March 23, 2006
Dear Shareholder:
We are writing to inform you of the upcoming special meeting of shareholders of
Large Cap Growth Fund, Enhanced Index Fund and Social Awareness Fund to be held
Friday, April 28, 2006. You are being asked to vote on a plan that merges these
three funds into Select 25 Fund. These three funds have investment objectives
and policies comparable to Select 25 Fund.
Your proxy statement is enclosed. You can vote in one of four ways:
o By mail with the enclosed proxy card - be sure to sign, date and return
it in the enclosed postage-paid envelope,
o Through the Web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on April 28, 2006.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Please read the enclosed
information carefully before voting. Your vote is extremely important. If you
have questions, please call InvestorCONNECT TM at 1-800-361-2782.
We appreciate your consideration of this important proposal. Thank you for
investing in Security Funds.
Sincerely,
/s/ MICHAEL G. ODLUM
Michael G. Odlum, President
Security Management Company, LLC
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Securities Act File No. __________
As filed with the Securities and Exchange Commission on February 24, 2006
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. |_|
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)
(785) 438-3000
(Registrant's Area Code and Telephone Number)
Amy J. Lee
Security Management Company, LLC
One Security Benefit Place
Topeka, Kansas 66636-0001
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on March 24, 2006 pursuant
to Rule 488 under the Securities Act of 1933.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
Pursuant to Rule 429 under the Securities Act of 1933, this registration
statement relates to shares of common stock previously registered on Form N-1A
(File No. 2-19458).
Security Equity Fund
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
March 24, 2006
Dear Shareholder:
Your Board of Directors ("Board") has called a special meeting of shareholders
of Large Cap Growth Fund, Enhanced Index Fund, and Social Awareness Fund (each
an "Acquired Fund"), each of which is a series of Security Equity Fund, to be
held on April 28, 2006 at 1:00 p.m. (Central time), or any adjournment(s) or
postponement(s) thereof (the "Special Meeting"), at the executive offices of
Security Equity Fund, One Security Benefit Place, Topeka, Kansas 66636-0001. The
Board has called the Special Meeting so that shareholders can vote on a proposed
Plan of Reorganization ("Reorganization Plan") regarding the Acquired Funds, as
discussed below.
The Board has approved the reorganization of each of Large Cap Growth Fund,
Enhanced Index Fund, and Social Awareness Fund into Select 25 Fund (the
"Acquiring Fund"), another series of Security Equity Fund (the
"Reorganization"). Security Management Company, LLC serves as investment adviser
to the Acquired and Acquiring Funds, and each Acquired Fund has investment
objectives and policies that are comparable in many respects to those of the
Acquiring Fund.
After careful consideration, the Board unanimously approved this proposal with
respect to the Acquired Funds and recommended that shareholders of each Acquired
Fund vote "FOR" the proposal. Accordingly, you are asked to authorize the
Reorganization.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed. We
urge you to vote your shares by completing and returning the enclosed proxy in
the envelope provided, or vote by Internet, fax or telephone, at your earliest
convenience.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER TO
AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS,
PLEASE TAKE A FEW MINUTES TO READ THE PROXY STATEMENT/PROSPECTUS AND CAST YOUR
VOTE. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO LATER THAN 9:00 A.M. ON
APRIL 28, 2006.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ MICHAEL G. ODLUM
Michael G. Odlum
President
Security Equity Fund
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
LARGE CAP GROWTH FUND, ENHANCED INDEX FUND AND SOCIAL AWARENESS FUND
TO BE HELD APRIL 28, 2006
To the Shareholders:
The Board of Directors of Security Equity Fund has called a special meeting of
shareholders of Large Cap Growth Fund, Enhanced Index Fund, and Social Awareness
Fund (each an "Acquired Fund"), each of which is a series of Security Equity
Fund, to be held April 28, 2006 at 1:00 p.m. (Central time) or any
adjournment(s) or postponement(s) thereof (the "Special Meeting"), at the
executive offices of Security Equity Fund, One Security Benefit Place, Topeka,
Kansas 66636-0001.
At the Special Meeting you will be asked:
1. To approve a Plan of Reorganization providing for the acquisition of all
of the assets and liabilities of each Acquired Fund by Select 25 Fund (the
"Acquiring Fund"), a series of Security Equity Fund, solely in exchange
for shares of the Acquiring Fund, followed by the complete liquidation of
the Acquired Fund; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments thereof.
Shareholders of each Acquired Fund vote separately on Proposal 1. Shareholders
of record at the close of business on March 1, 2006 are entitled to notice of,
and to vote at, the Special Meeting. Your attention is called to the
accompanying Proxy Statement/Prospectus. Shareholders who do not expect to
attend the Special Meeting in person are requested to complete, date, and sign
the enclosed proxy card and return it promptly in the envelope provided for that
purpose. Your proxy card also provides instructions for voting via telephone,
fax or the Internet, if you wish to take advantage of these voting options.
Proxies may be revoked at any time by executing and submitting a revised proxy,
by giving written notice of revocation to Security Equity Fund, or by voting in
person at the Special Meeting.
By Order of the Board of Directors
/s/ AMY J. LEE
Amy J. Lee
Secretary
March 24, 2006
TABLE OF CONTENTS
INTRODUCTION............................................................... 2
SUMMARY.................................................................... 3
The Proposed Reorganization........................................... 3
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES,
RISKS AND MANAGEMENT OF THE ACQUIRED AND ACQUIRING FUNDS................... 3
Principal Risks of Investing in the Funds............................. 9
Comparison of Portfolio Characteristics............................... 10
COMPARISON OF FEES AND EXPENSES FOR ACQUIRED AND ACQUIRING FUNDS........... 11
Shareholder Fees...................................................... 11
Comparison of Operating Expenses...................................... 11
Example............................................................... 12
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND............................ 12
Performance of the Acquiring Fund..................................... 12
Select 25 Fund - Class A.............................................. 13
Investment Manager.................................................... 13
Portfolio Manager..................................................... 13
Form of Organization.................................................. 14
INFORMATION ABOUT THE REORGANIZATION....................................... 14
The Reorganization Plan............................................... 14
Reasons for the Reorganization........................................ 14
Board Considerations.................................................. 14
Tax Considerations.................................................... 15
Expenses of the Reorganization........................................ 15
Dividends and Other Distributions..................................... 15
Capitalization of the Funds........................................... 15
GENERAL INFORMATION........................................................ 16
MORE INFORMATION REGARDING THE ACQUIRING FUND.............................. 18
Management of the Acquiring Fund...................................... 25
FINANCIAL HIGHLIGHTS FOR THE ACQUIRING FUND................................ 27
APPENDIX A................................................................. 1
APPENDIX B................................................................. 1
APPENDIX C................................................................. 1
APPENDIX D................................................................. 1
STATEMENT OF ADDITIONAL INFORMATION........................................ 1
OTHER INFORMATION.......................................................... 1
1
PROXY STATEMENT/PROSPECTUS
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(TOLL FREE) (800) 888-2461
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about the proposed
transfer of all of the assets of each Acquired Fund to the Acquiring Fund as set
forth in the table below in exchange solely for shares of the Acquiring Fund;
the assumption by the Acquiring Fund of all liabilities of the Acquired Funds;
and the distribution of the Acquiring Fund shares to the shareholders of the
Acquired Funds in complete liquidation of the Acquired Funds (the
"Reorganization") as provided upon the terms and conditions set forth in a Plan
of Reorganization ("Reorganization Plan").
---------------------------------- -------------------------------------
ACQUIRED FUNDS ACQUIRING FUND
---------------------------------- -------------------------------------
Large Cap Growth Fund
----------------------------------
Enhanced Index Fund Select 25 Fund
----------------------------------
Social Awareness Fund
---------------------------------- -------------------------------------
This Proxy Statement/Prospectus solicits your vote in connection with a special
meeting ("Special Meeting") of shareholders, to be held April 28, 2006, at which
shareholders of the Acquired Funds will vote on the Reorganization Plan through
which these transactions will be accomplished. Because you, as a shareholder of
an Acquired Fund, are being asked to approve a transaction that will result in
your holding shares of the Acquiring Fund, this document also serves as a
prospectus for the Acquiring Fund, whose investment objective is long-term
growth of capital.
This Proxy Statement/Prospectus, which you should retain for future reference,
contains important information about the Acquiring Fund that you should know
before investing. A Statement of Additional Information ("SAI") dated March 24,
2006 relating to this Proxy Statement/Prospectus, and containing additional
information about the Reorganization and the parties thereto, has been filed
with the U.S. Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of each of the Funds, see the
Security Equity Fund Prospectus and Statement of Additional Information dated
February 1, 2006, each of which is incorporated herein by reference and is
available, without charge, by calling (800) 888-2461. The Security Equity Fund
annual report dated September 30, 2005 is incorporated herein by reference.
You also may obtain proxy materials, reports and other information filed by the
Security Equity Fund from the SEC's Public Reference Section (1-202-942-8090) in
Washington, D.C., or from the SEC's internet website at www.sec.gov. Copies of
materials also may be obtained, after paying a duplicating fee, by electronic
request at the following e-mail address: publicinfo@sec.gov, or by writing the
SEC's Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549-0102.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED THAT
THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
DATE: MARCH 24, 2006
2
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For additional
information, you should consult the Security Equity Fund Prospectus and the
Reorganization Plan, which is attached hereto as APPENDIX A.
THE PROPOSED REORGANIZATION -- On November 18, 2005, the Board of Directors of
Security Equity Fund ("Board") approved the Reorganization Plan with respect to
Large Cap Growth, Social Awareness and Select 25 Funds. On February 10, 2006,
the Board approved the Reorganization Plan with respect to Enhanced Index and
Select 25 Funds. Subject to the approval of shareholders of the Acquired Funds,
the Reorganization Plan provides for:
o the transfer of all of the assets of the Acquired Funds to the Acquiring
Fund, in exchange for shares of the Acquiring Fund;
o the assumption by the Acquiring Fund of all of the liabilities of the
Acquired Funds;
o the distribution of shares of the Acquiring Fund to the shareholders of
the Acquired Funds; and
o the complete liquidation of the Acquired Funds.
The Reorganization is expected to be effective immediately after the close of
business May 5, 2006, or on a later date as the parties may agree (the
"Closing"). As a result of the Reorganization, each shareholder of an Acquired
Fund will become a shareholder of the Acquiring Fund. Each shareholder will
hold, immediately after the Closing, shares of the Acquiring Fund having an
aggregate value equal to the aggregate value of the shares of the Acquired Fund
held by that shareholder as of the close of business on the date of the Closing.
The Reorganization is intended to eliminate duplication of costs and other
inefficiencies arising from having comparable mutual funds within the same
family of funds, as well as to assist in achieving economies of scale.
Shareholders in the Acquired Funds are expected to benefit from the larger asset
base and lower gross operating expenses as a percentage of Acquiring Fund assets
that will result from the Reorganization.
Approval of the Reorganization Plan with respect to an Acquired Fund requires
the affirmative vote of a majority of the outstanding voting securities of that
Acquired Fund. In the event that the shareholders of an Acquired Fund do not
approve the Reorganization, that Acquired Fund will continue to operate as a
separate entity, and the Board will determine what further action, if any, to
take.
AFTER CAREFUL CONSIDERATION, THE BOARD UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATION. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
REORGANIZATION.
In considering whether to approve the Reorganization, you should note that:
o As described below, each Acquired Fund has investment objectives and
investment policies that are comparable in many respects to the investment
objective and investment policies of the Acquiring Fund.
o The Funds have the same investment manager, Security Management Company,
LLC (the "Investment Manager" or "SMC"), One Security Benefit Place,
Topeka, Kansas 66636-0001.
o The proposed Reorganization offers reductions in gross operating expenses,
and comparable or lower operating expenses net of voluntary reimbursements
and waivers by SMC, for shareholders of each of the Acquired Funds.
o The share purchase, exchange and redemption provisions for each Fund are
the same. For additional information on purchase and redemption
provisions, see "More Information Regarding the Acquiring Fund."
o The Funds expect that the Reorganization will be considered a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal
Revenue Code of 1986 (the "Code"). As such, shareholders of the Funds will
not recognize gain or loss as a result of the Reorganization. See
"Information About the Reorganization - Tax Considerations."
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, RISKS AND
MANAGEMENT OF THE ACQUIRED AND ACQUIRING FUNDS
The investment objectives, principal investment strategies, and risks of the
Funds are similar. Each Fund is managed by the same investment manager. Because
Large Cap Growth Fund, Enhanced Index Fund, Social Awareness Fund and Select 25
Fund have similar investment objectives and investment policies, the principal
investment strategies and principal risks of an investment in the Funds are
generally comparable, although there are certain differences. The chart below
summarizes the similarities and differences,
3
between the Funds' investment objectives, principal investment strategies and
principal risks. There can be no assurance that a Fund will achieve its stated
objective.
LARGE CAP GROWTH FUND/SELECT 25 FUND
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LARGE CAP GROWTH FUND SELECT 25 FUND
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INVESTMENT OBJECTIVE Long-term growth of capital Long-term growth of capital
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PRINCIPAL INVESTMENT Large Cap Growth Fund pursues its objective by Select 25 Fund pursues its objective by focusing
STRATEGIES investing, under normal market conditions, at its investments in a core position of 20-30 common
least 80% of its net assets (plus borrowings for stocks of growth companies which have exhibited
investment purposes) in common stock and other consistent above average earnings and/or revenue
equity securities of large capitalization growth.
companies, and principally invests in companies
that, in the opinion of the Investment Manager,
have long-term capital growth potential.
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INVESTMENT MANAGER Security Management Company, LLC Security Management Company, LLC
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SUB-ADVISER None None
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PORTFOLIO MANAGER Mark Mitchell Mark Mitchell
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COMPARISON OF SIMILAR o Each Fund may invest a portion of its assets in options and futures contracts, which may be used
PRINCIPAL STRATEGIES to hedge each Fund's portfolio, maintain exposure to the equity markets or to increase returns.
INVESTMENT
STRATEGIES o Each Fund may invest in a variety of investment vehicles, including those that seek to track the
composition and performance of a specific index. Each Fund may use these index-based investments
as a way of managing its cash position or to gain exposure to the equity markets or a particular
sector of the equity market, while maintaining liquidity.
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DIFFERENCES o Large Cap Growth Fund may concentrate its o Select 25 Fund pursues its objective by
IN STRATEGY investments in a particular industry that focusing its investments in a core position of
represents 20% or more of the Fund's benchmark 20-30 common stocks of growth companies which
index, the Russell 1000 Growth Index. have exhibited consistent above average
Concentration means investment of more than earnings and/or revenue growth. The Fund is
25% of the value of the Fund's assets in any non-diversified, which means that it may
one industry. This policy would allow the Fund invest a larger portion of its assets in a
to overweight an industry relative to the limited number of companies than a diversified
index even if such overweighting resulted in fund.
investment of more than 25% of the Large Cap
Growth Fund's assets in that industry. o The Investment Manager selects what it believes
Currently, no industry represents 20% or more to be premier growth companies as the core
of the index. position for the Select 25 Fund using a
"bottom-up" approach in selecting growth
o The Investment Manager uses a growth-oriented stocks. A bottom-up approach means that the
strategy to choose equity securities, which Investment Manager primarily analyzes the
means that it invests in companies whose fundamentals of individual companies rather
earnings are believed to be in a relatively than focusing on broader market or sector
strong growth trend. In identifying companies themes. When analyzing individual companies,
with favorable growth prospects, the the Investment Manager considers various
Investment Manager considers many factors factors, which may include relative earnings
including, but not limited to: prospects for growth, profitability trends, the company's
above-average sales and earnings growth; high financial strength, valuation analysis and
return on invested capital; overall financial strength of management. Portfolio holdings will
strength; competitive advantages, including be replaced when one or more of a company's
innovative products and services; effective fundamentals have changed and, in the opinion
research, product development and marketing; of the Investment Manager, it is no longer a
and stable, effective management. premier growth company.
o Large Cap Growth Fund typically sells a stock
when the reasons for buying it no longer
apply, or when the company begins to show
deteriorating fundamentals or poor relative
performance.
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4
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LARGE CAP GROWTH FUND SELECT 25 FUND
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COMPARISON OF SIMILAR RISKS o Under adverse or unstable market conditions, each Fund's policies allow it to invest some or all
PRINCIPAL of its assets in cash or money market securities for the purpose of avoiding losses, in which case
RISKS each Fund may be unable to pursue its investment objective during that time or benefit from any
market upswings.
o Each Fund also shares the following principal investment risks:
o market risk
o growth stock risk
o equity derivatives risk
o non-diversification risk
o investment in investment companies risk
A summary description of each of these risks, as well as other principal investment risks associated
with an investment in the Funds, is provided below under "Principal Risks of Investing in the
Funds." In addition, Appendix B contains additional information regarding other investment
strategies and risk considerations of the Funds.
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DIFFERENCES o In addition to the above risks, Large Cap o In addition to the above risks, Select 25 Fund
IN RISKS Growth Fund is also subject to the following is also subject to the following principal
principal investment risks: investment risks:
o Industry Concentration Risk o Focused Investment Strategy Risk
o Leverage Risk o Overweighting Risk
A summary description of each of these risks is A summary description of each of these risks is
provided below under "Principal Risks of provided below under "Principal Risks of
Investing in the Funds." Investing in the Funds."
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5
ENHANCED INDEX FUND/SELECT 25 FUND
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ENHANCED INDEX FUND SELECT 25 FUND
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INVESTMENT OBJECTIVE Outperform the S&P 500 Index through stock
selection resulting in different weightings of Long-term growth of capital
common stocks relative to the index
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PRINCIPAL INVESTMENT Enhanced Index Fund pursues its objective by Select 25 Fund pursues its objective by focusing
STRATEGIES investing, under normal market conditions, at its investments in a core position of 20-30
least 80% of its net assets (plus borrowings for common stocks of growth companies which have
investment purposes) in equity securities of exhibited consistent above average earnings
companies in the S&P 500 Index and futures and/or revenue growth.
contracts representative of the stocks which make
up the index.
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INVESTMENT MANAGER Security Management Company, LLC Security Management Company, LLC
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SUB-ADVISER Northern Trust Investments, N.A. ("NTI") None
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PORTFOLIO MANAGER(S) Robert H. Bergson and Gail Grove Mark Mitchell
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COMPARISON OF SIMILAR o Each Fund may invest a portion of its assets in options and futures contracts, which may be used
PRINCIPAL STRATEGIES to hedge each Fund's portfolio, maintain exposure to the equity markets or to increase return
INVESTMENT potential.
STRATEGIES
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DIFFERENCES o Enhanced Index Fund employs a quantitative o Select 25 Fund pursues its objective by
IN STRATEGY discipline to determine which S&P 500 stocks focusing its investments in a core position of
should be overweighted, underweighted, or held 20-30 common stocks of growth companies which
in a neutral position relative to the have exhibited consistent above average
proportion of the S&P 500 Index that the stock earnings and/or revenue growth. The Fund is
represents. Approximately 150 issues will be non-diversified, which means that it may invest
over- or underweighted relative to the index, a larger portion of its assets in a limited
and certain securities represented in the index number of companies than a diversified fund.
will not be held by the Fund. The Fund also may
invest a limited portion of its assets in o The Investment Manager selects what it believes
equity securities that are not included in the to be premier growth companies as the core
S&P 500 Index. position for the Select 25 Fund using a
"bottom-up" approach in selecting growth
o NTI may invest up to 25% of the Fund's assets stocks. A bottom-up approach means that the
in short-term debt securities and money market Investment Manager primarily analyzes the
instruments to meet redemption requests or to fundamentals of individual companies rather
facilitate investment in the securities of the than focusing on broader market or sector
S&P 500 Index. themes. When analyzing individual companies,
the Investment Manager considers various
factors, which may include relative earnings
growth, profitability trends, the company's
financial strength, valuation analysis and
strength of management. Portfolio holdings will
be replaced when one or more of a company's
fundamentals have changed and, in the opinion
of the Investment Manager, it is no longer a
premier growth company.
o Select 25 Fund may invest in a variety of
investment companies, including those that seek
to track the composition and performance of a
specific index. The Fund may use these
index-based investments as a way of managing
its cash position, to gain exposure to the
equity markets, or a particular sector of the
equity market, while maintaining liquidity.
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6
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ENHANCED INDEX FUND SELECT 25 FUND
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COMPARISON OF SIMILAR RISKS o Under adverse or unstable market conditions, each Fund's policies allows it to invest some or
PRINCIPAL all of its assets in cash or money market securities for the purpose of avoiding losses, in which
RISKS case each Fund may be unable to pursue its investment objective during that time or benefit from
any market upswings.
o Each Fund also shares the following principal investment risks:
o market risk
o growth stock risk
o equity derivatives risk
o overweighting risk
A summary description of each of these risks, as well as other principal investment risks associated
with an investment in the Funds, is provided below under "Principal Risks of Investing in the
Funds." In addition, Appendix B contains additional information regarding other investment
strategies and risk considerations of the Funds.
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DIFFERENCES o In addition to the above risks, Enhanced Index o In addition to the above risks, Select 25 Fund
IN RISKS Fund is also subject to the following principal is also subject to the following principal
investment risk: investment risks:
o Leverage Risk o Focused Investment Strategy Risk
o Non-Diversification Risk
A summary description of this risk is provided o Investment in Investment Companies Risk
below under "Principal Risks of Investing in the
Funds." A summary description of each of these risks is
provided below under "Principal Risks of
Investing in the Funds."
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7
SOCIAL AWARENESS FUND/SELECT 25 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS FUND SELECT 25 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE Capital appreciation Long-term growth of capital
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT Social Awareness Fund pursues its objective by Select 25 Fund pursues its objective by focusing
STRATEGIES investing, under normal market conditions, in a its investments in a core position of 20-30
well-diversified portfolio of equity securities common stocks of growth companies which have
that the Investment Manager believes have exhibited consistent above average earnings
above-average earnings potential and which meet and/or revenue growth.
certain established social criteria. The Fund
typically invests in the common stock of
companies whose total market value is $5 billion
or greater at the time of purchase.
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INVESTMENT MANAGER Security Management Company, LLC Security Management Company, LLC
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGERS Mark Mitchell Mark Mitchell
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF SIMILAR o Each Fund may invest a portion of its assets in options and futures contracts, which may be used
PRINCIPAL STRATEGIES to hedge each Fund's portfolio, maintain exposure to the equity markets or to increase returns.
INVESTMENT
STRATEGIES ---------------------------------------------------------------------------------------------------------------------
DIFFERENCES o Social Awareness Fund seeks to hold a portfolio o Select 25 Fund pursues its objective by
IN STRATEGY of equity securities that have above-average focusing its investments in a core position of
earnings potential and meets established social 20-30 common stocks of growth companies which
criteria. The fund typically invests in the have exhibited consistent above average
common stock of securities whose total market earnings and/or revenue growth. The Fund is
value is $5 billion or greater at the time of non-diversified, which means that it may invest
purchase. a larger portion of its assets in a limited
number of companies than a diversified fund.
o Social Awareness Fund may also invest in
companies that are included in the Domini 400 o The Investment Manager selects what it believes
Social Index (DSI). (The DSI is not the to be premier growth companies as the core
benchmark against which the Fund measures its position for the Select 25 Fund using a
performance.) "bottom-up" approach in selecting growth
stocks. A bottom-up approach means that the
o The Investment Manager uses a "bottom-up" Investment Manager primarily analyzes the
approach, which analyzes the fundamentals of fundamentals of individual companies rather
individual companies instead of focusing on than focusing on broader market or sector
broad market or sector themes. themes. When analyzing individual companies,
the Investment Manager considers various
o The Social Awareness Fund seeks to invest in factors, which may include relative earnings
companies that contribute substantially to the growth, profitability trends, the company's
communities in which they operate, demonstrate financial strength, valuation analysis and
a positive record on employment relations, strength of management. Portfolio holdings will
demonstrate substantial progress in the be replaced when one or more of a company's
promotion of women and minorities or in the fundamentals have changed and, in the opinion
implementation of policies that support working of the Investment Manager, it is no longer a
parents and take notably positive steps in premier growth company.
addressing environmental challenges. Thus, the
Fund will not invest in companies that engage o Select 25 Fund may invest in a variety of
in: nuclear energy production, alcoholic investment companies, including those that seek
beverages, tobacco products, weapons to track the composition and performance of a
manufacturing, practices that detrimentally specific index. The Fund may use these
affect the environment, and the gambling index-based investments as a way of managing
industry. its cash position, to gain exposure to the
equity markets, or a particular sector of the
equity market, while maintaining liquidity.
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF SIMILAR RISKS o Under adverse or unstable market conditions, each Fund's policies allow it to invest some or all
PRINCIPAL of its assets in cash or money market securities for the purpose of avoiding losses, in which case
RISKS each Fund may be unable to pursue its investment objective during that time or benefit from any
market upswings.
o Each Fund also shares the following principal investment risks:
o market risk
o growth stock risk
A summary description of each of these risks, as well as other principal investment risks associated
with an investment in the Funds, is provided below under "Principal Risks of Investing in the
Funds." In addition, Appendix B contains additional information regarding other investment
strategies and risk considerations of the Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
8
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL AWARENESS FUND SELECT 25 FUND
- ------------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF DIFFERENCES o In addition to the above risks, Social Awareness o In addition to the above risks, Select 25 Fund
PRINCIPAL IN RISKS Fund is also subject to the following principal is also subject to the following principal
RISKS (CONT.) investment risk: investment risks:
o Social Investing Risk o Equity Derivatives Risk
o Focused Investment Strategy Risk
A summary description of this risk is provided o Non-Diversification Risk
below under "Principal Risks of Investing in the
Funds." o Investment in Investment Companies Risk
o Overweighting Risk
A summary description of each of these risks is
provided below under "Principal Risks of
Investing in the Funds."
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUNDS - Each Fund may invest in various
types of securities or use certain investment techniques to achieve its
objective. The following is a summary of the principal risks associated with
such securities and investment techniques. As with any security, an investment
in a Fund involves certain risks, including loss of principal. The Funds are
subject to varying degrees of financial, market and credit risk. An investment
in the Funds is not a deposit of a bank and is not insured by the Federal
Deposit Insurance Corporation or any other government agency. The fact that a
particular risk is not identified does not mean that a Fund is prohibited from
investing its assets in securities that give rise to that risk. Please refer to
Appendix B for information about additional investment techniques that the Funds
may utilize and related risks.
MARKET RISK. Equity securities fluctuate in price and their prices tend to
fluctuate more dramatically over the shorter term than do the prices of other
asset classes. These movements may result from factors affecting individual
companies, or from broader influences like changes in interest rates, market
conditions, investor confidence or changes in economic, political or financial
market conditions.
GROWTH STOCKS RISK. Investments in growth stocks may lack the dividend yield
that can cushion stock prices in market downturns. Growth companies often are
expected to increase their earnings at a certain rate. If expectations are not
met, investors can punish the stocks, even if earnings do increase.
EQUITY DERIVATIVES RISK. Equity derivatives include options, futures and options
on futures, which may be used to hedge a Fund's portfolio, to increase returns
or to maintain exposure to a market without buying individual securities. These
investments may pose risks in addition to those associated with investing
directly in securities or other investments. These risks may include illiquidity
of the equity derivative, imperfect correlation with underlying investments or
the Fund's other portfolio holdings, and lack of availability. Accordingly,
there is the risk that such practices may fail to serve their intended purposes,
and may reduce returns or increase volatility. These practices also entail
transactional expenses.
SOCIAL INVESTING RISK. Social investing may present additional risks to the
Social Awareness Fund because it will limit the availability of investment
opportunities compared to those of similar funds which do not impose such
restrictions on investment. In addition, if SMC determines that securities held
by the Fund do not comply with its social criteria, the Fund must sell the
security at a time or price that may not be advantageous to the Fund.
FOCUSED INVESTMENT STRATEGY RISK. The typical diversified stock mutual fund
might hold between 80 and 120 stocks in its portfolio. Because Select 25 Fund
focuses its investments in a smaller number of stocks, it may be more volatile
than the typical diversified stock fund, because a change in the market value of
a single security may have a greater impact on the Fund's net asset value and
total return.
NON-DIVERSIFICATION RISK. A non-diversified Fund such as Select 25 Fund or Large
Cap Growth Fund may hold larger positions in a smaller number of securities than
a diversified Fund. As a result, a change in the market value of a single
security may have a greater impact on a non-diversified Fund's net asset value
and total return. A non-diversified Fund is expected to be more volatile than a
diversified Fund.
OVERWEIGHTING RISK. Overweighting investments in certain sectors or industries
of the stock market increases the risk that Select 25 Fund will suffer a loss
because of general declines in the prices of stocks in those sectors or
industries.
INVESTMENT IN INVESTMENT COMPANIES RISK. Investment in other investment
companies or investment vehicles may include index-based investments such as
Standard & Poors Depository Receipts ("SPDRs") (based on the S&P 500 Index),
MidCap SPDRs (based on the S&P MidCap 400 Index), Select Sector SPDRs (based on
sectors or industries of the S&P 500 Index), Nasdaq-100 Index Tracking Stocks
(based on the Nasdaq-100 Index) and DIAMONDS (based on the Dow Jones Industrial
Average). Such index-based investments are securities issued by an investment
company or investment vehicle whose shares are intended to closely track the
performance of the applicable index. To the extent a Fund invests in other
investment companies or investment vehicles, it will incur its pro rata share of
the underlying investment companies' or investment vehicles' expenses, such as
investment advisory and other
9
management expenses, and shareholders will be required to pay the operating
expenses of two investment companies or investment vehicles. In addition, a Fund
will be subject to the effects of business and regulatory developments that
affect an underlying investment company or investment vehicle or the investment
company industry generally.
INDUSTRY CONCENTRATION RISK. Large Cap Growth Fund may be prone to industry
concentration risk due to its investment strategy, which allows it to
concentrate its investments in a particular industry that represents 20% or more
of its benchmark index. Industry concentration risk is the risk that the Fund's
return could be hurt significantly by problems affecting a particular industry
or sector. For the Large Cap Growth Fund, "concentration" refers to investment
of more than 25% of the value of the Fund's assets in any one industry. The
Fund's concentration policy allows it to overweight an industry relative to its
index, even if overweighting resulted in investment of more than 25% of the
Fund's assets in that industry. When the Fund concentrates its investments in a
particular industry or group of related industries, its performance may
significantly increase or decrease due to developments in that particular
industry or group of industries.
LEVERAGE RISK. Certain of the Funds may be prone to leverage risk due to
investment strategies which allow the Funds to invest a portion of their assets
in options and futures contracts. This use of derivatives may create leveraging
risk. For example, because of the low margin deposits required, futures trading
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in an immediate and substantial
impact on the net asset value of a Fund. Leveraging may cause a Fund to be more
volatile than if it had not been leveraged. To mitigate leveraging risk, a Fund
segregates liquid assets to meet its obligations under, or otherwise covers, the
transactions that may give rise to this risk.
COMPARISON OF PORTFOLIO CHARACTERISTICS
The following tables compare certain characteristics of the portfolios of the
Funds as of December 31, 2005:
- ---------------------------------------------------------------------------------------------------------------------
ACQUIRED FUNDS ACQUIRING FUND
- ---------------------------------------------------------------------------------------------------------------------
LARGE CAP ENHANCED SOCIAL
GROWTH FUND INDEX FUND AWARENESS FUND SELECT 25 FUND
- ---------------------------------------------------------------------------------------------------------------------
Net Assets (thousands) $16,881.60 $14,305.90 $16,954.30 $25,127.70
- ---------------------------------------------------------------------------------------------------------------------
Number of Holdings 38 249 38 27
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 58% 101% 52% 30%
(12 months ended 12/31/05)
- ---------------------------------------------------------------------------------------------------------------------
As a percentage of Net Assets
- ---------------------------------------------------------------------------------------------------------------------
- U.S. Government Obligations
- ---------------------------------------------------------------------------------------------------------------------
- U.S. Government Agency Obligations
- ---------------------------------------------------------------------------------------------------------------------
- Foreign Government Obligations
- ---------------------------------------------------------------------------------------------------------------------
- Corporate Debt Securities
- ---------------------------------------------------------------------------------------------------------------------
- Convertible Bonds
- ---------------------------------------------------------------------------------------------------------------------
- Convertible Preferred Stocks
- ---------------------------------------------------------------------------------------------------------------------
- Preferred Stocks
- ---------------------------------------------------------------------------------------------------------------------
- Common Stocks 97.14% 96.86% 97.36% 95.81%
- ---------------------------------------------------------------------------------------------------------------------
TOP 10 HOLDINGS (AS A % OF NET ASSETS)
- --------------------------------------------------------------------------------------------------------------------
ACQUIRED FUNDS
- --------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND % ENHANCED INDEX FUND % SOCIAL AWARENESS FUND %
- --------------------------------------------------------------------------------------------------------------------
American International Group, 4.20 Exxon Mobil Corporation 3.26 American International 4.77
Inc. Group, Inc.
- --------------------------------------------------------------------------------------------------------------------
General Electric Company 4.07 General Electric Company 2.93 Microsoft Corporation 4.09
- --------------------------------------------------------------------------------------------------------------------
Carnival Corporation 3.99 Microsoft Corporation 2.12 Fedex Corporation 3.90
- --------------------------------------------------------------------------------------------------------------------
Microsoft Corporation 3.81 Bank of America Corporation 1.97 Univision Communications, 3.87
Inc.
- --------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc. 3.67 Johnson & Johnson 1.83 Medtronic, Inc. 3.84
- --------------------------------------------------------------------------------------------------------------------
Home Depot, Inc. 3.52 Citigroup, Inc. 1.81 Home Depot, Inc. 3.29
- --------------------------------------------------------------------------------------------------------------------
Medtronic, Inc. 3.51 Pfizer, Inc. 1.77 Shaw Group, Inc. 3.17
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------------
ACQUIRING FUND
- ----------------------------------
SELECT 25 FUND %
- ----------------------------------
Shaw Group, Inc. 7.35
- ----------------------------------
KFX, Inc. 5.54
- ----------------------------------
Fedex Corporation 5.27
- ----------------------------------
BJ Services Company 4.69
- ----------------------------------
Carnival Corporation 4.53
- ----------------------------------
Williams Companies, Inc. 4.30
- ----------------------------------
Medtronic, Inc. 4.26
- ----------------------------------
10
- --------------------------------------------------------------------------------------------------------------------
ACQUIRED FUNDS
- --------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND % ENHANCED INDEX FUND % SOCIAL AWARENESS FUND %
- --------------------------------------------------------------------------------------------------------------------
J.B. Hunt Transport Services, 3.39 Intel Corporation 1.59 CVS Corporation 3.05
Inc.
- --------------------------------------------------------------------------------------------------------------------
Fedex Corporation 3.31 International Business 1.47 Zimmer Holdings, Inc. 3.02
Machines Corporation
- --------------------------------------------------------------------------------------------------------------------
Zimmer Holdings, Inc. 3.28 Proctor & Gamble Company 1.36 Viacom, Inc. (CL B) 3.00
- --------------------------------------------------------------------------------------------------------------------
- ----------------------------------
ACQUIRING FUND
- ----------------------------------
SELECT 25 FUND %
- ----------------------------------
American International 4.21
Group, Inc.
- ----------------------------------
L-3 Communications Holding, 4.08
Inc.
- ----------------------------------
ADC Telecommunications, Inc. 3.97
- ----------------------------------
COMPARISON OF FEES AND EXPENSES FOR ACQUIRED AND ACQUIRING FUNDS
The following describes and compares the fees and expenses that you may pay if
you buy and hold shares of each Fund. It is expected that combining the Funds in
the manner proposed in the Reorganization Plan would allow shareholders of the
Large Cap Growth, Enhanced Index, and Social Awareness Funds to realize
economies of scale and lower operating expenses before any waiver or
reimbursement by SMC. While the Reorganization will not affect the management
fee payable with respect to Select 25 Fund (as a percentage of the Fund's
average daily net assets), SMC may be deemed to have a material interest in the
proposed Reorganization because combination of the Funds will relieve SMC of its
obligation to pay sub-advisory fees to NTI under the sub-advisory agreement
applicable to Enhanced Index Fund. In addition, SMC will be relieved of its
voluntary undertaking to limit the total operating expenses of each Acquired
Fund, which resulted in SMC waiving fees and/or reimbursing expenses in the
following amounts during the Acquired Funds' last fiscal year: Large Cap Growth
Fund - $43,378; Enhanced Index Fund - $39,111; and Social Awareness Fund -
$42,472.
Class A, Class B and Class C shares of the Acquiring Fund issued to an Acquired
Fund shareholder in connection with the Reorganization will not be subject to
any additional front-end sales charges, but will be subject to the same
contingent deferred sales charge, if any, applicable to the corresponding
Acquired Fund shares held by that shareholder immediately prior to the
Reorganization. In addition, the period that the shareholder held shares of an
Acquired Fund would be included in the holding period of Acquiring Fund shares
for purposes of calculating any contingent deferred sales charge. Similarly,
Class B shares of the Acquiring Fund issued to a shareholder in connection with
the Reorganization will convert to Class A shares eight years after the date
that the corresponding Class B shares of an Acquired Fund were purchased by the
shareholder. Purchases of shares of the Acquiring Fund after the Reorganization
will be subject to the sales load structure described in the table below for the
Acquiring Fund. This is the same sales load structure that is currently in
effect for each Acquired Fund.
For further information on the fees and expenses of the Select 25 Fund, please
see "More Information Regarding the Acquiring Fund" in this Proxy Statement
/Prospectus.
SHAREHOLDER FEES - For each Fund, the following table describes the fees that
are paid directly from a shareholder's investment:
- ---------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
SHARES SHARES 1 SHARES
- ---------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75% None None
Maximum Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is lower) None 2 5% 3 1% 4
- ---------------------------------------------------------------------------------------------------
1 Class B shares convert tax-free to Class A shares automatically after
eight years.
2 Purchases of Class A shares in amounts of $1,000,000 or more are not
subject to an initial sales load; however, a deferred sales charge of 1%
is imposed in the event of redemption within one year of purchase.
3 5% during the first year, decreasing to 0% in the sixth and following
years.
4 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
COMPARISON OF OPERATING EXPENSES - The current expenses of Large Cap Growth
Fund, Enhanced Index Fund, Social Awareness Fund and Select 25 Fund and
estimated PRO FORMA expenses after giving effect to the proposed Reorganization
are shown in the table below. Expenses for the Funds are based on the operating
expenses incurred for the year ended September 30, 2005. PRO FORMA fees and
expenses show estimated fees and expenses of Select 25 Fund after giving effect
to the proposed Reorganization as of September 30, 2005. PRO FORMA numbers are
estimated in good faith and are hypothetical.
11
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B AND CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
LARGE CAP ENHANCED SOCIAL SELECT PRO LARGE CAP ENHANCED SOCIAL SELECT PRO
GROWTH INDEX FUND AWARENESS 25 FORMA GROWTH INDEX FUND AWARENESS 25 FORMA
- ----------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.00% 0.75% 1.00% 0.75% 0.75% 1.00% 0.75% 1.00% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 0.25% 0.25% 0.25% 0.25% 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------------------------
Other expenses 1.32% 0.81% 0.79% 0.67% 0.50% 1.32% 0.81% 0.79% 0.67% 0.50%
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1 2.57% 1.81% 2.04% 1. 67% 1.50% 3.32% 2.56% 2.79% 2.42% 2.25%
- ----------------------------------------------------------------------------------------------------------------------------------
1 During the fiscal year ended September 30, 2005, SMC voluntarily waived
management fees and/or reimbursed expenses in order to limit the net
annual fund operating expenses of each Acquired Fund to the indicated
levels (as a percentage of average daily net assets): (1) Large Cap Growth
Fund - Class A (2.25%), Class B (3.00%) and Class C (3.00%); Enhanced
Index Fund - Class A (1.56%), Class B (2.31%) and Class C (2.31%); and
Social Awareness Fund - Class A (1.79%), Class B (2.54%) and Class C
(2.54%). SMC currently continues this voluntary undertaking, which may be
discontinued at any time.
EXAMPLE - The example below is intended to help you compare the cost of
investing in the Funds and in the combined Funds (after the Reorganization) on a
PRO FORMA basis. Your actual costs may be higher or lower. The example assumes
that you invest $10,000 in each Fund and in the Select 25 Fund after the
Reorganization for the time periods indicated and redeemed your shares at the
end of each period. The Example also assumes that your investment has a 5%
return each year and that each Fund's operating expenses remain the same. The 5%
return is an assumption and is not intended to portray past or future investment
results. Based on the above assumptions, you would pay the following expenses if
you redeemed your shares at the end of each period shown.
EXAMPLE OF FEES AND EXPENSES - IF SHARES ARE REDEEMED
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
LARGE LARGE
CAP ENHANCED SOCIAL SELECT PRO CAP ENHANCED SOCIAL SELECT PRO
GROWTH INDEX AWARENESS 25 FORMA GROWTH INDEX AWARENESS 25 FORMA
- ----------------------------------------------------------------------------------------------------------------------------
1 Year $ 820 $ 748 $ 770 $ 735 $ 719 $ 835 $ 759 $ 782 $ 745 $ 728
- ----------------------------------------------------------------------------------------------------------------------------
3 Years $1,329 $1,112 $1,178 $1,071 $1,022 $1,321 $1,096 $1,165 $1,055 $1,003
- ----------------------------------------------------------------------------------------------------------------------------
5 Years $1,862 $1,499 $1,610 $1,430 $1,346 $1,931 $1,560 $1,674 $1,491 $1,405
- ----------------------------------------------------------------------------------------------------------------------------
10 Years $3,313 $2,579 $2,808 $2,438 $2,263 $3,440 $2,712 $2,940 $2,571 $2,396
- ----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------
LARGE
CAP ENHANCED SOCIAL SELECT PRO
GROWTH INDEX AWARENESS 25 FORMA
- ------------------------------------------------------------------
1 Year $ 435 $ 359 $ 382 $ 345 $ 328
- ------------------------------------------------------------------
3 Years $1,021 $ 796 $ 865 $ 755 $ 703
- ------------------------------------------------------------------
5 Years $1,731 $1,360 $1,474 $1,291 $1,205
- ------------------------------------------------------------------
10 Years $3,612 $2,895 $3,119 $2,756 $2,585
- ------------------------------------------------------------------
EXAMPLE OF FEES AND EXPENSES - IF SHARES ARE NOT REDEEMED
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
LARGE LARGE
CAP ENHANCED SOCIAL SELECT PRO CAP ENHANCED SOCIAL SELECT PRO
GROWTH INDEX AWARENESS 25 FORMA GROWTH INDEX AWARENESS 25 FORMA
- ----------------------------------------------------------------------------------------------------------------------------
1 Year $ 820 $ 748 $ 770 $ 735 $ 719 $ 335 $ 259 $ 282 $ 245 $ 228
- ----------------------------------------------------------------------------------------------------------------------------
3 Years $1,329 $1,112 $1,178 $1,071 $1,022 $1,021 $ 796 $ 865 $ 755 $ 703
- ----------------------------------------------------------------------------------------------------------------------------
5 Years $1,862 $1,499 $1,610 $1,430 $1,346 $1,731 $1,360 $1,474 $1,291 $1,205
- ----------------------------------------------------------------------------------------------------------------------------
10 Years $3,313 $2,579 $2,808 $2,438 $2,263 $3,440 $2,712 $2,940 $2,571 $2,396
- ----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------
LARGE
CAP ENHANCED SOCIAL SELECT PRO
GROWTH INDEX AWARENESS 25 FORMA
- ------------------------------------------------------------------
1 Year $ 335 $ 259 $ 282 $ 245 $ 228
- ------------------------------------------------------------------
3 Years $1,021 $ 796 $ 865 $ 755 $ 703
- ------------------------------------------------------------------
5 Years $1,731 $1,360 $1,474 $1,291 $1,205
- ------------------------------------------------------------------
10 Years $3,612 $2,895 $3,119 $2,756 $2,585
- ------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
PERFORMANCE OF THE ACQUIRING FUND - The charts and tables below provide some
indication of the risks of investing in the Acquiring Fund by showing changes in
the Acquiring Fund's Class A share performance from year to year and by showing
how the Acquiring Fund's average annual returns have compared to those of a
broad-based securities market index - the Russell 1000 Growth Index. As with all
mutual funds, past performance (before and after taxes) is not a prediction of
future results.
The bar charts do not reflect the impact of taxes and distributions or the sales
charge applicable to Class A shares which, if reflected, would lower the returns
shown. Average annual total returns for the Acquiring Fund's Class A shares
include a deduction of the 5.75% front-end sales charge. Class B shares include
a deduction of the appropriate deferred sales charge (5% in the first year
declining to 0% in the sixth and later years). Class C shares include a
deduction of the deferred sales charge of 1% in the first year.
12
SELECT 25 FUND - CLASS A
HIGHEST AND LOWEST RETURNS
(QUARTERLY 2000-2005)
- --------------------------------------------------------------------------------
HIGHEST QUARTER
Q4 ended December 31, 2001 20.45%
LOWEST QUARTER
Q3 ended September 30, 2001 -18.76%
[LINE GRAPH]
- -17.7% -10.9% -26.3% 16.9% 10.9% 11.7%
- ----------------------------------------------------
2000 2001 2002 2003 2004 2005
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 2005)
- -----------------------------------------------------------------------------------------------------------
SINCE
1 YEAR 5 YEARS INCEPTION 2
- -----------------------------------------------------------------------------------------------------------
Class A
- -----------------------------------------------------------------------------------------------------------
Return Before Taxes 5.29% -2.17% -1.21%
- -----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions 1 5.29% -2.17% -1.21%
- -----------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares 1 3.44% -1.83% -1.03%
- -----------------------------------------------------------------------------------------------------------
Class B 5.75% -2.14% -1.09%
- -----------------------------------------------------------------------------------------------------------
Class C 9.85% -1.75% -1.04%
- -----------------------------------------------------------------------------------------------------------
Russell 1000 Growth Index
(reflects no deduction for fees, expenses or taxes) 3 5.26% -3.58% -2.95%
- -----------------------------------------------------------------------------------------------------------
1 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of any
state or local taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown. After-tax returns shown are not
relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
After-tax returns are shown for Class A only. After-tax returns for Class
B and C will vary.
2 For the period beginning January 29, 1999 (date of inception) to December
31, 2005.
3 The Russell 1000 Growth Index is an unmanaged index which includes stocks
incorporated in the United States and its territories and measures the
performance of those Russell 1000 companies with higher price-to-book
ratios and higher forecasted growth values. Index performance assumes
reinvestment of dividends and distributions.
For additional information about the Acquiring Fund's performance, including a
discussion about market conditions and investment strategies that significantly
affected its performance during its last fiscal year, please refer to Appendix
C.
INVESTMENT MANAGER- SMC is located at One Security Benefit Place, Topeka, Kansas
66636. The Investment Manager has overall responsibility for the management of
the Acquiring Fund. The Investment Manager furnishes investment advisory,
statistical and research facilities, supervises and arranges for the purchase
and sale of securities on behalf of the Acquiring Fund, and provides for the
compilation and maintenance of records pertaining to such investment advisory
services, subject to the control and supervision of the Board. For such
services, the Investment Manager is entitled to receive compensation on an
annual basis equal to 0.75% of the average net assets of the Acquiring Fund,
computed on a daily basis and payable monthly.
A discussion regarding the basis of the Board's approval of the Acquiring Fund's
investment advisory contract is available in the Funds' semiannual report for
the fiscal half-year ended March 31, 2005.
PORTFOLIO MANAGER - Mark Mitchell has responsibility for the day-to-day
management of the Acquiring Fund. Mr. Mitchell, Vice President and Portfolio
Manager of the Investment Manager, has managed the Acquiring Fund since February
2004. He has 16 years of finance and investment experience and is a Chartered
Financial Analyst charterholder. Prior to joining the Investment Manager,
13
Mr. Mitchell was employed by GE Investments and its successor company, GE Asset
Management from 1994 to 2002, serving as: Vice President and Assistant Portfolio
Manager from 1998 to 1999; Vice President, Sector Portfolio Manager and Research
Analyst from 1999 to 2001; and most recently as Vice President, Portfolio
Manager, US Equities. Prior to 1999, Mr. Mitchell served in various portfolio
management-related positions with GE Asset Management Capital.
The Statement of Additional Information provides additional information about
the portfolio manager's compensation, other accounts managed, and ownership of
Acquiring Fund shares.
FORM OF ORGANIZATION - The Acquiring Fund is a series of Security Equity Fund, a
Kansas corporation registered as an open-end management investment company.
Security Equity Fund is governed by the Board, which currently consists of seven
directors.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION PLAN -- The Reorganization Plan provides for the transfer of
all of the assets and liabilities of each Acquired Fund to the Acquiring Fund
solely in exchange for shares of the Acquiring Fund. Each Acquired Fund will
distribute the shares of the Acquiring Fund received in the exchange to its
shareholders, and then the Acquired Funds will be liquidated.
After the Reorganization, each shareholder of an Acquired Fund will own shares
in the Acquiring Fund having an aggregate value equal to the aggregate value of
shares of the Acquired Fund held by that shareholder as of the close of business
on the business day preceding the Closing.
Until the Closing, shareholders of the Acquired Funds will continue to be able
to redeem their shares. Redemption requests received after the Closing will be
treated as requests received by the respective Acquired Fund for the redemption
of Acquiring Fund shares received by the shareholder in the Reorganization.
The obligations of the Funds under the Reorganization Plan are subject to
various conditions, including approval of the shareholders of the Acquired
Funds. The Reorganization Plan also requires that the Funds take, or cause to be
taken, all actions, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by the Reorganization Plan. The Reorganization Plan may be
terminated by mutual agreement of the parties or on certain other grounds. For a
complete description of the terms and conditions of the Reorganization, see the
Reorganization Plan at APPENDIX A, which qualifies in its entirety the foregoing
summary of the Reorganization Plan.
REASONS FOR THE REORGANIZATION -- The Funds have investment objectives,
investment strategies and risks that are comparable in many respects.
Accordingly, the Funds are somewhat duplicative. In addition, the
Reorganizations would create a larger Acquiring Fund, which should benefit
shareholders of each of the Funds by spreading costs across a larger asset base,
and which will allow shareholders of the Acquired Funds to continue to
participate in a professionally managed portfolio at a lower level of gross
operating expenses without relying on SMC's voluntary undertaking to limit net
operating expenses. Also, a larger Acquiring Fund may improve trading efficiency
and may eventually realize economies of scale and lower operating expenses.
Based upon these considerations, the Board determined that the Acquired Funds
should be reorganized.
The proposed Reorganization was presented to the Board for consideration and
approval at meetings held on November 18, 2005 and February 10, 2006. For the
reasons discussed below, the Directors, including all of the Directors who are
not "interested persons" (as defined in the Investment Company Act of 1940) of
Security Equity Fund, determined that the interests of the shareholders of the
respective Funds would not be diluted as a result of the proposed
Reorganization, and that the proposed Reorganization was in the best interests
of each of the Funds and its shareholders.
BOARD CONSIDERATIONS -- The Board, in recommending the Reorganization,
considered a number of factors, including the following:
1. expense ratios and information regarding fees and expenses of the Acquired
Funds and the Acquiring Fund, which indicate that current shareholders of
the Acquired Funds will benefit from the Reorganization by getting a
comparable investment at a comparable or lower cost than their current
investment, and at a lower cost before taking voluntary expense
limitations or reimbursements into account;
2. the Reorganization would not dilute the interests of any Fund's current
shareholders;
3. the stronger relative investment performance of the Acquiring Fund as
compared to the Acquired Funds over most measuring periods;
4. the similarity of the Acquired Funds' investment objectives, policies and
restrictions and share class structure to those of the Acquiring Fund,
which indicates that Acquired Fund shareholders will continue in a
comparable investment vehicle;
14
5. elimination of duplication of costs and inefficiencies of having four
similar Funds; and
6. the tax-free nature of the Reorganization to each Fund and its
shareholders.
The Board also considered the future potential benefits to the Acquiring Fund in
that its operating costs may be reduced if the Reorganization is approved.
THE BOARD RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED FUNDS APPROVE THE
REORGANIZATION.
TAX CONSIDERATIONS -- The Reorganization is intended to qualify for federal
income tax purposes as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, pursuant to
this treatment, neither the Acquired Funds, the Acquiring Fund, nor the
shareholders will recognize any gain or loss for federal income tax purposes
from the transactions contemplated by the Reorganization Plan. As a condition to
the closing of the Reorganization, the Funds will receive an opinion from the
law firm of Dechert LLP to the effect that the Reorganization will qualify as a
tax-free reorganization for federal income tax purposes. That opinion will be
based in part upon certain assumptions and upon certain representations made by
the Funds.
Immediately prior to the Reorganization, each Acquired Fund will pay a dividend
or dividends which, together with all previous dividends, will have the effect
of distributing to the shareholders all of the Acquired Fund's investment
company taxable income for taxable years ending on or prior to the
Reorganization (computed without regard to any deduction for dividends paid) and
all of its net capital gains, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of the
Acquired Funds' shareholders.
As of September 30, 2005, Large Cap Growth Fund, Enhanced Index Fund, and Social
Awareness Fund, respectively, had accumulated capital loss carryforwards in the
amount of approximately $2,312,370, $4,110,950, and $1,499,176, respectively.
After the Reorganization, these losses will be available to the Acquiring Fund,
which had an accumulated capital loss carryfoward of $11,459,603, to offset its
capital gains, although the amount of these losses which may offset the
Acquiring Fund's capital gains in any given year may be limited. As a result of
this limitation, it is possible that the Acquiring Fund may not be able to use
these losses as rapidly as the Acquired Funds might have, and part of these
losses may not be useable at all. The ability of the Acquiring Fund to absorb
losses in the future depends upon a variety of factors that cannot be known in
advance, including the existence of capital gains against which these losses may
be offset. In addition, the benefits of any capital loss carryforwards currently
are available only to shareholders of the respective Acquired Funds. After the
Reorganization, however, these benefits will inure to the benefit of all
shareholders of the Acquiring Fund.
EXPENSES OF THE REORGANIZATION -- The Acquired Funds will bear one-half of the
expenses relating to the Reorganization, including but not limited to the costs
of the proxy solicitation. The Investment Manager will bear the remainder of the
expenses relating to the Reorganization. The costs of the Reorganization
include, but are not limited to, costs associated with preparation of the
Acquiring Fund's registration statement, printing and distributing the Acquiring
Fund's prospectus and the Acquired Fund's proxy materials, legal fees,
accounting fees, securities registration fees, and expenses of holding the
Special Meeting.
DIVIDENDS AND OTHER DISTRIBUTIONS - Each Fund pays dividends from net investment
income, and each distributes net capital gains, if any, at least annually.
Dividends and distributions of each Fund are automatically reinvested in
additional shares of the Fund unless otherwise directed by shareholders. There
are no fees or sales charges on reinvestments.
If the Reorganization Plan is approved by shareholders of an Acquired Fund, then
as soon as practicable before the Closing, the Acquired Fund will pay its
shareholders a cash distribution of all undistributed net investment income and
undistributed realized net capital gains.
CAPITALIZATION OF THE FUNDS - The following table shows on an unaudited basis
the capitalization of each Fund as of December 31, 2005 and on a PRO FORMA basis
as of December 31, 2005, after giving effect to the Reorganization.
- ------------------------------------------------------------------------------------------------------------------
ACQUIRED FUNDS ACQUIRING FUND
- ------------------------------------------------------------------------------------------------------------------
LARGE CAP SOCIAL ENHANCED
GROWTH FUND AWARENESS FUND INDEX FUND SELECT 25 FUND PRO FORMA
- ------------------------------------------------------------------------------------------------------------------
Net Assets $16,881,647 $16,954,332 $14,305,893 $25,124,744 $73,266,616
- ------------------------------------------------------------------------------------------------------------------
Net Assets Per Share $6.27 $20.45 $9.46 $9.48 $9.48
- ------------------------------------------------------------------------------------------------------------------
Shares Outstanding 2,691,878 828,969 1,512,423 2,649,264 7,727,526
- ------------------------------------------------------------------------------------------------------------------
15
GENERAL INFORMATION
OTHER BUSINESS. The Directors do not know of any matters to be presented at the
Special Meeting other than those set forth in this proxy statement. If other
business should properly come before the Special Meeting, proxies will be voted
in accordance with the judgment of the persons named in the accompanying proxy.
PROXY SOLICITATION. The Board is soliciting Acquired Fund shareholders' proxies
on behalf of Security Equity Fund. The principal solicitation of proxies will be
by the mailing of this Proxy Statement/Prospectus commencing on or about March
24, 2006, but proxies may also be solicited by telephone and/or in person by
representatives of SMC or its affiliate(s), or InvestorCONNECT, a private proxy
services firm. If we have not received your vote as the date of the Special
Meeting approaches, you may receive a call from InvestorCONNECT to ask for your
vote. Arrangements will be made with brokerage houses and other custodians,
nominees, and fiduciaries to forward proxies and proxy materials to their
principals.
The estimated cost of retaining InvestorCONNECT is approximately $37,500.00. As
previously discussed, the costs of the Special Meeting, including the
preparation and mailing of the Notice, Proxy Statement/Prospectus and proxy, and
the solicitation of proxies, including reimbursements to broker-dealers and
others who forwarded proxy materials to their clients, will be allocated
one-half to SMC and/or its affiliates and one-half to the respective Acquired
Funds that are a party to the transaction.
SHAREHOLDER VOTING. Shareholders of record at the close of business on March 1,
2006 (the "Record Date") are entitled to notice of, and to vote at, the Special
Meeting. As of the Record Date, there were issued and outstanding [________]
shares of the Large Cap Growth Fund, [________] shares of the Enhanced Index
Fund, and [________] shares of the Social Awareness Fund.
The persons owning of record or beneficially 5% or more of the outstanding
shares of any Acquired Fund as of the Record Date, are set forth in APPENDIX D.
As of the Record Date, Security Equity Fund's Directors and officers, as a
group, owned less than 1.00% of the outstanding shares of any Acquired Fund.
Shareholders are entitled to one vote for each share held and fractional votes
for fractional shares. The presence in person or by proxy of the holders of a
majority of the outstanding shares of an Acquired Fund on the Record Date is
required to constitute a quorum at the Special Meeting with respect to that
Acquired Fund, and therefore must be present for the transaction of business at
the Special Meeting. Shares held by shareholders present in person or
represented by proxy at the Special Meeting will be counted both for the
purposes of determining the presence of a quorum and for calculating the votes
cast on the issues before the Special Meeting.
Abstentions and "broker non-votes" are counted as shares eligible to vote at the
Special Meeting in determining whether a quorum is present, but do not represent
votes cast with respect to the proposal. "Broker non-votes" are shares held by a
broker or nominee as to which instructions have not been received from the
beneficial owners or persons entitled to vote, and the broker or nominee does
not have discretionary voting power.
In the event that a quorum is not present at the Special Meeting, or a quorum is
present but sufficient votes to approve a proposal are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies or to obtain the vote required for
approval of one or more proposals. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies which they are entitled to vote FOR the proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST the
proposal against any such adjournment. A shareholder vote may be taken prior to
any adjournment of the Special Meeting on any proposal for which there are
sufficient votes for approval, even though the Special Meeting is adjourned as
to other proposals.
In order that your shares may be represented at the Special Meeting, you are
requested to vote your shares by mail, the Internet, or by telephone by
following the enclosed instructions. If you wish to participate in the Special
Meeting, please submit the proxy card(s) originally sent with the Proxy
Statement/Prospectus or attend the Special Meeting in person. Any proxy given by
a shareholder, whether in writing, by telephone or via the Internet is
revocable. A shareholder may revoke the proxy at any time prior to its use by
filing with Security Equity Fund a written revocation or a duly executed proxy
card bearing a later date. In addition, any shareholder who attends the Special
Meeting in person may vote by ballot at the Special Meeting, thereby canceling
any proxy previously given. However, attendance in-person at the Special
Meeting, by itself, will not revoke a previously tendered proxy. If you vote by
telephone or the Internet, please do not return your proxy card(s), unless you
later elect to change your vote.
VOTE REQUIRED. Shareholders of each Acquired Fund vote separately on Proposal 1.
Approval of the Reorganization with respect to an Acquired Fund requires the
affirmative vote of the lesser of (i) 67% or more of the shares of the Acquired
Fund that are present at the meeting, if the holders of more than 50% of the
Acquired Fund's shares are present or represented by proxy, or (ii) more than
50% of the outstanding shares of the Acquired Fund. Accordingly, assuming the
presence of a quorum, abstentions and broker non-votes have the effect of a
negative vote on Proposal 1.
16
INVESTMENT MANAGER, ADMINISTRATOR AND PRINCIPAL UNDERWRITER.SMC, the Funds'
investment adviser and administrator, is located at One Security Benefit Place,
Topeka, KS 66636-0001. The principal underwriter/of the Funds, Security
Distributors, Inc., is located at One Security Benefit Place, Topeka, KS
66636-0001. SMC and Security Distributors, Inc. are affiliates of each other.
SHAREHOLDER REPORTS.Shareholders can find important information about the Funds
in the Annual Report dated September 30, 2005. You may obtain a copy of the
Funds' Annual Report without charge by writing to the Funds at the address above
or by calling the Funds at 1-800-888-2461.
SHAREHOLDER PROPOSALS.As a general matter, Security Equity Fund does not hold
annual meetings of shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a subsequent meeting (if any) should send
their written proposals to the secretary of Security Equity Fund, One Security
Benefit Place, Topeka, KS 66636-0001.
Proposals must be received a reasonable time prior to the date of a meeting of
shareholders to be considered for inclusion in the proxy materials for a
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. Persons named as proxies for any subsequent
shareholders' meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
INFORMATION ABOUT THE FUNDS. Security Equity Fund is subject to the
informational requirements of the Securities Exchange Act and certain other
federal securities statutes, and files reports and other information with the
SEC. Proxy materials, reports and other information filed by the Funds can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet web site
(at http://www.sec.gov) which contains other information about the Funds.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, WE REQUEST PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors
/s/ AMY J. LEE
Amy J. Lee
Secretary
Security Equity Fund
March 24, 2006
One Security Benefit Place
Topeka, Kansas 66636-0001
17
MORE INFORMATION REGARDING THE ACQUIRING FUND
Each of the Acquired and Acquiring Funds share the following policies.
BUYING SHARES
Shares of the Acquiring Fund are available through broker/dealers, banks, and
other financial intermediaries that have an agreement with the Acquiring Fund's
distributor, Security Distributors, Inc. ("authorized financial
intermediaries"), and are priced at the net asset value per share (NAV) next
determined after receipt and acceptance of a purchase order by the Acquiring
Fund's transfer agent or an authorized financial intermediary. A broker/dealer
or other financial intermediary may charge fees in connection with an investment
in the Acquiring Fund. Shares purchased directly from the Acquiring Fund are not
assessed such additional charges but may be subject to a front-end sales charge
as noted below.
There are three different ways to buy shares of the Acquiring Fund: Class A
shares, Class B shares or Class C shares. The different classes of the Acquiring
Fund differ primarily with respect to the sales charges and Rule 12b-1
distribution and service fees for each class. The minimum initial investment is
$100. Subsequent investments must be $100 (or $20 under an Accumulation Plan).
The Fund reserves the right to reject any order to purchase shares in whole or
in part.
The Acquiring Fund no longer issues certificates; all Acquiring Fund shares are
issued in non-certificate form.
CUSTOMER IDENTIFICATION AND VERIFICATION -- To help the government fight the
funding of terrorism and money laundering activities, federal law requires all
financial institutions to obtain, verify and record information that identifies
each person that opens an account, and to determine whether such person's name
appears on government lists of known or suspected terrorists and terrorist
organizations.
What this means for you: Security Equity Fund must obtain the following
information for each person that opens an account:
o Name;
o Date of birth (for individuals);
o Residential or business street address (although post office boxes are
still permitted for mailing); and
o Social security number, taxpayer identification number, or other
identifying number.
You may also be asked to show your driver's license, passport or other
identifying documents in order to verify your identity. In addition, it may be
necessary to verify your identity by cross-referencing your identification
information with a consumer report or other electronic database. Additional
information may be required to open accounts for corporations and other
entities.
Federal law prohibits the Acquiring Fund and other financial institutions from
opening accounts unless they receive the minimum identifying information listed
above. They also may be required to close your account if they are unable to
verify your identity within a reasonable time.
MARKET TIMING/SHORT-TERM TRADING -- Some investors try to profit from various
short-term or frequent trading strategies known as market timing; for example,
transferring money into mutual funds when they expect prices to rise and taking
money out when they expect prices to fall, or transferring from one Fund to
another and then back again after a short period of time. As money is
transferred in and out, a Fund incurs expenses for buying and selling
securities. Excessive purchases, redemptions or exchanges of a Fund's shares
disrupt portfolio management, hurt Fund performance and drive Fund expenses
higher. These costs are borne by all shareholders, including long-term investors
who do not generate these costs. Investors may be more likely to attempt to
engage in market timing with respect to Funds that invest a significant portion
of their assets in the securities of foreign issuers, securities that are thinly
traded and/or securities such as certain high yield securities that do not
routinely have readily available market quotations.
The Board has adopted policies and procedures against market timing and the
Acquiring Fund discourages market timing or excessive trading. If you wish to
engage in such practices, we request that you do not purchase shares of any of
the Funds. Each Fund reserves the right to reject any request to purchase
shares, including purchases in connection with an exchange transaction that it
reasonably determines to be market timing or excessive trading by a shareholder
or accounts under common control. Transactions placed through the same
broker/dealer or other financial intermediary on an omnibus basis may be
rejected in whole or in part by a Fund. Transactions accepted by a financial
intermediary in violation of the market timing/short-term trading policies and
procedures are not deemed accepted by the Funds and may be cancelled or revoked
by the Funds by the close of business on the next business day following
receipt.
The policies and procedures of the Funds are intended to restrict transactions
that are disruptive to the Funds or potentially disadvantageous to other
shareholders. Although the Funds have adopted policies and procedures, the Funds
may be dependant upon authorized financial intermediaries that offer the Funds'
shares to assist in implementing these policies and procedures. When
18
considering if certain restrictions or limitations should be applied to
shareholder transactions, the Funds' policies and procedures take into account,
among other things, the following factors:
o the total dollar amount being transferred;
o the number of transfers made within the previous 12 months;
o transfers to and from (or from and to) the same Fund;
o whether a shareholder's transfers appear to follow a pattern designed to
take advantage of short-term market fluctuations; and
o whether a shareholder's transfers appear to be part of a group of
transfers made by a third party on behalf of individual shareholders in
the group.
If it is determined that a shareholder's transfer patterns among the Funds are
disruptive or potentially disadvantageous to other shareholders, the Funds will
send the shareholder a letter notifying the shareholder that the Funds are
prohibiting the shareholder from making any additional purchases for a 90-day
period that begins on the date of the letter. This restriction will be applied
after the shareholder makes four "round trip transfers" during any prior
12-month period. A "round trip transfer" is a transfer (1) from the Fund
followed by a transfer to that Fund or (2) to the Fund followed by a transfer
from that Fund.
In their sole discretion, the Funds may revise their market timing procedures at
any time without prior notice as they deem necessary or appropriate, including
changing the criteria for monitoring market timing and other harmful trading
(including, without limitation, imposing dollar or percentage limits on
transfers). For purposes of applying the criteria used to detect potential
market timing and other potentially harmful trading activity, the Funds may
aggregate transfers made in two or more transactions that the Funds believe are
connected (for example, two transactions by the same owner, or by spouses, or by
different partnerships or corporations that are under common control, etc.).
Shareholders who seek to engage in programmed, frequent, or high volume transfer
activity may deploy a variety of strategies to avoid detection, and the Funds'
or a financial intermediary's ability to detect and deter harmful trading
activity may be limited by operational and information systems capabilities.
Furthermore, the identification of investors determined to engage in harmful
trading activity involves judgments that are inherently subjective. Accordingly,
despite their best efforts, neither the Funds nor the financial intermediaries
that sell the Funds' shares can guarantee that the policies and procedures will
detect every potential market timer. The Funds apply the policies and procedures
adopted by the Board consistently to all investors without special arrangement,
waiver, or exception.
Because the Funds cannot guarantee that all harmful trading activity will be
detected, and because the cooperation of broker/dealers and other financial
intermediaries cannot be assured, shareholders bear the risks associated with
such activity, including potential disruption of portfolio management,
potentially lower performance, and higher expenses. Due to the risk that the
Funds or a financial intermediary implementing the policies and procedures may
not detect all harmful trading activity, it is possible that some shareholders
may inadvertently be treated differently than shareholders who are not permitted
to engage in harmful trading activity. Those shareholders that do not engage in
harmful trading activity nonetheless will bear the costs associated with such
activity.
CLASS A SHARES - Class A shares are subject to a sales charge at the time of
purchase. An order for Class A shares will be priced at the Acquiring Fund's net
asset value per share (NAV) next calculated after the order is accepted by the
Fund, plus the sales charge set forth in the following table. The NAV plus the
sales charge is the "offering price." The Acquiring Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
(NYSE) is open.
-------------------------------------------------------------
SALES CHARGE
----------------------------------
AS A AS A PERCENTAGE
AMOUNT OF ORDER PERCENTAGE OF OF NET AMOUNT
(OFFERING PRICE) OFFERING PRICE INVESTED
-------------------------------------------------------------
Less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.75% 4.99%
$100,000 to $249,999 3.75% 3.90%
$250,000 to $499,999 2.75% 2.83%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 or more* None None
-------------------------------------------------------------
* Purchases of $1,000,000 or more are not subject to a sales charge at the
time of purchase, but are subject to a deferred sales charge of 1.00% if
redeemed within one year following purchase. The deferred sales charge is
a percentage of the lesser of the NAV of the shares redeemed or the net
cost of such shares. Shares that are not subject to a deferred sales
charge are redeemed first.
19
As indicated in the table above, substantial investments receive lower sales
charge rates. In order to reduce your Class A sales charges, you, your spouse,
and your dependents (under the age of 21) may combine all of your Fund
investments into one purchase. You may also, under rights of accumulation,
combine all previous purchases of the Fund with a contemplated current purchase
and receive the reduced applicable front-end sales charge. In addition, you may
submit a Statement of Intention to help reduce your sales charges. This
Statement allows you to count all Class A investments within a 13-month period
as if you were making all of the investments at the same time, in order to
qualify for reduced sales charges. If you do not fulfill the commitment
reflected in your Statement of Intention, you will bear the sales charge rate
associated with your total purchases, less redemptions. The Funds also make
available a reinstatement privilege to reduce your sales charges in the event
you redeem your shares and then subsequently reinstate your account within 30
days. Furthermore, Class A shares of the Funds may be purchased without a sales
charge when the purchase is made on the recommendation of (i) a registered
investment adviser, trustee or financial intermediary who has authority to make
investment decisions on behalf of the investor; or (ii) a certified financial
planner or registered broker-dealer who either charges periodic fees to its
customers for financial planning, investment advisory or asset management
services, or provides such services in connection with the establishment of an
investment account for which a comprehensive "wrap fee" is imposed.
The distributor must be notified when a purchase is made that may qualify under
any of the above provisions. Consequently, an investor acquiring Class A shares
directly from the distributor must indicate in the purchase order that the
purchase may qualify under any of the above provisions, and must provide enough
information to substantiate the claim. If an investor purchases Class A shares
through a dealer or other financial intermediary, the investor must inform the
dealer or intermediary of any facts, including any records required by the
intermediary, that may qualify a purchase for any of the above provisions, such
as other holdings of Class A shares held directly with the Funds or through
other accounts with other dealers or financial intermediaries.
For more information, you may also consult your broker or financial
intermediary, or visit our website at www.securitybenefit.com. This website
provides hyperlinks that facilitate access to information, stated in a clear and
prominent format, that will assist you in determining means of reducing your
Class A shares initial sales charge as well as provide other information on the
Fund's sales loads and breakpoint discounts
CLASS A DISTRIBUTION PLAN - The Class A Distribution Plan allows the payment of
distribution fees to the Acquiring Fund's distributor. The distributor uses the
fees to pay for activities related to the sale of Class A shares and services
provided to shareholders. The distribution and service fee is equal to 0.25% of
the average daily net assets of the Acquiring Fund's Class A shares. Because
distribution fees are paid out of the Acquiring Fund's assets on an ongoing
basis, over time these fees will increase the cost of a shareholder's investment
and may cost an investor more than paying other types of sales charges.
CLASS B SHARES - Class B shares are not subject to a sales charge at the time of
purchase. An order for Class B shares will be priced at the Acquiring Fund's NAV
next calculated after the order is accepted by the Acquiring Fund. The Acquiring
Fund's NAV is generally calculated as of the close of trading on every day the
NYSE is open.
Class B shares are subject to a deferred sales charge if redeemed within five
years from the date of purchase. The deferred sales charge is a percentage of
the NAV of the shares at the time they are redeemed or the original purchase
price, whichever is less. Shares that are not subject to the deferred sales
charge are redeemed first. Then, shares held the longest will be the first to be
redeemed.
The amount of the deferred sales charge is based upon the number of years since
the shares were purchased, as follows:
-----------------------------------------
NUMBER OF YEARS DEFERRED
SINCE PURCHASE SALES CHARGE
-----------------------------------------
1 5%
2 4%
3 3%
4 3%
5 2%
6 and more 0%
-----------------------------------------
The Acquiring Fund's distributor will waive the deferred sales charge under
certain circumstances. See the section titled "Waiver of Deferred Sales Charge."
CLASS B DISTRIBUTION PLAN - The Class B Distribution Plan allows the Acquiring
Fund to pay distribution fees to the distributor. The distributor uses the fees
to finance activities related to the sale of Class B shares and services to
shareholders. The distribution and service fee is equal to 1.00% of the average
daily net assets of the Acquiring Fund's Class B shares. Because the
distribution fees are paid out of the Acquiring Fund's assets on an ongoing
basis, over time these fees will increase the cost of a shareholder's investment
and may cost an investor more than paying other types of sales charges.
20
Class B shares automatically convert to Class A shares on the eighth anniversary
of purchase. This is advantageous to Class B shareholders because Class A shares
are subject to a lower distribution fee than Class B shares. A pro rata amount
of Class B shares purchased through the reinvestment of dividends or other
distributions is also converted to Class A shares each time that shares
purchased directly are converted.
CLASS C SHARES - Class C shares are not subject to a sales charge at the time of
purchase. An order for Class C shares will be priced at the Acquiring Fund's NAV
next calculated after the order is accepted. The Acquiring Fund's NAV is
generally calculated as of the close of trading on each day the NYSE is open.
Class C shares are subject to a deferred sales charge of 1.00% if redeemed
within one year from the date of purchase. The deferred sales charge is a
percentage of the NAV of the shares at the time they are redeemed or the
original purchase price, whichever is less. Shares that are not subject to the
deferred sales charge are redeemed first. Then, shares held the longest will be
the first to be redeemed. The Acquiring Fund's distributor will waive the
deferred sales charge under certain circumstances. See the section titled
"Waiver of Deferred Sales Charge."
CLASS C DISTRIBUTION PLAN - The Class C Distribution Plan allows the Acquiring
Fund to pay distribution fees to the distributor. The distributor uses the fees
to finance activities related to the sale of Class C shares and services to
shareholders. The distribution and service fee is equal to 1.00% of the average
daily net assets of the Acquiring Fund's Class C shares. Because the
distribution fees are paid out of the Acquiring Fund's assets on an ongoing
basis, over time these fees will increase the cost of a shareholder's investment
and may cost an investor more than paying other types of sales charges.
WAIVER OF DEFERRED SALES CHARGE - The Acquiring Fund's distributor will waive
the deferred sales charge under the following circumstances:
o Upon the death of the shareholder if shares are redeemed within one year
of the shareholder's death;
o Upon the disability of the shareholder prior to age 65 if shares are
redeemed within one year of the shareholder becoming disabled and the
shareholder was not disabled when the shares were purchased;
o In connection with required minimum distributions from a retirement plan
qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal
Revenue Code ("Code");
o In connection with distributions from retirement plans qualified under
Section 401(a) or 401(k) of the Code for (i) returns of excess
contributions to the plan; (ii) retirement of a participant in the plan;
(iii) a loan from the plan (loan repayments are treated as new sales for
purposes of the deferred sales charge); (iv) financial hardship (as
defined in regulations under the Code) of a participant in a plan; (v)
termination of employment of a participant in a plan; or (vi) any other
permissible withdrawal under the terms of the plan.
SELLING SHARES
Selling your shares of the Acquiring Fund is called a "redemption," because the
Acquiring Fund buys back the shares. A shareholder may sell shares at any time
through his or her broker/ dealer or other financial intermediary, or directly
through the Acquiring Fund's transfer agent. Shares will be redeemed at the NAV
next determined after the order is received by the Acquiring Fund's transfer
agent or an authorized financial intermediary, less any applicable deferred
sales charge. The Acquiring Fund's NAV is generally calculated as of the close
of trading on every day the NYSE is open. Any share certificates representing
Acquiring Fund shares being sold must be returned with a request to sell the
shares.
When redeeming recently purchased shares, if the Acquiring Fund has not
collected payment for the shares, it may delay sending the proceeds until it has
collected payment, which may take up to 15 days.
BY MAIL -- To sell shares by mail, send a letter of instruction that includes:
o The name and signature of the account owner(s)
o The name of the Fund
o The dollar amount or number of shares to sell
o Where to send the proceeds
o A signature guarantee if
o The check will be mailed to a payee or address different than that
of the account owner, or
o The sale of shares is more than $25,000.
21
A signature guarantee helps protect against fraud. Banks, brokers, credit
unions, national securities exchanges and savings associations provide signature
guarantees. A notary public is not an eligible signature guarantor. For joint
accounts, both signatures must be guaranteed.
Mail your request to:
Security Management Company, LLC
P.O. Box 750525
Topeka, KS 66675-9135
Signature requirements vary based on the type of account you have:
o INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an
individual shareholder, or in the case of joint accounts, all of the
shareholders, exactly as the name(s) appears on the account.
o UGMA OR UTMA: Written instructions must be signed by the custodian as it
appears on the account.
o SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by
an authorized individual as it appears on the account.
o CORPORATION OR ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified resolution dated
within six months of the date of receipt, authorizing the signer to act,
must accompany the request if not on file with Security Equity Fund.
o TRUST: Written instructions must be signed by the trustee(s). If the name
of the current trustee(s) does not appear on the account, a certified
certificate of incumbency dated within 60 days must also be submitted.
o RETIREMENT: Written instructions must be signed by the account owner.
BY TELEPHONE -- If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-888-2461 on weekdays (except
holidays) between 7:00 a.m. and 6:00 p.m. Central time. Security Equity Fund
requires that requests for redemptions over $25,000 be in writing with
signatures guaranteed. You may not close your account by telephone or redeem
shares for which a certificate has been issued. If you would like to establish
this option on an existing account, please call 1-800-888-2461. Shareholders may
not redeem shares held in an Individual Retirement Account ("IRA") or 403(b)(7)
account by telephone.
BY BROKER -- You may redeem your shares through your broker. Brokers may charge
a commission upon the redemption of shares.
PAYMENT OF REDEMPTION PROCEEDS - Payments may be made by check. Redemption
proceeds will be sent to the shareholder(s) of record at the address on the
Acquiring Fund's records generally within seven days of receipt of a valid
redemption request. For a charge of $20 deducted from redemption proceeds, SMC
will provide a certified or cashier's check, or send the redemption proceeds by
express mail, upon the shareholder's request or send the proceeds by wire
transfer to the shareholder's bank account upon receipt of appropriate wire
transfer instructions.
In addition, redemption proceeds can be sent by electronic funds transfer, free
of charge, to the shareholder's bank account.
The Acquiring Fund may suspend the right of redemption during any period when
trading on the NYSE is restricted or the NYSE is closed for a reason other than
a weekend or holiday, or any emergency is deemed to exist by the SEC.
Although the Acquiring Fund intends to pay redemption proceeds in cash, under
unusual conditions that make payment in cash disadvantageous to the Acquiring
Fund, the Acquiring Fund reserves the right to pay all, or part, of the
redemption proceeds in liquid securities with a market value equal to the
redemption price ("redemption in kind"). In the event a shareholder were to
receive a redemption in kind of portfolio securities of a the Acquiring Fund, it
would be the responsibility of the shareholder to dispose of the securities. The
shareholder would be at risk that the value of the securities would decline
prior to their sale, that it would be difficult to sell the securities, and that
brokerage fees could be incurred.
DETERMINATION OF NET ASSET VALUE - The NAV of the Acquiring Fund is computed as
of the close of regular trading hours on the NYSE (normally 3 p.m. Central time)
on days when the NYSE is open. The NYSE is open Monday through Friday, except in
observation of the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Acquiring Fund does not price
its shares. Therefore, the NAV of the Acquiring Fund may change on days when
shareholders will not be able to buy or sell shares of the Fund if it is holding
foreign securities.
22
Portfolio securities and other investments are valued at market value when
market quotations are readily available. Securities traded on a domestic
securities exchange are valued at the last sale price on that exchange on the
day the valuation is made, provided, however, that securities listed on Nasdaq
will be valued at the Nasdaq Official Closing Price, which may not necessarily
represent the last sale price. If no sale is reported, the last current bid
price is used. Securities traded over-the-counter are valued at the last current
bid price. Market quotations for securities prices may be obtained from
automated pricing services. Investments in securities maturing in 60 days or
less may be valued at amortized cost.
When a market quotation for a security is not readily available (which may
include closing prices deemed to be unreliable because of the occurrence of a
subsequent event), the Investment Manager, in good faith, establishes a fair
value for the security in accordance with the Acquiring Fund's valuation
procedures. The types of securities for which such fair value pricing may be
required include, but are not limited to: foreign securities, where a
significant event occurs after the close of the foreign market on which such
security principally trades, but before the close of the NYSE, that is likely to
have changed the value of such security, or the closing value is otherwise
deemed unreliable; securities of an issuer that has entered into a
restructuring; securities whose trading has been halted or suspended;
fixed-income securities that have gone into default and for which there is no
current market value quotation; and securities that are restricted as to
transfer or resale.
Valuing securities at fair value involves greater reliance on judgment than
valuing securities that have readily available market quotations. Fair value
determinations can also involve reliance on quantitative models employed by a
fair value pricing service. The Investment Manager makes such determinations in
good faith in accordance with the Acquiring Fund's valuation procedures. There
can be no assurance that the Acquiring Fund could obtain the fair value assigned
to a security if it were to sell the security at approximately the time at which
the Acquiring Fund determines its net asset value per share.
SHAREHOLDER SERVICES
ACCUMULATION PLAN - An investor may choose to invest in the Acquiring Fund
through a voluntary Accumulation Plan. This allows for an initial investment of
$100 minimum and subsequent investments of $20 minimum at any time. An
Accumulation Plan involves no obligation to make periodic investments, and is
terminable at will.
Payments are made by sending a check to the distributor who (acting as agent for
the dealer) will purchase whole and fractional shares of the Acquiring Fund as
of the close of business on such day as the payment is received. The investor
will receive a confirmation and statement after each investment.
Investors may also choose to use an Automatic Investment Plan (automatic bank
draft) to make Acquiring Fund purchases. There is no additional charge for
choosing to use an Automatic Investment Plan. Withdrawals from your bank account
may occur up to three business days before the date scheduled to purchase
Acquiring Fund shares. An application for an Automatic Investment Plan may be
obtained from Security Equity Fund.
SYSTEMATIC WITHDRAWAL PROGRAM - Shareholders who wish to receive regular
monthly, bi-monthly, quarterly, semi-annual, or annual payments of $25 or more
may establish a Systematic Withdrawal Program. A shareholder may elect a payment
that is a specified percentage of the initial or current account value or a
specified dollar amount. A Systematic Withdrawal Program will be allowed only if
shares with a current aggregate net asset value of $5,000 or more are deposited
with the Investment Manager, which will act as agent for the shareholder under
the program. Shares are liquidated at NAV. The Program may be terminated on
written notice, or it will terminate automatically if all shares are liquidated
or redeemed from the account.
A shareholder may establish a Systematic Withdrawal Program with respect to
Class B and Class C shares without the imposition of any applicable contingent
deferred sales charge, provided that such withdrawals do not in any 12-month
period, beginning on the date the Program is established, exceed 10% of the
value of the account on that date ("Free Systematic Withdrawals"). Free
Systematic Withdrawals are not available if a Program established with respect
to Class B or Class C shares provides for withdrawals in excess of 10% of the
value of the account in any Program year and, as a result, all withdrawals under
such a Program would be subject to any applicable contingent deferred sales
charge. Free Systematic Withdrawals will be made first by redeeming those shares
that are not subject to the contingent deferred sales charge and then by
redeeming shares held the longest. The contingent deferred sales charge
applicable to a redemption of Class B or Class C shares requested while Free
Systematic Withdrawals are being made will be calculated as described above. A
Systematic Withdrawal form may be obtained from Security Equity Fund.
EXCHANGE PRIVILEGE -- Shareholders of the Funds may exchange their shares for
shares of another Fund or for shares of other mutual funds distributed by the
Funds' distributor. An exchange is two transactions: a sale of shares of one
fund and the purchase of shares of another fund. In general, the same policies
that apply to purchases and sales apply to exchanges, including a Fund's right
to reject any order to purchase shares.
Shareholders who hold their shares in a tax-qualified retirement plan may
exchange shares of the Acquiring Fund for shares of Security Cash Fund, provided
that exchanges to Security Cash Fund are not available to shareholders who have
purchased through
23
the following custodial accounts of the Investment Manager: 403(b)(7) accounts,
SEP accounts and SIMPLE plans. All exchanges are made at the relative NAVs of
the Funds on the date of the exchange.
Exchanges may be made only in those states where shares of the fund into which
an exchange is to be made are qualified for sale. No service fee or sales charge
is presently imposed on such an exchange; however, any applicable redemption
charge will be imposed on an exchange of Security Global Fund Class A shares
held for 30 days or less. Shares of a particular class of the Acquiring Fund may
be exchanged only for shares of the same class of another available fund or for
Class A shares of Security Cash Fund, if available. Any applicable contingent
deferred sales charge will be imposed upon redemption and calculated from the
date of the initial purchase without regard to the time shares were held in
Security Cash Fund. For tax purposes, an exchange is a sale of shares that may
result in a taxable gain or loss. Special rules may apply to determine the
amount of gain or loss on an exchange occurring within ninety days after
purchase of the exchanged shares. Exchanges are made upon receipt of a properly
completed Exchange Authorization form. Before exchanging your shares for shares
of another mutual fund that is distributed by the distributor and offered
through another prospectus, you should request the prospectus of the mutual fund
into which you are contemplating exchanging your shares and review it carefully,
as the other mutual fund may be subject to fees, charges or expenses that are
different from the shares that you are exchanging. A current prospectus of the
fund into which an exchange is made will be given to each shareholder exercising
this privilege.
The terms of an employee-sponsored retirement plan may affect a shareholder's
right to exchange shares as described above. Contact your plan sponsor or
administrator to determine if all of the exchange options discussed above are
available under your plan.
To exchange shares by telephone, a shareholder must hold shares in
non-certificate form and must either have completed the Telephone Exchange
section of the application or a Telephone Transfer Authorization form which may
be obtained from the Investment Manager. Once authorization has been received by
the Investment Manager, a shareholder may exchange shares by telephone by
calling the Funds at 1-800-888-2461, on weekdays (except holidays) between the
hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests received by
telephone after the close of the NYSE (normally 3:00 p.m. Central time) will be
treated as if received on the next business day. The exchange privilege,
including telephone exchanges, dollar cost averaging and asset rebalancing, may
be changed or discontinued at any time by either the Investment Manager or the
Acquiring Fund upon 60 days' notice to shareholders.
The exchange privilege is not intended as a vehicle for short-term or excessive
trading. Because excessive trading by a shareholder can hurt performance and its
other shareholders, the funds reserve the right to limit the amount or number of
exchanges or discontinue this privilege if (1) a fund or its Investment Manager
believes that the fund would be harmed or unable to invest effectively, or (2) a
fund receives or anticipates simultaneous orders that may significantly affect
the fund. The funds also may reject future investments from a shareholder if the
shareholder engages in, or is suspected of engaging in, short-term or excessive
trading.
DOLLAR COST AVERAGING. This option is available only to shareholders of a
403(b)(7) account sponsored by the Investment Manager and opened on or after
June 5, 2000. The option allows such shareholders to make periodic exchanges of
shares from the Security Capital Preservation Fund (held in non-certificate
form) to one or more of the funds available under the exchange privilege as
described above. Such periodic exchanges in which securities are purchased at
regular intervals are known as "dollar cost averaging." With dollar cost
averaging, the cost of the securities gets averaged over time and possibly over
various market cycles. Dollar cost averaging does not guarantee profits, nor
does it assure that a shareholder will not have losses.
Shareholders may obtain a dollar cost averaging request form from the Investment
Manager. Shareholders designate on the form whether amounts are to be exchanged
on the basis of a specific dollar amount or a specific number of shares. The
Investment Manager will exchange shares as requested on the first business day
of the month.
The Investment Manager will make exchanges until account value in the Security
Capital Preservation Fund is depleted or until you instruct the Investment
Manager to terminate dollar cost averaging. Dollar cost averaging may be
terminated at any time by written request to the Investment Manager.
ASSET REBALANCING. This option is available only to participants in a 403(b)(7)
account sponsored by the Investment Manager and opened on or after June 5, 2000.
This option allows such participants to automatically exchange shares of those
funds available under the exchange privilege as described above on a quarterly
basis to maintain a particular percentage allocation among the funds. Shares of
such funds must be held in non-certificated form. Account value allocated to a
fund will grow or decline in value at different rates during the selected
period, and asset rebalancing will automatically reallocate account value in the
funds to the allocation you select on a quarterly basis.
Shareholders may obtain an asset rebalancing request form from the Investment
Manager. You must designate on the form the applicable funds and the percentage
of account value to be maintained in each fund. Thereafter, the Investment
Manager will exchange shares of the funds to maintain that allocation on the
first business day of each calendar quarter. Asset rebalancing may be terminated
at any time by written request to the Investment Manager.
24
RETIREMENT PLANS - Security Equity Fund has available tax-qualified retirement
plans for individuals, prototype plans for the self-employed, pension and profit
sharing plans for corporations and custodial accounts for employees of public
school systems and organizations meeting the requirements of Section 501(c)(3)
of the Code. Further information concerning these plans is contained in the
Funds' Statement of Additional Information.
MANAGEMENT OF THE ACQUIRING FUND
INVESTMENT MANAGER -- SMC is a Kansas limited liability company. On December 31,
2005, the aggregate assets of all of the mutual funds under the investment
management of SMC were approximately $5.5 billion. SMC has overall
responsibility for the management of the Acquiring Fund. Security Equity Fund
and SMC have entered into an agreement that requires SMC to provide investment
advisory, statistical and research services to the Acquiring Fund, supervise and
arrange for the purchase and sale of securities on behalf of the Acquiring Fund,
and provide for the maintenance and compilation of records pertaining to the
investment advisory function. The agreement with SMC can be terminated by the
Board upon 60 days' written notice. The investment management fee for the
Acquiring Fund is equal to 0.75%, on an annual basis, of the average daily net
assets of the Acquiring Fund. The investment management fee is computed and
accrued daily and paid monthly. For the fiscal year ended September 30, 2005,
the Acquiring Fund paid investment management fees of $162,619 to SMC.
PARENT COMPANY AND DISTRIBUTOR -- SMC is controlled by its members, Security
Benefit Life Insurance Company ("Security Benefit") and Security Benefit
Corporation. Security Benefit Corporation is an insurance and financial services
holding company wholly-owned by Security Benefit Mutual Holding Company, One
Security Benefit Place, Topeka, Kansas 66636-0001. Security Benefit, a life
insurance company, is incorporated under the laws of Kansas. SMC is a direct,
and the Security Distributors, Inc. is an indirect, wholly-owned subsidiary of
Security Benefit.
ADMINISTRATIVE AGENT -- SMC also acts as the administrative agent for the
Acquiring Fund and as such performs administrative functions and the
bookkeeping, accounting and pricing functions for the Acquiring Fund. For these
services, SMC receives, on an annual basis, a fee of 0.09% of the average net
assets of the Acquiring Fund, calculated daily and payable monthly.
Under a Transfer Agency Agreement dated February 1, 2004, SMC acts as the
transfer agent for the Acquiring Fund. As such, it processes purchase and
redemption transactions and acts as the dividend disbursing agent. For this
service, SMC receives the following fees with respect to the Acquiring Fund:
1. ACCOUNT SET-UP CHARGE - A fee of $4 to open an account on the transfer
agency system to hold shares of the Acquiring Fund.
2. ANNUAL MAINTENANCE CHARGE - An annual per account fee of (i) $8 per open
account for regular accounts; (ii) $6.50 per open account with respect to
accounts which are Matrix Level III pursuant to the National Securities
Clearing Corporation networking systems; and (iii) $5 per account for
closed accounts that remain outstanding on the transfer agency system
(regardless of whether such accounts are regular or Matrix Level III).
3. TRANSACTION Charge - A per transaction charge of (i) $1.10 per transaction
for regular accounts; and (ii) $0.60 per transaction for accounts that are
Matrix Level III.
The Acquiring Fund is also subject to a minimum fee per year of $25,000.
ALLOCATION OF PORTFOLIO BROKERAGE -- Transactions in portfolio securities shall
be effected in such manner as deemed to be in the best interests of the
Acquiring Fund. In reaching a judgment relative to the qualifications of a
broker-dealer ("broker") to obtain the best execution of a particular
transaction, all relevant factors and circumstances will be taken into account,
including the overall reasonableness of commissions paid to a broker, the firm's
general execution and operational capabilities, its responsiveness (which may
include such things as the broker's willingness to commit capital and whether
the broker's representatives are accommodating), and its reliability and
financial condition. Subject to the foregoing considerations, the execution of
portfolio transactions may be directed to brokers who furnish investment
information or research services to SMC. Such investment information and
research services include advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities and purchasers or sellers of securities, and furnishing analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts. Such investment information and
research services may be furnished by brokers in many ways, including: (1)
on-line data base systems, the equipment for which is provided by the broker,
that enable SMC to have real-time access to market information, including
quotations; (2) economic research services, such as publications, chart services
and advice from economists concerning macroeconomic information; and (3)
analytical investment information concerning particular corporations.
If a transaction is directed to a broker supplying investment services or
research information, the transaction charges (i.e., a commission or a charge
that is deemed to be the equivalent of a commission) paid for such transaction
may be in excess of the transaction charges another broker would have charged
for effecting that transaction provided that SMC shall have determined in good
25
faith that the transaction charges are reasonable in relation to the value of
the investment information or the research services provided.
Securities held by the Acquiring Fund may also be held by other investment
advisory clients of SMC, including other investment companies. In addition,
SMC's parent company, Security Benefit, may also hold some of the same
securities as the Acquiring Fund. When selecting securities for purchase or sale
for the Acquiring Fund, SMC may at the same time be purchasing or selling the
same securities for one or more of such other accounts. Subject to SMC's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of SMC not to favor one account
over the other.
DIVIDENDS AND TAXES
The Acquiring Fund will distribute all or substantially all its net investment
income and net capital gains to its shareholders that it has realized, at least
annually. Your dividends and distributions will be reinvested in the Acquiring
Fund, unless you instruct SMC otherwise. There are no fees or sales charges on
reinvestments.
TAX ON DISTRIBUTIONS - Acquiring Fund dividends and distributions are taxable to
shareholders (unless your investment is in an IRA or other tax-advantaged
retirement account) whether you reinvest your dividends or distributions or take
them in cash. A particular distribution generally will be taxable as either
ordinary income or as long-term capital gain. Distributions that are derived
from net long-term capital gains will typically be taxed as long-term capital
gain. Other distributions will usually be taxable as ordinary income. Except as
described below, the tax consequences of a distribution do not depend upon how
long you hold your shares.
In addition to federal tax, dividends and distributions may be subject to state
and local taxes. If the Acquiring Fund declares a dividend or distribution in
October, November or December but pays it in January, you will be taxed on that
dividend or distribution as if you received it in the previous year.
Current tax law generally provides for a maximum tax rate for individual
taxpayers of 15% on long-term capital gains and from certain qualifying
dividends on corporate stock. These rate reductions do not apply to corporate
taxpayers or to foreign shareholders. The following are guidelines for how
certain distributions by the Series are generally taxed to individual taxpayers:
o Distributions of earnings from qualifying dividends and qualifying
long-term capital gains will be taxed at a maximum rate of 15%.
o Distributions of earnings from dividends paid by certain "qualified
foreign corporations" can also qualify for the lower tax rates on
qualifying dividends.
o A shareholder will also have to satisfy a more than 60-day holding period
with respect to any distributions of qualifying dividends in order to
obtain the benefit of the lower tax rate.
o Distributions of earnings from non-qualifying dividends, interest income,
other types of ordinary income and short-term capital gains will be taxed
at the ordinary income tax rate applicable to the taxpayer.
Tax-deferred retirement accounts generally do not generate a tax liability
unless you are taking a distribution or making a withdrawal.
The Acquiring Fund has "short-term capital gains" when it sells assets within 12
months after buying them. Your share of the Fund's net short-term capital gains
will be taxed at ordinary income rates. The Acquiring Fund has "long-term
capital gains" when it sells assets that it has owned for more than 12 months.
Distributions designated by the Acquiring Fund as long-term capital gain
distributions will be taxable to you at your long-term capital gains rate no
matter how long you have held your Acquiring Fund shares.
The Acquiring Fund will mail you information concerning the tax status of the
distributions for each calendar year on or before January 31 of the following
year.
TAXES ON SALES OR EXCHANGES -- You may be taxed on any sale or exchange of
Acquiring Fund shares. The amount of gain or loss will depend primarily upon how
much you pay for the shares, how much you sell them for, and how long you hold
them.
The gain or loss will be capital gain or loss and will be long-term capital gain
or loss if you held your shares for more than one year. Any loss recouped on
shares held for six months or less will be treated as long-term capital loss to
the extent of any long-term capital gain distributions that were received with
respect to the shares. Additionally, any loss realized on a sale or exchange of
shares of the Acquiring Fund may be disallowed under "wash sale" rules to the
extend the shares disposed of are replaced with other shares of the Acquiring
Fund within a period of 61 days beginning 30 days before and ending 30 days
after the shares are disposed of, such as pursuant to a dividend reinvestment in
shares of the Acquiring Fund. If disallowed, the loss will be reflected in an
adjustment to the tax basis of the shares acquired.
26
BACKUP WITHHOLDING -- As with all mutual funds, the Acquiring Fund may be
required to withhold U.S. federal income tax at the rate of 28% of all taxable
distributions payable to you if you fail to provide the Acquiring Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax; rather, it is a
way in which the Internal Revenue Service ensures it will collect taxes
otherwise due. Any amounts withheld may be credited against your U.S. federal
income tax liability.
NON-RESIDENT ALIEN SHAREHOLDERS -- Shareholders that are not U.S. investors
under the federal tax laws will generally be subject to U.S. withholding and are
generally subject to special U.S. tax certification requirements. Additionally,
a valid W-8BEN form is required if you are not a U.S. citizen or resident alien.
Documentary evidence may also be required to accompany the w-8BEN form.
NEW TAX LEGISLATION -- Pursuant to recently passed tax legislation, a regulated
investment company (a "RIC") such as the Acquiring Fund that earns certain
interest income that would not be subject to U.S. tax if earned by a foreign
person directly will be permitted, to the extent of such income, to designate a
dividend it pays as derived from such interest income. A foreign person who is a
shareholder in the RIC generally will be able to treat such a dividend as exempt
from gross-basis U.S. tax, as if the foreign person had earned the interest
directly. The new law generally applies to dividends with respect to taxable
years of RICs beginning after December 31, 2004 and before January 1, 2008.
You should consult your tax professional about federal, state and local tax
consequences to you of an investment in the Acquiring Fund.
Please see the Statement of Additional Information for additional tax
information.
FINANCIAL HIGHLIGHTS FOR THE ACQUIRING FUND
The financial highlights tables are is intended to help you understand the
financial performance of the Acquiring Fund's Class A shares, Class B shares and
Class C shares during the past five years. Certain information reflects
financial results for a single Acquiring Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Acquiring Fund assuming reinvestment of all dividends and
distributions. This information has been derived from financial statements that
have been audited by Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri 64105, whose report, along with the Acquiring Fund's
financial statements, are included in the annual report, which is available upon
request.
SECURITY SELECT 25 FUND (CLASS A)
- -------------------------------------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
-----------------------------------------------------------------------
2005(b) 2004(b) 2003(b) 2002(b) 2001(b)
-------- -------- -------- -------- --------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......... $ 7.81 $ 7.27 $ 6.52 $ 7.58 $ 11.34
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ (0.07) (0.06) (0.05) (0.07) (0.06)
Net gain (loss) on securities
(realized and unrealized)................ 1.62 0.60 0.80 (0.99) (3.70)
-------- -------- -------- -------- --------
Total from investment operations............ 1.55 0.54 0.75 (1.06) (3.76)
LESS DISTRIBUTIONS:
Dividends (from net investment income)...... -- -- -- -- --
Distributions (from realized gains)......... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions......................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............... $ 9.36 $ 7.81 $ 7.27 $ 6.52 $ 7.58
======== ======== ======== ======== ========
TOTAL RETURN (a)............................ 19.85% 7.43% 11.50% (13.98)% (33.16)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........ $ 8,912 $ 9,228 $ 10,396 $ 11,933 $ 14,347
Ratio of expenses to average net assets..... 1.67% 1.56% 1.63% 1.46% 1.39%
Ratio of net investment income
(loss) to average net assets............. (0.79)% (0.75)% (0.70)% (0.81)% (0.60)%
Portfolio turnover rate..................... 13% 44% 54% 33% 44%
- -------------------------------------------------------------------------------------------------------------------------
27
SECURITY SELECT 25 FUND (CLASS B)
- -------------------------------------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
-----------------------------------------------------------------------
2005(b) 2004(b) 2003(b) 2002(b) 2001(b)
-------- -------- -------- -------- --------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......... $ 7.50 $ 7.04 $ 6.36 $ 7.44 $ 11.22
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ (0.13) (0.11) (0.10) (0.13) (0.13)
Net gain (loss) on securities
(realized and unrealized)................ 1.55 0.57 0.78 (0.95) (3.65)
-------- -------- -------- -------- --------
Total from investment operations............ 1.42 0.46 0.68 (1.08) (3.78)
LESS DISTRIBUTIONS:
Dividends (from net investment income)...... -- -- -- -- --
Distributions (from realized gains)......... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions......................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............... $ 8.92 $ 7.50 $ 7.04 $ 6.36 $ 7.44
======== ======== ======== ======== ========
TOTAL RETURN (a)............................ 18.93% 6.53% 10.69% (14.52)% (33.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........ $ 7,000 $ 7,333 $ 8,203 $ 8,566 $ 11,519
Ratio of expenses to average net assets..... 2.42% 2.31% 2.38% 2.21% 2.14%
Ratio of net investment income
(loss) to average net assets............. (1.54)% (1.50)% (1.45)% (1.56)% (1.35)%
Portfolio turnover rate..................... 13% 44% 54% 33% 44%
- -------------------------------------------------------------------------------------------------------------------------
SECURITY SELECT 25 FUND (CLASS C)
- -------------------------------------------------------------------------------------------------------------------------
FISCAL PERIOD ENDED SEPTEMBER 30
-----------------------------------------------------------------------
2005 2004(b) 2003(b) 2002(b)(c) 2001(b)
-------- -------- -------- ---------- --------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......... $ 7.52 $ 7.06 $ 6.38 $ 7.47 $ 11.26
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ (0.13) (0.11) (0.10) (0.13) (0.13)
Net gain (loss) on securities
(realized and unrealized)................ 1.55 0.57 0.78 (0.96) (3.66)
-------- -------- -------- -------- --------
Total from investment operations............ 1.42 0.46 0.68 (1.09) (3.79)
LESS DISTRIBUTIONS:
Dividends (from net investment income)...... -- -- -- -- --
Distributions (from realized gains)......... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions......................... -- -- -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............... $ 8.94 $ 7.52 $ 7.06 $ 6.38 $ 7.47
======== ======== ======== ======== ========
TOTAL RETURN (a)............................ 18.88% 6.52% 10.66% (14.59)% (33.66)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........ $ 5,029 $ 5,866 $ 6,225 $ 3,954 $ 4,531
Ratio of expenses to average net assets..... 2.42% 2.31% 2.37% 2.21% 2.14%
Ratio of net investment income
(loss) to average net assets............. (1.54)% (1.50)% (1.44)% (1.56)% (1.35)%
Portfolio turnover rate..................... 13% 44% 54% 33% 44%
- -------------------------------------------------------------------------------------------------------------------------
(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 A, Class B and Class C shares.
(b) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(c) The financial highlights for Class C Shares exclude the historical
financial highlights of the Class S shares. Class S shares were exchanged
for Class C shares on June 3, 2002.
28
APPENDIX A
PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Reorganization Plan") is adopted as of this
10th day of February, 2006, by Security Equity Fund (the "Company") with its
principal place of business at One Security Benefit Place, Topeka, Kansas
66636-0001, on behalf of its series, Large Cap Growth Fund, Enhanced Index Fund,
Social Awareness Fund, and Select 25 Fund.
This Reorganization Plan is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganizations to which this Reorganization Plan applies (each a
"Reorganization") will consist of the transfer of all of the assets of each
Acquired Fund in the table below to the respective Acquiring Fund in the table
below in exchange solely for voting shares ($1.00 par value per share) of the
respective Acquiring Fund (the "Acquiring Fund Shares"); the assumption by the
Acquiring Fund of all liabilities of the respective Acquired Fund; and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Reorganization Plan:
------------------------------- ---------------------------
ACQUIRED FUND ACQUIRING FUND
------------------------------- ---------------------------
Large Cap Growth Fund
-------------------------------
Enhanced Index Fund Select 25 Fund
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Social Awareness Fund
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This Reorganization Plan will apply separately to each proposed Reorganization.
WHEREAS, the Company is an open-end, registered investment company of the
management type and the Acquired Fund owns securities which generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Directors of the Company have determined that the exchange of all
of the assets of the Acquired Fund for the Acquiring Fund Shares and the
assumption of all liabilities of the Acquired Fund by the Acquiring Fund is in
the best interests of the Acquiring Fund and its shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Directors of the Company also have determined, with respect to the
Acquired Fund, that the exchange of all of the assets of the Acquired Fund for
the Acquiring Fund Shares and the assumption of all liabilities of the Acquired
Fund by the Acquiring Fund is in the best interests of the Acquired Fund and its
shareholders and that the interests of the existing shareholders of the Acquired
Fund would not be diluted as a result of this transaction;
NOW, THEREFORE, the Company, on behalf of the Acquiring Fund and the Acquired
Fund separately, hereby approves the Reorganization Plan on the following terms
and conditions:
TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND LIABILITIES AND
THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the requisite approvals of the shareholders of the Acquired
Fund and the other terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Company will
transfer all of the Acquired Fund's assets, as set forth in paragraph 1.2,
to the Acquiring Fund, and the Acquiring Fund agrees in exchange therefor:
(i) to deliver to the Acquired Fund the number of full and fractional
Acquiring Fund Shares determined by dividing the value of an Acquired
Fund's net assets, computed in the manner and as of the time and date set
forth in paragraph 2.1, by the net asset value of one Acquiring Fund
Share, computed in the manner and as of the time and date set forth in
paragraph 2.2; and (ii) to assume all liabilities of the Acquired Fund.
Such transactions shall take place at the closing provided for in
paragraph 3.1 (the "Closing").
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1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund shall
consist of all assets and property, including, without limitation, all
cash, securities, commodities and futures interests and dividends or
interests receivable that are owned by the Acquired Fund and any deferred
or prepaid expenses shown as an asset on the books of the Acquired Fund on
the closing date provided for in paragraph 3.1 (the "Closing Date").
1.3. The Acquired Fund will endeavor to discharge all of its known liabilities
and obligations prior to the Closing Date. The Acquiring Fund shall also
assume all of the liabilities of the Acquired Fund, whether accrued or
contingent, known or unknown, existing at the Valuation Date. On or as
soon as practicable prior to the Closing Date, the Acquired Fund will
declare and pay to its shareholders of record one or more dividends and/or
other distributions that, together with all previous distributions, shall
have the effect of distributing to its shareholders (i) all of its
investment company taxable income and all of its net realized capital
gains, if any, for the period from the close of its last taxable year to
the end of the business day on the Closing; and (ii) any undistributed
investment company taxable income and net capital gain from any period to
the extent not otherwise distributed.
1.4. Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Fund will distribute to the Acquired Fund's shareholders of
record, determined as of immediately after the close of business on the
Closing Date (the "Acquired Fund Shareholders"), on a pro rata basis, the
Acquiring Fund Shares received by the Acquired Fund pursuant to paragraph
1.1, and will completely liquidate. Such distribution and liquidation will
be accomplished, with respect to the Acquired Fund's shares, by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the
share records of the Acquiring Fund in the names of the Acquired Fund
Shareholders. The aggregate net asset value of Acquiring Fund Shares to be
so credited to Acquired Fund Shareholders shall be equal to the aggregate
net asset value of the Acquired Fund shares owned by such shareholders on
the Closing Date. All issued and outstanding shares of the Acquired Fund
will simultaneously be canceled on the books of the Acquired Fund,
although share certificates representing interests in shares of the
Acquired Fund will represent a number of the Acquiring Fund Shares after
the Closing Date, as determined in accordance with Section 2.3. The
Acquiring Fund shall not issue certificates representing the Acquiring
Fund Shares in connection with such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's then-current
prospectus and statement of additional information.
1.6. Any reporting responsibility of the Acquired Fund including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commission, and any federal,
state or local tax authorities or any other relevant regulatory authority,
is and shall remain the responsibility of the Acquired Fund.
VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the Acquiring
Fund hereunder shall be the value of such assets computed as of the close
of business of the New York Stock Exchange (NYSE) and after the
declaration of any dividends on the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures
set forth in the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), the then-current prospectus or statement of
additional information with respect to the Acquiring Fund, and valuation
procedures established by the Company's Board of Directors.
2.2. The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of the close of business of the NYSE and after
the declaration of any dividends on the Valuation Date, using the
valuation procedures set forth in the Company's Articles of Incorporation,
the then-current prospectus or statement of additional information with
respect to the Acquiring Fund, and valuation procedures established by the
Company's Board of Directors.
2.3. The number of Acquiring Fund Shares to be issued (including fractional
shares, if any) in exchange for the Acquired Fund's assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph
2.1, by the net asset value of an Acquiring Fund Share, determined in
accordance with paragraph 2.2.
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2.4. All computations of value shall be made by the Acquiring Fund's designated
record keeping agent.
CLOSING AND CLOSING DATE
3.1. The Closing Date shall be May 5, 2006, or such other date as the parties
may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties.
The close of business on the Closing Date shall be as of 4:00 p.m.,
Eastern Time. The Closing shall be held at the offices of the Company or
at such other time and/or place as the Board of Directors or officers of
the Company may designate.
3.2. The Company shall direct the Custodian of the Acquired Fund (the
"Custodian"), to deliver, at the Closing, a certificate of an authorized
officer stating that (i) the Acquired Fund's portfolio securities, cash,
and any other assets ("Assets") shall have been delivered in proper form
to the Acquiring Fund within two business days prior to or on the Closing
Date, and (ii) all necessary taxes in connection with the delivery of the
Assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made. The
Acquired Fund's portfolio securities represented by a certificate or other
written instrument shall be transferred and delivered by the Acquired Fund
as of the Closing Date for the account of the Acquiring Fund duly endorsed
in proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Fund shall direct the Custodian to deliver
portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the Investment Company Act of
1940, as amended (the "1940 Act"), as of the Closing Date by book entry in
accordance with the customary practices of such depositories and the
custodian for Acquiring Fund.
3.3. Security Management Company, LLC, as transfer agent for the Acquired Fund
(the "Transfer Agent"), shall deliver, on behalf of the Acquired Fund, at
the Closing a certificate of an authorized officer stating that its
records contain the names and addresses of the Acquired Fund Shareholders
and the number and percentage ownership of outstanding shares owned by
each such shareholder immediately prior to the Closing.
3.4. In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Fund or the
Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that, in the judgment of the Board of
Directors of the Company, accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading shall have been fully resumed and reporting shall have been
restored.
REPRESENTATIONS AND WARRANTIES
4.1. The Company, on behalf of the Acquired Fund, represents and warrants to
the Acquiring Fund as follows:
(a) The Acquired Fund is duly organized as a series of the Company,
which is a corporation duly organized and validly existing under the
laws of the State of Kansas, with power under the Company's Articles
of Incorporation to own all of its properties and assets and to
carry on its business as it is now being conducted;
(b) The Company is a registered investment company classified as a
management company of the open-end type, and its registration with
the Commission as an investment company under the 1940 Act, and the
registration of its shares under the Securities Act of 1933, as
amended ("1933 Act"), are in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the 1940 Act, and such
as may be required by state securities laws;
(d) The current prospectus and statement of additional information of
the Acquired Fund and each prospectus and statement of additional
information of the Acquired Fund used during the three years
previous to the
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date of this Reorganization Plan conforms or conformed at the time
of its use in all material respects to the applicable requirements
of the 1933 Act and the 1940 Act and the rules and regulations of
the Commission thereunder and does not or did not at the time of its
use include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not materially misleading;
(e) On the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer and deliver such assets
hereunder free of any liens or other encumbrances, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund;
(f) The Acquired Fund is not engaged currently, and the execution,
delivery and performance of this Reorganization Plan will not
result, in (i) a material violation of the Company's Articles of
Incorporation or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquired Fund is a
party or by which it is bound, or (ii) the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which
the Acquired Fund is a party or by which it is bound;
(g) The Acquired Fund has no material contracts or other commitments
(other than this Reorganization Plan) that will be terminated with
liability to it prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the
Acquired Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquired Fund knows of
no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability
to consummate the transactions herein contemplated;
(i) The financial statements of the Acquired Fund as of and for the year
ended September 30, 2005 have been audited by Ernst & Young, LLP,
independent registered public accounting firm. Such statements are
in accordance with U.S. generally accepted accounting principles
("GAAP") consistently applied, and such statements (copies of which
have been furnished to the Acquiring Fund) present fairly, in all
material respects, the financial condition of the Acquired Fund as
of such date in accordance with GAAP, and there are no known
contingent liabilities of the Acquired Fund required to be reflected
on the balance sheet or in the notes thereto;
(j) Since September 30, 2005, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquired Fund
of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this
subparagraph (j), a decline in net asset value per share of the
Acquired Fund due to declines in market values of securities in the
Acquired Fund's portfolio, the discharge of Acquired Fund
liabilities, or the redemption of Acquired Fund shares by
shareholders of the Acquired Fund shall not constitute a material
adverse change;
(k) On the Closing Date, all Federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such date
(including any extensions) shall have been filed and are or will be
correct in all material respects, and all Federal and other taxes
shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for
the payment thereof, and to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
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(l) For each taxable year of its operation (including the taxable year
ending on the Closing Date), the Acquired Fund has met the
requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such,
has been eligible to and has computed its Federal income tax under
Section 852 of the Code, and will have distributed all of its
investment company taxable income and net capital gain (as defined
in the Code) that has accrued through the Closing Date, and before
the Closing Date will have declared dividends sufficient to
distribute all of its investment company taxable income and net
capital gain for the period ending on the Closing Date;
(m) All issued and outstanding shares of the Acquired Fund are, and on
the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Company and have been offered
and sold in every state and the District of Columbia in compliance
in all material respects with applicable registration requirements
of the 1933 Act and state securities laws. All of the issued and
outstanding shares of the Acquired Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the
records of the Transfer Agent, on behalf of the Acquired Fund, as
provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for
or purchase any of the shares of the Acquired Fund, nor is there
outstanding any security convertible into any of the Acquired Fund
shares;
(n) The adoption and performance of this Reorganization Plan will have
been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Directors of the Company, and,
subject to the approval of the shareholders of the Acquired Fund,
this Reorganization Plan will constitute a valid and binding
obligation of the Acquired Fund, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(o) The information to be furnished by the Acquired Fund for use in
registration statements, proxy materials and other documents filed
or to be filed with any federal, state or local regulatory authority
(including the National Association of Securities Dealers, Inc.),
which may be necessary in connection with the transactions
contemplated hereby, shall be accurate and complete in all material
respects and shall comply in all material respects with Federal
securities and other laws and regulations thereunder applicable
thereto.
4.2. The Company, on behalf of the Acquiring Fund, represents and warrants to
the Acquired Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Company,
which is a corporation duly organized and validly existing under the
laws of the State of Kansas, with power under the Company's Articles
of Incorporation to own all of its properties and assets and to
carry on its business as it is now being conducted;
(b) The Company is a registered investment company classified as a
management company of the open-end type, and its registration with
the Commission as an investment company under the 1940 Act and the
registration of its shares under the 1933 Act, including the shares
of the Acquiring Fund, are in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and such as may be required by state securities laws;
(d) The current prospectus and statement of additional information of
the Acquiring Fund and each prospectus and statement of additional
information of the Acquiring Fund used during the three years
previous to the date of this Reorganization Plan conforms or
conformed at the time of its use in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the
rules and regulations of the Commission thereunder and does not or
did not at the time of its use include any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to
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make the statements therein, in light of the circumstances under
which they were made, not materially misleading;
(e) On the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens
of other encumbrances, except those liens or encumbrances as to
which the Acquired Fund has received notice and necessary
documentation at or prior to the Closing;
(f) The Acquiring Fund is not engaged currently, and the execution,
delivery and performance of this Reorganization Plan will not
result, in (i) a material violation of the Company's Articles of
Incorporation or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is
a party or by which it is bound, or (ii) the acceleration of any
obligation, or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to which
the Acquiring Fund is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by the
Acquired Fund, no litigation or administrative proceeding or
investigation of or before any court or governmental body is
presently pending or, to its knowledge, threatened against the
Acquiring Fund or any of its properties or assets that, if adversely
determined, would materially and adversely affect its financial
condition or the conduct of its business. The Acquiring Fund knows
of no facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability
to consummate the transactions herein contemplated;
(h) The financial statements of the Acquiring Fund as of and for the
year ended September 30, 2005 have been audited by Ernst & Young
LLP, independent registered public accounting firm. Such statements
are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquired
Fund) present fairly, in all material respects, the financial
condition of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquiring
Fund required to be reflected on the balance sheet or in the notes
thereto;
(i) Since September 30, 2005, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets,
liabilities or business, other than changes occurring in the
ordinary course of business, or any incurrence by the Acquiring Fund
of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquired Fund. For purposes of this subparagraph
(i), a decline in net asset value per share of the Acquiring Fund
due to declines in market values of securities in the Acquiring
Fund's portfolio, the discharge of Acquiring Fund liabilities, or
the redemption of Acquiring Fund Shares by shareholders of the
Acquiring Fund, shall not constitute a material adverse change;
(j) On the Closing Date, all Federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such
date (including any extensions) shall have been filed and are or
will be correct in all material respects, and all Federal and other
taxes shown as due or required to be shown as due on said returns
and reports shall have been paid or provision shall have been made
for the payment thereof, and to the best of the Acquiring Fund's
knowledge no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(k) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such,
has been eligible to and has computed its Federal income tax under
Section 852 of the Code, has distributed all of its investment
company taxable income and net capital gain (as defined in the Code)
for periods ending prior to the Closing Date, and will do so for the
taxable year including the Closing Date;
(l) All issued and outstanding Acquiring Fund Shares are, and on the
Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Company and have been offered and
sold in every state and the District of Columbia in compliance in
all material respects with applicable registration requirements of
the 1933 Act and state securities laws. The Acquiring Fund does not
have outstanding
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any options, warrants or other rights to subscribe for or purchase
any Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares;
(m) The adoption and performance of this Reorganization Plan will have
been fully authorized prior to the Closing Date by all necessary
action, if any, on the part of the Directors of the Company on
behalf of the Acquiring Fund and this Reorganization Plan will
constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium
and other laws relating to or affecting creditors' rights and to
general equity principles;
(n) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund Shareholders, pursuant to
the terms of this Reorganization Plan, will on the Closing Date have
been duly authorized and, when so issued and delivered, will be duly
and validly issued Acquiring Fund Shares, and will be fully paid and
non-assessable by the Company;
(o) The information to be furnished by the Acquiring Fund for use in the
registration statements, proxy materials and other documents that
may be necessary in connection with the transactions contemplated
hereby shall be accurate and complete in all material respects and
shall comply in all material respects with Federal securities and
other laws and regulations applicable thereto; and
(p) That insofar as it relates to Company or the Acquiring Fund, the
Registration Statement relating to the Acquiring Fund Shares
issuable hereunder, and the proxy materials of the Acquired Fund to
be included in the Registration Statement, and any amendment or
supplement to the foregoing, will, from the effective date of the
Registration Statement through the date of the meeting of
shareholders of the Acquired Fund contemplated therein (i) not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not materially misleading provided, however,
that the representations and warranties in this subparagraph (p)
shall not apply to statements in or omissions from the Registration
Statement made in reliance upon and in conformity with information
that was furnished by the Acquired Fund for use therein, and (ii)
comply in all material respects with the provisions of the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations
thereunder.
COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and the Acquired Fund each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any
other distribution that may be advisable.
5.2. To the extent required by applicable law, the Company will call a meeting
of the shareholders of the Acquired Fund to consider and act upon this
Reorganization Plan and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms of this
Reorganization Plan.
5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such
information as the Acquiring Fund reasonably requests concerning the
beneficial ownership of the Acquired Fund shares.
5.5. Subject to the provisions of this Reorganization Plan, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated
by this Reorganization Plan.
5.6. As soon as is reasonably practicable after the Closing, the Acquired Fund
will make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
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5.7. The Acquiring Fund and the Acquired Fund shall each use its reasonable
best efforts to fulfill or obtain the fulfillment of the conditions
precedent to effect the transactions contemplated by this Reorganization
Plan as promptly as practicable.
5.8. The Acquired Fund covenants that it will, from time to time, as and when
reasonably requested by the Acquiring Fund, execute and deliver or cause
to be executed and delivered all such assignments and other instruments,
and will take or cause to be taken such further action as the Acquiring
Fund may reasonably deem necessary or desirable in order to vest in and
confirm the Acquiring Fund's title to and possession of all the assets and
otherwise to carry out the intent and purpose of this Reorganization Plan.
5.9. The Acquiring Fund will use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act, the 1940 Act and such of the
state blue sky or securities laws as may be necessary in order to continue
its operations after the Closing Date.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at the Acquired Fund's election, to
the performance by the Acquiring Fund of all the obligations to be
performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1. All representations and warranties of the Acquiring Fund and the Company
contained in this Reorganization Plan shall be true and correct in all
material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Reorganization Plan, as
of the Closing Date, with the same force and effect as if made on and as
of the Closing Date;
6.2. The Company and the Acquiring Fund shall have performed all of the
covenants and complied with all of the provisions required by this
Reorganization Plan to be performed or complied with by the Company and
the Acquiring Fund on or before the Closing Date; and
6.3. The Acquired Fund and the Acquiring Fund shall have agreed on the number
of full and fractional Acquiring Fund Shares to be issued in connection
with the Reorganization after such number has been calculated in
accordance with paragraph 1.1.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at the Acquiring Fund's election, to
the performance by the Acquired Fund of all of the obligations to be
performed by it hereunder on or before the Closing Date and, in addition
thereto, the following conditions:
7.1. All representations and warranties of the Company and the Acquired Fund
contained in this Reorganization Plan shall be true and correct in all
material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Reorganization Plan, as
of the Closing Date, with the same force and effect as if made on and as
of the Closing Date;
7.2. The Company and the Acquired Fund shall have performed all of the
covenants and complied with all of the provisions required by this
Reorganization Plan to be performed or complied with by the Company or the
Acquired Fund on or before the Closing Date;
7.3. The Acquired Fund and the Acquiring Fund shall have agreed on the number
of full and fractional Acquiring Fund Shares to be issued in connection
with the Reorganization after such number has been calculated in
accordance with paragraph 1.1;
7.4. The Acquired Fund shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its shareholders
(i) all of its investment company taxable income and all of its net
realized capital gains, if any, for the period from the close of its last
taxable year to 4:00 p.m. Eastern Time on the Closing; and (ii) any
undistributed investment company taxable income and net realized capital
gains from any period to the extent not otherwise already distributed.
A-8
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Reorganization Plan shall, at its option, not be
required to consummate the transactions contemplated by this
Reorganization Plan:
8.1. The Reorganization Plan and the transactions contemplated herein shall
have been approved by the requisite vote, if any, of the holders of the
outstanding shares of the Acquired Fund in accordance with the provisions
of the Company's Articles of Incorporation, By-Laws, applicable Kansas law
and the 1940 Act, and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the
Acquired Fund may waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be pending
or, to its knowledge, threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Reorganization Plan or the transactions
contemplated herein;
8.3. All consents of other parties and all other consents, orders and permits
of Federal, state and local regulatory authorities deemed necessary by the
Acquiring Fund or the Acquired Fund to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that
either party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act; and
8.5. Dechert LLP shall deliver an opinion addressed to the Company
substantially to the effect that, based upon certain facts, assumptions,
and representations, the transaction contemplated by this Reorganization
Plan shall constitute a tax-free reorganization for Federal income tax
purposes, unless, based on the circumstances existing at the time of the
Closing, Dechert LLP determines that the transaction contemplated by this
Reorganization Plan does not qualify as such. The delivery of such opinion
is conditioned upon receipt by Dechert LLP of representations it shall
request of the Company. Notwithstanding anything herein to the contrary,
the Company may not waive the condition set forth in this paragraph 8.5.
BROKERAGE FEES AND EXPENSES
9.1. The Acquiring Fund represents and warrants to the other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2. The Acquired Fund shall bear one-half of the expenses relating to the
proposed Reorganization. The costs of the Reorganization shall include,
but not be limited to, costs associated with obtaining any necessary order
of exemption from the 1940 Act, preparation of the Registration Statement,
printing and distributing the Acquiring Fund's prospectus and the Acquired
Fund's proxy materials, legal fees, accounting fees, securities
registration fees, and expenses of holding the shareholders' meeting.
Notwithstanding any of the foregoing, expenses will in any event be paid
by the party directly incurring such expenses if and to the extent that
the payment by the other party of such expenses would result in the
disqualification of such party as a "regulated investment company" within
the meaning of Section 851 of the Code.
A-9
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
The representations, warranties and covenants contained in this
Reorganization Plan or in any document delivered pursuant hereto or in
connection herewith shall survive the consummation of the transactions
contemplated hereunder. The covenants to be performed after the Closing
shall survive the Closing.
TERMINATION
This Reorganization Plan and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Directors, at any
time prior to the Closing Date, if circumstances should develop that, in
the opinion of the Board, make proceeding with the Reorganization Plan
inadvisable.
AMENDMENTS
This Reorganization Plan may be amended, modified or supplemented in such
manner as may be set forth in writing by the authorized officers of the
Company; provided, however, that following any meeting of the shareholders
called by the Acquired Fund pursuant to paragraph 5.2 of this
Reorganization Plan, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund Shares to be
issued to the Acquired Fund Shareholders under this Reorganization Plan to
the detriment of such shareholders without their further approval.
HEADINGS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1. The Article and paragraph headings contained in this Reorganization Plan
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Reorganization Plan.
13.2. This Reorganization Plan shall be governed by and construed in accordance
with the laws of the State of Kansas without regard to its principles of
conflicts of laws.
13.3. This Reorganization Plan shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Reorganization Plan.
13.4. It is expressly agreed that the obligations of the parties hereunder shall
not be binding upon any of the Directors, shareholders, nominees,
officers, agents, or employees of the Company personally, but shall bind
only property of such party. The execution and delivery by such officers
shall not be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
property of each party.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Reorganization Plan to be approved on behalf of the Acquiring Fund and each
Acquired Fund.
SECURITY EQUITY FUND
By: /s/ Michael G. Odlum
--------------------
Name: Michael G. Odlum
Title: President
A-10
APPENDIX B
ADDITIONAL INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
FOREIGN SECURITIES -- Foreign investments involve certain special risks,
including, but not limited to, (i) unfavorable changes in currency exchange
rates; (ii) adverse political and economic developments; (iii) unreliable or
untimely information; (iv) limited legal recourse; (v) limited markets; and (vi)
higher operational expenses.
Foreign investments are normally issued and traded in foreign currencies. As a
result, their values may be affected by changes in the exchange rates between
particular foreign currencies and the U.S. dollar. Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or transport of foreign currency, and tax
increases. There may also be less information publicly available about a foreign
company than about most U.S. companies, and foreign companies are usually not
subject to accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The legal remedies for investors in
foreign investments may be more limited than those available in the United
States. Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic investments, which means a Series may at times
be unable to sell its foreign investments at desirable prices. For the same
reason, a Fund may at times find it difficult to value its foreign investments.
Brokerage commissions and other fees are generally higher for foreign
investments than for domestic investments. The procedures and rules for settling
foreign transactions may also involve delays in payment, delivery or recovery of
money or investments. Foreign withholding taxes may reduce the amount of income
available to distribute to shareholders of the Fund.
EMERGING MARKETS -- The risks associated with foreign investments are typically
increased in less developed and developing countries, which are sometimes
referred to as emerging markets. For example, political and economic structures
in these countries may be young and developing rapidly, which can cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluation, which could hurt their economies
and securities markets. For these and other reasons, investments in emerging
markets are often considered speculative.
SMALLER COMPANIES -- Small- or medium-sized companies are more likely than
larger companies to have limited product lines, markets or financial resources,
or to depend on a small, inexperienced management group. Stocks of these
companies may trade less frequently and in limited volume, and their prices may
fluctuate more than stocks of other companies. Stocks of these companies may
therefore be more vulnerable to adverse developments than those of larger
companies.
CONVERTIBLE SECURITIES AND WARRANTS -- The Funds may invest in debt or preferred
equity securities convertible into, or exchangeable for, equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. In recent years,
convertible securities have been developed which combine higher or lower current
income with options and other features. Warrants are options to buy a stated
number of shares of common stock at a specified price anytime during the life of
the warrants (generally, two or more years).
INITIAL PUBLIC OFFERING -- A Fund's investment in securities offered through
initial public offerings (IPOs) may have a magnified performance impact, either
positive or negative, on the Fund, particularly if it has a small asset base.
There is no guarantee that as a Fund's assets grow, they will continue to
experience substantially similar performance by investing in IPOs. A Fund's
investments in IPOs may make it subject to more erratic price movements than the
overall equity market. Series X may be particularly susceptible to IPO risk.
HIGH YIELD SECURITIES -- Higher yielding debt securities in the lower rating
(higher risk) categories of the recognized rating services are commonly referred
to as "junk bonds." The total return and yield of junk bonds can be expected to
fluctuate more than the total return and yield of higher-quality bonds. Junk
bonds (those rated below BBB or in default) are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Successful investment in lower-medium and low-quality
bonds involves greater investment risk and is highly dependent on SMC's or NTI's
credit analysis. A real or perceived economic downturn or higher interest rates
could cause a decline in high-yield bond prices by lessening the ability of
issuers to make principal and interest payments. These bonds are often
thinly-traded and can be more difficult to sell and value accurately than
high-quality bonds. Because objective pricing data may be less available,
judgment may play a greater role in the valuation process. In addition, the
entire junk bond market can experience sudden and sharp price swings due to a
variety of factors, including changes in economic forecasts, stock market
activity, large or sustained sales by major investors, a high-profile default,
or just a change in the market's psychology. This type of volatility is usually
associated more with stocks than bonds, but junk bond investors should be
prepared for it.
FUTURES AND OPTIONS -- The Funds may utilize futures contracts, options on
futures and may purchase call and put options and write call and put options on
a "covered" basis. A call option is "covered" if a Fund owns the security
underlying the call or has an absolute
B-1
right to acquire the security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount as are segregated by the Fund's custodian). Futures (a type of
potentially high-risk derivative) are often used to manage or hedge risk because
they enable the investor to buy or sell an asset in the future at an agreed-upon
price. Options (another type of potentially high-risk derivative) give the
investor the right (where the investor purchases the options), or the obligation
(where the investor writes (sells) the options), to buy or sell an asset at a
predetermined price in the future. If a Fund invests in non-dollar denominated
foreign securities, it may also engage in forward foreign currency transactions.
The instruments listed above may be bought or sold for any number of reasons,
including: to manage exposure to changes in securities prices and foreign
currencies, to manage exposure to changes in interest rates, and bond prices; as
an efficient means of adjusting overall exposure to certain markets; in an
effort to enhance income; to protect the value of portfolio securities; and to
adjust portfolio duration. Futures contracts and options may not always be
successful hedges; their prices can be highly volatile. Using them could lower a
Fund's total return, and the potential loss from the use of futures can exceed
the Fund's initial investment in such contracts.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate and/or index swaps, and the
purchase or sale of related caps, floors and collars are used primarily to
preserve a return or spread on a particular investment or portion of its
portfolio as a technique for managing the portfolio's duration (i.e. the price
sensitivity to changes in interest rates) or to protect against any increase in
the price of securities a Fund anticipates purchasing at a later date. To the
extent a Fund enters into these types of transactions, it will be done to hedge
and not as a speculative investment, and the Fund will not sell interest rate
caps or floors if it does not own securities or other instruments providing the
income the Fund may be obligated to pay. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay or
receive interest on a notional amount of principal. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS -- The price of "when
issued", "forward commitment" or "delayed delivery" securities is fixed at the
time of the commitment to buy, but delivery and payment can take place a month
or more later. During the interim period, the market value of the securities can
fluctuate, and no interest accrues to the purchaser. At the time of delivery,
the value of the securities may be more or less than the purchase or sale price.
When a Fund purchases securities on this basis, there is a risk that the
securities may not be delivered and that the Fund may incur a loss. Each Fund
may purchase or sell securities on a when issued, forward commitment or delayed
delivery basis.
CASH RESERVES -- Cash reserves maintained by a Fund may include domestic, and
for certain Funds, foreign money market instruments as well as certificates of
deposit, bank demand accounts and repurchase agreements. The Funds may establish
and maintain reserves as SMC or NTI believes is advisable to facilitate a Fund's
cash flow needs (e.g., redemptions, expenses and, purchases of portfolio
securities) or for temporary, defensive purposes.
BORROWING -- While the Funds have no present intention of borrowing for
investment purposes, the Funds may borrow up to one-third of total assets for
purposes of investment. Borrowings may be collateralized with Fund assets. To
the extent that a Fund purchases securities while it has outstanding borrowings,
it may be deemed to be using leverage, i.e., using borrowed funds for
investment. Leveraging will exaggerate the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased. A
Fund also may be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate.
SECURITIES LENDING -- For purposes of realizing additional income, the Funds may
lend their portfolio securities to certain borrowers. Any such loan will be
continuously secured by collateral at least equal to the value of the security
loaned. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans will only be made to firms deemed to be of
good standing and will not be made unless, in the judgment of SMC or NTI, the
consideration to be earned from such loans would justify the risk.
B-2
APPENDIX C
PERFORMANCE UPDATE
SECURITY EQUITY FUND
Manager's Commentary
SELECT 25(R) SERIES
November 15, 2005
(unaudited)
TO OUR SHAREHOLDERS:
The Select 25 Fund, a series of the Security Equity Fund returned 19.85% in the
period, beating the benchmark Russell 1000 Growth index's return of 11.66% and
out performing the Fund's peer group median return of 12.23%. Strong stock
selection and sector positioning drove excellent results in fiscal 2005.
Our approach to managing the Select 25 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's 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 names. Each of our
Research analysts recommend their favorite names based on this analysis. We then
narrow the list down to our favorite 25-30 names that get included in the
portfolio.
ENERGY AND INDUSTRIAL STOCKS ARE TOP PERFORMERS
The Fund's energy holdings were up 86% compared to 65% for the index. The sector
benefited significantly as a result of the increase in the price of crude oil.
Positions in Williams Companies and KFx contributed positively to the Fund.
Williams, up 110%, benefited from rising oil prices. KFx appreciated 122% as a
result of progress being made in the commercialization of the company's
proprietary clean coal technology.
The industrial sector was up over 35% for the Fund versus up 8% for the
benchmark. Shaw Group and L-3 Communications were the major drivers within the
sector. Shaw Group was up 106% as a result of continued world wide economic
growth and the corresponding demand for their infrastructure related services.
L-3 Communications was up 19%, benefiting from continued strong defense related
spending.
CONSUMER DISCRETIONARY AND HEALTH CARE SECTORS DISAPPOINT
Both the consumer discretionary and consumer staples sectors underperformed
their respective benchmark. Harley Davidson, down 16%, and Wal-Mart down 17%,
impacted the Fund negatively. Harley Davidson was down as a result of the
company lowering their 2005 production schedule and general concerns of a
slowdown in consumer spending. Also, Wal-Mart was negatively impacted by
consumer slowdown fears as well as questions about their long-term growth
prospects.
Health care, as a sector overall, underperformed the index. Strong performance
by Amgen was partially offset by the negative impact of Boston Scientific. Amgen
was up over 41% as a result of posting solid operating results and diminishing
fears regarding the reimbursement environment. Boston Scientific was down over
24% as a result of concerns regarding their long-term growth prospects and
declining market share in the drug eluting stent market in the U.S.
2006 MARKET OUTLOOK
We are optimistic on the equity market as we look out into 2006. However, there
are several near-term concerns that need to pass. The most significant, in our
opinion, is the spending capacity of the U.S. consumer. Above average consumer
spending trends have persisted as a result of favorable monetary and fiscal
policies. These favorable policy trends are now being reversed. Additionally,
higher energy prices will weigh heavily on the consumer as we move through the
winter season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
C-1
We 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. 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
Senior Portfolio Manager
- --------------------------------------------------------------------------------
SECURITY SELECT 25 FUND VS.
S&P 500 INDEX & RUSSELL 1000 GROWTH INDEX
- --------------------------------------------------------------------------------
[LINE GRAPH]
SELECT 25 SERIES S&P 500 INDEX RUSSELL 1000 GROWTH INDEX
1/29/1999 9,425.00 10,000.00 10,000.00
9/30/1999 9,924.53 10,111.95 10,049.99
9/30/2000 10,687.95 11,456.43 12,403.67
9/30/2001 7,144.15 8,408.85 6,743.24
9/30/2002 6,145.10 6,687.10 5,225.76
9/30/2003 6,851.98 8,319.10 6,579.50
9/30/2004 7,360.93 9,473.80 7,074.26
9/30/2005 8,821.80 10,633.86 7,895.14
- --------------------------------------------------------------------------------
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Select 25 Fund on
January 29, 1999 (date of inception), reflects deduction of the 5.75% sales load
and assumes all dividends are reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares. Effective February 1, 2005, the Select 25 Fund
changed its benchmark to the Russell 1000 Growth Index. The Investment Manager
has determined that the Russell 1000 Growth Index is a more appropriate index
than the S&P Index, which is a capitalization-weighted index composed of 500
selected common stocks that represent the broad domestic economy and is a widely
recognized unmanaged index of market performance, because the Russell 1000
Growth Index more closely reflects the types of securities in which the Fund
invests and thus provides shareholders with a more appropriate benchmark against
which to compare the Fund's performance.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------------------
SINCE
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS INCEPTION
- --------------------------------------------------------------------------------
(0.99)%
A Shares 19.85% (3.77)% (1-29-99)
- --------------------------------------------------------------------------------
(1.86)%
A Shares with sales charge 12.91% (4.90)% (1-29-99)
- --------------------------------------------------------------------------------
(1.70)%
B Shares 18.93% (4.48)% (1-29-99)
- --------------------------------------------------------------------------------
(1.70)%
B Shares with CDSC 13.93% (4.87)% (1-29-99)
- --------------------------------------------------------------------------------
(1.67)%
C Shares 18.88% (4.51)% (1-29-99)
- --------------------------------------------------------------------------------
(1.67)%
C Shares with CDSC 17.88% (4.51)% (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 shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
- --------------------------------------------------------------------------------
C-2
APPENDIX D
As of the Record Date, the name, address, and share ownership of persons who
owned of record or beneficially 5% or more of the outstanding shares of an
Acquired Fund are set forth below:
LARGE CAP GROWTH FUND
- --------------------------------------- ------------------ -------------------
SHARES
SHAREHOLDER AND ADDRESS OWNED % OWNED
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
ENHANCED INDEX FUND
- --------------------------------------- ------------------ -------------------
SHARES
SHAREHOLDER AND ADDRESS OWNED % OWNED
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
SOCIAL AWARENESS FUND
- --------------------------------------- ------------------ -------------------
SHARES
SHAREHOLDER AND ADDRESS OWNED % OWNED
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
- --------------------------------------- ------------------ -------------------
D-1
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KS 66636-0001
(TOLL-FREE) 1-800-888-2461
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
APRIL 28, 2006
The undersigned hereby appoint(s) Amy J. Lee, Donald A. Chubb, Jr. and Brenda M.
Harwood, or any one of them, proxies, each of them with full power of
substitution, to vote and act with respect to all shares of the Security [ ]
Fund (the "Acquired Fund") which the undersigned is entitled to vote at the
Special Meeting of Security Equity Fund shareholders to be held at the executive
offices of Security Equity Fund, One Security Benefit Place, Topeka, Kansas
66636, April 28, 2006 at 1:00 p.m. (Central time) and at any adjournment(s) or
postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. This proxy card
will be voted as instructed. IF NO SPECIFICATION IS MADE, THE PROXY CARD WILL BE
VOTED "FOR" PROPOSAL 1.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
[LASER FUND NAME HERE]
(the "Acquired Fund")
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 28, 2006
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL
Please vote, date and sign this proxy card and return it promptly in the
enclosed envelope. Please indicate your vote by an "x" in the appropriate box
below:
1. To approve a Plan of Reorganization providing for the acquisition of all
of the assets and liabilities of the Acquired Fund by Security Select 25
Fund (the "Acquiring Fund"), a series of Security Equity Fund, solely in
exchange for shares of the Acquiring Fund, followed by the complete
liquidation of the Acquired Fund.
FOR AGAINST ABSTAIN
|_| |_| |_|
PLEASE VOTE BY |X|
CHECKING THE
APPROPRIATE BOX
AS IN THIS EXAMPLE
Date: ______________________________
____________________________________
Signature
PROXY VOTING INSTRUCTIONS
Your mailed proxy statement provides details on important issues relating to
your Fund. The board of directors of Security Equity Fund recommends that you
vote "FOR" the proposal.
To make voting faster and more convenient for you, we are offering a variety of
ways to vote your proxy. You may vote using the Internet or by telephone instead
of completing and mailing the enclosed proxy card. The Internet and telephone
are generally available 24 hours a day and your vote will be confirmed and
posted immediately. Use whichever method is most convenient for you! If you
choose to vote via the Internet or by phone, you should not mail your proxy
card.
WAYS TO VOTE YOUR SHARES
Your vote is important no matter how many shares you own. Voting your shares
early will avoid costly follow-up mail and telephone solicitation.
Online 1. Click on www.myproxyonline.com.
2. Enter the 12 digit control number.
3. Follow the instructions on the Web site.
4. Once you have voted, you do not need to mail your proxy card.
By Phone 1. Call toll-free 1-866-437-4675.
2. Enter the 12 digit control number.
3. Follow the recorded instructions.
4. Once you have voted, you do not need to mail your proxy card
By Mail Complete and sign your proxy card and mail it in the
postage-paid envelope received with your shareholder mailing. To
ensure your vote is validated properly, please sign your proxy
card as described in the "Instructions for Signing Proxy Cards"
section of your proxy materials.
In Person The Shareholder Meeting will take place April 28, 2006, at 1:00
p.m., Central time, at the office of Security Equity Fund,
located at One Security Benefit Place, Topeka, Kansas 66636.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
Questions?
We urge you to spend time reviewing your proxy statement and the proposal
included in the package. Should you have any questions, we encourage you to call
1-866-304-2059 toll-free Monday through Friday from 9:30 a.m. to 10:00 p.m.
Eastern time. We have retained InvestorCONNECT to assist our shareholders in the
voting process. If we have not received your proxy card by April __, 2006,
representatives from InvestorCONNECT may call you to remind you to exercise your
vote.
YOUR PROXY VOTE IS IMPORTANT! PLEASE VOTE TODAY
PART B
SECURITY EQUITY FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
March 24, 2006
- --------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
Large Cap Growth Fund, Select 25 Fund
Enhanced Index Fund, and One Security Benefit Place
Social Awareness Fund Topeka, Kansas 66636-0001
One Security Benefit Place
Topeka, Kansas 66636-0001
This Statement of Additional Information is available to the shareholders of
Large Cap Growth Fund, Enhanced Index Fund, and Social Awareness Fund in
connection with a proposed transaction whereby all of the assets and liabilities
of Large Cap Growth Fund, Enhanced Index Fund, and Social Awareness Fund will be
transferred to Select 25 Fund in exchange for shares of Select 25 Fund.
This Statement of Additional Information of Select 25 Fund consists of this
cover page, the accompanying pro forma financial statements and related notes,
and the following documents, each of which was filed electronically with the
Securities and Exchange Commission and is incorporated by reference herein:
1. The Statement of Additional Information for Security Equity Fund dated
February 1, 2006; and
2. The Financial Statements of Large Cap Growth Fund, Enhanced Index Fund,
Social Awareness Fund and Select 25 Fund as included in Security Equity
Fund's Annual Report filed for the year ended September 30, 2005.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March 24, 2006 relating to the reorganization of the
Large Cap Growth Fund, Enhanced Index Fund, and Social Awareness Fund may be
obtained, without charge, by writing to Security Management Company, LLC, at One
Security Benefit Place, Topeka, Kansas 66636-0001 or calling (800) 888-2461.
This Statement of Additional Information should be read in conjunction with the
Proxy Statement/Prospectus.
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES ENHANCED LARGE CAP SOCIAL PRO FORMA
SEPTEMBER 30, 2005 INDEX GROWTH AWARENESS SELECT 25 ADJUSTMENTS SELECT 25
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ASSETS:
Investments, at value 1....................... $ 14,861,547 $ 13,938,293 $ 16,893,756 $ 20,902,312 $ 66,595,908
Cash ......................................... 340 372,549 738 91,224 464,851
Receivables:
Fund shares sold .......................... 6,745 20,506 18,846 4,826 50,923
Securities sold ........................... 138,156 -- -- -- 138,156
Dividends ................................. 17,543 6,546 4,971 6,360 35,420
Variation margin .......................... 735 -- -- -- 735
Prepaid expenses ............................. 9,695 14,824 9,854 9,944 44,317
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Total assets ................................. 15,034,761 14,352,718 16,928,165 21,014,666 67,330,310
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LIABILITIES:
Payable for:
Securities purchased....................... 145,525 161,441 263,137 -- 570,103
Fund shares redeemed....................... 429 12,032 6,300 16,973 35,734
Management fees............................ 6,084 8,666 10,272 12,636 37,658
Custodian fees............................. -- -- 1,400 1,600 3,000
Transfer agent and administration fees..... 4,516 6,807 4,814 5,513 21,650
Professional fees.......................... 8,286 8,581 8,458 8,606 33,931
12b-1distribution plan fees................ 125,190 90,588 7,106 27,044 249,928
Reimbursement due to advisor............... -- 2,626 -- -- 2,626
Other...................................... 5,227 855 1,082 1,364 8,528
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Total liabilities............................. 295,257 291,596 302,569 73,736 963,158
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NET ASSETS.................................... $ 14,739,504 $ 14,061,122 $ 16,625,596 $ 20,940,930 $ 66,367,152
===================================================================================
NET ASSETS CONSIST OF:
Paid in capital............................... $ 18,264,609 $ 15,511,601 $ 18,220,270 $ 27,674,023 $ 79,670,503
Accumulated undistributed net investment
income..................................... 33,715 -- -- -- 33,715
Accumulated net realized loss on sale of
investments, futures and foreign currency
transactions............................... (4,550,439) (2,388,522) (1,551,431) (11,459,603) (19,949,995)
Net unrealized appreciation (depreciation) in
value of investments, futures and
translation of assets and liabilities in
foreign currency........................... 991,619 938,043 (43,243) 4,726,510 6,612,929
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Net Assets.................................... $ 14,739,504 $ 14,061,122 $ 16,625,596 $ 20,940,930 $ 66,367,152
===================================================================================
CLASS A:
Capital shares outstanding (unlimited number
of shares authorized)...................... 652,149 1,340,489 528,373 952,480 2,695,946 3,648,426
Net assets.................................... $ 6,248,424 $8,260,907 $ 10,724,719 $ 8,911,920 $ 34,145,970
Net asset value and redemption price per
share...................................... $ 9.58 $ 6.16 $ 20.30 $ 9.36 $ 9.36
===================================================================================
Maximum offering price per share
(net asset value divided by 94.25%)........ $ 10.16 $ 6.54 $ 21.54 $ 9.93 $ 9.93
===================================================================================
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized).... 519,663 450,115 230,064 785,052 1,307,375 2,092,427
Net assets.................................... $ 4,718,273 $ 2,653,394 $ 4,290,117 $ 7,000,438 $ 18,662,222
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge).......... $ 9.08 $ 5.89 $ 18.65 $ 8.92 $ 8.92
===================================================================================
CLASS C:
Capital shares outstanding (unlimited number
of shares authorized)...................... 414,367 531,423 84,453 562,231 954,182 1,516,413
Net assets.................................... $ 3,772,807 $ 3,146,821 $ 1,610,760 $ 5,028,572 $ 13,558,960
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge).......... $ 9.10 $ 5.92 $ 19.07 $ 8.94 $ 8.94
===================================================================================
1 Investments, at cost........................ $ 13,869,477 $ 13,000,250 $ 16,936,999 $ 16,175,802 $ 59,982,528
PRO FORMA STATEMENT OF OPERATIONS ENHANCED LARGE CAP SOCIAL
FOR THE YEAR ENDED SEPTEMBER 30, 2005 INDEX GROWTH AWARENESS SELECT 25 ADJUSTMENTS PRO FORMA
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INVESTMENT INCOME:
Dividends.................................. $ 335,890 $ 204,677 $ 311,860 $ 185,577 -- $ 1,038,004
Interest................................... 6,833 6,208 32,473 5,800 -- 51,314
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Total investment income.................... 342,723 210,885 344,333 191,377 -- 1,089,318
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EXPENSES:
Management fees............................ 117,333 140,504 169,887 162,619 (92,589) 1 497,754
Custodian fees............................. 14,521 4,718 4,568 5,205 (23,807) 2 5,205
Transfer agent/maintenance fees............ 38,733 106,193 54,638 67,806 (49,870) 2 217,500
Administration fees........................ 28,193 24,949 25,287 24,997 -- 103,426
Directors' fees............................ 365 190 333 404 -- 1,292
Professional fees.......................... 9,907 10,653 11,574 11,049 (28,183) 2 15,000
Reports to shareholders.................... 1,677 2,496 1,407 2,507 -- 8,087
Registration fees.......................... 31,278 34,087 35,210 31,519 (94,094) 2 38,000
Other expenses............................. 1,561 1,965 1,892 2,198 -- 7,616
12b-1 distribution plan fees - Class A..... 17,297 19,341 25,917 22,723 -- 85,278
12b-1 distribution plan fees - Class B..... 51,586 31,297 50,242 72,047 -- 205,172
12b-1 distribution plan fees - Class C..... 35,668 31,842 15,978 53,888 -- 137,376
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Total expenses............................. 348,119 408,235 396,933 456,962 (288,543) 1,321,706
Less: Expenses waived.................... (39,111) (35,126) (42,472) -- 116,709 1 --
Earnings credits................... -- (1,371) -- -- 1,371 1 --
Reimbursement of expenses-Class A.. -- (4,677) -- -- 4,677 1 --
Reimbursement of expenses-Class B.. -- (1,921) -- -- 1,921 1 --
Reimbursement of expenses-Class C.. -- (1,654) -- -- 1,654 1 --
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Net expenses............................... 309,008 363,486 354,461 456,962 (162,211) 1,321,706
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Net investment income (loss)............... 33,715 (152,601) (10,128) (265,585) 162,211 (232,388)
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NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on:
Investments................................ 1,284,720 292,724 (90,090) 544,010 2,031,364
Futures 13,476 -- -- -- 13,476
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Net realized gain (loss)................... 1,298,196 292,724 (90,090) 544,010 2,044,840
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Net unrealized appreciation during the year on:
Investments................................ 245,400 499,904 1,425,092 3,480,799 5,651,195
Futures 2,874 -- -- -- 2,874
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Net unrealized appreciation................ 248,274 499,904 1,425,092 3,480,799 5,654,069
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Net gain................................... 1,546,470 792,628 1,335,002 4,024,809 7,698,909
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Net increase in net assets resulting from
operations $ 1,580,185 $ 640,027 $ 1,324,874 $ 3,759,224 $ 7,466,521
====================================================================================
1 Based on contract in effect for the surviving fund
2 Decrease due to the elimination of duplicative expenses achieved by
merging the funds
PRO FORMA SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2005
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PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
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COMMERCIAL PAPER -- 0.8%
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FINANCIAL -- OTHER --
-- $500,000 -- -- $500,000 Countrywide Financial,
3.85%, 10--06--05 $ -- $ 499,733 $ -- $ -- $ 499,733
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TOTAL COMMERCIAL PAPER
(cost $499,733) -- 499,733 -- -- 499,733
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COMMON STOCKS -- 98.1%
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ADVERTISING -- 0.0%
200 -- -- -- 200 Omnicom Group, Inc. 16,726 -- -- -- 16,726
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AEROSPACE &
DEFENSE -- 3.0%
1,047 -- -- -- 1,047 Boeing Company 71,144 -- -- -- 71,144
-- 2,400 -- -- 2,400 General Dynamics
Corporation -- 286,920 -- -- 286,920
-- -- -- 13,800 13,800 L--3 Communications
Holdings, Inc. -- -- -- 1,091,166 1,091,166
1,288 -- -- -- 1,288 Lockheed Martin
Corporation 78,619 -- -- -- 78,619
580 -- -- -- 580 Northrop Grumman
Corporation 31,523 -- -- -- 31,523
1,700 -- -- -- 1,700 Raytheon Company 64,634 -- -- -- 64,634
800 -- -- -- 800 Rockwell Colllins, Inc. 38,656 -- -- -- 38,656
380 5,600 -- -- 5,980 United Technologies
Corporation 19,699 290,304 -- -- 310,003
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304,275 577,224 -- 1,091,166 1,972,665
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AGRICULTURAL
PRODUCTS -- 0.1%
3,066 -- -- -- 3,066 Archer--Daniels--Midland
Company 75,608 -- -- -- 75,608
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AIR FREIGHT &
LOGISTICS -- 3.5%
558 5,400 6,400 12,800 25,158 FedEx Corporation 48,619 470,502 557,632 1,115,264 2,192,017
1,758 -- -- -- 1,758 United Parcel Service,
Inc. (Cl.B) 121,531 -- -- -- 121,531
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170,150 470,502 557,632 1,115,264 2,313,548
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AIRLINES -- 0.8%
-- 12,800 21,800 -- 34,600 Southwest Airlines
Company -- 190,080 323,730 -- 513,810
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APPAREL RETAIL -- 0.2%
700 -- -- -- 700 Gap, Inc. 12,201 -- -- -- 12,201
2,900 -- -- -- 2,900 Limited Brands, Inc. 59,247 -- -- -- 59,247
1,900 -- -- -- 1,900 TJX Companies, Inc. 38,912 -- -- -- 38,912
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110,360 -- -- -- 110,360
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APPAREL, ACCESSORIES &
LUXURY GOODS -- 0.0%
1,000 -- -- 1,000 Jones Apparel Group,
Inc. 28,500 -- -- -- 28,500
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APPLICATION
SOFTWARE -- 0.2%
200 -- -- -- 200 Autodesk, Inc. 9,288 -- -- -- 9,288
2,200 -- -- -- 2,200 Citrix Systems, Inc.* 55,308 -- -- -- 55,308
900 -- -- -- 900 Mercury Interactive
Corporation* 35,640 -- -- -- 35,640
1,493 -- -- -- 1,493 Parametric Technology
Corporation* 10,406 -- -- -- 10,406
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110,642 -- -- -- 110,642
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PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
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ASSET MANAGEMENT &
CUSTODY BANKS -- 0.2%
36 -- -- -- 36 Bank of New York
Company, Inc. $ 1,059 $ -- $ -- $ -- $ 1,059
800 -- -- -- 800 Franklin Resources,
Inc. 67,168 -- -- -- 67,168
1,211 -- -- -- 1,211 Mellon Financial
Corporation 38,716 -- -- -- 38,716
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106,943 -- -- -- 106,943
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AUTOMOTIVE RETAIl --
0.1%
2,700 -- -- -- 2,700 AutoNation, Inc.* 53,919 -- -- -- 53,919
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BIOTECHNOLOGY -- 1.8%
1,764 2,500 3,200 7,000 14,464 Amgen, Inc.* 140,538 199,175 254,944 557,690 1,152,347
700 -- -- -- 700 Applera Corporation --
Applied Biosystems
Group 16,268 -- -- -- 16,268
1,200 -- -- -- 1,200 Biogen Idec, Inc.* 47,376 -- -- -- 47,376
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204,182 199,175 254,944 557,690 1,215,991
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BROADCASTING & CABLE
TV -- 2.6%
4,379 -- 3,737 -- 8,116 Comcast Corporation* 128,655 -- 109,793 -- 238,448
-- 19,400 18,800 19,000 57,200 Univision
Communications, Inc.* -- 514,682 498,764 504,070 1,517,516
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128,655 514,682 608,557 504,070 1,755,964
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BUILDING PRODUCTS --
0.1%
400 -- -- -- 400 American Standard
Companies, Inc. 18,620 -- -- -- 18,620
1,504 -- -- -- 1,504 Masco Corporation 46,143 -- -- -- 46,143
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64,763 -- -- -- 64,763
-----------------------------------------------------------
COMMERCIAL
PRINTING -- 0.0%
300 -- -- -- 300 R.R. Donnelley & Sons
Company 11,121 -- -- -- 11,121
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COMMUNICATIONS
EQUIPMENT -- 6.8%
-- 35,000 -- 123,000 158,000 3Com Corporation* -- 142,800 -- 501,840 644,640
-- 14,157 17,685 38,328 70,170 ADC Telecommunications,
Inc.* -- 323,632 404,279 876,178 1,604,089
1,900 -- -- -- 1,900 Avaya, Inc.* 19,570 -- -- -- 19,570
11,102 20,100 26,700 38,000 95,902 Cisco Systems, Inc.* 199,059 360,393 478,731 681,340 1,719,523
800 -- -- -- 800 Comverse Technology,
Inc.* 21,016 -- -- -- 21,016
600 -- -- -- 600 Corning, Inc.* 11,598 -- -- -- 11,598
1,153 -- -- -- 1,153 Motorola, Inc. 25,470 -- -- -- 25,470
958 8,000 -- -- 8,958 Qualcomm, Inc. 42,870 358,000 -- -- 400,870
5,900 -- -- -- 5,900 Tellabs, Inc.* 62,068 -- -- -- 62,068
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381,651 1,184,825 883,010 2,059,358 4,508,844
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COMPUTER
HARDWARE -- 1.2%
1,500 -- -- -- 1,500 Apple Computer, Inc.* 80,415 -- -- -- 80,415
3,384 4,200 4,300 -- 11,884 Dell, Inc.* 115,733 143,640 147,060 -- 406,433
1,908 -- -- -- 1,908 Hewlett--Packard
Company 55,714 -- -- -- 55,714
2,463 -- -- -- 2,463 International Business
Machines Corporation 197,582 -- -- -- 197,582
870 -- -- -- 870 NCR Corporation* 27,762 -- -- -- 27,762
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477,206 143,640 147,060 -- 767,906
-----------------------------------------------------------
COMPUTER STORAGE &
PERIPHERALS -- 0.1%
4,110 -- -- -- 4,110 EMC Corporation* 53,183 -- -- -- 53,183
1,800 -- -- -- 1,800 Network Appliance,
Inc.* 42,732 -- -- -- 42,732
-----------------------------------------------------------
95,915 -- -- -- 95,915
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
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CONSTRUCTION &
ENGINEERING -- 3.2%
-- -- 18,500 68,000 86,500 Shaw Group, Inc.* $ -- $ -- $ 456,210 $1,676,880 $2,133,090
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CONSTRUCTION & FARM
MACHINERY -- 0.1%
898 -- -- -- 898 Paccar, Inc. 60,965 -- -- -- 60,965
-----------------------------------------------------------
CONSUMER FINANCE --
1.7%
2,023 6,800 8,150 -- 16,973 American Express
Company 116,201 390,592 468,136 -- 974,929
2,748 -- -- -- 2,748 MBNA Corporation 67,711 -- -- -- 67,711
3,758 -- -- -- 3,758 Providian Financial
Corporation* 66,441 -- -- -- 66,441
-----------------------------------------------------------
250,353 390,592 468,136 -- 1,109,081
-----------------------------------------------------------
DATA PROCESSING &
OUTSOURCED
SERVICES -- 2.7%
517 -- -- -- 517 Automatic Data
Processing, Inc. 22,252 -- -- -- 22,252
1,300 -- -- -- 1,300 Computer Sciences
Corporation* 61,503 -- -- -- 61,503
200 -- -- -- 200 Convergys Corporation* 2,874 -- -- -- 2,874
-- 11,700 10,850 19,300 41,850 First Data Corporation -- 468,000 434,000 772,000 1,674,000
500 -- -- -- 500 Fiserv, Inc.* 22,935 -- -- -- 22,935
1,400 -- -- -- 1,400 Sabre Holdings
Corporation 28,392 -- -- -- 28,392
-----------------------------------------------------------
137,956 468,000 434,000 772,000 1,811,956
-----------------------------------------------------------
DEPARTMENT STORES --
0.2%
582 -- -- -- 582 Federated Department
Stores, Inc. 38,918 -- -- -- 38,918
1,300 -- -- -- 1,300 J.C. Penney Company,
Inc. 61,646 -- -- -- 61,646
-----------------------------------------------------------
100,564 -- -- -- 100,564
-----------------------------------------------------------
DISTILLERS &
VINTNERS -- 0.1%
600 -- -- -- 600 Brown--Forman
Corporation (Cl.B) 35,724 -- -- -- 35,724
-----------------------------------------------------------
DIVERSIFIED BANKS --
1.7%
6,392 -- -- -- 6,392 Bank of America
Corporation 269,103 -- -- -- 269,103
700 -- -- -- 700 Comerica, Inc. 41,230 -- -- -- 41,230
1,434 -- -- -- 1,434 U.S. Bancorp 40,267 -- -- -- 40,267
2,197 -- -- -- 2,197 Wachovia Corporation 104,555 -- -- -- 104,555
2,606 -- 8,600 -- 11,206 Wells Fargo & Company 152,633 -- 503,702 -- 656,335
-----------------------------------------------------------
607,788 -- 503,702 -- 1,111,490
-----------------------------------------------------------
DIVERSIFIED
CHEMICALS -- 0.1%
141 -- -- -- 141 Dow Chemical Company 5,875 -- -- -- 5,875
674 -- -- -- 674 E.I. du Pont de
Nemours & Company 26,401 -- -- -- 26,401
600 -- -- -- 600 Eastman Chemical
Company 28,182 -- -- -- 28,182
800 -- -- -- 800 Engelhard Corporation 22,328 -- -- -- 22,328
-----------------------------------------------------------
82,786 -- -- -- 82,786
-----------------------------------------------------------
DIVERSIFIED COMMERCIAL
& PROFESSIONAL
SERVICES -- 0.0%
317 -- -- -- 317 Cendant Corporation 6,543 -- -- -- 6,543
-----------------------------------------------------------
DIVERSIFIED METALS &
MINING -- 0.1%
300 -- -- -- 300 Phelps Dodge
Corporation 38,979 -- -- -- 38,979
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PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
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DRUG RETAIL -- 1.6%
-- 17,100 18,200 -- 35,300 CVS Corporation $ -- $ 496,071 $ 527,982 $ -- $1,024,053
255 -- -- -- 255 Walgreen Company 11,080 -- -- -- 11,080
-----------------------------------------------------------
11,080 496,071 527,982 -- 1,035,133
-----------------------------------------------------------
ELECTRIC UTILITIES --
2.6%
800 -- -- -- 800 Allegheny Energy, Inc.* 24,576 -- -- -- 24,576
2,600 -- -- -- 2,600 CenterPoint Energy,
Inc. 38,662 -- -- -- 38,662
1,200 -- -- -- 1,200 Edison International 56,736 -- -- -- 56,736
646 -- -- -- 646 Entergy Corporation 48,011 -- -- -- 48,011
-- -- -- 81,300 81,300 KFx, Inc.* -- -- -- 1,391,856 1,391,856
1,200 -- -- -- 1,200 PG&E Corporation 47,100 -- -- -- 47,100
970 -- -- -- 970 Progress Energy, Inc. 43,407 -- -- -- 43,407
400 -- -- -- 400 Progress Energy, Inc.
-- Contingent Value
Obligation*2 32 -- -- -- 32
1,761 -- -- -- 1,761 Southern Company 62,973 -- -- -- 62,973
1,200 -- -- -- 1,200 Teco Energy, Inc. 21,624 -- -- -- 21,624
-----------------------------------------------------------
343,121 -- -- 1,391,856 1,734,977
-----------------------------------------------------------
ELECTRICAL COMPONENTS
& EQUIPMENT -- 0.7%
438 -- -- -- 438 Emerson Electric
Company 31,448 -- -- -- 31,448
-- 27,400 49,000 -- 76,400 Power--One, Inc.* -- 151,796 271,460 -- 423,256
-----------------------------------------------------------
31,448 151,796 271,460 -- 454,704
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ELECTRONIC EQUIPMENT
MANUFACTURERS -- 0.0%
437 -- -- -- 437 Symbol Technologies,
Inc. 4,230 -- -- -- 4,230
-----------------------------------------------------------
ELECTRONIC
MANUFACTURING
SERVICES -- 0.0%
100 -- -- -- 100 Jabil Circuit, Inc.* 3,092 -- -- -- 3,092
100 -- -- -- 100 Molex, Inc. 2,668 -- -- -- 2,668
-----------------------------------------------------------
5,760 -- -- -- 5,760
-----------------------------------------------------------
ENVIRONMENTAL &
FACILITIES
SERVICES -- 0.1%
1,673 -- -- -- 1,673 Waste Management, Inc. 47,865 -- -- -- 47,865
-----------------------------------------------------------
EXCHANGE TRADED
FUNDS -- 0.6%
-- 8,300 -- -- 8,300 iShares Russell 1000
Growth Index Fund -- 413,091 -- -- 413,091
-----------------------------------------------------------
FOOD RETAIL -- 0.1%
1,600 -- -- -- 1,600 Supervalu, Inc. 49,792 -- -- -- 49,792
-----------------------------------------------------------
FOOTWEAR -- 0.0%
400 -- -- -- 400 Nike, Inc. (Cl.B) 32,672 -- -- -- 32,672
-----------------------------------------------------------
FOREST PRODUCTS -- 0.1%
1,213 -- -- -- 1,213 Louisiana--Pacific
Corporation 33,588 -- -- -- 33,588
-----------------------------------------------------------
GAS UTILITIES -- 0.1%
900 -- -- -- 900 KeySpan Corporation 33,102 -- -- -- 33,102
200 -- -- -- 200 Nicor, Inc. 8,406 -- -- -- 8,406
-----------------------------------------------------------
41,508 -- -- -- 41,508
-----------------------------------------------------------
GENERAL MERCHANDISE
STORES -- 0.7%
1,800 -- -- -- 1,800 Dollar General
Corporation 33,012 -- -- -- 33,012
2,300 -- -- -- 2,300 Family Dollar Stores,
Inc. 45,701 -- -- -- 45,701
306 2,500 4,500 -- 7,306 Target Corporation 15,891 129,825 233,685 -- 379,401
-----------------------------------------------------------
94,604 129,825 233,685 -- 458,114
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PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE
DISTRIBUTORS -- 0.0%
82 -- -- -- 82 Cardinal Health, Inc. $ 5,202 $ -- $ -- $ -- $ 5,202
-----------------------------------------------------------
HEALTH CARE
EQUIPMENT -- 5.0%
100 -- -- -- 100 Baxter International,
Inc. 3,987 -- -- -- 3,987
1,299 -- -- -- 1,299 Becton, Dickinson &
Company 68,107 -- -- -- 68,107
-- -- 5,500 -- 5,500 Fisher Scientific
International, Inc.* -- -- 341,275 -- 341,275
100 -- -- -- 100 Guidant Corporation 6,889 -- -- -- 6,889
1,693 9,000 9,600 16,600 36,893 Medtronic, Inc. 90,779 482,580 514,752 890,092 1,978,203
1,400 -- -- -- 1,400 PerkinElmer, Inc. 28,518 -- -- -- 28,518
99 -- -- -- 99 Thermo Electron
Corporation* 3,059 -- -- -- 3,059
1 -- -- -- 1 Waters Corporation* 42 -- -- -- 42
300 6,100 6,600 -- 13,000 Zimmer Holdings, Inc.* 20,667 420,229 454,674 -- 895,570
-----------------------------------------------------------
222,048 902,809 1,310,701 890,092 3,325,650
-----------------------------------------------------------
HEALTH CARE
FACILITIES -- 0.2%
1,600 -- -- -- 1,600 HCA, Inc. 76,672 -- -- -- 76,672
848 -- -- -- 848 Manor Care, Inc. 32,572 -- -- -- 32,572
5,000 -- -- -- 5,000 Tenet Healthcare
Corporation* 56,150 -- -- -- 56,150
-----------------------------------------------------------
165,394 -- -- -- 165,394
-----------------------------------------------------------
HEALTH CARE
SERVICES -- 1.1%
600 -- -- -- 600 Caremark Rx, Inc.* 29,958 -- -- -- 29,958
-- 6,400 7,000 -- 13,400 Covance, Inc.* -- 307,136 335,930 -- 643,066
1,000 -- -- -- 1,000 Laboratory Corporation
of America Holdings* 48,710 -- -- -- 48,710
200 -- -- -- 200 Medco Health
Soulutions, Inc.* 10,966 -- -- -- 10,966
-----------------------------------------------------------
89,634 307,136 335,930 -- 732,700
-----------------------------------------------------------
HOME FURNISHINGS --
0.0%
1,300 -- -- -- 1,300 Leggett & Platt, Inc. 26,260 -- -- -- 26,260
-----------------------------------------------------------
HOME IMPROVEMENT
RETAIL -- 2.4%
4,008 10,000 13,800 13,800 41,608 Home Depot, Inc. 152,865 381,400 526,332 526,332 1,586,929
272 -- -- -- 272 Lowe's Companies, Inc. 17,517 -- -- -- 17,517
-----------------------------------------------------------
170,382 381,400 526,332 526,332 1,604,446
-----------------------------------------------------------
HOMEBUILDING -- 0.1%
300 -- -- -- 300 D.R. Horton, Inc. 10,866 -- -- -- 10,866
600 -- -- -- 600 KB Home 43,920 -- -- -- 43,920
-----------------------------------------------------------
54,786 -- -- -- 54,786
-----------------------------------------------------------
HOTELS, RESORTS &
CRUISE LINES -- 2.2%
200 8,500 -- 18,000 26,700 Carnival Corporation 9,996 424,830 -- 899,640 1,334,466
1,300 -- -- -- 1,300 Hilton Hotels
Corporation 29,016 -- -- -- 29,016
1,000 -- -- -- 1,000 Marriott
International, Inc. 63,000 -- -- -- 63,000
300 -- -- -- 300 Starwood Hotels &
Resorts Worldwide,
Inc. 17,151 -- -- -- 17,151
-----------------------------------------------------------
119,163 424,830 -- 899,640 1,443,633
-----------------------------------------------------------
HOUSEHOLD
APPLIANCES -- 0.0%
300 -- -- -- 300 Black & Decker
Corporation 24,627 -- -- -- 24,627
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD
PRODUCTS -- 1.5%
1,064 -- -- -- 1,064 Clorox Company $ 59,095 $ -- $ -- $ -- $ 59,095
1,396 -- -- -- 1,396 Kimberly--Clark
Corporation 83,104 -- -- -- 83,104
-- 5,200 9,000 -- 14,200 Procter & Gamble
Company -- 309,192 535,140 -- 844,332
-----------------------------------------------------------
142,199 309,192 535,140 -- 986,531
-----------------------------------------------------------
HYPERMARKETS &
SUPERCENTERS -- 2.5%
1,153 -- 8,000 -- 9,153 Costco Wholesale
Corporation 49,683 -- 344,720 -- 394,403
4,383 9,700 -- 15,000 29,083 Wal--Mart Stores, Inc. 192,063 425,054 -- 657,300 1,274,417
-----------------------------------------------------------
241,746 425,054 344,720 657,300 1,668,820
-----------------------------------------------------------
INDEPENDENT POWER
PRODUCERS & ENERGY
TRADERS -- 0.2%
600 -- -- -- 600 AES Corporation* 9,858 -- -- -- 9,858
1,500 -- -- -- 1,500 Duke Energy Corporation 43,755 -- -- -- 43,755
800 -- -- -- 800 TXU Corporation 90,304 -- -- -- 90,304
-----------------------------------------------------------
143,917 -- -- -- 143,917
-----------------------------------------------------------
INDUSTRIAL
CONGLOMERATES -- 2.5%
1,127 1,800 3,500 -- 6,427 3M Company 82,677 132,048 256,760 -- 471,485
12,841 18,600 -- -- 31,441 General Electric
Company 432,356 626,262 -- -- 1,058,618
4,379 -- -- -- 4,379 Tyco International,
Ltd. 121,955 -- -- -- 121,955
-----------------------------------------------------------
636,988 758,310 256,760 -- 1,652,058
-----------------------------------------------------------
INDUSTRIAL GASES --
1.9%
1,000 -- -- -- 1,000 Air Products &
Chemicals, Inc. 55,140 -- -- -- 55,140
-- -- 7,400 18,000 25,400 Praxair, Inc. -- -- 354,682 862,740 1,217,422
-----------------------------------------------------------
55,140 -- 354,682 862,740 1,272,562
-----------------------------------------------------------
INDUSTRIAL
MACHINERY -- 0.1%
900 -- -- -- 900 Ingersoll--Rand
Company, Ltd. 34,407 -- -- -- 34,407
900 -- -- -- 900 Parker Hannifin
Corporation 57,879 -- -- -- 57,879
-----------------------------------------------------------
92,286 -- -- -- 92,286
-----------------------------------------------------------
INTEGRATED OIL &
GAS -- 1.4%
3,231 -- -- -- 3,231 Chevron Corporation 209,143 -- -- -- 209,143
1,298 -- -- -- 1,298 ConocoPhillips 90,743 -- -- -- 90,743
9,015 -- -- -- 9,015 Exxon Mobil
Corporation1 572,813 -- -- -- 572,813
400 -- -- -- 400 Murphy Oil Corporation 19,948 -- -- -- 19,948
100 -- -- -- 100 Occidental Petroleum
Corporation 8,543 -- -- -- 8,543
-----------------------------------------------------------
901,190 -- -- -- 901,190
-----------------------------------------------------------
INTEGRATED
TELECOMMUNICATION
SERVICES -- 1.2%
1,100 -- -- -- 1,100 AT&T Corporation 21,780 -- -- -- 21,780
1,621 -- -- -- 1,621 BellSouth Corporation 42,632 -- -- -- 42,632
2,038 -- -- -- 2,038 Qwest Communications
International, Inc.* 8,356 -- -- -- 8,356
5,444 -- -- -- 5,444 SBC Communications,
Inc. 130,493 -- -- -- 130,493
3,600 -- -- -- 3,600 Sprint Nextel
Corporation 85,608 -- -- -- 85,608
4,730 -- 11,500 -- 16,230 Verizon
Communications, Inc. 154,624 -- 375,935 -- 530,559
-----------------------------------------------------------
443,493 -- 375,935 -- 819,428
-----------------------------------------------------------
INTERNET RETAIL -- 0.4%
972 2,400 3,000 -- 6,372 eBay, Inc.* 40,046 98,880 123,600 -- 262,526
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE &
SERVICES -- 0.1%
1,084 -- -- -- 1,084 Yahoo!, Inc.* $ 36,683 $ -- $ -- $ -- $ 36,683
-----------------------------------------------------------
INVESTMENT BANKING &
BROKERAGE -- 0.4%
300 -- -- -- 300 Bear Sterns Companies,
Inc. 32,925 -- -- -- 32,925
138 -- -- -- 138 Goldman Sachs Group,
Inc. 16,778 -- -- -- 16,778
600 -- -- -- 600 Lehman Brothers
Holdings, Inc. 69,888 -- -- -- 69,888
725 -- -- -- 725 Merrill Lynch &
Company, Inc. 44,479 -- -- -- 44,479
1,982 -- -- -- 1,982 Morgan Stanley 106,909 -- -- -- 106,909
-----------------------------------------------------------
270,979 -- -- -- 270,979
-----------------------------------------------------------
IT CONSULTING & OTHER
SERVICES -- 0.3%
-- -- 26,700 -- 26,700 Unisys Corporation* -- -- 177,288 -- 177,288
-----------------------------------------------------------
LIFE & HEALTH
INSURANCE -- 0.3%
371 -- -- -- 371 AFLAC, Inc. 16,806 -- -- -- 16,806
432 -- -- -- 432 Jefferson--Pilot
Corporation 22,105 -- -- -- 22,105
26 -- -- -- 26 Lincoln National
Corporation 1,352 -- -- -- 1,352
1,213 -- -- -- 1,213 MetLife, Inc. 60,444 -- -- -- 60,444
867 -- -- -- 867 Prudential Financial,
Inc. 58,575 -- -- -- 58,575
400 -- -- -- 400 Torchmark Corporation 21,132 -- -- -- 21,132
-----------------------------------------------------------
180,414 -- -- -- 180,414
-----------------------------------------------------------
MANAGED HEALTH
CARE -- 1.9%
400 -- -- -- 400 Aetna, Inc. 34,456 -- -- -- 34,456
600 -- -- -- 600 Cigna Corporation 70,716 -- -- -- 70,716
900 -- -- -- 900 Humana, Inc.* 43,092 -- -- -- 43,092
732 5,000 6,200 -- 11,932 UnitedHealth Group,
Inc. 41,138 281,000 348,440 -- 670,578
138 -- 6,000 -- 6,138 WellPoint, Inc.* 10,463 -- 454,920 -- 465,383
-----------------------------------------------------------
199,865 281,000 803,360 -- 1,284,225
-----------------------------------------------------------
METAL & GLASS
CONTAINERS -- 0.0%
900 -- -- -- 900 Ball Corporation 33,066 -- -- -- 33,066
-----------------------------------------------------------
MOTORCYCLE
MANUFACTURERS -- 0.0%
547 -- -- -- 547 Harley--Davidson, Inc. 26,497 -- -- -- 26,497
-----------------------------------------------------------
MOVIES &
ENTERTAINMENT -- 3.8%
5,000 -- -- -- 5,000 News Corporation 77,950 -- -- -- 77,950
3,313 -- 29,000 -- 32,313 Time Warner, Inc. 59,998 -- 525,190 -- 585,188
3,513 12,400 14,000 23,900 53,813 Viacom, Inc. (Cl.B) 115,964 409,324 462,140 788,939 1,776,367
4,733 -- -- -- 4,733 Walt Disney Company 114,207 -- -- -- 114,207
-----------------------------------------------------------
368,119 409,324 987,330 788,939 2,553,712
-----------------------------------------------------------
MULTI--LINE
INSURANCE -- 3.5%
2,519 9,800 11,854 13,500 37,673 American International
Group, Inc. 156,077 607,208 734,474 836,460 2,334,219
200 -- -- -- 200 Hartford Financial
Services Group, Inc. 15,434 -- -- -- 15,434
-----------------------------------------------------------
171,511 607,208 734,474 836,460 2,349,653
-----------------------------------------------------------
MULTI--UTILITIES --
0.1%
500 -- -- -- 500 Dominion Resources,
Inc. 43,070 -- -- -- 43,070
-----------------------------------------------------------
OFFICE SERVICES &
SUPPLIES -- 0.0%
100 -- -- -- 100 Pitney Bowes, Inc. 4,174 -- -- -- 4,174
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING --
0.2%
900 -- -- -- 900 Nabors Industries,
Ltd.* $ 64,647 $ -- $ -- $ -- $ 64,647
800 -- -- -- 800 Noble Corporation 54,768 -- -- -- 54,768
800 -- -- -- 800 Rowan Companies, Inc. 28,392 -- -- -- 28,392
100 -- -- -- 100 Transocean, Inc.* 6,131 -- -- -- 6,131
-----------------------------------------------------------
153,938 -- -- -- 153,938
-----------------------------------------------------------
OIL & GAS EQUIPMENT &
SERVICES -- 3.9%
-- 13,200 8,000 48,000 69,200 BJ Services Company -- 475,068 287,920 1,727,520 2,490,508
683 -- -- -- 683 Schlumberger, Ltd. 57,632 -- -- -- 57,632
200 -- -- -- 200 Weatherford
International, Ltd.* 13,732 -- -- -- 13,732
-----------------------------------------------------------
71,364 475,068 287,920 1,727,520 2,561,872
-----------------------------------------------------------
OIL & GAS EXPLORATION
& PRODUCTION -- 0.6%
600 -- 500 -- 1,100 Anadarko Petroleum
Corporation 57,450 -- 47,875 -- 105,325
962 -- -- -- 962 Burlington Resources,
Inc. 78,230 -- -- -- 78,230
1,200 -- -- -- 1,200 Devon Energy
Corporation 82,368 -- -- -- 82,368
300 -- -- -- 300 Kerr--McGee Corporation 29,133 -- -- -- 29,133
1,700 -- -- -- 1,700 XTO Energy, Inc. 77,044 -- -- -- 77,044
-----------------------------------------------------------
324,225 -- 47,875 -- 372,100
-----------------------------------------------------------
OIL & GAS REFINING &
MARKETING -- 0.0%
1 -- -- -- 1 Valero Energy
Corporation 105 -- -- -- 105
-----------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION --
3.1%
4,000 -- -- -- 4,000 El Paso Corporation 55,600 -- -- -- 55,600
-- -- 9,100 69,500 78,600 Williams Companies,
Inc. -- -- 227,955 1,740,975 1,968,930
-----------------------------------------------------------
55,600 -- 227,955 1,740,975 2,024,530
-----------------------------------------------------------
OTHER DIVERSIFIED
FINANCIAL SERVICES
-- 2.8%
6,327 6,400 -- 18,300 31,027 Citigroup, Inc. 288,005 291,328 -- 833,016 1,412,349
4,333 -- 6,800 -- 11,133 JP Morgan Chase &
Company 147,019 -- 230,724 -- 377,743
1,092 -- -- -- 1,092 Principal Financial
Group, Inc. 51,728 -- -- -- 51,728
-----------------------------------------------------------
486,752 291,328 230,724 833,016 1,841,820
-----------------------------------------------------------
PACKAGED FOODS &
MEATS -- 0.1%
700 -- -- -- 700 ConAgra Foods, Inc. 17,325 -- -- -- 17,325
1,000 -- -- -- 1,000 General Mills, Inc. 48,200 -- -- -- 48,200
100 -- -- -- 100 McCormick & Company,
Inc. 3,263 -- -- -- 3,263
919 -- -- -- 919 Sara Lee Corporation 17,415 -- -- -- 17,415
300 -- -- -- 300 Tyson Foods, Inc. 5,415 -- -- -- 5,415
-----------------------------------------------------------
91,618 -- -- -- 91,618
-----------------------------------------------------------
PERSONAL PRODUCTS --
0.3%
200 -- -- -- 200 Avon Products, Inc. 5,400 -- -- -- 5,400
3,767 -- -- -- 3,767 Gillette Company 219,239 -- -- -- 219,239
-----------------------------------------------------------
224,639 -- -- -- 224,639
-----------------------------------------------------------
PHARMACEUTICALS -- 4.2%
2,803 -- -- -- 2,803 Abbott Laboratories 118,847 -- -- -- 118,847
4,487 -- -- -- 4,487 Bristol--Myers Squibb
Company 107,957 -- -- -- 107,957
1,243 -- -- -- 1,243 Eli Lilly & Company 66,525 -- -- -- 66,525
1,500 -- -- -- 1,500 Hospira, Inc.* 61,455 -- -- -- 61,455
4,647 6,600 7,604 13,500 32,351 Johnson & Johnson 294,062 417,648 481,181 854,280 2,047,171
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
2,776 -- -- -- 2,776 Merck & Company, Inc. $ 75,535 $ -- $ -- $ -- $ 75,535
10,780 -- -- -- 10,780 Pfizer, Inc. 269,177 -- -- -- 269,177
327 -- -- -- 327 Schering--Plough
Corporation 6,883 -- -- -- 6,883
1,060 -- -- -- 1,060 Wyeth 49,046 -- -- -- 49,046
-----------------------------------------------------------
1,049,487 417,648 481,181 854,280 2,802,596
-----------------------------------------------------------
PROPERTY & CASUALTY
INSURANCE -- 0.4%
200 -- -- -- 200 Ace, Ltd. 9,414 -- -- -- 9,414
1,110 -- -- -- 1,110 Allstate Corporation 61,372 -- -- -- 61,372
100 -- -- -- 100 Ambac Financial Group,
Inc. 7,206 -- -- -- 7,206
100 -- -- -- 100 Chubb Corporation 8,955 -- -- -- 8,955
567 -- -- -- 567 Cincinnati Financial
Corporation 23,752 -- -- -- 23,752
400 -- -- -- 400 MBIA, Inc. 24,248 -- -- -- 24,248
100 -- -- -- 100 Progressive
Corporation 10,477 -- -- -- 10,477
400 -- -- -- 400 Safeco Corporation 21,352 -- -- -- 21,352
1,183 -- -- -- 1,183 St. Paul Travelers
Companies, Inc. 53,081 -- -- -- 53,081
400 -- -- -- 400 XL Capital, Ltd. 27,212 -- -- -- 27,212
-----------------------------------------------------------
247,069 -- -- -- 247,069
-----------------------------------------------------------
PUBLISHING - 0.0%
420 -- -- -- 420 Gannett Company, Inc. 28,909 -- -- -- 28,909
-----------------------------------------------------------
RAILROADS -- 0.2%
1,324 -- -- -- 1,324 Burlington Northern
Santa Fe Corporation 79,175 -- -- -- 79,175
100 -- -- -- 100 CSX Corporation 4,648 -- -- -- 4,648
1,100 -- -- -- 1,100 Norfolk Southern
Corporation 44,616 -- -- -- 44,616
-----------------------------------------------------------
128,439 -- -- -- 128,439
-----------------------------------------------------------
REAL ESTATE INVESTMENT
TRUSTS -- 0.1%
2,004 -- -- -- 2,004 Equity Office
Properties Trust 65,551 -- -- -- 65,551
100 -- -- -- 100 Equity Residential 3,785 -- -- -- 3,785
-----------------------------------------------------------
69,336 -- -- -- 69,336
-----------------------------------------------------------
REGIONAL BANKS -- 0.3%
807 -- -- -- 807 First Horizon National
Corporation 29,334 -- -- -- 29,334
2,100 -- -- -- 2,100 KeyCorp 67,725 -- -- -- 67,725
1,562 -- -- -- 1,562 National City
Corporation 52,233 -- -- -- 52,233
700 -- -- -- 700 North Fork
Bancorporation, Inc. 17,850 -- -- -- 17,850
200 -- -- -- 200 Regions Financial
Corporation 6,224 -- -- -- 6,224
7 -- -- -- 7 SunTrust Banks, Inc. 486 -- -- -- 486
600 -- -- -- 600 Zions Bancorporation 42,726 -- -- -- 42,726
-----------------------------------------------------------
216,578 -- -- -- 216,578
-----------------------------------------------------------
RESTAURANTS -- 0.1%
1,900 -- -- -- 1,900 Darden Restaurants,
Inc. 57,703 -- -- -- 57,703
887 -- -- -- 887 McDonald's Corporation 29,706 -- -- -- 29,706
200 -- -- -- 200 Yum! Brands, Inc. 9,682 -- -- -- 9,682
-----------------------------------------------------------
97,091 -- -- -- 97,091
-----------------------------------------------------------
SEMICONDUCTOR
EQUIPMENT -- 0.5%
1,300 -- -- -- 1,300 KLA--Tencor Corporation 63,388 -- -- -- 63,388
-- -- -- 100,000 100,000 Mindspeed
Technologies, Inc.* -- -- -- 241,000 241,000
-----------------------------------------------------------
63,388 -- -- 241,000 304,388
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ---------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS -- 3.0%
700 -- -- -- 700 Advanced Micro
Devices, Inc.* $ 17,640 $ -- $ -- $ -- $ 17,640
-- 6,700 8,600 -- 15,300 Analog Devices, Inc. -- 248,838 319,404 -- 568,242
-- 47,200 -- -- 47,200 Applied Micro Circuits
Corporation* -- 141,600 -- -- 141,600
2,537 -- -- -- 2,537 Freescale
Semiconductor, Inc.
(Cl.B)* 59,822 -- -- -- 59,822
10,023 12,900 19,500 -- 42,423 Intel Corporation 247,067 317,985 480,675 -- 1,045,727
700 -- -- -- 700 LSI Logic Corporation* 6,895 -- -- -- 6,895
1,100 -- -- -- 1,100 National Semiconductor
Corporation 28,930 -- -- -- 28,930
2,725 -- -- -- 2,725 Texas Instruments, Inc. 92,377 -- -- -- 92,377
-----------------------------------------------------------
452,731 708,423 800,079 -- 1,961,233
-----------------------------------------------------------
SOFT DRINKS -- 2.7%
3,415 -- 9,300 -- 12,715 Coca--Cola Company 147,494 -- 401,667 -- 549,161
1,000 -- -- -- 1,000 Pepsi Bottling Group,
Inc. 28,550 -- -- -- 28,550
2,536 3,900 7,000 7,900 21,336 PepsiCo, Inc. 143,817 221,169 396,970 448,009 1,209,965
-----------------------------------------------------------
319,861 221,169 798,637 448,009 1,787,676
-----------------------------------------------------------
SPECIALIZED FINANCE --
0.0%
500 -- -- -- 500 CIT Group, Inc. 22,590 -- -- -- 22,590
-----------------------------------------------------------
SPECIALTY CHEMICALS
-- 0.1%
200 -- -- -- 200 International Flavors
& Fragrances, Inc. 7,128 -- -- -- 7,128
1,400 -- -- -- 1,400 Rohm & Haas Company 57,582 -- -- -- 57,582
517 -- -- -- 517 Sigma--Aldrich
Corporation 33,119 -- -- -- 33,119
-----------------------------------------------------------
97,829 -- -- -- 97,829
-----------------------------------------------------------
STEEL -- 0.1%
800 -- -- -- 800 Nucor Corporation 47,192 -- -- -- 47,192
-----------------------------------------------------------
SYSTEMS SOFTWARE --
2.5%
12,405 20,900 26,500 -- 59,805 Microsoft Corporation 319,181 537,757 681,845 -- 1,538,783
7,406 -- -- -- 7,406 Oracle Corporation* 91,760 -- -- -- 91,760
1,586 -- -- -- 1,586 Symantec Corporation* 35,939 -- -- -- 35,939
-----------------------------------------------------------
446,880 537,757 681,845 -- 1,666,482
-----------------------------------------------------------
THRIFTS & MORTGAGE
FINANCE -- 0.2%
900 -- -- -- 900 Countrywide Financial
Corporation 29,682 -- -- -- 29,682
221 -- -- -- 221 Fannie Mae 9,905 -- -- -- 9,905
55 -- -- -- 55 Freddie Mac 3,105 -- -- -- 3,105
100 -- -- -- 100 Golden West Financial
Corporation 5,939 -- -- -- 5,939
900 -- -- -- 900 MGIC Investment
Corporation 57,780 -- -- -- 57,780
716 -- -- -- 716 Washington Mutual, Inc. 28,082 -- -- -- 28,082
-----------------------------------------------------------
134,493 -- -- -- 134,493
-----------------------------------------------------------
TIRES & RUBBER -- 0.1%
3,200 -- -- -- 3,200 Goodyear Tire & Rubber
Company* 49,888 -- -- -- 49,888
-----------------------------------------------------------
TOBACCO -- 0.3%
2,481 -- -- -- 2,481 Altria Group, Inc. 182,874 -- -- -- 182,874
600 -- -- -- 600 UST, Inc. 25,116 -- -- -- 25,116
-----------------------------------------------------------
207,990 -- -- -- 207,990
-----------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS -- 0.1%
-- 1,500 -- -- 1,500 W.W. Grainger, Inc. -- 94,380 -- -- 94,380
-----------------------------------------------------------
PRINCIPAL AMOUNT OR NUMBER OF SHARES MARKET VALUE
- -------------------------------------- ----------------------------------------------- PRO FORMA
ENHANCED LARGE CAP SOCIAL PRO ENHANCED LARGE CAP SOCIAL MARKET
INDEX GROWTH AWARENESS SELECT 25 FORMA INDEX GROWTH AWARENESS SELECT 25 VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
TRUCKING -- 1.9%
-- 24,100 18,000 22,500 64,600 J.B. Hunt Transport
Services, Inc. $ -- $ 458,141 $ 342,180 $ 427,725 $ 1,228,046
------------------------------------------------------------
TOTAL COMMON STOCK
(cost $58,517,061) 14,354,813 13,438,560 16,434,756 20,902,312 65,130,441
------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
SECURITIES -- 0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
50,000 -- -- -- 50,000 U.S. Treasury Bill,
3.29%, 12--01--051 49,734 -- -- -- 49,734
------------------------------------------------------------
TOTAL U.S. GOVERNMENT
SECURITIES
(cost $49,728) 49,734 -- -- -- 49,734
------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT
-- 1.4%
- -----------------------------------------------------------------------------------------------------------------------------------
United Missouri Bank,
dated 09--30--05,
matures 10--03--05,
repurchase amounts
of $457,130 and
$459,131
respectively
(collateralized by
GNMA, 5.00%,
11--16--31 with a
value of $466,568
and FHLMC, 4.00%,
12--01--09 with a
value of $468,180
$457,000 -- $459,000 -- $916,000 respectively) 457,000 -- 459,000 -- 916,000
------------------------------------------------------------
TOTAL REPURCHASE
AGREEMENT
(cost $916,000) 457,000 -- 459,000 -- 916,000
------------------------------------------------------------
TOTAL INVESTMENTS --
100.4%
(cost $59,982,528) 14,861,547 13,938,293 16,893,756 20,902,312 66,595,908
CASH & OTHER ASSETS,
LESS LIABILITIES --
(0.4%) (122,043) 122,829 (268,160) 38,618 (228,756)
-------------------------------------------------------------
TOTAL NET ASSETS --
100.0% $14,739,504 $14,061,122 $16,625,596 $20,940,930 $66,367,152
=============================================================
For federal income tax purposes, the identified cost of investments owned at
September 30, 2005 was $60,498,620.
* Non-income producing security
1 Security is segregated as collateral for open futures contracts.
2 Security is restricted. The total market value of restricted securities is
$32 (cost $190), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to September 28, 2000.
SELECT 25 FUND
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(UNAUDITED)
1. DESCRIPTION OF FUND
Select 25 Fund, ("Acquiring Fund") a series of Security Equity Fund, is
registered under the Investment Company Act of 1940, as amended, as an open-end,
diversified investment company.
Select 25 Fund consists of three classes of shares: Class A, Class B, and Class
C. All shareholders bear the common expenses of the Acquiring Fund based on the
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. Differences in per share
dividend rates are generally due to differences in separate class expenses.
2. BASIS OF COMBINATION
The accompanying unaudited pro forma financial statements are presented to show
the effect of the proposed acquisition of the Enhanced Index Fund, Large Cap
Growth Fund and Social Awareness Fund, all of which are a series of Security
Equity Fund (and together with Select 25 Fund, the "Funds"), by Select 25 Fund
as if such acquisitions had taken place as of October 1, 2004.
Under the terms of the Plan of Reorganization, the combination of the Enhanced
Index Fund, Large Cap Growth Fund and Social Awareness Fund with the Select 25
Fund will be accounted for by the method of accounting for tax-free mergers of
investment companies. The acquisition would be accomplished by an acquisition of
the net assets of the Enhanced Index Fund, Large Cap Growth Fund and Social
Awareness Fund in exchange for shares of the Select 25 Fund at net asset value.
The statement of assets and liabilities and the related statement of operation
of the Enhanced Index Fund, Large Cap Growth Fund, Social Awareness Fund and
Select 25 Fund have been combined as of and for the twelve months ended
September 30, 2005. Following the acquisition, the Select 25 Fund will be the
accounting survivor. In accordance with U.S. generally accepted accounting
principles, the historical cost of investment securities will be carried forward
to the surviving fund and the results of operations for pre-combination periods
of the surviving fund will not be restated.
The accompanying pro-forma financial statements should be read in conjunction
with the financial statements of the Enhanced Index Fund, Large Cap Growth Fund,
Social Awareness Fund and Select 25 Fund included in their respective annual
reports dated September 30, 2005.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Enhanced Index Series, Large Cap
Growth Series and Social Awareness Series by the Select 25 Series had taken
place as of October 1, 2004.
3. PORTFOLIO VALUATION
Valuations of the Funds' securities are supplied by pricing services approved by
the Board of Directors. The Funds' 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 the Funds 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. In the event that no sale
occurred on the valuation date, the bid price for the security will be used.
Where the security is listed on more than one exchange, the Funds will use the
price of that exchange that it generally considers to be the principal exchange
on which the stock is traded. 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 Funds'
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 a 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 series' 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 within 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. If a
"significant event" has occurred 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.
Investments in foreign securities may involve risks not present in domestic
investments. Since foreign securities may be denominated in a foreign currency
and involve settlement and pay interest or dividends in foreign currencies,
changes in the relationship of these foreign currencies to the U.S. dollar can
significantly affect the value of the investments and earnings of the Series.
Foreign investments may also subject the Fund 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.
4. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of the
Select 25 Fund that would have been issued at September 30, 2005, in connection
with the proposed reorganization. The number of shares assumed to be issued is
equal to the net asset value of shares of the Enhanced Index Fund, Large Cap
Growth Fund and Social Awareness Fund, as of September 30, 2005, divided by the
net asset value per share of the shares of the Select 25 Fund as of September
30, 2005. The pro forma number of shares outstanding, by class, for the combined
fund consists of the following at September 30, 2005:
TOTAL
SHARES OF SELECT 25 ADDITIONAL SHARES ASSUMED OUTSTANDING SHARES
PRE-COMBINATION ISSUED IN REORGANIZATION POST-COMBINATION
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Select 25 Class A 952,480 2,695,946 3,648,426
Select 25 Class B 785,052 1,307,375 2,092,427
Select 25 Class C 562,231 954,182 1,516,413
5. FEDERAL INCOME TAXES
Each fund has elected to be taxed as a "regulated investment company" under the
Internal Revenue Code. After the acquisition, Select 25 Fund intends to continue
to qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of taxable income sufficient to
relieve it from all, or substantially all, Federal income taxes.
The identified cost of investments for the funds is substantially the same for
both financial accounting and federal income tax purposes. The tax cost of
investments will remain unchanged for the combined fund.
PART C
OTHER INFORMATION
ITEM 15 INDEMNIFICATION
A policy of insurance covering Security Management Company, LLC, its affiliate
Security Distributors, Inc., and all of the registered investment companies
advised by Security Management Company, LLC insures the Registrant's directors
and officers against liability arising by reason of an alleged breach of duty
caused by any negligent act, error or accidental omission in the scope of their
duties.
Article Ten of Registrant's Articles of Incorporation provides in relevant part
as follows:
"(5) Each director and officer (and his heirs, executors and administrators)
shall be indemnified by the Corporation against reasonable costs and expenses
incurred by him in connection with any action, suit or proceeding to which he is
made a party by reason of his being or having been a Director or officer of the
Corporation, except in relation to any action, suit or proceeding in which he
has been adjudged liable because of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. In the absence of an adjudication which expressly absolves the Director
or officer of liability to the Corporation or its stockholders for willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, or in the event of a settlement, each
Director and officer (and his heirs, executors and administrators) shall be
indemnified by the Corporation against payment made, including reasonable costs
and expenses, provided that such indemnity shall be conditioned upon a written
opinion of independent counsel that the Director or officer has no liability by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office. The indemnity provided
herein shall, in the event of settlement of any such action, suit or proceeding,
not exceed the costs and expenses (including attorneys' fees) which would
reasonably have been incurred if such action, suit or proceeding had been
litigated to a final conclusion. Such a determination by independent counsel and
the payment of amounts by the Corporation on the basis thereof shall not prevent
a stockholder from challenging such indemnification by appropriate legal
proceeding on the grounds that the officer or Director was liable because of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. The foregoing rights and
indemnification shall not be exclusive of any other rights to which the officers
and Directors may be entitled according to law."
Article Sixteen of Registrant's Articles of Incorporation, as amended December
10, 1987, provides as follows:
"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this sentence shall not eliminate nor limit the liability of a
director:
A. for any breach of his or her duty of loyalty to the corporation or to its
stockholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. for an unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and amendments
thereto; or
D. for any transaction from which the director derived an improper personal
benefit."
Item Thirty of Registrant's Bylaws, dated February 3, 1995, provides, in
relevant part, as follows:
"Each person who is or was a Director or officer of the Corporation or is or was
serving at the request of the Corporation as a Director or officer of another
corporation (including the heirs, executors, administrators and estate of such
person) shall be indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as now in effect and
is hereafter amended, against any liability, judgment, fine, amount paid in
settlement, cost and expense (including attorneys' fees) asserted or threatened
against and incurred by such person in his/her capacity as or arising out of
his/her status as a Director or officer of the Corporation or, if serving at the
request of the Corporation, as a Director or officer of another corporation. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under the Articles of
Incorporation, under any other bylaw or under any agreement, vote of
stockholders or disinterested directors or otherwise, and shall not limit in any
way any right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
No person shall be liable to the Corporation for any loss, damage, liability or
expense suffered by it on account of any action taken or omitted to be taken by
him/her as a Director or officer of the Corporation or of any other corporation
which (s)he serves as a Director or officer at the request of the Corporation,
if such person (a) exercised the same degree of care and skill as a prudent
person would
have exercised under the circumstances in the conduct of his/her own affairs, or
(b) took or omitted to take such action in reliance upon advice of counsel for
the Corporation, or for such other corporation, or upon statement made or
information furnished by Directors, officers, employees or agents of the
Corporation, or of such other corporation, which (s)he had no reasonable grounds
to disbelieve.
In the event any provision of this section 30 shall be in violation of the
Investment Company Act of 1940, as amended, or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 16 EXHIBITS
(1) Articles of Incorporation(a)
(2) Bylaws(b)
(3) Not Applicable
(4) Form of Plan of Reorganization(c)
(5) Certificate of Designation of Series and Classes of Common Stock(j)
(6) Investment Advisory Contract(e)
(7) (a) Distribution Agreement(f)
(b) Class B Distribution Agreement(a)
(c) Class C Distribution Agreement(a)
(d) Underwriter - Dealer Agreement(g)
(8) Not Applicable
(9) (a) Custodian Agreement - UMB Bank, N.A.(h)
(b) Custodian Agreement - State Street Bank(i)
(10) (a) Class A Distribution Plan(i)
(b) Class B Distribution Plan(k)
(c) Class C Distribution Plan(k)
(d) Form of Shareholder Service Agreement(d)
(e) Multiple Class Plan(a)
(11) Opinion of Counsel (FILED HEREWITH)
(12) Opinion and Consent of Counsel Supporting Tax Matters and Consequences (TO
BE FILED BY SUBSEQUENT AMENDMENT)
(13) Not Applicable
(14) Consent of Independent Registered Public Accounting Firm (FILED HEREWITH)
(15) Not Applicable
(16) Powers of Attorney (FILED HEREWITH)
(17) Not Applicable
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 93 to Registration Statement No.
2-19458 on Form N-1A on November 15, 2002.
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 86 to Registration Statement No.
2-19458 on Form N-1A on November 29, 1999.
(c) See APPENDIX A to the Proxy Statement/Prospectus.
(d) Incorporated herein by reference to the Exhibits filed with Security
Income Fund's Post-Effective Amendment No. 71 to Registration Statement
No. 2-38414 on Form N-1A on January 11, 2002.
(e) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 102 to Registration Statement No. 2-19458
(filed January 31, 2006).
(f) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 94 to Registration Statement
2-19458 (filed January 14, 2003).
(g) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 90 to Registration Statement No. 2-19458
(filed November 20, 2000).
(h) Incorporated herein by reference to the Exhibits filed with Security
Income Fund's Post-Effective Amendment No. 73 to Registration Statement
No. 2-38414 (filed January 10, 2003).
(i) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 94 to Registration Statement No. 2-19458
(filed January 14, 2003).
(j) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 89 to Registration Statement No. 2-19458
(filed May 1, 2000).
(k) Incorporated herein by reference to the Exhibits filed with Registrant's
Post-Effective Amendment No. 93 to Registration Statement No. 2-19458
(filed November 15, 2002).
ITEM 17. UNDERTAKINGS
1. The undersigned registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act 17
CFR 230.145(c), the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
2. The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
3. The undersigned registrant undertakes to file a post-effective amendment
to this registration statement upon the closing of the Reorganizations
described in this registration statement that contains an opinion of
counsel supporting the tax matters discussed in this registration
statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Topeka and State of Kansas on the 17th day of February, 2006.
SECURITY EQUITY FUND
By: /s/ MICHAEL G. ODLUM
-----------------------------------
Michael G. Odlum
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the 17th day of February, 2006.
SECURITY EQUITY FUND
John D. Cleland By: /s/ MICHAEL G. ODLUM
Chairman of the Board and Director -----------------------------------
Michael G. Odlum, as President and
Donald A. Chubb, Jr. Director, and as Attorney-In-Fact
Director for the Officers and Directors
whosenames appear opposite
Penny A. Lumpkin
Director
/s/ BRENDA M. HARWOOD
Harry W. Craig, Jr. -----------------------------------
Director Brenda M. Harwood, Treasurer
(Principal Financial Officer)
Maynard Oliverius
Director
Jerry B. Farley
Director
EXHIBIT INDEX
(11) Opinion of Counsel
(14) Consent of Independent Registered Public Accounting Firm
(16) Powers of Attorney