identified cost of investments owned at September 30, 2004 was the same for federal income tax and financial statement purposes. * Non-income producing security - -------------------------------------------------------------------------------- See accompanying notes. 66 Security Equity Fund Select 25(R) Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ...................................... $ 22,428,459 Cash .......................................................... 1,116 Receivables: Fund shares sold ........................................... 3,996 Securities sold ............................................ 25,684 Dividends .................................................. 4,859 Prepaid expenses .............................................. 11,855 ------------ Total assets .................................................. 22,475,969 ------------ Liabilities: Payable for: Fund shares redeemed ....................................... 4,207 Management fees ............................................ 14,111 Custodian fees ............................................. 520 Transfer and administration fees ........................... 6,096 Professional fees .......................................... 7,333 12b-1 distribution plan fees ............................... 12,937 Other ...................................................... 3,267 ------------ Total liabilities ............................................. 48,471 ------------ Net Assets .................................................... $ 22,427,498 ============ Net assets consist of: Paid in capital ............................................... $ 33,185,400 Accumulated undistributed net investment income ..................................................... -- Accumulated undistributed net realized loss on sale of investments ................................ (12,003,613) Net unrealized appreciation in value of investments ............................................. 1,245,711 ------------ Net assets .................................................... $ 22,427,498 ============ Class A: Capital shares outstanding .................................... 1,181,383 Net assets .................................................... $ 9,228,482 Net asset value and redemption price per share .................................................. $ 7.81 ============ Maximum offering price per share (net asset value divided by 94.25%) ......................................... $ 8.29 ============ Class B: Capital shares outstanding .................................... 977,651 Net assets .................................................... $ 7,332,528 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) .......................... $ 7.50 ============ Class C: Capital shares outstanding .................................... 779,842 Net assets .................................................... $ 5,866,488 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) .......................... $ 7.52 ============ (1) Investments, at cost ...................................... $ 21,182,748 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends .................................................. $ 197,410 Interest ................................................... 7,092 ------------ Total investment income ..................................... 204,502 ------------ Expenses: Management fees ............................................ 188,718 Custodian fees ............................................. 3,227 Transfer agent/maintenance fees ............................ 69,208 Administration fees ........................................ 24,666 Directors' fees ............................................ 756 Professional fees .......................................... 9,118 Reports to shareholders .................................... 3,158 Registration fees .......................................... 28,209 Other expenses ............................................. 2,006 12b-1 distribution plan fees - Class A ..................... 26,172 12b-1 distribution plan fees - Class B ..................... 82,369 12b-1 distribution plan fees - Class C ..................... 64,569 ------------ Total expenses ............................................. 502,176 Less: Earnings credits ..................................... (826) ------------ Net expenses ............................................... 501,350 ------------ Net investment loss ........................................ (296,848) ------------ Net Realized and Unrealized Gain: Net realized gain during the period on Investments ................................................ 369,019 ------------ Net realized gain ........................................... 369,019 ------------ Net change in unrealized appreciation during the period on Investments ................................................ 1,699,912 ------------ Net unrealized appreciation ................................ 1,699,912 ------------ Net gain ................................................... 2,068,931 ------------ Net increase in net assets resulting from operations ............................... $ 1,772,083 ============ - -------------------------------------------------------------------------------- See accompanying notes. 67 Security Equity Fund Select 25(R) Series - -------------------------------------------------------------------------------- Statement of Changes in Net Assets
Year Ended Year Ended September 30, 2004 September 30, 2003 - ----------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ....................................................... $ (296,848) $ (281,129) Net realized gain (loss) during the period on investments ................. 369,019 (3,750,965) Net change in unrealized appreciation during the period on investments .... 1,699,912 6,658,939 ------------ ------------ Net increase in net assets resulting from operations ...................... 1,772,083 2,626,845 ------------ ------------ Distributions to shareholders from: Capital share transactions: Proceeds from sale of shares Class A .................................................................. 1,637,921 2,124,128 Class B .................................................................. 715,600 870,627 Class C .................................................................. 833,037 2,518,754 Cost of shares redeemed Class A .................................................................. (3,579,210) (4,949,490) Class B .................................................................. (2,158,912) (2,109,351) Class C .................................................................. (1,616,683) (711,166) ------------ ------------ Net decrease from capital share transactions ............................. (4,168,247) (2,256,498) ------------ ------------ Net increase (decrease) in net assets .................................... (2,396,164) 370,347 ------------ ------------ Net assets: Beginning of period ....................................................... 24,823,662 24,453,315 End of period ............................................................. $ 22,427,498 $ 24,823,662 ============ ============ Accumulated net investment income at end of period ........................ $ -- $ -- ============ ============ Capital Share Activity: Shares sold Class A .................................................................. 204,861 308,267 Class B .................................................................. 93,954 129,196 Class C .................................................................. 108,652 368,021 Shares redeemed Class A .................................................................. (452,794) (707,984) Class B .................................................................. (282,274) (310,636) Class C .................................................................. (210,959) (105,802)
- -------------------------------------------------------------------------------- See accompanying notes. 68 Security Equity Fund Select 25(R) Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.27 $ 6.52 $ 7.58 $ 11.34 $ 10.53 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.06) (0.05) (0.07) (0.06) (0.09) Net gain (loss) on securities (realized and unrealized) 0.60 0.80 (0.99) (3.70) 0.90 ------------------------------------------------------------------ Total from investment operations 0.54 0.75 (1.06) (3.76) 0.81 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ------------------------------------------------------------------ Total distributions -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.81 $ 7.27 $ 6.52 $ 7.58 $ 11.34 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 7.43% 11.50% (13.98%) (33.16%) 7.69% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 9,228 $ 10,396 $ 11,933 $ 14,347 $ 22,006 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.75%) (0.70%) (0.81%) (0.60%) (0.74%) Total expenses 1.56% 1.63% 1.46% 1.39% 1.35% Gross expenses(b) 1.56% 1.63% 1.46% 1.39% 1.35% Net expenses(d) 1.56% 1.63% 1.46% 1.39% 1.35% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 54% 33% 44% 89% Year Ended September 30, Class B 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.04 $ 6.36 $ 7.44 $ 11.22 $ 10.52 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.11) (0.10) (0.13) (0.13) (0.17) Net gain (loss) on securities (realized and unrealized) 0.57 0.78 (0.95) (3.65) 0.87 ------------------------------------------------------------------ Total from investment operations 0.46 0.68 (1.08) (3.78) 0.70 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ------------------------------------------------------------------ Total distributions -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.50 $ 7.04 $ 6.36 $ 7.44 $ 11.22 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 6.53% 10.69% (14.52%) (33.69%) 6.65% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 7,333 $ 8,203 $ 8,566 $ 11,519 $ 18,199 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.50%) (1.45%) (1.56%) (1.35%) (1.49%) Total expenses 2.31% 2.38% 2.21% 2.14% 2.11% Gross expenses(b) 2.31% 2.38% 2.21% 2.14% 2.11% Net expenses(d) 2.31% 2.38% 2.21% 2.14% 2.11% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 54% 33% 44% 89%
See accompanying notes. - -------------------------------------------------------------------------------- 69 Security Equity Fund Select 25(R) Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(e) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 7.06 $ 6.38 $ 7.47 $ 11.26 $ 10.55 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.11) (0.10) (0.13) (0.13) (0.17) Net gain (loss) on securities (realized and unrealized) 0.57 0.78 (0.96) (3.66) 0.88 ------------------------------------------------------------------ Total from investment operations 0.46 0.68 (1.09) (3.79) 0.71 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- -- -- ------------------------------------------------------------------ Total distributions -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 7.52 $ 7.06 $ 6.38 $ 7.47 $ 11.26 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 6.52% 10.66% (14.59%) (33.66%) 6.73% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 5,866 $ 6,225 $ 3,954 $ 4,531 $ 7,294 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.50%) (1.44%) (1.56%) (1.35%) (1.49%) Total expenses 2.31% 2.37% 2.21% 2.14% 2.10% Gross expenses(b) 2.31% 2.37% 2.21% 2.14% 2.10% Net expenses(d) 2.31% 2.37% 2.21% 2.14% 2.10% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 44% 54% 33% 44% 89%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. See accompanying notes. - -------------------------------------------------------------------------------- 70 Security Equity Fund Small Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- RS | investments Subadvisor, RS Investments [PHOTO OMITTED] Bill Wolfenden Portfolio Manager To Our Shareholders: The Security Small Cap Growth Fund produced returns above the benchmark Russell 2000 Growth Index for the 12-month period ended September 30, 2004. The Fund was up 12.73%(1) versus an 11.93% rise in the Russell 2000 Growth Index. While the 2003 market environment provided a tailwind, this year investors proceeded with extreme caution, creating a headwind for both growth companies and for small-cap stocks. Mutual fund cash flows on a year-to-date basis flowed overwhelmingly to "value" mutual funds rather than "growth" funds. Investors also favored the larger, more liquid stocks across the market cap strata. According to Prudential Equity Group, stocks in the Russell 2000 Growth Index with market caps of less than $1 billion produced negative returns for the year-to-date period through September 30, 2004, while stocks above $1 billion were slightly positive for the same period. Despite this relative headwind, strong stock selection contributed to positive returns. Technology constituted approximately 22% of the portfolio on average over the period, in line with the benchmark. The Fund owned a number of Internet-related technology companies that were less dependent on enterprise technology spending or product cycle traction. Jupitermedia Corporation, an Internet advertising company, benefited from the increased spending for advertising online. j2 Global Communications, Inc., an Internet business services company with a dominant market share in the fax to e-mail market, was also a strong performer. j2 Global has focused on marketing fax services for more than eight years and has shown strong organic growth, as well as marketing power. The company has grown close to 50% organically over the last two years, and we anticipate a continuation of similar growth in the near-term. The consumer sector provided mixed results. Many of our Internet-related positions produced strong returns, such as Infospace, Inc. an Internet search provider. CNET Networks, Inc., a leading provider of branded technology content in both print, broadcast, and the Internet, also produced consistently strong performance in 2004. Longtime holdings Guitar Center, Inc. and Aaron Rents, Inc. produced solid returns. These retailers provide unique retail concepts, have executed consistently, and have produced dependable earnings growth. However, Casual Male Retail Group, Inc. and Charlotte Russe Holding, Inc. detracted from returns. Over the last several quarters, we have been building our exposure to the energy sector, and it represented nearly 7% of assets at the end of September 2004. The majority of our positions are in the oil service industry, which provide the "picks and shovels" to the exploration segment. We believe many of these companies are still in front of significant earnings expansion as integrated producers and exploration companies continue to expand their search for more oil and natural gas. Superior Energy Services, Inc., a long time holding in the portfolio, is starting to benefit from increased drilling and production activity in the Gulf of Mexico due to prolonged high prices of oil and natural gas. It has been a rewarding 12-month period for investors in the portfolio. Depending on our research-driven investment process, we have produced solid returns in a tough environment for small cap growth investors. The portfolio maintains an attractive valuation relative to earnings growth rate, which helps provide optimism as we close 2004. Sincerely, Bill Wolfenden Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Investments in small company stocks may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies. - -------------------------------------------------------------------------------- 71 Security Equity Fund Small Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Small Cap Growth Series vs. Russell 2000 Growth Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] Small Cap Growth Series $13,740 DATE VALUE ---- ----- 10/15/1997 9,425.00 12/31/1997 9,063.07 3/31/1998 10,128.75 6/30/1998 9,921.28 9/30/1998 8,204.86 12/31/1998 10,006.15 3/31/1999 10,015.58 6/30/1999 10,572.01 9/30/1999 12,241.27 12/31/1999 18,728.39 3/31/2000 23,780.70 6/30/2000 20,741.57 9/30/2000 21,370.69 12/31/2000 16,926.61 3/31/2001 12,356.95 6/30/2001 13,572.73 9/30/2001 10,271.26 12/31/2001 12,042.52 3/31/2002 11,665.21 6/30/2002 10,428.47 9/30/2002 8,258.93 12/31/2002 8,751.53 3/31/2003 8,248.45 6/30/2003 10,522.80 9/30/2003 12,189.26 12/31/2003 13,572.73 3/31/2004 14,453.12 6/30/2004 14,222.55 9/30/2004 13,740.43 Russell 2000 Growth Index $9,634 DATE VALUE ---- ----- 10/15/1997 $10,000.00 12/31/1997 9,180.81 3/31/1998 10,271.66 6/30/1998 9,680.76 9/30/1998 7,516.68 12/31/1998 9,294.11 3/31/1999 9,137.79 6/30/1999 10,485.49 9/30/1999 9,970.23 12/31/1999 13,299.60 3/31/2000 14,534.92 6/30/2000 13,462.59 9/30/2000 12,927.63 12/31/2000 10,315.79 3/31/2001 8,747.02 6/30/2001 10,319.67 9/30/2001 7,421.14 12/31/2001 9,363.46 3/31/2002 9,179.82 6/30/2002 7,739.04 9/30/2002 6,073.63 12/31/2002 6,529.39 3/31/2003 6,275.55 6/30/2003 7,790.90 9/30/2003 8,606.49 12/31/2003 9,698.35 3/31/2004 10,240.11 6/30/2004 10,249.93 9/30/2004 9,633.73 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Small Cap Growth Series on October 15, 1997, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ------------------------------------------------------ Portfolio Composition by Sector - ------------------------------------------------------ Consumer Discretionary 15.33% - ------------------------------------------------------ Consumer Staples 0.43 - ------------------------------------------------------ Energy 7.92 - ------------------------------------------------------ Exchange Traded Funds 1.19 - ------------------------------------------------------ Financials 8.89 - ------------------------------------------------------ Health Care 19.39 - ------------------------------------------------------ Industrials 12.40 - ------------------------------------------------------ Information Technology 24.93 - ------------------------------------------------------ Materials 0.52 - ------------------------------------------------------ Cash & other assets, less liabilities 9.00 - ------------------------------------------------------ - -------------------------------------------------------------------------------- Average Annual Returns - -------------------------------------------------------------------------------- Periods Ended 9-30-04 1 Year 5 Years Since Inception - -------------------------------------------------------------------------------- A Shares 12.73% 2.35% 5.57% (10-15-97) - -------------------------------------------------------------------------------- A Shares with sales charge 6.24% 1.14% 4.68% (10-15-97) - -------------------------------------------------------------------------------- B Shares 11.88% 1.49% 4.58% (10-15-97) - -------------------------------------------------------------------------------- B Shares with CDSC 7.88% 1.49% 4.58% (10-15-97) - -------------------------------------------------------------------------------- C Shares 11.84% 1.55% 3.94% (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 11.84% 1.55% 3.94% (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 72 Security Equity Fund Small Cap Growth Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- Fund Expenses - -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------------- Small Cap Growth Series - Class A Actual $1,000.00 $ 950.70 $10.59 Hypothetical 1,000.00 1,014.28 10.94 - -------------------------------------------------------------------------------- Small Cap Growth Series - Class B Actual 1,000.00 946.60 14.24 Hypothetical 1,000.00 1,010.51 14.71 - -------------------------------------------------------------------------------- Small Cap Growth Series - Class C Actual 1,000.00 946.80 14.24 Hypothetical 1,000.00 1,010.51 14.71 - -------------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -4.93%, -5.34% and -5.32%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (2.16%, 2.91% and 2.91% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 73 Security Equity Fund Small Cap Growth Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks - 91.0% Aerospace & Defense - 2.1% Applied Signal Technology, Inc. 10,450 $ 334,295 Engineered Support Systems, Inc. 8,650 394,786 ----------- 729,081 ----------- Air Freight & Logistics - 1.9% Dynamex, Inc.* 17,950 309,458 Forward Air Corporation* 9,090 363,782 ----------- 673,240 ----------- Apparel Retail - 2.9% Casual Male Retail Group, Inc.* 51,600 270,384 Charlotte Russe Holding, Inc.* 28,450 326,606 Jos. A. Bank Clothiers, Inc.* 14,387 398,232 ----------- 995,222 ----------- Apparel, Accessories & Luxury Goods - 1.8% Ashworth, Inc.* 41,250 338,250 Oxford Industries, Inc. 8,140 303,215 ----------- 641,465 ----------- Application Software - 1.4% SafeNet, Inc.* 10,650 280,947 Synplicity, Inc.* 39,450 203,562 ----------- 484,509 ----------- Biotechnology - 3.7% Alexion Pharmaceuticals, Inc.* 18,050 324,900 Connetics Corporation* 7,830 211,567 Nabi Biopharmaceuticals* 13,700 183,306 Oscient Pharmaceutical Corporation* 15,300 54,315 QLT, Inc.* 14,800 246,420 Rigel Pharmaceuticals, Inc.* 10,200 258,060 ----------- 1,278,568 ----------- Casinos & Gaming - 2.6% Multimedia Games, Inc.* 15,760 244,280 Scientific Games Corporation* 35,150 671,365 ----------- 915,645 ----------- Communications Equipment - 0.8% NetSolve, Inc.* 26,050 282,121 ----------- 282,121 ----------- Computer Storage & Peripherals - 0.9% M-Systems Flash Disk Pioneers, Ltd.* 19,700 325,444 ----------- 325,444 ----------- Construction & Farm Machinery - 0.8% Wabash National Corporation* 9,900 271,953 ----------- 271,953 ----------- Consumer Finance - 0.9% EZCORP, Inc.* 34,750 302,360 ----------- 302,360 ----------- Data Processing & Outsourced Services - 1.2% Open Solutions, Inc.* 16,700 416,999 ----------- 416,999 ----------- Distributors - 0.8% Beacon Roofing Supply, Inc.* 16,250 266,500 ----------- 266,500 ----------- Diversified Banks - 0.6% Signature Bank* 8,150 218,012 ----------- 218,012 ----------- Diversified Commercial Services - 3.4% Laureate Education, Inc.* 11,040 410,909 Marlin Business Services, Inc.* 17,210 322,860 Navigant Consulting, Inc.* 20,600 452,376 ----------- 1,186,145 ----------- Diversified Metals & Mining - 0.5% Brush Engineered Materials, Inc.* 8,700 180,177 ----------- 180,177 ----------- Electronic Equipment Manufacturers - 1.8% BEI Technologies, Inc. 11,250 308,250 Sypris Solutions, Inc. 23,150 315,997 ----------- 624,247 ----------- Employment Services - 1.0% Kforce, Inc.* 41,900 351,122 ----------- 351,122 ----------- Exchange Traded Funds - 1.2% iShares Russell 2000 Growth Index Fund 7,100 415,847 ----------- 415,847 ----------- Health Care Equipment - 5.0% ArthroCare Corporation* 10,140 297,001 Closure Medical Corporation* 18,000 256,320 Endocardial Solutions, Inc.* 20,000 231,400 Hologic, Inc.* 14,700 283,269 Intuitive Surgical, Inc.* 7,260 179,685 Spectranetics Corporation* 54,250 277,217 ThermoGenesis Corporation* 47,000 225,600 ----------- 1,750,492 ----------- Health Care Facilities - 1.2% Kindred Healthcare, Inc.* 16,900 412,360 ----------- 412,360 ----------- Health Care Services - 5.0% Amedisys, Inc.* 3,200 95,840 America Service Group, Inc.* 11,900 488,376 LabOne, Inc.* 14,700 429,681 Merge Technologies, Inc.* 21,750 375,405 Providence Service Corporation* 18,950 367,061 ----------- 1,756,363 ----------- Health Care Supplies - 0.7% Orthovita, Inc.* 56,850 254,404 ----------- 254,404 ----------- Industrial Machinery - 1.1% Ceradyne, Inc.* 8,800 386,408 ----------- 386,408 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 74 Security Equity Fund Small Cap Growth Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Internet Software & Services - 10.3% CNET Networks, Inc.* 37,800 $ 345,870 Digitas, Inc.* 59,000 456,070 Embarcadero Technologies Inc.* 34,700 293,562 InfoSpace, Inc.* 10,180 482,430 j2 Global Communications, Inc.* 13,550 428,044 Jupitermedia Corporation* 16,100 286,580 Keynote Systems, Inc.* 36,050 510,468 Radware, Ltd.* 14,850 326,700 ValueClick, Inc.* 49,350 465,864 ----------- 3,595,588 ----------- IT Consulting & Other Services - 0.8% Lionbridge Technologies, Inc.* 30,300 260,277 ----------- 260,277 ----------- Leisure Products - 1.2% K2, Inc.* 29,350 419,998 ----------- 419,998 ----------- Managed Health Care - 1.4% American Medical Security Group, Inc.* 14,800 473,452 ----------- 473,452 ----------- Movies & Entertainment - 1.3% Image Entertainment, Inc.* 50,400 208,656 NTN Communications, Inc.* 87,900 228,540 ----------- 437,196 ----------- Oil & Gas Drilling - 3.6% Grey Wolf, Inc.* 74,950 366,505 Patterson-Uti Energy, Inc. 24,750 471,982 Unit Corporation* 11,900 417,452 ----------- 1,255,939 ----------- Oil & Gas Equipment & Services - 4.3% Cal Dive International, Inc.* 9,990 355,844 Maverick Tube Corporation* 12,810 394,676 Oil States International, Inc.* 19,500 364,650 Superior Energy Services, Inc.* 29,900 386,308 ----------- 1,501,478 ----------- Packaged Foods & Meats - 0.4% Peet's Coffee & Tea, Inc.* 6,350 148,526 ----------- 148,526 ----------- Pharmaceuticals - 2.4% AtheroGenics, Inc.* 6,050 199,347 Bradley Pharmaceuticals, Inc.* 13,650 277,778 Cypress Bioscience, Inc.* 18,650 217,646 Discovery Laboratories, Inc.* 8,300 55,610 Durect Corporation* 53,200 74,480 ----------- 824,861 ----------- Property & Casualty Insurance - 3.0% Affirmative Insurance Holdings, Inc.* 18,150 286,407 Infinity Property & Casualty Corporation 16,050 473,957 ProAssurance Corporation* 8,430 295,219 ----------- 1,055,583 ----------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Real Estate Investment Trusts - 1.9% BioMed Realty Trust, Inc. 18,200 $ 320,138 Saxon Capital, Inc.* 16,150 347,225 ----------- 667,363 ----------- Regional Banks - 2.5% Nara Bancorp, Inc. 13,300 267,995 PrivateBancorp, Inc. 9,860 265,826 Southwest Bancorporation of Texas, Inc. 15,750 317,205 ----------- 851,026 ----------- Restaurants - 1.0% Rare Hospitality International, Inc.* 12,650 337,123 ----------- 337,123 ----------- Semiconductor Equipment - 2.5% FormFactor, Inc.* 13,750 266,338 LogicVision, Inc.* 69,250 117,033 Mykrolis Corporation* 18,100 182,267 Ultratech, Inc.* 19,500 305,565 ----------- 871,203 ----------- Semiconductors - 5.2% Microsemi Corporation* 20,500 289,050 O2Micro International, Ltd.* 29,850 320,589 SRS Labs, Inc.* 51,250 272,650 Sigmatel, Inc.* 16,150 342,542 Silicon Image, Inc.* 24,500 309,680 Zoran Corporation* 18,200 286,104 ----------- 1,820,615 ----------- Specialty Stores - 3.8% Aaron Rents, Inc. 25,675 558,688 Cost Plus, Inc.* 12,430 439,773 Guitar Center, Inc.* 7,550 326,915 ----------- 1,325,376 ----------- Trucking - 2.1% Old Dominion Freight Line, Inc.* 13,200 380,292 Vitran Corporation, Inc.* 22,750 338,293 ----------- 718,585 ----------- Total common stocks (cost $26,947,537) 31,682,873 ----------- Repurchase Agreement - 8.8% United Missouri Bank, 1.35%, dated 9-30-04, matures 10-01-04; repurchase amount of $3,052,114 (Collateralized by U.S. Treasury Note, 10-31-04 with a value of $3,113,221) $3,052,000 3,052,000 ----------- Total repurchase agreement (cost $3,052,000) 3,052,000 ----------- Total investments (cost $29,999,537) - 99.8% 34,734,873 Cash & other assets, less liabilities - 0.2% 86,774 ----------- Total net assets - 100.0% $34,821,647 =========== For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $30,146,049. * Non-income producing security - -------------------------------------------------------------------------------- See accompanying notes. 75 Security Equity Fund Small Cap Growth Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ..................................... $ 34,734,873 Cash ......................................................... 2,543 Receivables: Fund shares sold .......................................... 57,692 Securities sold ........................................... 422,755 Dividends ................................................. 4,119 Prepaid expenses ............................................. 9,676 ------------ Total assets ................................................. 35,231,658 ------------ Liabilities: Payable for: Securities purchased ...................................... 288,935 Fund shares redeemed ...................................... 20,508 Management fees ........................................... 27,421 Custodian fees ............................................ 3,600 Transfer and administration fees .......................... 25,404 Professional fees ......................................... 7,285 12b-1 distribution plan fees .............................. 34,293 Other .................................................... 2,565 ------------ Total liabilities ............................................ 410,011 ------------ Net Assets ................................................... $ 34,821,647 ============ Net assets consist of: Paid in capital .............................................. $ 38,994,077 Accumulated undistributed net investment income .................................................... -- Accumulated undistributed net realized loss on sale of investments ............................... (8,907,766) Net unrealized appreciation in value of investments ................................... 4,735,336 ------------ Net assets ................................................... $ 34,821,647 ============ Class A: Capital shares outstanding ................................... 1,635,623 Net assets ................................................... $ 21,443,126 Net asset value and redemption price per share .................................................. $ 13.11 ============ Maximum offering price per share (net asset value divided by 94.25%) ....................... $ 13.91 ============ Class B: Capital shares outstanding ................................... 753,173 Net assets ................................................... $ 9,218,389 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 12.24 ============ Class C: Capital shares outstanding ................................... 333,620 Net assets ................................................... $ 4,160,132 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 12.47 ============ (1) Investments, at cost ..................................... $ 29,999,537 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ................................................. $ 26,550 Interest .................................................. 16,976 ------------ Total investment income ................................... 43,526 ------------ Expenses: Management fees ........................................... 299,756 Custodian fees ............................................ 22,637 Transfer agent/maintenance fees ........................... 156,009 Administration fees ....................................... 30,162 Directors' fees ........................................... 943 Professional fees ......................................... 9,173 Reports to shareholders ................................... 3,537 Registration fees ......................................... 27,945 Other expenses ............................................ 1,738 12b-1 distribution plan fees - Class A .................... 44,296 12b-1 distribution plan fees - Class B .................... 80,395 12b-1 distribution plan fees - Class C .................... 42,178 ------------ Total expenses ............................................ 718,769 Less: Earnings credits ................................... (2,231) ------------ Net expenses .............................................. 716,538 ------------ Net investment loss ....................................... (673,012) ------------ Net Realized and Unrealized Gain: Net realized gain during the period on Investments ............................................... 4,201,550 ------------ Net realized gain ........................................ 4,201,550 ------------ Net change in unrealized depreciation during the period on: Investments ............................................... (49,010) ------------ Net unrealized depreciation ............................... (49,010) ------------ Net gain .................................................. 4,152,540 ------------ Net increase in net assets resulting from operations ................................ $ 3,479,528 ============ - -------------------------------------------------------------------------------- See accompanying notes. 76 Security Equity Fund Small Cap Growth Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ----------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ..................................... $ (673,012) $ (414,114) Net realized gain during the period on investments ...... 4,201,550 2,366,986 Net change in unrealized appreciation (depreciation) during the period on investments ....................... (49,010) 5,227,406 ------------ ------------ Net increase in net assets resulting from operations .... 3,479,528 7,180,278 ------------ ------------ Capital share transactions: Proceeds from sale of shares Class A ................................................ 12,131,835 6,184,996 Class B ................................................ 4,066,427 2,757,770 Class C ................................................ 2,162,637 1,133,518 Cost of shares redeemed Class A ................................................ (7,250,354) (4,215,103) Class B ................................................ (2,615,904) (2,226,918) Class C ................................................ (1,929,569) (842,930) ------------ ------------ Net increase from capital share transactions ............ 6,565,072 2,791,333 ------------ ------------ Net increase in net assets .............................. 10,044,600 9,971,611 ------------ ------------ Net assets: Beginning of period ..................................... 24,777,047 14,805,436 ------------ ------------ End of period ........................................... $ 34,821,647 $ 24,777,047 ============ ============ Accumulated net investment income at end of period ...... $ -- $ -- ============ ============ Capital Share Activity: Shares sold Class A ................................................ 956,806 655,128 Class B ................................................ 342,362 304,029 Class C ................................................ 172,645 130,394 Shares redeemed Class A ................................................ (559,729) (476,304) Class B ................................................ (214,052) (253,852) Class C ................................................ (155,932) (97,903)
- -------------------------------------------------------------------------------- See accompanying notes. 77 Security Equity Fund Small Cap Growth Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002(f) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 11.63 $ 7.88 $ 9.80 $ 22.08 $ 12.98 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.25) (0.18) (0.20) (0.18) (0.19) Net gain (loss) on securities (realized and unrealized) 1.73 3.93 (1.72) (10.78) 9.75 ------------------------------------------------------------------ Total from investment operations 1.48 3.75 (1.92) (10.96) 9.56 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (1.32) (0.46) ------------------------------------------------------------------ Total distributions -- -- -- (1.32) (0.46) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 13.11 $ 11.63 $ 7.88 $ 9.80 $ 22.08 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 12.73% 47.59% (19.59%) (51.94%) 74.58% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 21,443 $ 14,406 $ 8,350 $ 17,235 $ 38,172 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.95%) (2.01%) (1.93%) (1.32%) (0.97%) Total expenses 2.09% 2.25% 2.14% 1.91% 1.55% Gross expenses(b) 2.09% 2.51% 2.14% 1.91% 1.64% Net expenses(d) 2.09% 2.25% 2.14% 1.91% 1.55% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 157% 206% 302% 394% 318% Year Ended September 30, Class B 2004 2003 2002(f) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.94 $ 7.47 $ 9.37 $ 21.34 $ 12.69 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.33) (0.24) (0.26) (0.28) (0.31) Net gain (loss) on securities (realized and unrealized) 1.63 3.71 (1.64) (10.37) 9.42 ------------------------------------------------------------------ Total from investment operations 1.30 3.47 (1.90) (10.65) 9.11 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (1.32) (0.46) ------------------------------------------------------------------ Total distributions -- -- -- (1.32) (0.46) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.24 $ 10.94 $ 7.47 $ 9.37 $ 21.34 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.88% 46.45% (20.28%) (52.31%) 72.70% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 9,218 $ 6,838 $ 4,292 $ 6,173 $ 11,688 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (2.69%) (2.76%) (2.69%) (2.07%) (1.81%) Total expenses 2.84% 3.00% 2.90% 2.67% 2.44% Gross expenses(b) 2.84% 3.23% 2.90% 2.67% 2.48% Net expenses(d) 2.83% 3.00% 2.90% 2.67% 2.44% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 157% 206% 302% 394% 318%
- -------------------------------------------------------------------------------- See accompanying notes. 78 Security Equity Fund Small Cap Growth Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(e,f) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 11.15 $ 7.61 $ 9.53 $ 21.74 $ 12.86 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.33) (0.24) (0.26) (0.28) (0.35) Net gain (loss) on securities (realized and unrealized) 1.65 3.78 (1.66) (10.61) 9.69 ------------------------------------------------------------------ Total from investment operations 1.32 3.54 (1.92) (10.89) 9.34 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (1.32) (0.46) ------------------------------------------------------------------ Total distributions -- -- -- (1.32) (0.46) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.47 $ 11.15 $ 7.61 $ 9.53 $ 21.74 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.84% 46.52% (20.15%) 52.46%) 73.54% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 4,160 $ 3,533 $ 2,164 $ 2,339 $ 3,741 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (2.69%) (2.76%) (2.69%) (2.09%) (1.81%) Total expenses 2.83% 3.00% 2.91% 2.68% 2.39% Gross expenses(b) 2.83% 3.23% 2.91% 2.68% 2.47% Net expenses(d) 2.82% 3.00% 2.91% 2.68% 2.39% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 157% 206% 302% 394% 318%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. (f) RS Investments, Inc. became the sub-adviser of Small Cap Growth Series effective September 3, 2002. Prior to September 3, 2002, Security Management Company, LLC (SMC) paid Strong Capital management, Inc. for sub-advisory services. - -------------------------------------------------------------------------------- See accompanying notes. 79 Security Equity Fund Social Awareness Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] Mark Mitchell Portfolio Manager To Our Shareholders: Fiscal year 2004 was a normal year in many respects; market returns were positive, but not as spectacular as in fiscal year 2003. The Social Awareness Series returned 5.04%(1) for the one-year period ended September 30, 2004, lagging the benchmark Domini Social Index 400 Index's return of 12.24% and the Fund's peer group median return of 10.40%. As in 2003, the market favored lower-quality, higher-beta stocks, and in that environment, the Fund tends to underperform. Although disappointing for this particular period, we believe that our approach delivers positive performance over the long term. Our approach to managing the Social Awareness Series is based on our investment philosophy described below. We understand a company's growth potential over the long term based on our bottom-up fundamental investment process. We invest today based on future potential. We concentrate our investments in companies with sustainable competitive advantages when they are undervalued. Companies must demonstrate management ability by consistently adding shareholder value. They must have strong financial positions and be well positioned for growth. We are patient buyers and sellers focused on the long term, and we take advantage of investor uncertainty and short-term thinking. Once we determine that companies meet our investment criteria, we review them to ensure they meet our social criteria as well. We employ this philosophy to a universe of value and growth companies. Materials and Energy Stocks are Top Performers Praxair, the funds only material sector holding, had a great year and gained 40%. The company benefited from an improvement in the overall global economy. In the energy sector, BJ Services was up 53% as a result of the substantial price appreciation of crude oil. Technology and Healthcare Disappointing Following an extremely strong year in 2003, technology stocks had a difficult time in 2004. Adverse stock selection in Veritas and not owning Yahoo had a negative impact on the Fund. Veritas was down over 40% due to a delay in filing its financials. This has now been completed and the company looks fine. Yahoo was up over 90% as they benefited from strong online advertising trends and positive sentiment generated by the Google IPO. Overall, healthcare as a sector underperformed the index. Cardinal Health and Amgen both had a negative impact on the fund. Cardinal was down more than 18% as a result of undergoing a substantial industry change in how pharmaceutical manufacturers price and distribute their products. Merck impacted the Fund negatively due to concerns over pharmaceutical industry and company-specific growth prospects. Additionally, Merck experienced a significant product recall that hurt the company's performance. 2005 Market Outlook Our outlook for the equity market continues to be guardedly optimistic. As in prior years, there are many potential positive and negative influences. We believe the most significant issue in 2005 will be a slowing profit cycle. In such an environment, more normal equity returns are likely. Skilled stock picking versus owning beta will be critical. This favors our focus on identifying good companies at attractive valuations. We continue to believe that investing is a long-term pursuit that requires patience and a consistent approach. Dollar cost averaging is a sound way to build long-term value.(2) We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us. Sincerely, Mark Mitchell Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. Fee waivers and/or reimbursements reduced Fund expenses and in the absence of such waivers, the performance quoted would be reduced. (2) Dollar cost averaging does not assure profits or protect against loss in a declining market. - -------------------------------------------------------------------------------- 80 Security Equity Fund Social Awareness Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Social Awareness Series vs. Domini Social Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] Social Awareness Series $12,399 DATE VALUE ---- ----- 11/1/1996 9,425.00 12/31/1996 9,440.95 3/31/1997 9,007.54 6/30/1997 10,433.42 9/30/1997 11,300.25 12/31/1997 11,543.52 3/31/1998 13,047.83 6/30/1998 13,337.36 9/30/1998 12,191.82 12/31/1998 15,056.73 3/31/1999 15,472.31 6/30/1999 16,444.12 9/30/1999 15,376.41 12/31/1999 17,395.06 3/31/2000 18,355.32 6/30/2000 17,784.35 9/30/2000 16,895.46 12/31/2000 15,224.03 3/31/2001 13,437.64 6/30/2001 14,026.49 9/30/2001 11,876.20 12/31/2001 13,232.53 3/31/2002 13,192.84 6/30/2002 11,465.99 9/30/2002 9,758.99 12/31/2002 10,480.17 3/31/2003 10,189.05 6/30/2003 11,545.39 9/30/2003 11,803.42 12/31/2003 12,822.33 3/31/2004 12,888.49 6/30/2004 13,047.28 9/30/2004 12,398.88 Domini Social Index $19,425 DATE VALUE ---- ----- 11/1/1996 $10,000.00 12/31/1996 10,553.42 3/31/1997 10,912.97 6/30/1997 12,857.55 9/30/1997 13,937.09 12/31/1997 14,590.67 3/31/1998 16,693.50 6/30/1998 17,352.54 9/30/1998 15,687.26 12/31/1998 19,631.95 3/31/1999 20,652.83 6/30/1999 22,054.81 9/30/1999 20,722.25 12/31/1999 24,442.96 3/31/2000 25,223.63 6/30/2000 23,868.27 9/30/2000 22,758.31 12/31/2000 20,947.73 3/31/2001 18,427.12 6/30/2001 19,421.49 9/30/2001 16,665.94 12/31/2001 18,415.79 3/31/2002 18,453.04 6/30/2002 16,227.21 9/30/2002 13,469.96 12/31/2002 14,715.09 3/31/2003 14,219.65 6/30/2003 16,406.57 9/30/2003 16,969.49 12/31/2003 18,905.61 3/31/2004 19,704.28 6/30/2004 20,156.64 9/30/2004 19,425.31 $10,000 Since Inception This chart assumes a $10,000 investment in Class A shares of Social Awareness Series on November 1, 1996, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ------------------------------------------------------- Portfolio Composition by Sector - ------------------------------------------------------- Consumer Discretionary 15.13% - ------------------------------------------------------- Consumer Staples 11.75 - ------------------------------------------------------- Energy 1.09 - ------------------------------------------------------- Financials 21.92 - ------------------------------------------------------- Health Care 16.69 - ------------------------------------------------------- Industrials 5.93 - ------------------------------------------------------- Information Technology 16.94 - ------------------------------------------------------- Materials 1.86 - ------------------------------------------------------- Telecommunication Services 4.35 - ------------------------------------------------------- Cash & other assets, less liabilities 4.34 - ------------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns - -------------------------------------------------------------------------------- Periods Ended 9-30-04 1 Year 5 Years Since Inception - -------------------------------------------------------------------------------- A Shares 5.04% (4.21%) 3.53% (11-1-96) - -------------------------------------------------------------------------------- A Shares with sales charge (1.00%) (5.34%) 2.76% (11-1-96) - -------------------------------------------------------------------------------- B Shares 4.27% (5.10%) 2.51% (11-1-96) - -------------------------------------------------------------------------------- B Shares with CDSC 0.27% (5.10%) 2.51% (11-1-96) - -------------------------------------------------------------------------------- C Shares 4.29% (5.10%) (4.92%) (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 4.29% (5.10%) (4.92%) (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. See accompanying notes. - -------------------------------------------------------------------------------- 81 Security Equity Fund Social Awareness Series (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- Fund Expenses - -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------------- Social Awareness Series - Class A Actual $1,000.00 $ 962.00 $ 8.58 Hypothetical 1,000.00 1,016.39 8.58 - -------------------------------------------------------------------------------- Social Awareness Series - Class B Actual 1,000.00 958.50 12.21 Hypothetical 1,000.00 1,012.67 12.55 - -------------------------------------------------------------------------------- Social Awareness Series - Class C Actual 1,000.00 958.40 12.21 Hypothetical 1,000.00 1,012.67 12.55 - -------------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -3.80%, -4.15% and -4.16%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.74%, 2.48% and 2.48% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 82 Security Equity Fund Social Awareness Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks - 95.7% Advertising - 0.5% Omnicom Group, Inc. 1,100 $ 80,366 ----------- 80,366 ----------- Air Freight & Logistics - 2.1% FedEx Corporation 4,200 359,898 ----------- 359,898 ----------- Airlines - 1.4% Southwest Airlines Company 17,800 242,436 ----------- 242,436 ----------- Asset Management & Custody Banks - 0.8% Bank of New York Company, Inc. 4,700 137,099 ----------- 137,099 ----------- Biotechnology - 5.1% Amgen, Inc.* 12,200 691,496 Chiron Corporation* 3,900 172,380 ----------- 863,876 ----------- Broadcasting & Cable TV - 2.1% Comcast Corporation* 12,537 354,045 ----------- 354,045 ----------- Communications Equipment - 3.0% ADC Telecommunications, Inc.* 77,500 140,275 Cisco Systems, Inc.* 20,700 374,670 ----------- 514,945 ----------- Computer Hardware - 2.7% Dell, Inc.* 12,800 455,680 ----------- 455,680 ----------- Construction & Engineering - 1.1% Shaw Group, Inc.* 15,000 180,000 ----------- 180,000 ----------- Consumer Finance - 3.9% American Express Company 6,200 319,052 MBNA Corporation 13,300 335,160 ----------- 654,212 ----------- Department Stores - 1.6% Kohl's Corporation* 5,500 265,045 ----------- 265,045 ----------- Diversified Banks - 4.4% Bank of America Corporation 6,000 259,980 Wells Fargo & Company 8,200 488,966 ----------- 748,946 ----------- Diversified Capital Markets - 1.2% J.P. Morgan Chase & Company 5,300 210,569 ----------- 210,569 ----------- Drug Retail - 2.1% CVS Corporation 8,300 349,679 ----------- 349,679 ----------- General Merchandise Stores - 1.6% Target Corporation 5,900 266,975 ----------- 266,975 ----------- Health Care Equipment - 4.1% Boston Scientific Corporation* 11,700 464,841 Medtronic, Inc. 4,600 238,740 ----------- 703,581 ----------- Home Improvement Retail - 4.1% Home Depot, Inc. 11,600 454,720 Lowe's Companies, Inc. 4,300 233,705 ----------- 688,425 ----------- Household Products - 4.5% Colgate-Palmolive Company 5,300 239,454 Procter & Gamble Company 9,800 530,376 ----------- 769,830 ----------- Industrial Conglomerates - 1.3% 3M Company 2,800 223,916 ----------- 223,916 ----------- Industrial Gases - 1.9% Praxair, Inc. 7,400 316,276 ----------- 316,276 ----------- Insurance Brokers - 0.8% Marsh & McLennan Companies, Inc. 3,000 137,280 ----------- 137,280 ----------- Integrated Telecommunication Services - 4.3% SBC Communications, Inc. 10,948 284,101 Verizon Communications, Inc. 11,500 452,870 ----------- 736,971 ----------- Investment Banking & Brokerage - 1.7% Goldman Sachs Group, Inc. 1,800 167,832 Merrill Lynch & Company, Inc. 2,500 124,300 ----------- 292,132 ----------- Life & Health Insurance - 1.0% AFLAC, Inc. 4,400 172,524 ----------- 172,524 ----------- Managed Health Care - 1.4% UnitedHealth Group, Inc. 3,300 243,342 ----------- 243,342 ----------- Motorcycle Manufacturers - 1.0% Harley-Davidson, Inc. 2,900 172,376 ----------- 172,376 ----------- Movies & Entertainment - 4.4% Time Warner, Inc.* 18,500 298,590 Viacom, Inc. (Cl.B) 13,100 439,636 ----------- 738,226 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 83 Security Equity Fund Social Awareness Series Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Amount or Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Multi-Line Insurance - 5.3% American International Group, Inc. 13,154 $ 894,340 ----------- 894,340 ----------- Oil & Gas Equipment & Services - 0.9% BJ Services Company 2,900 151,989 ----------- 151,989 ----------- Oil & Gas Exploration & Production - 0.2% Anadarko Petroleum Corporation 500 33,180 ----------- 33,180 ----------- Pharmaceuticals - 6.0% Johnson & Johnson 12,904 726,882 Merck & Company, Inc. 8,900 293,700 ----------- 1,020,582 ----------- Property & Casualty Insurance - 2.8% Chubb Corporation 6,700 470,876 ----------- 470,876 ----------- Semiconductor Equipment - 0.4% Applied Materials, Inc.* 4,600 75,854 ----------- 75,854 ----------- Semiconductors - 2.6% Analog Devices, Inc. 1,100 42,658 Intel Corporation 19,500 391,170 ----------- 433,828 ----------- Soft Drinks - 5.2% Coca-Cola Company 9,300 372,465 PepsiCo, Inc. 10,300 501,095 ----------- 873,560 ----------- Systems Software - 8.2% Microsoft Corporation 40,200 1,111,530 Oracle Corporation* 14,300 161,304 Veritas Software Corporation* 6,700 119,260 ----------- 1,392,094 Total common stocks (cost $17,693,288) 16,224,953 ----------- Repurchase Agreement - 5.5% United Missouri Bank, 1.35%, dated 9-30-04, matures 10-01-04; repurchase amount of $938,035 (Collateralized by U.S. Treasury Note, 10-31-04, with a value of $957,681) $938,000 938,000 ----------- Total repurchase agreement (cost $938,000) 938,000 ----------- Total investments (cost $18,631,288) - 101.2% 17,162,953 Liabilities, less cash & other assets - (1.2%) (202,117) ----------- Total net assets - 100.0% $16,960,836 =========== For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $18,632,092. * Non-income producing security - -------------------------------------------------------------------------------- See accompanying notes. 84 Security Equity Fund Social Awareness Series - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ..................................... $ 17,162,953 Cash ......................................................... 1,173 Receivables: Fund shares sold .......................................... 7,625 Securities sold ........................................... 33,784 Dividends ................................................. 11,091 Prepaid expenses ............................................. 11,286 ------------ Total assets ................................................. 17,227,912 ------------ Liabilities: Payable for: Securities purchased ...................................... 224,824 Fund shares redeemed ...................................... 654 Management fees ........................................... 10,594 Custodian fees ............................................ 700 Transfer and administration fees .......................... 4,913 Professional fees ......................................... 7,227 12b-1 distribution plan fees .............................. 15,810 Other ..................................................... 2,354 ------------ Total liabilities ............................................ 267,076 ------------ Net Assets ................................................... $ 16,960,836 ============ Net assets consist of: Paid in capital .............................................. $ 19,890,512 Accumulated undistributed net investment income .................................................... -- Accumulated undistributed net realized loss on sale of investments ............................... (1,461,341) Net unrealized depreciation in value of investments ................................... (1,468,335) ------------ Net assets ................................................... $ 16,960,836 ============ Class A: Capital shares outstanding ................................... 518,054 Net assets ................................................... $ 9,707,914 Net asset value and redemption price per share ................................................. $ 18.74 ============ Maximum offering price per share (net asset value divided by 94.25%) ....................... $ 19.88 ============ Class B: Capital shares outstanding ................................... 325,181 Net assets ................................................... $ 5,638,684 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 17.34 ============ Class C: Capital shares outstanding ................................... 91,003 Net assets ................................................... $ 1,614,238 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 17.74 ============ (1) Investments, at cost ..................................... $ 18,631,288 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ................................................. $ 211,938 Interest .................................................. 5,407 ------------ Total investment income ................................... 217,345 ------------ Expenses: Management fees ........................................... 178,309 Custodian fees ............................................ 4,443 Transfer agent/maintenance fees ........................... 51,563 Administration fees ....................................... 22,156 Directors' fees ........................................... 525 Professional fees ......................................... 8,717 Reports to shareholders ................................... 3,224 Registration fees ......................................... 29,057 Other expenses ............................................ 1,645 12b-1 distribution plan fees - Class A .................... 24,995 12b-1 distribution plan fees - Class B .................... 61,508 12b-1 distribution plan fees - Class C .................... 16,822 ------------ Total expenses ............................................ 402,964 Less: Expenses waived .................................... (29,503) Earnings credits ..................................... (900) ------------ Net expenses .............................................. 372,561 ------------ Net investment loss ....................................... (155,216) ------------ Net Realized and Unrealized Gain: Net realized gain during the period on Investments ............................................... 798,923 ------------ Net realized gain ........................................ 798,923 ------------ Net change in unrealized appreciation during the period on Investments ............................................... 188,654 ------------ Net unrealized appreciation ............................... 188,654 ------------ Net gain .................................................. 987,577 ------------ Net increase in net assets resulting from operations ................................ $ 832,361 ============ - -------------------------------------------------------------------------------- See accompanying notes. 85 Security Equity Fund Social Awareness Series Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ....................................................... $ (155,216) $ (179,491) Net realized gain (loss) during the period on investments ................. 798,923 (902,119) Net change in unrealized appreciation during the period on investments .... 188,654 3,990,064 ------------ ------------ Net increase in net assets resulting from operations ...................... 832,361 2,908,454 ------------ ------------ Capital share transactions: Proceeds from sale of shares Class A .................................................................. 2,812,864 2,824,966 Class B .................................................................. 544,989 681,521 Class C .................................................................. 321,631 489,488 Cost of shares redeemed Class A .................................................................. (2,826,052) (2,475,626) Class B .................................................................. (1,343,364) (1,664,723) Class C .................................................................. (326,581) (295,687) ------------ ------------ Net decrease from capital share transactions .............................. (816,513) (440,061) ------------ ------------ Net increase in net assets ................................................ 15,848 2,468,393 Net assets: Beginning of period ....................................................... 16,944,988 14,476,595 ------------ ------------ End of period ............................................................. $ 16,960,836 $ 16,944,988 ============ ============ Accumulated net investment income at end of period ........................ $ -- $ -- ============ ============ Capital Share Activity: Shares sold Class A .................................................................. 146,627 169,124 Class B .................................................................. 30,639 44,117 Class C .................................................................. 17,701 30,846 Shares redeemed Class A .................................................................. (146,827) (149,561) Class B .................................................................. (75,487) (107,048) Class C .................................................................. (17,726) (19,076)
- -------------------------------------------------------------------------------- See accompanying notes. 86 Security Equity Fund Social Awareness Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 17.84 $ 14.75 $ 17.95 $ 26.04 $ 24.05 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.10) (0.13) (0.11) (0.07) (0.13) Net gain (loss) on securities (realized and unrealized) 1.00 3.22 (3.09) (7.55) 2.50 ------------------------------------------------------------------ Total from investment operations 0.90 3.09 (3.20) (7.62) 2.37 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.47) (0.38) ------------------------------------------------------------------ Total distributions -- -- -- (0.47) (0.38) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 18.74 $ 17.84 $ 14.75 $ 17.95 $ 26.04 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 5.04% 20.95% (17.83%) (29.71%) 9.88% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 9,708 $ 9,243 $ 7,355 $ 10,909 $ 17,702 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.55%) (0.76%) (0.58%) (0.30%) (0.51%) Total expenses 1.77% 2.05% 1.66% 1.43% 1.42% Gross expenses(b) 1.93% 2.05% 1.66% 1.43% 1.42% Net expenses(d) 1.76% 2.05% 1.66% 1.43% 1.42% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 26% 3% 17% 26% Year Ended September 30, Class B 2004 2003 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 16.63 $ 13.85 $ 17.01 $ 24.96 $ 23.35 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.23) (0.24) (0.26) (0.28) (0.38) Net gain (loss) on securities (realized and unrealized) 0.94 3.02 (2.90) (7.20) 2.37 ------------------------------------------------------------------ Total from investment operations 0.71 2.78 (3.16) (7.48) 1.99 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.47) (0.38) ------------------------------------------------------------------ Total distributions -- -- -- (0.47) (0.38) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 17.34 $ 16.63 $ 13.85 $ 17.01 $ 24.96 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 4.27% 20.07% (18.58%) (30.44%) 8.53% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 5,639 $ 6,153 $ 5,999 $ 8,969 $ 12,633 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.30%) (1.51%) (1.49%) (1.31%) (1.52%) Total expenses 2.52% 2.80% 2.57% 2.43% 2.43% Gross expenses(b) 2.68% 2.80% 2.57% 2.43% 2.43% Net expenses(d) 2.51% 2.80% 2.57% 2.43% 2.43% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 26% 3% 17% 26%
- -------------------------------------------------------------------------------- See accompanying notes. 87 Security Equity Fund Social Awareness Series Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(e) 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 17.01 $ 14.17 $ 17.40 $ 25.50 $ 23.87 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.24) (0.24) (0.26) (0.28) (0.41) Net gain (loss) on securities (realized and unrealized) 0.97 3.08 (2.97) (7.35) 2.42 ------------------------------------------------------------------ Total from investment operations 0.73 2.84 (3.23) (7.63) 2.01 - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains -- -- -- (0.47) (0.38) ------------------------------------------------------------------ Total distributions -- -- -- (0.47) (0.38) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 17.74 $ 17.01 $ 14.17 $ 17.40 $ 25.50 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 4.29% 20.04% (18.56%) (30.39%) 8.43% - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 1,614 $ 1,548 $ 1,123 $ 1,126 $ 918 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.30%) (1.51%) (1.48%) (1.33%) (1.64%) Total expenses 2.52% 2.80% 2.57% 2.45% 2.55% Gross expenses(b) 2.68% 2.80% 2.57% 2.45% 2.55% Net expenses(d) 2.51% 2.80% 2.57% 2.45% 2.55% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 28% 26% 3% 17% 26%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. - -------------------------------------------------------------------------------- See accompanying notes. 88 Security Large Cap Value Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- YOU, YOUR ADVISOR AND Dreyfus A MELLON FINANCIAL COMPANY Subadvisor, Dreyfust [PHOTO OMITTED] Brian C. Ferguson Portfolio Manager To our Shareholders: Portfolio Review U.S. equity markets have experienced lower volatility in 2004, ostensibly due to continuing uncertainty as pressures of war, rising energy prices, terrorism and the U.S. presidential election created a tentativeness that was apparent in both market activity and liquidity. After a string of healthy quarterly profits, most of the S&P 500 companies will face tougher comparisons. As a result, this has led to more modest earnings expectations over the next few quarters, creating an additional drag on the market. Seemingly, market perception is the driver behind the latest sector and industry trends, as the market wavers between a focus on earnings deceleration and a healthy absolute growth rate. One distinct hallmark of post Sarbanes-Oxley corporate America is fiscal frugality. Non-financial corporations have been piling up cash at the fastest pace in the last three decades, creating the highest ratio of cash-to-debt (24%) for public companies since 1969. In addition, these cash hoards have grown as companies are paying down debt and buying back stock at nearly twice the pace of 2003. The preference for increased levels of cash and lower debt reflects a broader level of conservatism and risk assessment among corporations, who are willing to tolerate an underperforming asset (cash) rather than be excessively leveraged. While there has been a palatable pause due in part to the confluence of these events, the economy remains healthy and more normalized growth rates in GDP and equity returns should be the trend in this phase of expansion. Increasing corporate expenditures, sinking jobless claims, and improving fundamentals should offset the rise in interest rates and underpin a sustainable advance by the U.S. large cap market. Despite posting a solid absolute return of 11.98%(1) for the 12 months ended September 30, 2004, the Fund lagged the S&P BARRA Value index, which advanced 20.47% during the period. While the Fund had strong performance in many of the capital goods and industrial-related stocks it was overshadowed by weakness in healthcare, information technology, financials and consumer staples. The portfolio had been positioned to take advantage of a stronger economic environment with the expectation that many companies would be more aggressive in utilizing the substantial cash balances that have been built up the last few years. However, this has been slower to materialize than we had forecast. Capital goods and industrial-related stocks Ericsson, United Technologies, Corning and Eaton lead performance during the period as corporate capital spending witnessed a steady uptick after the severe pull back of the past few years. Energy holdings Exxon, BP and Schlumberger helped round out the other top-performing stocks as energy prices spiked on strong global demand. The healthcare sector had the greatest impact on the Fund's relative return as medical distributors Cardinal Health and McKesson sold off after Cardinal reported accounting irregularities. The portfolio was also impacted by an overweight position in the weak pharmaceutical industry, which acted as a drag on the relative performance. Information technology lagged due to a rise in global inventories, mainly in the weak semiconductor industry. The portfolio was overweight in the industry and holdings in Intel, Agere Systems and ST Microelectronics were the main detractors. Financial services trailed on a relative basis as mortgage lender Fannie Mae sold off on accounting issues and fears that regulatory pressures would hinder earnings growth going forward. Overweight positions in food retailers, Safeway and Kroger, also hurt performance as both firms continue to struggle after a workers' strike in southern California. Although less robust than 2003, we expect the economy to continue at a more modest 3-4% growth rate. Stock valuations have tightened up in various segments of the equity markets. This should play to our strength in fundamental research and stock selection. Our portfolio team is focusing on the most severely discounted stocks across all sectors. On a broader level, there has been a distinct shift away from a consumer-driven economic expansion, as the credit tightening cycle is underway and energy prices now command a greater portion of household income. Heading into the fourth quarter, outlooks have admittedly shifted to 2005 with the expectation that equity markets will rise moderately in an earnings-driven environment. For our portfolio, these events emphasize company valuations and our investment philosophy leads our management team to focus on opportunities to initiate new positions or increase current ones at undervalued price levels. Sincerely, Brian C. Ferguson Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. - -------------------------------------------------------------------------------- 89 Security Large Cap Value Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Large Cap Value Fund vs. S&P Barra Value Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] Large Cap Value Fund $16,800 DATE VALUE ---- ----- 9/30/1994 9,425.00 12/31/1994 9,791.40 3/31/1995 10,364.74 6/30/1995 11,344.93 9/30/1995 12,023.97 12/31/1995 12,507.79 3/31/1996 13,358.00 6/30/1996 13,885.22 9/30/1996 14,394.19 12/31/1996 14,847.28 3/31/1997 14,810.41 6/30/1997 16,862.35 9/30/1997 19,476.08 12/31/1997 19,551.80 3/31/1998 21,140.75 6/30/1998 20,447.82 9/30/1998 17,928.15 12/31/1998 19,491.21 3/31/1999 19,491.21 6/30/1999 22,291.67 9/30/1999 20,079.31 12/31/1999 19,980.30 3/31/2000 18,791.34 6/30/2000 17,776.38 9/30/2000 18,617.35 12/31/2000 18,532.91 3/31/2001 17,275.95 6/30/2001 17,977.51 9/30/2001 15,697.43 12/31/2001 17,497.73 3/31/2002 17,292.22 6/30/2002 15,413.27 9/30/2002 12,477.41 12/31/2002 13,270.09 3/31/2003 12,594.84 6/30/2003 14,473.79 9/30/2003 15,002.24 12/31/2003 16,887.88 3/31/2004 17,417.47 6/30/2004 17,211.52 9/30/2004 16,799.62 S&P Barra Value index $28,650 DATE VALUE ---- ----- 9/30/1994 $10,000.00 12/31/1994 9,924.76 3/31/1995 10,881.50 6/30/1995 11,828.88 9/30/1995 12,769.23 12/31/1995 13,595.13 3/31/1996 14,463.96 6/30/1996 14,760.93 9/30/1996 15,150.04 12/31/1996 16,587.04 3/31/1997 16,880.61 6/30/1997 19,322.71 9/30/1997 21,092.89 12/31/1997 21,558.95 3/31/1998 24,049.08 6/30/1998 24,172.09 9/30/1998 21,051.61 12/31/1998 24,720.89 3/31/1999 25,425.76 6/30/1999 28,170.37 9/30/1999 25,574.08 12/31/1999 27,866.88 3/31/2000 27,932.63 6/30/2000 26,732.15 9/30/2000 29,090.58 12/31/2000 29,565.32 3/31/2001 27,633.66 6/30/2001 28,850.97 9/30/2001 24,175.37 12/31/2001 26,101.30 3/31/2002 26,445.72 6/30/2002 23,629.81 9/30/2002 18,795.31 12/31/2002 20,653.39 3/31/2003 19,516.07 6/30/2003 23,192.44 9/30/2003 23,781.79 12/31/2003 27,221.51 3/31/2004 28,133.95 6/30/2004 28,356.87 9/30/2004 28,649.96 $10,000 Over Ten Years This chart assumes a $10,000 investment in Class A shares of Large Cap Value Fund on September 30, 1994, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ----------------------------------------------------- Portfolio Composition by Sector - ----------------------------------------------------- Consumer Discretionary 12.86% - ----------------------------------------------------- Consumer Staples 2.93 - ----------------------------------------------------- Energy 11.96 - ----------------------------------------------------- Financials 34.30 - ----------------------------------------------------- Health Care 2.56 - ----------------------------------------------------- Industrials 9.55 - ----------------------------------------------------- Information Technology 11.31 - ----------------------------------------------------- Materials 2.86 - ----------------------------------------------------- Telecommunication Services 5.79 - ----------------------------------------------------- Utilities 3.45 - ----------------------------------------------------- Preferred Stocks 0.87 - ----------------------------------------------------- Corporate Bonds 0.25 - ----------------------------------------------------- U.S. Government Sponsored Agency 0.24 - ----------------------------------------------------- Cash & other assets, less liabilities 1.07 - ----------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns - -------------------------------------------------------------------------------- Periods Ended 9-30-04 Since 1 Year 5 Years 10 Years Inception - -------------------------------------------------------------------------------- A Shares 11.98% (3.50%) 5.31% N/A - -------------------------------------------------------------------------------- A Shares with sales charge 5.54% (4.64%) 4.69% N/A - -------------------------------------------------------------------------------- B Shares 11.29% (4.37%) 4.30% N/A - -------------------------------------------------------------------------------- B Shares with CDSC 7.29% (4.37%) 4.30% N/A - -------------------------------------------------------------------------------- C Shares 11.29% (4.30%) N/A (3.22%) (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 11.29% (4.30%) N/A (3.22%) (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 90 Security Large Cap Value Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- Fund Expenses - -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------------- Large Cap Value Fund - - Class A Actual $1,000.00 $ 964.50 $ 7.75 Hypothetical 1,000.00 1,017.24 7.96 - -------------------------------------------------------------------------------- Large Cap Value Fund - - Class B Actual 1,000.00 961.00 11.39 Hypothetical 1,000.00 1,013.52 11.69 - -------------------------------------------------------------------------------- Large Cap Value Fund - - Class C Actual 1,000.00 961.70 11.39 Hypothetical 1,000.00 1,013.52 11.69 - -------------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -3.55%, -3.90% and -3.83%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.57%, 2.31% and 2.31% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 91 Security Large Cap Value Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Preferred Stock - 0.9% Movies & Entertainment - 0.9% News Corporation, Ltd. ADR 15,500 $ 485,615 ----------- Total preferred stock (cost $400,204) 485,615 ----------- Common Stocks - 97.6% Advertising - 1.8% Omnicom Group, Inc. 13,700 1,000,922 ----------- 1,000,922 ----------- Aerospace & Defense - 4.1% Boeing Company 14,200 733,004 Rockwell Collins, Inc. 7,800 289,692 United Technologies Corporation 13,800 1,288,644 ----------- 2,311,340 ----------- Apparel, Accessories & Luxury Goods - 0.5% Jones Apparel Group, Inc. 7,500 268,500 ----------- 268,500 ----------- Broadcasting & Cable TV - 3.8% Clear Channel Communications, Inc. 29,600 922,632 Liberty Media Corporation* 118,000 1,028,960 Liberty Media International, Inc.* 4,875 162,640 ----------- 2,114,232 ----------- Communications Equipment - 1.4% Nokia Oyj ADR 56,100 769,692 ----------- 769,692 ----------- Computer Hardware - 2.3% Hewlett-Packard Company 14,700 275,625 International Business Machines Corporation 7,900 677,346 NCR Corporation* 6,300 312,417 ----------- 1,265,388 ----------- Consumer Electronics - 1.3% Koninklijke (Royal) Philips Electronics N.V. 32,200 737,702 ----------- 737,702 ----------- Data Processing & Outsourced Services - 3.2% Automatic Data Processing, Inc. 21,400 884,248 DST Systems, Inc.* 14,000 622,580 SunGard Data Systems, Inc.* 11,800 280,486 ----------- 1,787,314 ----------- Diversified Banks - 8.2% Bank of America Corporation 43,250 1,874,023 U.S. Bancorp 32,900 950,810 Wachovia Corporation 25,000 1,173,750 Wells Fargo & Company 9,900 590,337 ----------- 4,588,920 ----------- Diversified Capital Markets - 2.7% J.P. Morgan Chase & Company 38,300 $1,521,659 ----------- 1,521,659 ----------- Diversified Chemicals - 1.2% Dow Chemical Company 14,700 664,146 ----------- 664,146 ----------- Electric Utilities - 3.5% Entergy Corporation 8,200 497,002 Exelon Corporation 9,000 330,210 PG&E Corporation* 10,000 304,000 PPL Corporation 6,400 301,952 TXU Corporation 10,300 493,576 ----------- 1,926,740 ----------- Electrical Components & Equipment - 0.5% Emerson Electric Company 4,800 297,072 ----------- 297,072 ----------- Food Retail - 0.8% Safeway, Inc.* 24,300 469,233 ----------- 469,233 ----------- General Merchandise Stores - 0.6% Dollar General Corporation 16,200 326,430 ----------- 326,430 ----------- Health Care Equipment - 0.8% Boston Scientific Corporation* 10,700 425,111 ----------- 425,111 ----------- Health Care Services - 1.0% Medco Health Soulutions, Inc.* 18,000 556,200 NeighborCare, Inc.* 227 5,754 ----------- 561,954 ----------- Health Care Supplies - 0.2% Caremark Rx, Inc.* 3,900 125,073 ----------- 125,073 ----------- Household Products - 0.5% Kimberly-Clark Corporation 4,300 277,737 ----------- 277,737 ----------- Housewares & Specialties - 0.4% Newell Rubbermaid, Inc. 12,700 254,508 ----------- 254,508 ----------- Industrial Conglomerates - 4.2% General Electric Company 35,000 1,175,300 Tyco International, Ltd. 38,200 1,171,212 ----------- 2,346,512 ----------- Industrial Machinery - 0.7% Eaton Corporation 5,900 374,119 ----------- 374,119 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 92 Security Large Cap Value Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Integrated Oil & Gas - 8.9% BP plc ADR 14,700 $ 845,691 ChevronTexaco Corporation 15,000 804,600 ConocoPhillips 7,300 604,805 Exxon Mobil Corporation 40,200 1,942,866 Total S.A. ADR 7,300 745,841 ----------- 4,943,803 ----------- Integrated Telecommunication Services - 5.8% Alltel Corporation 12,300 675,393 Sprint Corporation 49,700 1,000,461 Verizon Communications, Inc. 39,500 1,555,510 ----------- 3,231,364 ----------- Investment Banking & Brokerage - 5.9% Goldman Sachs Group, Inc. 12,800 1,193,472 Merrill Lynch & Company, Inc. 14,300 710,996 Morgan Stanley 28,200 1,390,260 ----------- 3,294,728 ----------- Life & Health Insurance - 3.6% Genworth Financial, Inc.* 29,200 680,360 Prudential Financial, Inc. 21,600 1,016,064 UnumProvident Corporation 19,500 305,955 ----------- 2,002,379 ----------- Movies & Entertainment - 1.9% Viacom, Inc. (Cl.B) 31,800 1,067,208 ----------- 1,067,208 ----------- Multi-Line Insurance - 4.3% American International Group, Inc. 25,900 1,760,941 Hartford Financial Services Group, Inc. 10,500 650,265 ----------- 2,411,206 ----------- Office Electronics - 0.5% Xerox Corporation* 19,900 280,192 ----------- 280,192 ----------- Oil & Gas Equipment & Services - 1.7% Cooper Cameron Corporation* 6,200 340,008 Schlumberger, Ltd. 9,000 605,790 ----------- 945,798 ----------- Oil & Gas Exploration & Production - 1.4% Apache Corporation 8,500 425,935 Pioneer Natural Resources Company 10,400 358,592 ----------- 784,527 ----------- Other Diversified Financial Services - 3.8% Citigroup, Inc. 48,566 2,142,732 ----------- 2,142,732 ----------- Packaged Foods & Meats - 1.0% Kraft Foods, Inc. 17,400 551,928 ----------- 551,928 ----------- Paper Products - 1.7% Bowater, Inc. 7,300 278,787 International Paper Company 16,100 650,601 ----------- 929,388 ----------- Pharmaceuticals - 0.6% Barr Pharmaceuticals, Inc.* 7,700 319,011 ----------- 319,011 ----------- Property & Casualty Insurance - 0.6% Allstate Corporation 7,000 335,930 St. Paul Travelers Companies, Inc. 2 66 ----------- 335,996 ----------- Regional Banks - 1.1% PNC Financial Services Group 5,700 308,370 SunTrust Banks, Inc. 4,300 302,763 ----------- 611,133 ----------- Restaurants - 1.2% McDonald's Corporation 24,000 672,720 ----------- 672,720 ----------- Semiconductors - 0.7% Fairchild Semiconductor International, Inc.* 26,600 376,922 ----------- 376,922 ----------- Specialty Stores - 1.3% Advance Auto Parts, Inc.* 9,800 337,120 AutoZone, Inc.* 5,100 393,975 ----------- 731,095 ----------- Systems Software - 3.3% Microsoft Corporation 41,800 1,155,770 Oracle Corporation* 59,800 674,544 ----------- 1,830,314 ----------- Thrifts & Mortgage Finance - 4.0% Countrywide Financial Corporation 5,400 212,706 Fannie Mae 5,500 348,700 Freddie Mac 13,000 848,120 PMI Group, Inc. 20,200 819,716 ----------- 2,229,242 ----------- Tobacco - 0.6% Altria Group, Inc. 7,200 338,688 ----------- 338,688 ----------- Total common stocks (cost $51,812,588) 54,444,678 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 93 Security Large Cap Value Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Corporate Bonds - 0.2% Refining - 0.2% Crown Central Petroleum Corporation, 10.875% - 2005 $200,000 $ 141,000 ----------- 141,000 ----------- Services - 0.0% American Eco Corporation, 9.625% - 2008*(1,2) 125,000 -- ----------- -- ----------- Total corporate bonds (cost $325,265) 141,000 ----------- U.S. Government Sponsored Agencies - 0.2% Federal Home Loan Bank, 1.60%, 10-01-04 135,000 135,000 ----------- Total U.S. government sponsored agencies (cost $135,000) 135,000 ----------- Total investments (cost $52,673,058) - 98.9% 55,206,293 Cash & other assets, less liabilities - 1.1% 589,303 ----------- Total net assets - 100.0% $55,795,596 =========== For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $52,934,037. * Non-income producing security ADR (American Depositary Receipt) plc (public limited company) (1) Security is in default due to bankruptcy. (2) Security is fair valued by the Board of Directors. The total market value of fair valued securities amounts to $0 or 0.0% of total assets. - -------------------------------------------------------------------------------- See accompanying notes. 94 Security Large Cap Value Fund - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) ..................................... $ 55,206,293 Cash ......................................................... 123 Receivables: Fund shares sold .......................................... 7,513 Securities sold ........................................... 742,057 Interest .................................................. 3,605 Dividends ................................................. 66,585 Prepaid expenses ............................................. 20,468 ------------ Total assets ................................................. 56,046,644 ------------ Liabilities: Payable for: Securities purchased ...................................... 124,537 Fund shares redeemed ...................................... 8,046 Management fees ........................................... 34,693 Custodian fees ............................................ 1,700 Transfer and administration fees .......................... 20,250 Professional fees ......................................... 9,194 12b-1 distribution plan fees .............................. 36,127 Other ..................................................... 16,501 ------------ Total liabilities ............................................ 251,048 ------------ Net Assets ................................................... $ 55,795,596 ============ Net assets consist of: Paid in capital .............................................. $ 67,921,188 Accumulated undistributed net investment income .................................................... 56,499 Accumulated undistributed net realized loss on sale of investments .................................... (14,715,326) Net unrealized appreciation in value of investments ................................... 2,533,235 ------------ Net assets ................................................... $ 55,795,596 ============ Class A: Capital shares outstanding ................................... 7,538,632 Net assets ................................................... $ 43,070,908 Net asset value and redemption price per share .................................................. $ 5.71 ============ Maximum offering price per share (net asset value divided by 94.25%) ....................... $ 6.06 ============ Class B: Capital shares outstanding ................................... 1,876,045 Net assets ................................................... $ 10,163,756 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 5.42 ============ Class C: Capital shares outstanding ................................... 464,345 Net assets ................................................... $ 2,560,932 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ......................... $ 5.52 ============ (1)Investments, at cost ...................................... $ 52,673,058 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ................................................. $ 1,087,549 Interest .................................................. 30,614 ------------ Total investment income ................................... 1,118,163 ------------ Expenses: Management fees ........................................... 491,519 Custodian fees ............................................ 9,091 Transfer agent/maintenance fees ........................... 171,519 Administration fees ....................................... 60,932 Directors' fees ........................................... 30,205 Professional fees ......................................... 13,863 Reports to shareholders ................................... 8,482 Registration fees ......................................... 39,115 Other expenses ............................................ 7,814 12b-1 distribution plan fees - Class A .................... 124,221 12b-1 distribution plan fees - Class B .................... 131,307 12b-1 distribution plan fees - Class C .................... 27,171 ------------ Total expenses ............................................ 1,115,239 Less: Earnings credits ................................... (826) ------------ Net expenses .............................................. 1,114,413 ------------ Net investment income ..................................... 3,750 ------------ Net Realized and Unrealized Gain: Net realized gain during the period on Investments ............................................... 5,850,836 ------------ Net realized gain ......................................... 5,850,836 ------------ Net change in unrealized appreciation during the period on Investments ............................................... 1,248,889 ------------ Net unrealized appreciation ............................... 1,248,889 ------------ Net gain .................................................. 7,099,725 ------------ Net increase in net assets resulting from operations ................................ $ 7,103,475 ============ - -------------------------------------------------------------------------------- See accompanying notes. 95 Security Large Cap Value Fund Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - ------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations: Net investment income ..................................................... $ 3,750 $ 117,302 Net realized gain (loss) during the period on investments ................. 5,850,836 (4,625,189) Net change in unrealized appreciation during the period on investments .... 1,248,889 12,145,945 ------------ ------------ Net increase in net assets resulting from operations ...................... 7,103,475 7,638,058 ------------ ------------ Distributions to shareholders from: Net investment income Class A .................................................................. (112,367) -- Class B .................................................................. -- -- Class C .................................................................. -- -- ------------ ------------ Total distributions to shareholders ....................................... (112,367) -- ------------ ------------ Capital share transactions: Proceeds from sale of shares Class A .................................................................. 9,899,761 15,980,582 Class B .................................................................. 4,542,029 8,414,192 Class C .................................................................. 1,821,834 955,668 Distributions reinvested Class A .................................................................. 105,691 -- Class B .................................................................. -- -- Class C .................................................................. -- -- Cost of shares redeemed Class A .................................................................. (18,334,145) (9,542,638) Class B .................................................................. (7,295,608) (2,539,716) Class C .................................................................. (1,609,840) (643,187) ------------ ------------ Net increase (decrease) from capital share transactions ................... (10,870,278) 12,624,901 ------------ ------------ Net increase (decrease) in net assets ..................................... (3,879,170) 20,262,959 ------------ ------------ Net assets: Beginning of period ....................................................... 59,674,766 39,411,807 ------------ ------------ End of period ............................................................. $ 55,795,596 $ 59,674,766 ============ ============ Accumulated undistributed net investment income at end of period .......... $ 56,499 $ 154,396 ============ ============ Capital Share Activity: Shares sold Class A .................................................................. 1,736,330 3,275,684 Class B .................................................................. 832,794 1,770,126 Class C .................................................................. 324,573 207,972 Shares reinvested Class A .................................................................. 18,840 -- Class B .................................................................. -- -- Class C .................................................................. -- -- Shares redeemed Class A .................................................................. (3,197,972) (2,059,730) Class B .................................................................. (1,357,469) (571,007) Class C .................................................................. (290,056) (141,469)
- -------------------------------------------------------------------------------- See accompanying notes. 96 Security Large Cap Value Fund Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004 2003 2002(f,h) 2001(e) 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 5.11 $ 4.25 $ 5.37 $ 6.42 $ 7.17 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) 0.01 0.02 0.01 0.03 0.07 Net gain (loss) on securities (realized and unrealized) 0.60 0.84 (1.10) (1.03) (0.58) ------------------------------------------------------------------ Total from investment operations 0.61 0.86 (1.09) (1.00) (0.51) - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income (0.01) -- (0.03) (0.05) (0.13) Distributions from realized gains -- -- -- -- (0.11) ------------------------------------------------------------------ Total distributions (0.01) -- (0.03) (0.05) (0.24) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.71 $ 5.11 $ 4.25 $ 5.37 $ 6.42 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.98% 20.24% (20.51%) (15.68%) (7.28%) - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 43,071 $ 45,858 $ 32,997 $ 45,006 $ 60,448 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) 0.19% 0.41% 0.20% 0.49% 0.99% Total expenses 1.52% 1.45% 1.37% 1.32% 1.27% Gross expenses(b) 1.52% 1.45% 1.37% 1.32% 1.27% Net expenses(d) 1.52% 1.45% 1.37% 1.32% 1.27% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 76% 68% 180% 144% Year Ended September 30, Class B 2004 2003 2002(f,h) 2001(e) 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 4.87 $ 4.08 $ 5.18 $ 6.21 $ 6.95 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.03) (0.02) (0.04) (0.03) -- Net gain (loss) on securities (realized and unrealized) 0.58 0.81 (1.06) (1.00) (0.58) ------------------------------------------------------------------ Total from investment operations 0.55 0.79 (1.10) (1.03) (0.58) - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- (0.05) Distributions from realized gains -- -- -- -- (0.11) ------------------------------------------------------------------ Total distributions -- _ -- -- (0.16) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.42 $ 4.87 $ 4.08 $ 5.18 $ 6.21 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.29% 19.36% (21.24%) (16.59%) (8.36%) - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 10,164 $ 11,687 $ 4,905 $ 5,657 $ 7,152 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.57%) (0.42%) (0.71%) (0.51%) 0.01% Total expenses 2.27% 2.20% 2.27% 2.32% 2.27% Gross expenses(b) 2.27% 2.20% 2.27% 2.32% 2.27% Net expenses(d) 2.27% 2.20% 2.27% 2.32% 2.27% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 76% 68% 180% 144%
- -------------------------------------------------------------------------------- See accompanying notes. 97 Security Large Cap Value Fund Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004 2003 2002(f,g,h) 2001(e) 2000 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 4.96 $ 4.16 $ 5.28 $ 6.32 $ 7.11 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.03) (0.02) (0.04) (0.03) (0.01) Net gain (loss) on securities (realized and unrealized) 0.59 0.82 (1.08) (1.01) (0.56) ------------------------------------------------------------------ Total from investment operations 0.56 0.80 (1.12) (1.04) (0.57) - ----------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- (0.11) Distributions from realized gains -- -- -- -- (0.11) ------------------------------------------------------------------ Total distributions -- -- -- -- (0.22) - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 5.52 $ 4.96 $ 4.16 $ 5.28 $ 6.32 ================================================================== - ----------------------------------------------------------------------------------------------------------------------------- Total Return(a) 11.29% 19.23% (21.21%) (16.46%) (8.10%) - ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 2,561 $ 2,130 $ 1,510 $ 904 $ 483 - ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (0.57%) (0.33%) (0.72%) (0.55%) (0.10%) Total expenses 2.28% 2.20% 2.25% 2.33% 2.28% Gross expenses(b) 2.28% 2.20% 2.25% 2.33% 2.28% Net expenses(d) 2.28% 2.20% 2.25% 2.33% 2.28% - ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 75% 76% 68% 180% 144%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The Dreyfus Corporation became sub-adviser of Security Large Cap Value Fund effective January 1, 2001. Prior to January 1, 2001, advisory services were provided by the Investment Manager. (f) As required, effective October 1, 2001, the Funds adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premiums on fixed income securities. The effect of this change for the period ended September 30, 2002, was to increase net investment income per share by less than 1/2 of a cent, decrease net realized and unrealized gains and losses per share by less than 1/2 of a cent and increase the ratio of net investment income to average net assets from 0.06% to 0.07%. Per share, ratios and supplemental data for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. (g) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 30, 2002. (h) Effective May 1, 2002 the fee structure for Security Large Cap Value Fund changed. Per share information reflects this change.See accompanying notes. - -------------------------------------------------------------------------------- 98 Security Mid Cap Growth Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- [LOGO] Security Funds Advisor, Security Management Company, LLC [PHOTO OMITTED] James P. Schier Senior Portfolio Manager To Our Shareholders: Following double-digit returns in 2003, fiscal year 2004 proved to be more challenging for the Security Mid Cap Growth Fund. For the 12-month period ended September 30, 2004, the Fund returned 5.23%(1), but lagged the S&P Mid Cap Growth Index's gain of 11.73%. Our strategy for the Fund is to seek appreciable securities of companies that are able to grow and/or reinvest in increasingly profitable ventures and hold them over three to five years to capture the best part of the improvements in profits or profitability, and the strategy continues to work. We are focused on investing in securities when we find opportunities, with our individual position sizes reflecting the magnitude of our confidence in the opportunity. For this Fund, we target securities of companies that appear likely to generate above-average profitability at prices that, as of yet, do not reflect that potential. Technology and Consumer Discretionary Led Returns The Fund's technology holdings overall rose more than 5% with 10 positions gaining more than 50% in value. Two of these, Monolithic Systems and XICOR, were the result of proposed buy-outs while the rest represented old-fashioned strong demand for needed products and services. Mature companies with earnings and cash flow also outperformed. The most significant contributors in this area were Acxiom up 51%, Microsemiconductor up 86%, KFX Inc. up 53%, Commscope up 66% and Harris Corporation up 55%. The consumer discretionary sector gained 32% over the year. Lion's Gate Entertainment, which produces films and series for TV and cable, gained 190%. Lion's Gate is very effective at producing low-cost films that can be profitable on relatively low revenue generation. The company's large library of 6,000 films and its prestigious partners, including Microsoft, Cisco and Blockbuster, have increased interest in the company, especially after SONY acquired MGM. Healthcare and Small Capitalization Names Hit Hard in July and August After a good start to the year, the Fund succumbed to a significant sell-off in July and August that hit the biotechnology exposure hard. The Fund's health care holdings declined 23% in value. Hollis-Eden and Sciclone Pharmaceuticals declined approximately 55% on profit taking after other companies announced new therapeutic agents that address the diseases targeted by these companies. In addition, Ligand Pharmaceuticals, an especially large holding, declined 22%. The company's auditors resigned causing the market to become concerned. We interpret Ligand's circumstances to be short term in nature, and we believe the stock will regain as the company's leading pain relief drug continues to gain market share. Some of the Fund's smaller-capitalization holdings also experienced similar declines. With a lack of long-term negative news, such corrections are usually quick to reverse once company fundamentals have a chance to emerge. In technology, the market became concerned that an anticipated inventory build-up of semiconductor and telecom equipment was a sign of an aborted recovery. We believe that the build-up was largely planned as part of the upcoming infrastructure upgrade the incumbent phone companies are embarking on as they replace outdated twisted pair copper technologies with IP-based infrastructure. Luckily this thesis appears to be playing out in 2004's fourth calendar quarter. Muted Outlook for 2005 With 2004 being the second up year in the market, the equity market is not offering compelling opportunities and sectors lack dramatic mispricing. Our proprietary valuation work continues to suggest there are better opportunities in smaller-capitalization names. However, the valuation discounts are less than they were five to seven years ago. Growth names appear to offer slightly better opportunity than value names; however, equity valuations are not cheap, and with profit margins high, there is little opportunity for expanding earnings growth. New issuances and secondary offerings have been abundant this past year, and it is discomforting to find corporations so eager to sell stock. >From a macro standpoint, we believe the economy may slow in 2005, as the benefits of stimulus from tax cuts and mortgage refinancing seem largely spent. At this point, the best catalyst for growth may be a significant drop in crude oil prices and a rebound in capital deployment by corporations from the cash balances accrued in this recovery. While there are many exciting small-and mid-cap companies to choose from, we believe investors should have exposure to this portion of the equity market. With low fixed income rates providing a significant prop to equity valuations, it is hard to believe that equities are priced to provide double-digit returns in the year ahead. Sincerely, James P. Schier Senior Portfolio Manager (1) Performance figures are based on Class A shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. - -------------------------------------------------------------------------------- 99 Security Mid Cap Growth Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Security Mid Cap Growth Fund vs. S&P Midcap Growth Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.] Security Mid Cap Growth Fund $32,575 DATE VALUE ---- ----- 9/30/1994 9,425.00 12/31/1994 9,994.92 3/31/1995 10,339.05 6/30/1995 11,027.33 9/30/1995 12,269.21 12/31/1995 11,923.38 3/31/1996 12,764.02 6/30/1996 13,810.53 9/30/1996 14,153.65 12/31/1996 14,072.59 3/31/1997 12,964.51 6/30/1997 14,792.84 9/30/1997 17,064.40 12/31/1997 16,580.54 3/31/1998 18,299.14 6/30/1998 17,928.08 9/30/1998 14,940.06 12/31/1998 19,356.71 3/31/1999 19,307.65 6/30/1999 22,447.90 9/30/1999 22,546.03 12/31/1999 30,906.59 3/31/2000 36,975.70 6/30/2000 34,961.16 9/30/2000 38,964.74 12/31/2000 35,983.70 3/31/2001 29,707.14 6/30/2001 33,115.22 9/30/2001 24,083.80 12/31/2001 30,726.65 3/31/2002 31,497.67 6/30/2002 25,900.62 9/30/2002 20,075.12 12/31/2002 22,245.41 3/31/2003 21,988.40 6/30/2003 28,327.91 9/30/2003 30,955.10 12/31/2003 34,702.84 3/31/2004 36,653.77 6/30/2004 36,565.09 9/30/2004 32,574.56 S&P Midcap Growth Index $35,652 DATE VALUE ---- ----- 9/30/1994 $10,000.00 12/31/1994 9,766.44 3/31/1995 10,567.69 6/30/1995 11,487.06 9/30/1995 12,697.20 12/31/1995 12,432.43 3/31/1996 13,337.78 6/30/1996 13,711.37 9/30/1996 14,260.99 12/31/1996 14,721.37 3/31/1997 14,328.04 6/30/1997 16,921.81 9/30/1997 19,963.72 12/31/1997 19,175.55 3/31/1998 21,516.69 6/30/1998 21,467.90 9/30/1998 18,210.75 12/31/1998 25,857.78 3/31/1999 24,401.72 6/30/1999 27,677.94 9/30/1999 25,753.34 12/31/1999 32,936.69 3/31/2000 39,180.39 6/30/2000 37,857.48 9/30/2000 42,160.24 12/31/2000 35,952.05 3/31/2001 29,426.45 6/30/2001 34,000.89 9/30/2001 27,147.81 12/31/2001 33,085.79 3/31/2002 34,227.91 6/30/2002 29,773.98 9/30/2002 25,439.88 12/31/2002 26,744.09 3/31/2003 25,937.55 6/30/2003 30,091.54 9/30/2003 31,899.96 12/31/2003 35,028.67 3/31/2004 36,633.98 6/30/2004 36,914.20 9/30/2004 35,652.45 $10,000 Over Ten Years This chart assumes a $10,000 investment in Class A shares of Security Mid Cap Growth Fund on September 30, 1994, reflects deduction of the 5.75% sales load and assumes all dividends reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. - ----------------------------------------------------- Portfolio Composition by Sector - ----------------------------------------------------- Consumer Discretionary 12.62% - ----------------------------------------------------- Energy 10.58 - ----------------------------------------------------- Exchange Traded Funds 5.71 - ----------------------------------------------------- Financials 4.08 - ----------------------------------------------------- Health Care 13.86 - ----------------------------------------------------- Industrials 11.68 - ----------------------------------------------------- Information Technology 33.42 - ----------------------------------------------------- Materials 3.18 - ----------------------------------------------------- Utilities 3.73 - ----------------------------------------------------- Warrants 0.10 - ----------------------------------------------------- Cash & other assets, less liabilities 1.04 - ----------------------------------------------------- - -------------------------------------------------------------------------------- Average Annual Returns - -------------------------------------------------------------------------------- Periods Ended 9-30-04 Since 1 Year 5 Years 10 Years Inception - -------------------------------------------------------------------------------- A Shares 5.23% 7.53% 12.43% N/A - -------------------------------------------------------------------------------- A Shares with sales charge (0.82%) 6.27% 11.77% N/A - -------------------------------------------------------------------------------- B Shares 4.44% 6.57% 11.35% N/A - -------------------------------------------------------------------------------- B Shares with CDSC 0.44% 6.57% 11.35% N/A - -------------------------------------------------------------------------------- C Shares 4.59% 6.75% N/A 7.91% (1-29-99) - -------------------------------------------------------------------------------- C Shares with CDSC 4.59% 6.75% N/A 7.91% (1-29-99) - -------------------------------------------------------------------------------- The performance data above represent past performance that 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 the contingent deferred sales charge of 5% for Class B shares and 1% for Class C shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of fund shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. - -------------------------------------------------------------------------------- See accompanying notes. 100 Security Mid Cap Growth Fund (unaudited) Manager's Commentary November 15, 2004 - -------------------------------------------------------------------------------- PERFORMANCE Information About Your Fund's Expenses Calculating your ongoing fund expenses Example As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, April 1, 2004 - September 30, 2004. Actual Expenses The first line for each class of shares in the table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second line for each class of shares on the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. - -------------------------------------------------------------------------------- Fund Expenses - -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During 04-01-04 09-30-04(1) Period(2) - -------------------------------------------------------------------------------- Mid Cap Growth Fund - - Class A Actual $1,000.00 $ 888.70 $ 6.74 Hypothetical 1,000.00 1,018.00 7.20 - -------------------------------------------------------------------------------- Mid Cap Growth Fund - - Class B Actual 1,000.00 884.90 10.28 Hypothetical 1,000.00 1,014.23 10.99 - -------------------------------------------------------------------------------- Mid Cap Growth Fund - - Class C Actual 1,000.00 885.40 10.28 Hypothetical 1,000.00 1,014.23 10.99 - -------------------------------------------------------------------------------- (1) The actual ending account value is based on the actual total return of the Fund for the period April 1, 2004 to September 30, 2004 after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period April 1, 2004 to September 30, 2004 was -11.13%, -11.51% and -11.46%, for Class A, B and C class shares, respectively. (2) Expenses are equal to the Fund's annualized expense ratio (1.42%, 2.17% and 2.17% for Class A, B and C class shares, respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). - -------------------------------------------------------------------------------- 101 Security Mid Cap Growth Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks - 98.9% Application Software - 2.3% Cognos, Inc.* 4,100 $ 145,632 Hyperion Solutions Corporation*(1) 50,000 1,699,500 InteliData Technologies Corporation* 393,250 133,705 Tibco Software, Inc.* 289,600 2,464,496 ----------- 4,443,333 ----------- Asset Management & Custody Banks - 3.0% Northern Trust Corporation 104,000 4,243,200 Waddell & Reed Financial, Inc. 70,000 1,540,000 ----------- 5,783,200 ----------- Biotechnology - 3.9% Cell Genesys, Inc.* 54,000 484,380 Charles River Laboratories International, Inc.* 34,000 1,557,200 Chiron Corporation* 34,000 1,502,800 Kosan Biosciences, Inc.* 169,100 974,016 La Jolla Pharmaceutical Company* 29,200 89,060 Novavax, Inc.* 126,000 393,120 SciClone Pharmaceuticals, Inc.* 339,367 1,208,147 Strategic Diagnostics Inc.* 206,300 441,482 Vical, Inc.* 156,000 748,956 ----------- 7,399,161 ----------- Casinos & Gaming - 1.7% GTech Holdings Corporation 130,000 3,291,600 ----------- 3,291,600 ----------- Commodity Chemicals - 0.8% Headwaters, Inc.* 50,000 1,543,000 ----------- 1,543,000 ----------- Communications Equipment - 8.5% ADC Telecommunications, Inc.* 1,200,000 2,172,000 Andrew Corporation* 280,000 3,427,200 Avici Systems, Inc.* 121,500 755,730 Ciena Corporation* 280,000 554,400 Cisco Systems, Inc.* 39,700 718,570 EFJ, Inc.* 63,600 426,120 Extreme Networks, Inc.* 250,000 1,112,500 Finisar Corporation* 1,255,900 1,632,670 Harmonic, Inc.* 200,000 1,330,000 Harris Corporation 53,700 2,950,278 Symmetricom, Inc.* 126,000 1,191,960 ----------- 16,271,428 ----------- Computer Storage & Peripherals - 0.9% Adaptec, Inc.* 213,500 1,622,600 Maxtor Corporation* 38,867 202,108 ----------- 1,824,708 ----------- Construction & Engineering - 1.6% Shaw Group, Inc.* 253,700 3,044,400 ----------- 3,044,400 ----------- Data Processing & Outsourced Services - 3.2% Computer Sciences Corporation* 85,000 $ 4,003,500 Hewitt Associates, Inc.* 36,000 952,560 Per-Se Technologies, Inc.* 74,000 1,015,280 Sabre Holdings Corporation 6,700 164,351 ----------- 6,135,691 ----------- Diversified Commercial Services - 2.6% Cendant Corporation 20,000 432,000 ChoicePoint, Inc.* 47,000 2,004,550 Equifax, Inc. 41,390 1,091,040 Navigant Consulting, Inc.* 64,800 1,423,008 ----------- 4,950,598 ----------- Electric Utilities - 3.7% KFx Inc.* 924,000 7,124,040 ----------- 7,124,040 ----------- Electrical Components & Equipment - 4.8% American Power Conversion Corporation 2,600 45,214 Electric City Corporation*(2,3) 1,068,000 1,473,840 Plug Power, Inc.* 504,000 3,230,640 Power-One, Inc.* 685,000 4,438,800 ----------- 9,188,494 ----------- Electronic Equipment Manufacturers - 3.2% Aeroflex, Inc.* 180,000 1,902,600 Identix, Inc.* 59,400 395,604 Maxwell Technologies, Inc.* 310,000 3,196,100 Universal Display Corporation* 75,000 631,500 ----------- 6,125,804 ----------- Exchange Traded Funds - 5.7% iShares Russell 2000 Growth Index Fund 42,000 2,459,940 iShares S&P MidCap 400 Index Fund 12,200 1,448,750 iShares S&P MidCap 400/BARRA Growth Index Fund 33,000 3,962,640 S & P MidCap 400 Depositary Receipts 28,000 3,038,840 ----------- 10,910,170 ----------- General Merchandise Stores - 2.6% Fred's, Inc. 275,000 4,939,000 ----------- 4,939,000 ----------- Health Care Equipment - 0.2% Bioject Medical Technologies, Inc.* 300,000 324,000 ----------- 324,000 ----------- Health Care Facilities - 2.7% LifePoint Hospitals, Inc.*(1) 72,000 2,160,720 U.S. Physical Therapy, Inc.* 97,000 1,318,230 United Surgical Partners International, Inc.* 50,000 1,717,500 ----------- 5,196,450 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 102 Security Mid Cap Growth Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Common Stocks (continued) Health Care Services - 1.3% NDCHealth Corporation 59,400 $ 953,370 Providence Service Corporation* 78,900 1,528,293 ----------- 2,481,663 ----------- Health Care Supplies - 1.1% Orthovita, Inc.* 375,000 1,678,125 Staar Surgical Company* 128,700 424,710 ----------- 2,102,835 ----------- Industrial Machinery - 0.4% Tennant Company 17,100 693,063 ----------- 693,063 ----------- Internet Software & Services - 0.8% Netopia, Inc.* 3,000 6,420 RADVision, Ltd.* 151,500 1,458,945 ----------- 1,465,365 ----------- IT Consulting & Other Services - 6.4% Accenture, Ltd.* 10,300 278,615 Acxiom Corporation 383,800 9,111,412 Keane, Inc.* 182,000 2,795,520 ----------- 12,185,547 ----------- Leisure Products - 1.1% Mattel, Inc. 115,000 2,084,950 ----------- 2,084,950 ----------- Metal & Glass Containers - 2.4% Pactiv Corporation* 195,000 4,533,750 ----------- 4,533,750 ----------- Movies & Entertainment - 2.8% Lions Gate Entertainment Corporation* 608,300 5,292,210 ----------- 5,292,210 ----------- Oil & Gas Drilling - 1.4% Ensco International, Inc. 82,300 2,688,741 ----------- 2,688,741 ----------- Oil & Gas Equipment & Services - 1.2% BJ Services Company 43,000 2,253,630 ----------- 2,253,630 ----------- Oil & Gas Exploration & Production - 6.2% EOG Resources, Inc. 66,000 4,346,100 Pioneer Natural Resources Company 135,669 4,650,612 Rentech, Inc.* 1,139,300 1,025,370 Syntroleum Corporation* 254,450 1,786,239 ----------- 11,808,321 ----------- Oil & Gas Refining, Marketing & Transportation - 1.8% Western Gas Resources, Inc. 40,000 1,143,600 Williams Companies, Inc. 190,000 2,299,000 ----------- 3,442,600 ----------- Pharmaceuticals - 4.7% Hollis-Eden Pharmaceuticals, Inc.* 257,744 2,775,903 Ligand Pharmaceuticals, Inc. (Cl.B)* 618,000 6,192,360 ----------- 8,968,263 ----------- Publishing - 2.1% E.W. Scripps Company(1) 86,000 4,109,080 ----------- 4,109,080 ----------- Regional Banks - 1.1% Boston Private Financial Holdings, Inc.(1) 65,000 1,622,400 Southwest Bancorporation of Texas, Inc. 19,800 398,772 ----------- 2,021,172 ----------- Restaurants - 0.8% Rare Hospitality International, Inc.* 60,000 1,599,000 ----------- 1,599,000 ----------- Semiconductor Equipment - 0.5% Mindspeed Technologies, Inc.* 509,100 1,018,200 ----------- 1,018,200 ----------- Semiconductors - 5.6% Applied Micro Circuits Corporation* 500,000 1,565,000 Fairchild Semiconductor International, Inc.* 16,600 235,222 Hi/fn, Inc.* 152,800 1,340,056 Intersil Corporation 52,000 828,360 IXYS Corporation* 298,900 2,146,102 Microsemi Corporation* 320,000 4,512,000 ----------- 10,626,740 ----------- Specialty Stores - 1.5% Cost Plus, Inc.* 19,250 681,065 Hibbett Sporting Goods, Inc.* 103,500 2,120,715 ----------- 2,801,780 ----------- Systems Software - 2.0% McAfee, Inc.* 8,100 162,810 Microsoft Corporation 40,400 1,117,060 Red Hat, Inc.* 17,000 208,080 Wind River Systems, Inc.* 186,000 2,269,200 ----------- 3,757,150 ----------- Trading Companies & Distributors - 2.3% MSC Industrial Direct Company, Inc. 130,000 4,430,400 ----------- 4,430,400 ----------- Total common stocks (cost $161,737,749) 188,859,537 ----------- - -------------------------------------------------------------------------------- See accompanying notes. 103 Security Mid Cap Growth Fund Schedule of Investments September 30, 2004 - -------------------------------------------------------------------------------- Number Market of Shares Value - -------------------------------------------------------------------------------- Warrants - 0.1% Bioject Medical Technologies, Inc. 5,625 $ 63 Electric City Corporation 311,500 91,899 Hollis-Eden Pharmaceuticals, Inc. 8,143 34,204 Orthovita, Inc. 75,000 43,937 Syntroleum Corporation 14,100 30,315 ------------ Total warrants (cost $479,124) 200,418 ------------ Total investments (cost $162,216,873) - 99.0% 189,059,955 Cash & other assets, less liabilities - 1.0% 1,991,631 ------------ Total net assets - 100.0% $191,051,586 ============ For federal income tax purposes the identified cost of investments owned at September 30, 2004 was $163,293,530. * Non-income producing security (1) Security is segregated as collateral for written option contracts. (2) PIPE-Private Investment in Public Equity - is the term used for stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration in a secondary public offering. (3) Security is a restricted security. The total market value of restricted securities is $1,473,840 (cost $1,844,330), or 0.77% of total net assets. The acquisition date was March 19, 2004. - -------------------------------------------------------------------------------- See accompanying notes. 104 Security Mid Cap Growth Fund - -------------------------------------------------------------------------------- Statement of Assets and Liabilities September 30, 2004 - -------------------------------------------------------------------------------- Assets: Investments, at value(1) .................................... $ 189,059,955 Receivables: Fund shares sold ......................................... 91,809 Securities sold .......................................... 3,268,467 Dividends ................................................ 41,330 Prepaid expenses ............................................ 25,109 ------------- Total assets ................................................ 192,486,670 ------------- Liabilities: Cash overdraft .............................................. 207,020 Payable for: Securities purchased ..................................... 316,517 Fund shares redeemed ..................................... 166,939 Written options, at value ................................ 379,455 Management fees .......................................... 116,955 Custodian fees ........................................... 2,500 Transfer and administration fees ......................... 45,774 Professional fees ........................................ 16,486 12b-1 distribution plan fees ............................. 147,656 Other .................................................... 35,782 ------------- Total liabilities ........................................... 1,435,084 ------------- Net Assets .................................................. $ 191,051,586 ============= Net assets consist of: Paid in capital ............................................. $ 155,591,917 Accumulated undistributed net investment income ................................................... -- Accumulated undistributed net realized gain on sale of investments and options .............................................. 8,529,996 Net unrealized appreciation in value of investments and written options .......................... 26,929,673 ------------- Net assets .................................................. $ 191,051,586 ============= Class A: Capital shares outstanding .................................. 13,591,288 Net assets .................................................. $ 149,714,505 Net asset value and redemption price per share ................................................ $ 11.02 ============= Maximum offering price per share (net asset value divided by 94.25%) ...................... $ 11.69 ============= Class B: Capital shares outstanding .................................. 2,764,826 Net assets .................................................. $ 26,577,815 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ........................ $ 9.61 ============= Class C: Capital shares outstanding .................................. 1,415,269 Net assets .................................................. $ 14,759,266 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) ........................ $ 10.43 ============= (1) Investments, at cost .................................... $ 162,216,873 Statement of Operations For the Year Ended September 30, 2004 - -------------------------------------------------------------------------------- Investment Income: Dividends ................................................ $ 583,851 Interest ................................................. 39,744 ------------- Total investment income .................................. 623,595 ------------- Expenses: Management fees .......................................... 1,567,094 Custodian fees ........................................... 16,178 Transfer agent/maintenance fees .......................... 467,142 Administration fees ...................................... 190,989 Directors' fees .......................................... 31,936 Professional fees ........................................ 33,408 Reports to shareholders .................................. 32,860 Registration fees ........................................ 66,925 Other expenses ............................................ 12,183 12b-1 distribution plan fees - Class A ................... 406,931 12b-1 distribution plan fees - Class B ................... 301,143 12b-1 distribution plan fees - Class C ................... 160,591 ------------- Total expenses ........................................... 3,287,380 Less: Earnings credits .................................. (890) ------------- Net expenses ............................................. 3,286,490 ------------- Net investment loss ...................................... (2,662,895) ------------- Net Realized and Unrealized Gain: Net realized gain during the period on Investments .............................................. 15,275,286 Options written .......................................... 334,084 ------------- Net realized gain ........................................ 15,609,370 ------------- Net change in unrealized appreciation (depreciation) during the period on Investments .............................................. (2,937,253) Options written .......................................... 86,591 ------------- Net unrealized depreciation .............................. (2,850,662) ------------- Net gain ................................................. 12,758,708 ------------- Net increase in net assets resulting from operations ............................... $ 10,095,813 ============= - -------------------------------------------------------------------------------- See accompanying notes. 105 Security Mid Cap Growth Fund Statement of Changes in Net Assets - --------------------------------------------------------------------------------
Year Ended Year Ended September 30, 2004 September 30, 2003 - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss .......................................................... $ (2,662,895) $ (1,782,165) Net realized gain during the period on investments and options written and purchased ....................................................... 15,609,370 7,985,872 Net change in unrealized appreciation (depreciation) during the period on investments and options written and purchased ............................... (2,850,662) 52,286,497 ------------- ------------- Net increase in net assets resulting from operations ......................... 10,095,813 58,490,204 ------------- ------------- Distributions to shareholders from: Net realized gain Class A ..................................................................... (5,436,898) -- Class B ..................................................................... (1,171,101) -- Class C ..................................................................... (553,046) -- ------------- ------------- Total distributions to shareholders ......................................... (7,161,045) -- ------------- ------------- Capital share transactions: Proceeds from sale of shares Class A ..................................................................... 56,721,885 40,656,683 Class B ..................................................................... 7,305,168 9,427,357 Class C ..................................................................... 6,528,566 4,322,997 Distributions reinvested Class A ..................................................................... 5,189,647 -- Class B ..................................................................... 1,150,087 -- Class C ..................................................................... 519,780 -- Issuance of shares in connection with Technology Series merger (Note 9) Class A ..................................................................... 7,786,451 -- Class B ..................................................................... 1,764,789 -- Class C ..................................................................... 2,411,529 -- Cost of shares redeemed Class A ..................................................................... (56,580,537) (44,459,945) Class B ..................................................................... (10,368,864) (8,552,708) Class C ..................................................................... (6,258,847) (2,270,432) ------------- ------------- Net increase (decrease) from capital share transactions ..................... 16,169,654 (876,048) ------------- ------------- Net increase (decrease) in net assets ....................................... 19,104,422 57,614,156 ------------- ------------- Net assets: Beginning of period .......................................................... 171,947,164 114,333,008 ------------- ------------- End of period ................................................................ $ 191,051,586 $ 171,947,164 ============= ============= Accumulated undistributed net investment income at end of period ............. $ -- $ -- ============= ============= Capital Share Activity: Shares sold Class A ..................................................................... 4,917,993 4,578,400 Class B ..................................................................... 723,937 1,135,067 Class C ..................................................................... 615,289 497,073 Shares reinvested Class A ..................................................................... 458,045 -- Class B ..................................................................... 115,703 -- Class C ..................................................................... 48,173 -- Shares issued in connection with Technology Series merger Class A ..................................................................... 694,178 -- Class B ..................................................................... 177,910 -- Class C ..................................................................... 225,079 -- Shares redeemed Class A ..................................................................... (4,857,485) (5,138,315) Class B ..................................................................... (1,016,474) (1,168,642) Class C ..................................................................... (563,683) (277,157)
- -------------------------------------------------------------------------------- See accompanying notes. 106 Security Mid Cap Growth Fund Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class A 2004(g) 2003 2002(f) 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.84 $ 7.03 $ 8.48 $ 15.28 $ 9.19 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.13) (0.10) (0.09) (0.07) (0.08) Net gain (loss) on securities (realized and unrealized) 0.71 3.91 (1.30) (5.38) 6.60 ----------------------------------------------------------------------- Total from investment operations 0.58 3.81 (1.39) (5.45) 6.52 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43) ----------------------------------------------------------------------- Total distributions (0.40) -- (0.06) (1.35) (0.43) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.02 $ 10.84 $ 7.03 $ 8.48 $ 15.28 ======================================================================= - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 5.23% 54.20% (16.64%) (38.19%) 72.82% - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 149,715 $ 134,208 $ 90,948 $ 131,498 $ 204,787 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.11%) (1.14%) (0.92%) (0.64%) (0.62%) Total expenses 1.41% 1.41% 1.20% 1.09% 1.11% Gross expenses(b) 1.41% 1.41% 1.20% 1.09% 1.11% Net expenses(d) 1.41% 1.41% 1.20% 1.09% 1.11% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 50% 57% 47% 48% 35% Year Ended September 30, Class B 2004(g) 2003 2002(f) 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 9.57 $ 6.26 $ 7.62 $ 14.02 $ 8.54 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.19) (0.15) (0.16) (0.17) (0.19) Net gain (loss) on securities (realized and unrealized) 0.63 3.46 (1.14) (4.88) 6.10 ----------------------------------------------------------------------- Total from investment operations 0.44 3.31 (1.30) (5.05) 5.91 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43) ----------------------------------------------------------------------- Total distributions (0.40) -- (0.06) (1.35) (0.43) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 9.61 $ 9.57 $ 6.26 $ 7.62 $ 14.02 ======================================================================= - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 4.44% 52.88% (17.35%) (38.83%) 71.17% - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 26,578 $ 26,459 $ 17,502 $ 28,580 $ 38,812 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.86%) (1.89%) (1.84%) (1.64%) (1.61%) Total expenses 2.16% 2.16% 2.11% 2.09% 2.11% Gross expenses(b) 2.16% 2.16% 2.11% 2.09% 2.11% Net expenses(d) 2.16% 2.16% 2.11% 2.09% 2.11% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 50% 57% 47% 48% 35%
- -------------------------------------------------------------------------------- See accompanying notes. 107 Security Mid Cap Growth Fund Financial Highlights Selected data for each share of capital stock outstanding throughout each period - --------------------------------------------------------------------------------
Year Ended September 30, Class C 2004(g) 2003 2002(e,f) 2001 2000 - --------------------------------------------------------------------------------------------------------------------------------- Per Share Data Net asset value, beginning of period $ 10.34 $ 6.76 $ 8.22 $ 14.99 $ 9.11 - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)(c) (0.21) (0.16) (0.16) (0.18) (0.20) Net gain (loss) on securities (realized and unrealized) 0.70 3.74 (1.24) (5.24) 6.51 ----------------------------------------------------------------------- Total from investment operations 0.49 3.58 (1.40) (5.42) 6.31 - --------------------------------------------------------------------------------------------------------------------------------- Less distributions: Dividends from net investment income -- -- -- -- -- Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43) ----------------------------------------------------------------------- Total distributions (0.40) -- (0.06) (1.35) (0.43) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.43 $ 10.34 $ 6.76 $ 8.22 $ 14.99 ======================================================================= - --------------------------------------------------------------------------------------------------------------------------------- Total Return(a) 4.59% 52.96% (17.30%) (38.78%) 71.10% - --------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 14,759 $ 11,279 $ 5,883 $ 4,194 $ 3,017 - --------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income (loss) (1.86%) (1.89%) (1.85%) (1.66%) (1.61%) Total expenses 2.16% 2.16% 2.12% 2.09% 2.11% Gross expenses(b) 2.16% 2.16% 2.12% 2.09% 2.11% Net expenses(d) 2.16% 2.16% 2.12% 2.09% 2.11% - --------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 50% 57% 47% 48% 35%
(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 and C. (b) Gross expense information reflects expense ratios absent fund expense reductions by the Investment Manager. (c) Net investment income (loss) was computed using average shares outstanding throughout the period. (d) Net expense information reflects expense ratios after expense reductions or fee waivers and custodian fee earnings credits. (e) The financial highlights for Class C shares exclude the historical financial highlights of Class S shares. Class S shares were exchanged for Class C shares on June 3, 2002. (f) Effective May 1, 2002 the fee structure for Security Mid Cap Growth Fund changed. Per share information reflects this change. (g) The financial highlights for the Mid Cap Growth Fund exclude the historical financial highlights of the Technology Series Class A, B and C shares. The assets of the Technology Series were acquired by the Mid Cap Growth Fund on October 3, 2003.See accompanying notes. - -------------------------------------------------------------------------------- 108 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Security Large Cap Value, Equity and Mid Cap Growth Funds (the Funds) are registered under the Investment Company Act of 1940, as amended, as open-end management investment companies. The shares of Security Equity Fund are currently issued in multiple Series, with each Series, in effect, representing a separate fund. The Fund accounts for the assets of each Series separately. Class "A" shares are generally sold with a sales charge at the time of purchase. Class "A" shares are not subject to a sales charge when they are redeemed, except that purchases of Class "A" shares of $1 million or more sold without a front-end sales charge are subject to a contingent deferred sales charge if redeemed within one year of purchase. Class "B" shares are offered without a front-end sales charge but incur additional class-specific expenses. Class B shares may be subject to a contingent deferred sales charge for six years and automatically convert to Class A shares after eight years. Redemptions of the shares within five years of acquisition incur a contingent deferred sales charge. Class "C" shares are offered without a front-end sales charge but incur additional class-specific expenses. Redemptions of the shares within one year of acquisition incur a contingent deferred sales charge. The following is a summary of the significant accounting policies followed by the Funds in the preparation of their financial statements. A. Security Valuation - Valuations of the Fund's securities are supplied by pricing services approved by the Board of Directors. The Fund's officers, under the general supervision of the Board of Directors, regularly review procedures used by, and valuations provided by, the pricing services. Each security owned by a Fund that is listed on a securities exchange is valued at its last sale price on that exchange on the date as of which assets are valued. Where the security is listed on more than one exchange, the Fund will use the price of that exchange that it generally considers to be the principal exchange on which the stock is traded. Fund securities listed on the Nasdaq Stock Market, Inc. ("Nasdaq") will be valued at the Nasdaq Official Closing Price. Securities for which market quotations are not readily available are valued by a pricing service considering securities with similar yields, quality, type of issue, coupon, duration and rating. If there is no bid price or if the bid price is deemed to be unsatisfactory by the Board of Directors or by the Fund's investment manager, then the securities are valued in good faith by such method as the Board of Directors determines will reflect the fair value. If events occur that will affect the value of a fund's portfolio securities before the NAV has been calculated (a "significant event"), the security will generally be priced using a fair value procedure. If the Valuation Committee determines a significant event has occurred, it will evaluate the impact of that event on an affected security or securities, to determine whether a fair value adjustment would materially affect the fund's NAV per share. Some of the factors which may be considered by the Board of Directors in determining fair value are fundamental analytical data relating to the investment; the nature and duration of any restrictions on disposition; trading in similar securities of the same issuer or comparable companies; information from broker-dealers; and an evaluation of the forces that influence the market in which the securities are purchased and sold. The Fund generally will value short-term debt securities at prices based on market quotations for such securities or 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. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as WEBS(R). In addition, the Board of Directors has authorized the Valuation Committee and Administrator to use prices and other information supplied by IDC's Fair Value Information Service in valuing such securities. 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 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. Repurchase Agreements - In connection with transactions in repurchase agreements, it is the Funds' policy that its custodian take possession of the underlying collateral and that the fair value of the collateral exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Funds may be delayed or limited. C. 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. - -------------------------------------------------------------------------------- 109 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- 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. D. Forward Foreign Currency Exchange Contracts - Global Series may enter into forward foreign exchange contracts in order to manage foreign currency risk from purchase or sale of securities denominated in foreign currency. The 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 Statement of Assets and Liabilities. The face or contract amount in U.S. dollars reflects the total exposure these funds have in that particular currency contract. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. E. Futures - Large Cap Value Fund, Equity Series, Social Awareness Series, Small Cap Growth Series, Enhanced Index Series, Alpha Opportunity Series and Mid Cap Growth Fund utilize futures contracts to a limited extent, with the objectives of maintaining full exposure to the underlying stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. These Funds or Series, as applicable, may purchase futures contracts to immediately position incoming cash in the market, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. In the event of redemptions, the Funds or Series, as applicable, 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 and maintain as collateral either cash or securities, representing the initial margin, equal to a certain percentage of the contract value. Cash deposits are shown as restricted cash on the Statement of Assets and Liabilities; securities held as collateral are noted in the Schedule of Investments. Subsequent changes in the value of the contract are recorded as unrealized gains or losses. 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. F. Options Written - The Fund may purchase put and call options and write such options on a covered basis on securities that are traded on recognized securities exchanges and over-the-counter markets. Call and put options on securities give the holder the right to purchase or sell (and the writer the obligation to sell or purchase), respectively,a security at a specified price, until a certain date. Options may be used to hedge the Fund's portfolio, to increase returns or to maintain exposure to the equity markets. The primary risks associated with the use of options are an imperfect correlation between the change in market value of the securities held by the series and the price of the option, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract. The premium received for a written option is recorded as an asset with an equal liability which is marked to market based on the option's quoted daily settlement price. Fluctuations in the value of such instruments are recorded as unrealized appreciation (depreciation) until terminated, at which time realized gains and losses are recognized. G. Security Transactions and Investment Income - Security transactions are accounted for on the date the securities are purchased or sold (trade date). 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 including the amortization of premiums and accretion of discounts on debt securities. H. Expenses - Expenses that are directly related to one of the Funds are charged directly to that Fund. Other operating expenses are allocated to the Funds on the basis of relative net assets. Class specific expenses, such as 12b-1 fees, are borne by that class. Income, other expenses and realized and unrealized gains and losses of a Fund are allocated to each respective class in proportion to the relative net assets of each class. I. 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. J. 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. K. Earnings Credits - Under the fee schedule with the custodian, the Funds earn credits based on overnight custody cash balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statement of Operations are before the reduction in expense from the related earnings credits. L. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and - -------------------------------------------------------------------------------- 110 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. M. Short Sales - Certain Funds may make short sales "against the box," in which the Fund enters into a short sale of a security it owns. At no time will more than 15% of the value of the Funds' net assets be in deposits on short sales against the box. In a short sale that is not "against the box," a Fund sells a security which it does not own, in anticipation of a decline in the market value of the security. To complete the sale, the Fund must borrow the security generally from the broker through which the short sale is made in order to make delivery to the buyer. The Fund must replace the security borrowed by purchasing it at the market price at the time of replacement. The Fund is said to have a "short position" in securities sold until it delivers them to the broker. For financial statement purposes, an amount equal to the settlement amount is included in the Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the short position. Subsequent fluctuations in the market prices of securities sold, but not yet purchased, may require purchasing the securities at prices which differ from the market value reflected on the Statement of Assets and Liabilities. The Funds are liable for any dividends or interest payable on securities while those securities are in a short position. As collateral for its short positions, the Funds are required under the Investment Company Act of 1940 to maintain segregated assets consisting of cash, cash equivalents or liquid securities. These segregated assets are valued consistent with Note 1a above. These segregated assets are required to be adjusted daily to reflect changes in the market value of the securities sold short. N. Indemnifications - Under the Fund's organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnification to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred, and may not occur. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. 2. Management fees and other transactions with affiliates Management fees are payable to Security Management Company, LLC (SMC or Investment Manager) as follows: - -------------------------------------------------------------------------------- Management Management Fee Waivers Fees (as a % (as a % of of net assets) of net assets) - -------------------------------------------------------------------------------- Security Equity Fund: Alpha Opportunity Series* 2.00%(1) N/A Enhanced Index Series 0.75% 0.25% Equity Series 0.75% N/A Global Series 1.00% N/A Large Cap Growth Series 1.00% 0.25% Mid Cap Value Series 1.00%(2) N/A Select 25(R) Series 0.75% N/A Small Cap Growth Series 1.00% N/A Social Awareness Series 1.00% 0.25% Security Large Cap Value Fund 0.75% N/A Security Mid Cap Growth Fund 0.75% N/A - -------------------------------------------------------------------------------- * This Fund was not offered for sale until July 1, 2003. Alpha Opportunity Fund's management fee will range from 1.25% to 2.75% of average daily net assets as discussed below. - -------------------------------------------------------------------------------- (1) SMC receives a management fee from the Alpha Opportunity Series that is composed of two components. The first component is an annual base fee equal to 2.00% of Alpha Opportunity Series average daily net assets. The second component is a performance adjustment that either increases or decreases the base fee, depending on how Alpha Opportunity Series performed relative to the S&P 500 Index. The Investment Manager will receive the 2.00% annual base fee for the first year of the Series' investment operations, and thereafter if the Alpha Opportunity Series investment performance matches the investment record of the S&P 500 Index over the prior 12 month period. If the investment performance of the Series' Class A shares exceeds the investment record of the S&P 500 Index, the performance adjustment increases the fee paid to the Investment Manager proportionately, reaching a maximum annual fee of 2.75% if the Series outperforms the investment record of the S&P 500 Index by 15 percentage points over the measuring period. If the investment performance of the Series' Class A shares trails the investment record of the S&P 500 Index, the performance adjustment decreases the fee paid to the Investment Manager proportionately, reaching a minimum annual fee of 1.25% if the Series underperforms the investment record of the S&P 500 Index by 15 percentage points over the measurement period. The performance adjustment is calculated on the basis of a "rolling" 12 month measurement period, so that a fee rate calculated on the basis of investment performance over a 12 month period will apply only for the next succeeding month, and then will be subject to recalculation for the following month on the basis of the Series' investment performance over the prior 12 month period. The pro rata adjustment is allocated to each respective class in proportion to the relative net assets of each class. Performance adjustments began on August 1, 2004 based upon Alpha Opportunity Fund's performance during the 12 months ended June 30, 2004. (2) Prior to February 1, 2004 management fees were payable to SMC at an annual rate of 1.00% of the average daily net assets. - -------------------------------------------------------------------------------- 111 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- Effective February 1, 2004, management fees were payable at an annual rate of 1.00% of the average daily net assets of $200 million or less, plus an additional annual rate of 0.75% of the average daily net assets of the Series in excess of $200 million. SMC also acts as the administrative agent and transfer agent for the Funds, and as such performs administrative functions, transfer agency and dividend disbursing services, and the bookkeeping, accounting and pricing functions for each fund. For these services, the Investment Manager receives the following: - -------------------------------------------------------------------------------- Administrative Fees (as a % of net assets)* - -------------------------------------------------------------------------------- Security Equity Fund: Alpha Opportunity Series 0.145% Enhanced Index Series 0.09% Equity Series 0.09% Global Series 0.045% + greater of 0.10% or $60,000 Large Cap Growth Series 0.09% Mid Cap Value Series 0.09% Select 25 Series 0.09% Small Cap Growth Series 0.09% Social Awareness Series 0.09% Security Large Cap Value Fund 0.09% Security Mid Cap Growth Fund 0.09% - -------------------------------------------------------------------------------- * Effective February 1, 2004 the minimum annual charge for administrative fees is $25,000 for each Series or Fund. - -------------------------------------------------------------------------------- SMC is paid the following for providing transfer agent services to the Funds: - -------------------------------------------------------------------------------- Effective Prior to February 1, 2004 February 1, 2004 - -------------------------------------------------------------------------------- Annual per account charge $5.00 - $8.00 $8.00 Transaction fee $0.60 - $1.10 $1.00 Annual minimum charge (per Series or Fund) $25,000 N/A Certain out-of-pocket charges Varies N/A - -------------------------------------------------------------------------------- SMC pays the Dreyfus Corporation an annual fee equal to .25% of the average daily closing value of the combined net assets of Large Cap Value Fund and another fund managed by SMC, SBL Series B, computed on a daily basis. Beginning January 1, 2002, the Dreyfus Corporation agreed to waive .10% of the average daily closing value of the combined net assets of these funds, computed on a daily basis, until December 31, 2006. SMC pays OppenheimerFunds, Inc. an annual fee equal to a percentage of the average daily closing value of the combined average daily net assets of Global Series and another fund managed by SMC, SBL Series D, computed on a daily basis as follows: Combined Average Daily Net Assets Annual Fees -------------------------------------------------------- $0 to $300 Million ....................... .35% $300 Million to $750 Million ............. .30% $750 Million or more ..................... .25% SMC pays RS Investments an annual fee equal to a percentage of the average daily closing value of the combined net assets of SmallCap Growth Series and another fund managed by SMC, SBL Series X, computed on a daily basis as follows: Combined Average Daily Net Assets Annual Fees -------------------------------------------------------- $0 to $100 Million ....................... .55% $100 Million to $400 Million ............. .50% Over $400 Million ........................ .45% SMC pays Northern Trust an annual fee equal to a percentage of the average daily closing value of the combined net assets of Security Equity Fund Enhanced Index Series and SBL Series H, computed on a daily basis as follows: Combined Average Daily Net Assets Annual Fees -------------------------------------------------------- $0 to $100 Million ....................... .20% $100 Million to $300 Million ............. .15% $300 Million or more ..................... .13% SMC pays Mainstream Investment Advisers, LLC an annual fee equal to 2.50% of that portion of the Alpha Opportunity Fund's assets managed by Mainstream. The sub-advisory fee will be adjusted upward or downward, depending on how that portion of Alpha Opportunity Series' assets performed relative to the S&P 500 Index. The pro rata adjustment will be determined based upon the investment performance of that portion of Alpha Opportunity Series' assets managed by Mainstream relative to the investment record of the S&P 500 Index. The amount of any upward adjustment in the Base Fee will be equal to 1.50% (a) multiplied by the number of percentage points by which the investment performance of the Alpha Opportunity Series assets managed by Mainstream exceeds the investment record of the S&P500 Index (b) divided by .30, up to a maximum of 4.00% or a minimum of 1.00% in annual sub-advisory fees. During its first 12 months of operations, the Investment Manager paid Mainstream the base fee of 2.50% without any adjustment for performance. Performance adjustments began on August 1, 2004 based upon the performance during the 12 months ended July 1, 2004 of that portion of Alpha Opportunity Series assets managed by Mainstream. Thereafter, the Investment Manager will calculate the performance adjustment at the end of each calendar month based upon the investment performance of the assets managed by Mainstream during the twelve-month period ending on the last day of the prior month compared to the investment record of the S&P 500 Index during the same period. The Alpha Opportunity Series assets are reallocated between Mainstream and the Investment Manager on a monthly basis to an approximately equal allocation. This procedure ensures that the Investment Manager cannot make allocation decisions that favor the Investment Manager over Mainstream. SMC has agreed to limit the total expenses for each class of the Enhanced Index and Select 25 Series to 1.75%, Social Awareness, Mid Cap Value, Small Cap Growth and Large Cap Growth Series to 2.00% exclusive of interest, taxes, - -------------------------------------------------------------------------------- 112 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- extraordinary expenses, brokerage fees and commissions and 12b-1 fees for the aforementioned Series. SMC has agreed to limit the total other expenses of Alpha Opportunity to 0.50%. The expense limits other than those for Enhanced Index and Select 25 Series are voluntary limits that may be terminated at any time without notice to shareholders. The Funds have adopted Distribution Plans related to the offering of Class A, Class B and Class C shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The plans provide for payments at an annual rate of 1.00% of the average daily net assets of each Fund's Class B, Class C shares, and 0.25% of the average daily net assets of each Fund's Class A shares. Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security Benefit Group, Inc. and the distributor of the Funds, received net underwriting commissions on sales of shares after allowances to brokers and dealers as follows: SDI Underwriting Commissions Security Large Cap Value Fund $10,942 Security Equity Fund: Social Awareness Series 7,142 Mid Cap Value Series 28,320 Small Cap Growth Series 15,019 Enhanced Index Series 2,962 Select 25(R) Series 4,955 Alpha Opportunity Series 5,979 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. Unrealized Appreciation/Depreciation For federal income tax purposes, the amounts of unrealized appreciation (depreciation) on investments at September 30, 2004, were as follows: - -------------------------------------------------------------------------------- Gross Gross Net unrealized unrealized unrealized appreciation appreciation (depreciation) (depreciation) - -------------------------------------------------------------------------------- Security Large Cap Value Fund $ 4,349,203 $ (2,076,947) $ 2,272,256 Security Equity Fund: Equity Series 81,437,361 (25,320,040) 56,117,321 Global Series 21,074,366 (3,544,371) 17,529,995 Social Awareness Series 1,584,491 (3,053,632) (1,469,141) Mid Cap Value Series 75,027,810 (8,699,025) 66,328,785 Small Cap Growth Series 5,724,643 (1,135,819) 4,588,824 Enhanced Index Series 693,282 (631,001) 62,281 Select 25(R) Series 2,761,794 (1,516,083) 1,245,711 Large Cap Growth Series 936,666 (780,949) 155,717 Alpha Opportunity Series 170,030 (41,828) 128,202 Security Mid Cap Growth Fund 47,225,627 (21,459,202) 25,766,425 - -------------------------------------------------------------------------------- 4. Investment Transactions Investment transactions for the year ended September 30, 2004, (excluding overnight investments and short-term commercial paper) were as follows: - -------------------------------------------------------------------------------- Proceeds Purchases from Sales - -------------------------------------------------------------------------------- Security Large Cap Value Fund $ 48,201,008 $ 57,729,623 Security Equity Fund: Equity Series 133,360,451 223,262,450 Global Series 74,998,128 27,162,575 Social Awareness Series 4,786,911 5,938,747 Mid Cap Value Series 212,265,480 131,606,453 Small Cap Growth Series 47,889,395 43,314,409 Enhanced Index Series 12,382,692 12,695,357 Select 25(R) Series 10,572,641 14,756,373 Large Cap Growth Series 11,272,199 20,739,673 Alpha Opportunity Series 61,302,835 59,830,569 Security Mid Cap Growth Fund 110,092,494 102,373,184 - -------------------------------------------------------------------------------- 5. Open Futures Contracts Open futures contracts for Alpha Opportunity Series and Enhanced Index Series as of September 30, 2004, were as follows: - -------------------------------------------------------------------------------- Alpha Opportunity Series Enhanced Index Series S&P 500 Index Futures S&P 500 E-Mini Futures - -------------------------------------------------------------------------------- Position Long Long Number of Contracts 19 5 Expiration Date 12-16-2004 12-17-2004 Contract Amount $5,350,348 $282,075 Market Value $5,295,775 $278,750 Unrealized Loss $(54,573) $(3,325) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 113 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- 6. Options Written The following options written were outstanding for Mid Cap Value Series at September 30, 2004: Mid Cap Value Series Call Options Written Outstanding Expiration Exercise Number of Market Common Stock Date Price Contracts Value - -------------------------------------------------------------------------------- Phelps Dodge Corporation 10-15-04 $70.00 250 $547,500 -------- -------- Total call options outstanding (premiums received, $144,246) 250 $547,500 ======== ======== Mid Cap Value Series Put Options Written Outstanding Expiration Exercise Number of Market Common Stock Date Price Contracts Value - -------------------------------------------------------------------------------- Granite Construction, Inc. 11-19-04 $22.50 765 $ 30,600 Shaw Group, Inc. 10-15-04 12.50 1,250 81,250 -------- -------- Total put options outstanding (premiums received, $219,161) 2,015 $111,850 ======== ======== Transactions in options written for Mid Cap Value Series for the year ended September 30, 2004 were as follows: Mid Cap Value Series Call Options Written Number of Premium Contracts Amount - -------------------------------------------------------------------------------- Balance at September 30, 2003 810 $ 124,078 Opened 5,601 983,696 Bought Back (1,260) (188,054) Expired (4,603) (709,620) Exercised (298) (65,854) --------- --------- Balance at September 30, 2004 250 $ 144,246 ========= ========= Mid Cap Value Series Put Options Written Number of Premium Contracts Amount - -------------------------------------------------------------------------------- Balance at September 30, 2003 -- $ -- Opened 9,176 1,084,955 Expired (3,030) (457,505) Exercised (4,131) (408,289) -------- ----------- Balance at September 30, 2004 2,015 $ 219,161 ======== =========== The following options written were outstanding for Mid Cap Growth Fund at September 30, 2004: Mid Cap Growth Fund Call Options Written Outstanding Expiration Exercise Number of Market Common Stock Date Price Contracts Value - -------------------------------------------------------------------------------- Hyperion Solutions Corporation 11-19-04 $40.00 500 $ 20,000 LifePoint Hospitals, Inc. 11-19-04 30.00 360 50,400 Southwest Bancorporation of Texas, Inc. 11-19-04 22.50 198 4,950 -------- -------- Total call options outstanding (premiums received, $217,053) 1,058 $ 75,350 ======== ======== Mid Cap Growth Fund Put Options Written Outstanding Expiration Exercise Number of Market Common Stock Date Price Contracts Value - -------------------------------------------------------------------------------- Adtran, Inc. 11-19-04 25.00 416 $128,960 Intersil Corporation 1-21-05 15.00 640 80,000 Mindspeed Technologies, Inc. 1-21-05 2.50 1,233 80,145 Pactiv Corporation 11-19-04 22.50 500 15,000 -------- -------- Total put options outstanding (premiums received, $248,993) 2,789 $304,105 ======== ======== Transactions in options written for Security Mid Cap Growth Fund for the year ended September 30, 2004 were as follows: Mid Cap Growth Fund Call Options Written Number of Premium Contracts Amount - -------------------------------------------------------------------------------- Balance at September 30, 2003 -- $ -- Opened 3,048 497,958 Bought Back (569) (96,240) Expired (771) (112,352) Exercised (650) (72,313) --------- --------- Balance at September 30, 2004 1,058 $ 217,053 ========= ========= Mid Cap Growth Fund Put Options Written Number of Premium Contracts Amount - -------------------------------------------------------------------------------- Balance at September 30, 2003 -- $ -- Opened 9,639 871,668 Bought Back (740) (102,060) Expired (1,080) (109,843) Exercised (5,030) (410,772) --------- --------- Balance at September 30, 2004 2,789 $ 248,993 ========= ========= - -------------------------------------------------------------------------------- 114 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- 7. Federal tax matters The tax character of distributions paid during the fiscal years ended September 30, 2004 and 2003, was the same as that reported in the Statement of Changes in Net Assets, except as follows: Ordinary Capital 2004 Income Gain Total - -------------------------------------------------------------------------------- Equity Series $607,081 $77,431 $684,512 Alpha Opportunity Series 341,942 80,496 422,438 All tax distributions for 2003 were the same as those reported in the Statement of Changes in Net Assets. Note: For federal income tax purposes, short term capital gain distributions are treated as ordinary income distributions. As of September 30, 2004 the components of accumulated earnings/(deficit) on a tax basis were the same as those reported in the Statement of Assets and Liabilities, except as follows:
Capital Losses Undistributed Undistributed Accumulated Unrealized and Unrealized Ordinary Long-Term Accumulated Capital and Appreciation Appreciation/ Income Gain Earnings Other Losses* (Depreciation)** (Depreciation) - -------------------------------------------------------------------------------------------------------------------------------- Security Large Cap Value Fund $ 1,644 $ -- $ 1,644 $(14,399,492) $ 2,272,256 $(12,125,592) Security Equity Fund: Global Series -- -- -- (17,051,955) 17,533,683 481,728 Social Awareness Series -- -- -- (1,460,537) (1,469,139) (2,929,676) Mid Cap Value Series 1,509,480 26,644,993 28,154,473 -- 66,032,843 94,187,316 SmallCap Growth Series -- -- -- (8,761,254) 4,588,824 (4,172,430) Enhanced Index Series -- -- -- (5,167,570) 62,280 (5,105,290) Large Cap Growth Series -- -- -- (2,398,825) 155,717 (2,243,108) Alpha Opportunity Series 1,008,366 146,042 1,154,408 -- 128,102 1,282,510 Security Mid Cap Growth Fund -- 13,025,807 13,025,807 (3,419,154) 25,853,016 35,459,669
* Certain Funds had net capital loss carryovers and deferred post October losses as identified elsewhere in the Notes. ** The differences between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of wash sale losses, the differences between book and tax basis passive foreign investment companies and bond discount accretion. In accordance with the provisions of the Internal Revenue Code, the percentage of ordinary dividends (including short-term capital gains) attributable to the fiscal year ended September 30, 2004, which qualify for the dividends received deduction for corporate shareholders is 100% for the Security Large Cap Value Fund and Mid Cap Value Series and 4% for the Alpha Opportunity Series. - -------------------------------------------------------------------------------- As of September 30, 2004, the accumulated net realized loss on sales of investments for federal income tax purposes which are available to offset future taxable gains and post-October losses that are deferred to the first day of the next fiscal year are as follows: - -------------------------------------------------------------------------------- 115 Notes to Financial Statements September 30, 2004 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Capital Loss Deferred Post- Carryovers Expires In October Losses - -------------------------------------------------------------------------------- Security Large Cap Value Fund $ 5,190,501 2009 $ -- 56,003 2010 9,152,988 2011 ----------- 14,399,492 Global Series 286,251 2008 1,719,360 2009 64,170 5,895,542 2010 6,689,272 2011 2,397,360 2012 ----------- 16,987,785 Social Awareness Series 309,787 2009 -- 132,011 2010 1,018,739 2011 ----------- 1,460,537 SmallCap Growth Series 8,761,254 2010 -- Enhanced Index Series 138,713 2009 -- 976,489 2010 1,591,954 2011 2,460,414 2012 ----------- 5,167,570 Select 25(R) Series 368,467 2008 -- 2,259,072 2009 3,363,943 2010 2,960,418 2011 3,051,714 2012 ----------- 12,003,614 Large Cap Growth Series 58,405 2009 -- 296,393 2010 1,736,216 2011 307,811 2012 ----------- 2,398,825 Security Mid Cap Growth Fund 2,835,175 2009 -- 567,035 2010 16,944 2011 ----------- 3,419,154 - -------------------------------------------------------------------------------- The Security Equity Fund - Global Series obtained approximately $2,885,458 of capital losses (included above) from its merger with Security Equity Fund - International Series (see Note 8), which may be applied against realized net taxable capital gains in future years or until September 30, 2010, subject to certain limitations imposed by Section 382 of the Internal Revenue Code. Security Mid Cap Growth fund obtained approximately $3,419,154 of capital losses (included above) from its merger with Security Equity Fund - Technology Series (see Note 9), which may be applied against realized net taxable capital gains in future years or until September 30, 2011, subject to certain limitations imposed by Section 382 of the Internal Revenue Code. Net investment income and net realized gains (losses) may differ for financial statement and tax purposes because of temporary or permanent book/tax differences. These differ-ences are primarily due to post-October losses, losses deferred due to wash sales, foreign currency gains and losses, and the "mark-to-market" of certain passive foreign investment companies (PFICs) for tax purposes. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise. On the Statements of Assets and Liabilities, the following adjustments were made for permanent tax differences: - -------------------------------------------------------------------------------- Accumulated Undistributed Net Realized Net Investment Gain/(Loss) Income Paid-In-Capital - -------------------------------------------------------------------------------- Security Equity Fund: Alpha Opportunity Series (173,904) 173,904 -- Enhanced Index Series -- 35,469 (35,469) Equity Series (44,991) 178,029 (133,038) Global Series 33,669 447,120 (480,789) Large Cap Growth Series -- 289,287 (289,287) Mid Cap Value Series (1,651,065) 1,651,605 -- Select 25(R) Series -- 296,848 (296,848) Small Cap Growth Series -- 673,012 (673,012) Social Awareness Series -- 155,216 (155,216) Security Large Cap Value Fund (10,720) 10,720 -- Security Mid Cap Growth Fund 1,979,759 2,666,588 (4,646,347) - -------------------------------------------------------------------------------- 8. Acquisition of Security Equity Fund - International Series Pursuant to a plan of reorganization approved by Security Equity Fund International Series shareholders, Security Equity Fund Global Series acquired all the net assets of International Series, which totalled $9,345,535 on the closing date of the reorganization, October 3, 2003. In exchange for the assets of International Series 793,162 shares of Global Series were distributed to International shareholders of record as of immediately after the closing date. This exchange qualified as a tax-free reorganization under Section 368(a)(1)(c) of the Internal Revenue Code. International Series net assets included $432,828 of unrealized appreciation, $3,042 of accumulated net investment income and $3,019,816 of accumulated realized loss on sale of investments. The aggregate net assets of Global Series immediately before the acquisition totalled $68,353,149. Following the acquisition, the combined net assets of Global Series totalled $77,698,684. 9. Acquisition of Security Equity Fund-Technology Series Pursuant to a plan of reorganization approved by Security Equity Fund Technology Series shareholders, Security Mid Cap Growth Fund acquired all the net assets of Technology Series, which totalled $11,962,769 on the closing date of the reorganization October 3, 2003. In exchange for the assets of Technology Series 1,097,167 shares of Mid Cap Growth Fund were distributed to Technology shareholders of record as of immediately after the closing date. This exchange qualified as a tax-free reorganization under Section 368(a)(1)(c) of the Internal Revenue Code. Technology Series net assets included $1,703,882 of unrealized appreciation, $3,694 of accumulated net investment loss and $7,442,356 of accumulated realized loss on sale of investments. The aggregate net assets of Mid Cap Growth Fund immediately before the acquisition totalled $178,458,228. Following the acquisition, the combined net assets of Mid Cap Growth Fund totalled $190,420,997. - -------------------------------------------------------------------------------- 116 Report of Independent Registered Public Accounting Firm - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders Security Large Cap Value Fund, Security Equity Fund and Security Mid Cap Growth Fund We have audited the accompanying statement of assets and liabilities, including the schedule of investments of Security Equity Fund (comprised of Alpha Opportunity, Enhanced Index, Equity, Global, Large Cap Growth, Mid Cap Value, Select 25(R), Small Cap Growth and Social Awareness Series), Security Large Cap Value Fund and Security Mid Cap Growth Fund (the Funds) as of September 30, 2004, and the related statements of operations, for the year then ended, changes in net assets and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodians and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 each of the respective entities/series constituting the Funds at September 30, 2004, and the results of their operations, for the year then ended, the changes in their net assets and their financial highlights for each of the periods indicated above, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Kansas City, Missouri November 5, 2004 - -------------------------------------------------------------------------------- 117 Directors and Officers (unaudited) The business address of each director and officer is One Security Benefit Place, Topeka, KS 66636-0001. - --------------------------------------------------------------------------------
Directors Name (Date of Birth) Year Elected*** Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------------------------- Donald A. Chubb, Jr.** Business broker, Griffith & Blair Realtors (12-14-46) 1994 - --------------------------------------------------------------------------------------------------------------------------------- Harry W. Craig, Jr. Chairman, CEO, Secretary & Director, Martin Tractor Company, Inc. (04-11-39) 2004 - --------------------------------------------------------------------------------------------------------------------------------- Penny A. Lumpkin** Partner, Vivians' Gift Shop (08-20-39) Vice President, Palmer Companies, Inc. 1993 Vice President, PLB Vice President, Town Crier Vice President & Treasurer, Palmer News, Inc. Vice President, M/S News, Inc. Secretary, Kansas City Periodicals Vice President, Bellaire Shopping Center Partner, Goodwin Enterprises - --------------------------------------------------------------------------------------------------------------------------------- Mark L. Morris** Independent Investor, Morris Co. (02-03-34) Former General Partner, Mark Morris Associates 1991 - --------------------------------------------------------------------------------------------------------------------------------- Maynard F. Oliverius** President & Chief Executive Officer, Stormont-Vail HealthCare (12-18-43) 1998 - --------------------------------------------------------------------------------------------------------------------------------- John D. Cleland* Retired. Prior to January 1, 2003, Senior Vice President, Security Benefit Group, Inc. & (05-01-36) Security Benefit Life Insurance Company 1991 (Director) 2000 (Chairman of the Board) - --------------------------------------------------------------------------------------------------------------------------------- Michael G. Odlum* President & Managing Member Representative, Security Management Company, LLC (01-12-52) President & Chief Operating Officer, Allied Investment Advisors, Inc. 2004 (President) Principal, Vanguard Group 2004 (Director) - ---------------------------------------------------------------------------------------------------------------------------------
* 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 function for the Funds. *** Each director oversees 35 Security Fund portfolios and serves until the next annual meeting, or until a successor has been duly elected and qualified. - -------------------------------------------------------------------------------- 118 Directors and Officers (unaudited) (continued) - --------------------------------------------------------------------------------
Officers Name (Date of Birth) Title Year Elected* Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------------------------- Steven M. Bowser Vice President & Senior Portfolio Manager, Security Management Company, LLC; (02-11-60) Vice President & Senior Portfolio Manager, Security Benefit Group, Inc. & Vice President Security Benefit Life Insurance Company 2003 - --------------------------------------------------------------------------------------------------------------------------------- Brenda M. Harwood Assistant Vice President, Chief Compliance Officer & Treasurer, Security Management Company, LLC; (11-03-63) Assistant Vice President, Security Benefit Group, Inc. & Security Benefit Life Insurance Company Treasurer Vice President & Director, Security Distributors, Inc. 1988 - --------------------------------------------------------------------------------------------------------------------------------- Mark Lamb Vice President, Security Management Company, LLC, Security Benefit Group, Inc. & (02-03-60) Security Benefit Life Insurance Company Vice President 2003 - --------------------------------------------------------------------------------------------------------------------------------- Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.; (06-05-61) Vice President, Associate General Counsel & Assistance Secretary, Security Benefit Group, Inc. & Secretary Security Benefit Life Insurance Company 1987 - --------------------------------------------------------------------------------------------------------------------------------- Mark Mitchell Vice President & Portfolio Manager, Security Management Company, LLC (08-24-64) Vice President 2003 - --------------------------------------------------------------------------------------------------------------------------------- James P. Schier Vice President & Senior Portfolio Manager, Security Management Company, LLC; (12-28-57) Vice President, Security Benefit Group, Inc. & Security Benefit Life Insurance Company Vice President 1998 - --------------------------------------------------------------------------------------------------------------------------------- Cindy L. Shields Vice President & Head of Equity Asset Management, Security Management Company, LLC, (06-05-67) Security Benefit Group, Inc. & Security Benefit Life Insurance Company Vice President 1988 - --------------------------------------------------------------------------------------------------------------------------------- Christopher D. Swickard Assistant Secretary, Security Management Company, LLC (10-09-65) Second Vice President & Assistant Counsel, Security Benefit Group, Inc. & Assistant Secretary Security Benefit Life Insurance Company 1996 - ---------------------------------------------------------------------------------------------------------------------------------
* Officers serve until the next annual meeting or until a successor has been duly elected and qualified. Each of the Security Funds files a complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Forms N-Q of each such Fund are available on the Commission's website at www.sec.gov. The Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The portfolio holdings of each of the Security Funds are available on their website, www.securitybenefit.com or by calling 1-800-888-2461. A description of the policies and procedures that the Security Funds use to determine how to vote proxies relating to portfolio securities is available upon request, free of charge by calling 1-800-888-2461, or accessing the U.S. Securities and Exchange Commission website at www.sec.gov. Information regarding how the Security Funds voted proxies relating to portfolio securities during the 12 month period ended June 30, 2004 is available upon request, free of charge by calling 1-800-888-2461, or accessing the U.S. Securities and Exchange Commission website at www.sec.gov. The statement of additional information ("SAI") includes additional information about the Funds' Directors and is available upon request without charge by calling 1-800-888-2461. - -------------------------------------------------------------------------------- 119 This page left blank intentionally. - -------------------------------------------------------------------------------- 120 - -------------------------------------------------------------------------------- The Security Group of Mutual Funds Security Equity Fund o Alpha Opportunity Series o Enhanced Index Series o Equity Series o Global Series o Large Cap Growth Series o Mid Cap Value Series o Select 25(R) Series o Small Cap Growth Series o Social Awareness Series Security Large Cap Value Fund Security Mid Cap Growth Fund Security Income Fund o Diversified Income Series o High Yield Series o Income Opportunity Series o Capital Preservation Series Security Municipal Bond Fund Security Cash Fund - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Security Funds Officers and Directors Directors Donald A. Chubb, Jr. John D. Cleland Harry W. Craig, Jr. Penny A. Lumpkin Mark L. Morris, Jr., D.V.M. Michael G. Odlum Maynard F. Oliverius Officers John D. Cleland, Chairman of the Board Michael G. Odlum, President Steve M. Bowser, Vice President, Equity Fund Mark Lamb,Vice President, Equity Fund Mark Mitchell, Vice President, Equity Fund James P. Schier, Vice President, Equity and Mid Cap Growth Fund Cindy L. Shields, Vice President, Equity Fund Amy J. Lee, Secretary Christopher D. Swickard, Assistant Secretary Brenda M. Harwood, Chief Compliance Officer & Treasurer - -------------------------------------------------------------------------------- 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. - ---------------------------------- [LOGO] Security Distributors, Inc. - ---------------------------------- One Security Benefit Place Topeka, KS 66636-0001 SDI 604 (R9-04) 46-06047-00 ITEM 2. CODE OF ETHICS. The Registrant has adopted a code of ethics that applies to its principal executive officer and principal financial officer. A copy of the Registrant's code of ethics is filed herewith as Exhibit 10(a)(1). No amendments were made to the provisions of the code of ethics during the period covered by this report. No implicit or explicit waivers to the provisions of the code of ethics were granted during the period covered by this report. The Registrant hereby undertakes to provide any person without charge, upon request, a copy of its Code by calling the Registrant at 1-800-888-2461. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Registrant's Board of Directors has determined that Maynard Oliverius, a member of the Audit Committee of the Board, is an audit committee financial expert. Mr. Oliverius is "independent" for purposes of this item. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees. The aggregate fees billed for each of the last two fiscal years (the "Reporting Periods") for professional services rendered by the Registrant's principal accountant (the "Auditor") for the audit of the Registrant's annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $98,000 in 2003 and $122,000 in 2004. (b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant's financial statements and are not reported under paragraph (a) of this Item 4 were $3,000 in 2003 and $3,000 in 2004. These services consisted of a review of the Registrant's semi-annual financial statements, compliance with required internal control reviews and general accounting consultations. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor to the Registrant's investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant ("Service Affiliates") which required pre-approval by the Audit Committee were $14,000 in 2003 and $18,000 in 2004, which related to the review of the transfer agent function.(1) ---------- (1) Prior to May 6, 2003, the Registrant's Audit Committee was not required to pre-approve non-audit services. Therefore, the information here represents only fees for pre-approved non-audit services rendered after May 6, 2003, to Service Affiliates. (c) Tax Fees. The aggregate fees billed to the Registrant in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning ("Tax Services") were $18,000 in 2003 and $42,000 in 2004. These services consisted of (i) review (in 2003) or preparation (in 2004) of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held, and (iv) determination of Passive Foreign Investment Companies. The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates which required pre-approval by the Audit Committee were $0 in 2003 and $0 in 2004.(2) ---------- (2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to pre-approve Tax Services. Therefore, the information here represents only fees for pre-approved Tax Services rendered after May 6, 2003, to Service Affiliates. (d) All Other Fees. The aggregate fees billed to the Registrant in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2003 and $0 in 2004. The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (d) of this Item, which required pre-approval by the Audit Committee were $0 in 2003 and $0 in 2004.(3) ---------- (3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to pre-approve these services. Therefore, the information here represents only fees for pre-approved services rendered after May 6, 2003, to Service Affiliates. (e) (1) Audit Committee Pre-Approval Policies and Procedures. The Registrant's Audit Committee has established policies and procedures for pre-approval of the auditor's engagements for audit and non-audit services to the Registrant. Pre-approval considerations include whether the proposed services are compatible with maintaining the auditor's independence as specified in applicable rules. (e) (2) Percentage of Non-Audit Services Approved under (c)(7)(i)(C). The percentage of the services described in each of (b) through (d) of this Item 4 (only those that relate to the Registrant) that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was 0%, 0% and 0%, respectively. (f) Not applicable. (g) Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $35,000 in 2003 and $63,000 in 2004. (h) Auditor Independence. The Registrant's Audit Committee was provided with information relating to the provision of non-audit services by E&Y to the Registrant (and its affiliates) that were not pre-approved by the Audit Committee so that a determination could be made whether the provision of such services is compatible with maintaining E&Y's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. The Schedule of Investments is included under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant's board. There have been no changes to the procedures by which shareholders may recommend nominees to the registrant's board. ITEM 10. CONTROLS AND PROCEDURES. (a) The registrant's President and Treasurer have concluded that the registrant's disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR. (b) There were no significant changes in the registrant's internal controls, or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 11. EXHIBITS. (a) (1) Code of Ethics pursuant to Item 2 above. (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached hereto. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURITY EQUITY FUND By: /s/ MICHAEL G. ODLUM ----------------------------------- Michael G. Odlum, President Date: December 9, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ MICHAEL G. ODLUM ----------------------------------- Michael G. Odlum, President Date: December 9, 2004 By: /s/ BRENDA M. HARWOOD ----------------------------------- Brenda M. Harwood, Treasurer Date: December 9, 2004 EX-99.CODE ETH 2 sb045611_ex99coe.txt 6 EX-99.CODE ETH Item 11 (a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS OF THE SECURITY FUNDS I. COVERED OFFICERS/PURPOSE OF THE CODE The Security Funds' code of ethics (this "Code") for the investment companies within the complex (collectively, "Funds" and each, "Company") applies to the Company's President (Principal Executive Officer) and Treasurer (Principal Financial Officer) (the "Covered Officers" each of whom are set forth in Exhibit A) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Company; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Company. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Company. Certain conflicts of interest arise out of the relationships between Covered Officers and the Company and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Company because of their status as "affiliated persons" of the Company. The Company's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or result from, the contractual relationship between the Company and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Company or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Company. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Company and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Company. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this code. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. THE OVERARCHING PRINCIPLE IS THAT THE PERSONAL INTEREST OF A COVERED OFFICER SHOULD NOT BE PLACED IMPROPERLY BEFORE THE INTEREST OF THE COMPANY. *** Each Covered Officer must: o not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company; o not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Company; o report at least annually any other company for which the Covered Person serves as an officer or director (other than such positions with the Funds' investment adviser or its affiliates). There are some conflict of interest situations that should always be discussed with the Secretary of the Funds (the "Secretary") if material. Examples of these include:(1) o service as a director on the board of any public company; - ----------------------- (1) Any activity or relationship that would present a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if a member of the Covered Officer's family engages in such an activity or has such a relationship. 2 o the receipt of any gifts with a value in excess of $100 from any company (or employee of such company) with which the Company has current or prospective business dealings; o the receipt of any entertainment from any company with which the Company has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Company's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Company; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company's directors and auditors, and to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he or she has received, read, and understands the Code; 3 o annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify the Secretary promptly if he or she knows of any violation of this Code. Failure to do so is itself a violation of this Code. The Secretary is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation.(2) However, any approvals or waivers(3) sought by the President will be considered by the Audit Committee of the Funds (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: o the Secretary will take all appropriate action to investigate any potential violations reported to him or her; o if, after such investigation, the Secretary believes that no violation has occurred, the Secretary is not required to take any further action; o any matter that the Secretary believes is a violation, will be reported to the Committee; o any material matter arising under this Code, whether or not a violation, which the Secretary determines should be reported, will be reported to the Committee; o if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, the Board will consider the appropriate action to be taken, which may include: (1) review of, and appropriate modifications to, applicable policies and procedures, (2) notification to appropriate personnel of the investment adviser or its board that a violation of the Code has occurred, or (3) a recommendation to dismiss the Covered Officer as an officer of the Funds; o the Committee will be responsible for granting waivers, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. - ----------------------- (2) The Secretary is authorized to consult, as appropriate, with counsel to the Company and counsel to the Independent Directors, and is encouraged to do so. (3) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. 4 V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board and its counsel and the appropriate Company and its adviser. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Company, as to any fact, circumstance, or legal conclusion. Date: September 19, 2003 5 EXHIBIT A - COVERED OFFICERS James R. Schmank - President Brenda M. Harwood - Treasurer Date: September 19, 2003 6 EX-99.CERT 3 sb045611_ex99cert.txt EX-99.CERT Item 11 (a)(2) CERTIFICATIONS I, Michael G. Odlum, certify that: 1. I have reviewed this report on Form N-CSR of Security Equity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c. presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. December 9, 2004 /s/ MICHAEL G. ODLUM - ----------------------- --------------------------------------- Date Michael G. Odlum, President CERTIFICATIONS I, Brenda M. Harwood, certify that: 1. I have reviewed this report on Form N-CSR of Security Equity Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c. presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. December 9, 2004 /s/ BRENDA M. HARWOOD - ----------------------- --------------------------------------- Date Brenda M. Harwood, Treasurer EX-99.906 4 sb045611_ex99-906cert.txt EX-99.906 CERT Item 11(b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE) In connection with the attached Report of Security Equity Fund (the "Fund") on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the Fund does hereby certify that, to the best of such officer's knowledge: 1. The Report fully complies with the requirements of 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act"); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund as of, and for, the periods presented in the Report. By: /s/ MICHAEL G. ODLUM ------------------------------------------------------ Michael G. Odlum, President Date: December 9, 2004 By: /s/ BRENDA M. HARWOOD ------------------------------------------------------ Brenda M. Harwood, Treasurer Date: December 9, 2004 A signed original of this written statement required by Section 906 has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----