UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01136
Security Equity Fund
(Exact name of registrant as specified in charter)
ONE SECURITY BENEFIT PLACE, TOPEKA, KANSAS 66636-0001
(Address of principal executive offices) (Zip code)
MICHAEL G. ODLUM, PRESIDENT
Security Equity Fund
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(Name and address of agent for service)
Registrant's telephone number, including area code: (785) 438-3000
Date of fiscal year end: September 30
Date of reporting period: September 30, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss.3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC]
SECURITY
FUNDS(SM)
ANNUAL REPORT
SEPTEMBER 30, 2004
|_| SECURITY EQUITY FUND
O ALPHA OPPORTUNITY SERIES
O ENHANCED INDEX SERIES
O EQUITY SERIES
O GLOBAL SERIES
O LARGE CAP GROWTH SERIES
O MID CAP VALUE SERIES
O SELECT 25(R) SERIES
O SMALLCAP GROWTH SERIES
O SOCIAL AWARENESS SERIES
|_| SECURITY LARGE CAP VALUE FUND
|_| SECURITY MID CAP GROWTH FUND
[LOGO] Security Distributors, Inc.
A Member of The Security Benefit
Group of Companies
SECURITY EQUITY FUND
SECURITY LARGE CAP VALUE FUND
SECURITY MID CAP GROWTH FUND
SEPTEMBER 30, 2004
ANNUAL REPORT
TABLE OF CONTENTS
Security Equity Fund
Alpha Opportunity Series ............................................... 2
Enhanced Index Series .................................................. 12
Equity Series .......................................................... 25
Global Series .......................................................... 34
Large Cap Growth Series ................................................ 44
Mid Cap Value Series ................................................... 53
Select 25(R) Series .................................................... 63
Small Cap Growth Series ................................................ 71
Social Awareness Series ................................................ 80
Security Large Cap Value Fund ............................................ 89
Security Mid Cap Growth Fund ............................................. 99
Notes to Financial Statements ............................................ 109
Report of Independent Registered Public Accounting Firm .................. 117
Director and Officers .................................................... 118
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1
Security Equity Fund
Alpha Opportunity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO]
Advised by: [LOGO] Security and Mainstream Subadvisor, Mainstream
Funds Investment Advisors Investment Advisers
[PHOTO OMITTED]
Bill Jenkins
Co-Portfolio Manager
[PHOTO OMITTED]
Mark Lamb
Co-Portfolio Manager
To Our Shareholders:
A solid third quarter 2004 with a strong finish in September resulted in the
Security Alpha Opportunity Fund returning 21.68%(1) versus a 13.87% return for
the S&P 500 Total Return Index for the 12-month period ended September 30, 2004.
During the period, the active investing strategy of the Fund exceeded the index,
and the passive investing strategy performed as expected. The passive strategy
replicates the index by investing in high-quality, short-term fixed income
instruments and by being long the index futures. While the passive strategy
provides the necessary liquidity, the active strategy focuses on adding value
long term.
Stock market boom/busts, like the one that occurred in the late 1990s and early
2000s, are rare and usually usher in change. The subsequent period is usually
the opposite of what preceded it and lasts for five or so years. Prior to that,
the boom/bust of the mid 1970s was followed by higher commodity prices, rising
inflation and interest rates plus a weak U.S. dollar. Stocks struggled higher,
but no one seemed to notice. The precious metals, energy and agriculture sectors
moved up dramatically, but the widely held nifty fifty -type stocks marked time.
Many stock investors became frustrated and disillusioned. In the period
following a boom/bust, the key to success is recognizing the change and picking
the stocks that are best suited to the new environment. We believe we are in
that kind of environment. Performance will be difficult to come by, mostly
because investors collectively will assume that it is business as usual and be
long and/or short the wrong stocks. With China and India coming of age, these
tendencies are likely to be exacerbated. Hopefully, our experience will serve
the Fund well in these changing times.
In constructing the Fund's portfolio, we continue to prefer basic materials,
including energy and selected transportation equities. Basic material sectors
that contributed handsomely to our recent positive results include chemicals,
forest products, metals, coal, oil services and rails. The investment
orientation strongly remains "long" equity positions, with cash and short sales
representing less than 10% of our holdings.
Investors continue to be preoccupied with risk-averse strategies. The recent
memory of the severe bear market, fear of terrorism, the Iraq war, high energy
prices, slowing corporate profit growth, anemic job creation, political
uncertainties, a China problem and many other worries seem to prey on investors'
judgments. Combine this mindset with the in-vogue proliferation of hedge funds
that profess no, or preferably negative, correlation with the stock market, and
you currently have both high cash levels and significant short stock positioning
in the market.
We continue to believe this half empty group is too large for its own good. More
likely, events in the fourth quarter of 2004 will bring some of this money back
into the equity market - possibly beginning with some simple short covering. A
follow-on effect could occur as this large crowd falls over itself trying to buy
stocks in an effort to realign portfolios. In such an environment, cyclical,
small- cap and higher beta stocks should be emphasized. Over the longer term,
the outperformance of natural resource issues, including energy, should continue
for a number of years. Clearly, if events unfold in a different manner, we will
adjust our thinking and portfolio accordingly.
We remain actively focused on producing solid results in the coming year.
Sincerely,
Bill Jenkins
Co-Portfolio Manager
Mark Lamb
Co-Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares. Fee waivers and/or
reimbursements reduced Fund expenses and in the absence of such waivers,
the performance quoted would be reduced.
- --------------------------------------------------------------------------------
2
Security Equity Fund
Alpha Opportunity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Alpha Opportunity Series vs. S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Alpha Opportunity Series $11,709
DATE VALUE
---- -----
7/7/2003 9,425.00
7/31/03 9,509.90
8/31/03 9,868.05
9/30/03 9,632.42
10/31/2003 10,329.88
11/30/2003 10,546.65
12/31/2003 11,152.88
1/31/2004 11,252.19
2/28/2004 11,470.68
3/31/2004 11,381.30
4/30/2004 10,974.12
5/31/2004 11,093.29
6/30/2004 11,609.72
7/31/2004 11,272.06
8/31/2004 11,222.40
9/30/2004 11,709.03
S&P 500 Index $11,689
DATE VALUE
---- -----
7/7/2003 $10,000.00
7/31/2003 10,176.34
8/31/2003 10,374.77
9/30/2003 10,264.66
10/31/2003 10,845.64
11/30/2003 10,941.08
12/31/2003 11,515.49
1/31/2004 11,727.37
2/29/2004 11,890.38
3/31/2004 11,710.84
4/30/2004 11,526.98
5/31/2004 11,684.90
6/30/2004 11,912.75
7/31/2004 11,518.44
8/31/2004 11,564.52
9/30/2004 11,689.41
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Alpha Opportunity
Series on July 7, 2003 (date of inception), reflects deduction of the 5.75%
sales load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares.
- --------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 2.52%
- --------------------------------------------------------
Consumer Staples 2.12
- --------------------------------------------------------
Energy 1.10
- --------------------------------------------------------
Financials 1.24
- --------------------------------------------------------
Health Care 0.48
- --------------------------------------------------------
Industrials 9.72
- --------------------------------------------------------
Information Technology 2.52
- --------------------------------------------------------
Materials 35.70
- --------------------------------------------------------
Telecommunication Services 0.15
- --------------------------------------------------------
Unit Investment Trust 0.66
- --------------------------------------------------------
Warrants 0.17
- --------------------------------------------------------
U.S. Agency Bonds & Notes 35.47
- --------------------------------------------------------
Asset Backed Securities 3.33
- --------------------------------------------------------
Cash & other assets, less liabilities 4.82
- --------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 1 Year Since Inception
- --------------------------------------------------------------------------------
A Shares 21.68% 19.29% (7-07-03)
- --------------------------------------------------------------------------------
A Shares with sales charge 14.71% 13.71% (7-07-03)
- --------------------------------------------------------------------------------
B Shares 20.68% 18.41% (7-07-03)
- --------------------------------------------------------------------------------
B Shares with CDSC 16.68% 14.50% (7-07-03)
- --------------------------------------------------------------------------------
C Shares 20.68% 18.41% (7-07-03)
- --------------------------------------------------------------------------------
C Shares with CDSC 20.68% 17.63% (7-07-03)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
3
Security Equity Fund
Alpha Opportunity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- -------------------------------------------------------------------------
Alpha Opportunity
Series - Class A
Actual $1,000.00 $1,029.70 $14.23
Hypothetical 1,000.00 1,011.11 14.10
- -------------------------------------------------------------------------
Alpha Opportunity
Series - Class B
Actual 1,000.00 1,025.40 18.02
Hypothetical 1,000.00 1,007.34 17.86
- -------------------------------------------------------------------------
Alpha Opportunity
Series - Class C
Actual 1,000.00 1,025.40 18.02
Hypothetical 1,000.00 1,007.34 17.86
- -------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was 2.97%, 2.54% and 2.54%,
for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (2.79%, 3.54%
and 3.54% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
4
Security Equity Fund
Alpha Opportunity Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks - 56.5%
Agricultural Products - 1.5%
Archer-Daniels-Midland Company 5,600 $ 95,088
Bunge, Ltd. 2,100 83,958
------------
179,046
------------
Air Freight & Logistics - 0.2%
CNF, Inc. 700 28,693
------------
28,693
------------
Airlines - 0.3%
Alaska Air Group, Inc.* 1,500 37,170
------------
37,170
------------
Aluminum - 2.4%
Century Aluminum Company* 9,300 257,889
Commonwealth Industries, Inc.* 3,700 34,558
------------
292,447
------------
Application Software - 0.2%
Intuit, Inc.* 600 27,240
------------
27,240
------------
Auto Parts & Equipment - 0.5%
Wabtec Corporation 3,400 63,546
------------
63,546
------------
Biotechnology - 0.1%
MedImmune, Inc.* 400 9,480
------------
9,480
------------
Commodity Chemicals - 0.3%
Lyondell Chemical Company 1,000 22,460
Wellman, Inc. 1,200 10,176
------------
32,636
------------
Communications Equipment - 0.7%
Motorola, Inc. 5,000 90,200
------------
90,200
------------
Computer Hardware - 0.6%
Intergraph Corporation* 2,600 70,642
------------
70,642
------------
Construction & Engineering - 3.3%
Chicago Bridge & Iron Company N.V. 3,400 101,966
Fluor Corporation 6,600 293,832
------------
395,798
------------
Construction & Farm Machinery - 0.9%
CNH Global N.V. 1,300 25,454
Volvo AB ADR 2,400 84,552
------------
110,006
------------
Construction Materials - 1.3%
Vulcan Materials Company 3,000 152,850
------------
152,850
------------
Diversified Chemicals - 2.3%
Dow Chemical Company 2,700 121,986
Eastman Chemical Company 3,300 156,915
------------
278,901
------------
Diversified Metals & Mining - 13.0%
Anglo American plc ADR 8,700 210,975
BHP Billiton Ltd. ADR 5,700 118,275
Brush Engineered Materials, Inc.* 4,800 99,408
Freeport-McMoRan Copper & Gold, Inc.
(Cl.B) 7,000 283,500
Massey Energy Company 8,800 254,584
Noranda, Inc. 4,200 73,290
Phelps Dodge Corporation* 1,600 147,248
Rio Tinto plc ADR 1,400 152,110
Stillwater Mining Company* 9,000 139,500
Titanium Metals Corporation 3,100 72,726
WMC Resources, Ltd. 400 6,272
------------
1,557,888
------------
Exchange Traded Funds - 0.9%
iShares MSCI Malaysia Index Fund 1,300 8,749
Materials Select Sector Trust 3,600 99,180
------------
107,929
------------
Fertilizers & Agricultural Chemicals - 0.3%
Monsanto Company 1,100 40,062
------------
40,062
------------
Forest Products - 2.0%
Weyerhaeuser Company 3,600 239,328
------------
239,328
------------
Gold - 0.6%
Newmont Mining Corporation 1,600 72,848
------------
72,848
------------
Health Care Equipment - 0.4%
Baxter International, Inc. 1,500 48,240
------------
48,240
------------
Home Furnishings - 0.6%
Kimball International, Inc. (Cl.B) 5,162 71,648
------------
71,648
------------
Hotels, Resorts & Cruise Lines - 1.4%
La Quinta Corporation* 1,300 10,140
Starwood Hotels & Resorts Worldwide, Inc. 3,400 157,828
------------
167,968
------------
Industrial Gases - 0.6%
Air Products & Chemicals, Inc. 1,300 70,694
------------
70,694
------------
- --------------------------------------------------------------------------------
See accompanying notes.
5
Security Equity Fund
Alpha Opportunity Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Industrial Machinery - 1.4%
Ampco-Pittsburgh Corporation 800 $ 10,608
Manitowoc Company, Inc. 2,500 88,650
Reliance Steel & Aluminum Company 1,200 47,640
Timken Company 1,100 27,082
------------
173,980
------------
Marine - 0.9%
Alexander & Baldwin, Inc. 1,556 52,811
Kirby Corporation* 1,300 52,195
------------
105,006
------------
Oil & Gas Equipment & Services - 1.1%
Input/Output, Inc.* 6,700 69,077
Technip S.A. ADR 200 8,142
Universal Compression Holdings, Inc.* 1,600 54,512
------------
131,731
------------
Other Diversified Financial Services - 1.0%
Brascan Corporation 3,800 114,760
------------
114,760
------------
Packaged Foods & Meats - 0.6%
Tyson Foods, Inc. 4,700 75,294
------------
75,294
------------
Paper Packaging - 2.3%
Longview Fibre Company 600 9,150
Temple-Inland, Inc. 3,900 261,885
------------
271,035
------------
Paper Products - 1.4%
Buckeye Technologies, Inc.* 3,700 41,255
MeadWestvaco Corporation 4,000 127,600
------------
168,855
------------
Precious Metals & Mining - 0.1%
Compass Minerals International, Inc. 500 11,100
------------
11,100
------------
Railroads - 1.5%
Genesee & Wyoming, Inc.* 3,000 75,960
Kansas City Southern* 4,000 60,680
Norfolk Southern Corporation 1,300 38,662
------------
175,302
------------
Semiconductors - 0.4%
Micron Technology, Inc.* 4,300 51,729
------------
51,729
------------
Specialized Finance - 0.3%
GATX Corporation 1,500 39,990
------------
39,990
------------
Principal
Amount or
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Specialty Chemicals - 5.1%
A. Schulman, Inc. 3,300 $ 72,732
Arch Chemicals, Inc. 800 22,840
Cytec Industries, Inc. 2,200 107,690
Great Lakes Chemical Corporation 3,000 76,800
Imperial Chemical Industries plc ADR 1,600 24,640
Lubrizol Corporation 2,000 69,200
OM Group, Inc.* 2,100 76,776
PolyOne Corporation* 8,300 62,416
Rohm & Haas Company 800 34,376
Sigma-Aldrich Corporation 1,100 63,800
------------
611,270
------------
Steel - 4.1%
Companhia Siderurgica Nacional S.A. ADR 2,000 31,060
Gerdau S.A. ADR 1,800 29,430
International Steel Group, Inc.* 2,200 74,140
Posco ADR 2,700 102,195
United States Steel Corporation 6,800 255,816
------------
492,641
------------
Technology Distributors - 0.5%
Ingram Micro, Inc.* 3,900 62,790
------------
62,790
------------
Trucking - 1.2%
Arkansas Best Corporation 1,800 65,916
Overnite Corporation 1,900 59,717
Swift Transportation Company, Inc.* 1,000 16,820
------------
142,453
------------
Wireless Telecommunication Services - 0.2%
American Tower Corporation* 1,200 18,420
------------
18,420
------------
Total common stocks
(cost $6,618,000) 6,791,616
------------
Warrants - 0.2%
Inco, Ltd. 1,200 20,124
------------
Total warrants
(cost $15,306) 20,124
------------
U.S. Government Sponsored Agencies - 35.5%
Federal Farm Credit Bank,
1.60%, 11-02-04 $ 260,000 259,582
Federal Home Loan Mortgage Corporation:
1.49%, 10-12-04(2) $ 285,000 284,848
1.71%, 11-23-04 $ 425,000 423,867
1.92%, 12-28-04 $ 520,000 517,687
- --------------------------------------------------------------------------------
See accompanying notes.
6
Security Equity Fund
Alpha Opportunity Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- -------------------------------------------------------------------------------
U.S. Government Sponsored Agencies (continued)
Federal National Mortgage Association:
1.47%, 10-06-04 $ 150,000 $ 149,964
1.531%, 10-18-04 $ 250,000 249,794
1.636%, 11-12-04 $ 539,000 537,862
1.61%, 11-17-04 $ 500,000 498,818
1.756%, 12-01-04 $ 520,000 518,396
1.827%, 12-08-04 $ 122,000 121,581
1.828%, 12-15-04 $ 355,000 353,654
1.879%, 12-22-04 $ 350,000 348,549
------------
Total U.S. Government sponsored agencies
(cost $4,265,074) 4,264,602
------------
Asset Backed Securities - 3.3%
Auto - 3.3%
Ford Credit Auto Owner Trust,
2002-D A4B, 1.88% - 2006(1) $ 400,000 400,348
------------
Total asset backed securities
(cost $400,481) 400,348
------------
Repurchase Agreement - 2.7%
State Street, 0.50%, dated 9-30-04,
matures 10-01-04; repurchase
amount of $323,744
(Collateralized by FNMA, 6.00%,
5-15-08 with a value of $333,000) $ 323,742 323,742
------------
Total repurchase agreement
(cost $323,742) 323,742
------------
Total investments - 98.2%
(cost $11,622,603) 11,800,432
------------
Short Positions - (0.3%)
Real Estate Investment Trusts - (0.1%)
MFA Mortgage Investments, Inc. (600) (5,526)
------------
(5,526)
------------
Exchange Traded Funds - (0.2%)
Financial Select Sector SPDR Fund (1,000) (28,460)
------------
(28,460)
------------
Total short positions
(proceeds $33,877) (33,986)
------------
Cash & other assets, less liabilities - 2.1% 256,892
------------
Total net assets - 100.0% $ 12,023,338
============
For federal income tax purposes, the identified cost of investments owned at
September 30, 2004 was $11,672,221.
* Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
(1) Variable rate security. Rate indicated is rate effective at September 30,
2004.
(2) Security is segregated as collateral for open futures contracts.
- --------------------------------------------------------------------------------
See accompanying notes.
7
Security Equity Fund
Alpha Opportunity Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ................................. $ 11,800,432
Cash ..................................................... 38,375
Restricted cash .......................................... 41,952
Receivables:
Fund shares sold ...................................... 24,760
Securities sold ....................................... 2,069,631
Deposit for short sales ............................... 11,791
Interest .............................................. 334
Dividends ............................................. 3,880
Security Management Company ........................... 11,695
Prepaid expenses ......................................... 12,058
------------
Total assets ............................................. 14,014,908
------------
Liabilities:
Securities sold short, at value(2) ....................... 33,986
Payable for:
Securities purchased .................................. 1,897,221
Fund shares redeemed .................................. 18
Variation margin ...................................... 1,425
Management fees ....................................... 19,258
Custodian fees ........................................ 1,156
Transfer and administration fees ...................... 4,244
Professional fees ..................................... 8,540
12b-1 distribution plan fees .......................... 24,656
Other ................................................. 1,066
------------
Total liabilities ........................................ 1,991,570
------------
Net Assets ............................................... $ 12,023,338
============
Net assets consist of:
Paid in capital .......................................... $ 10,740,828
Accumulated undistributed net investment
loss .................................................. (268)
Accumulated undistributed net realized
gain on sale of investments, short positions,
and futures ........................................... 1,159,631
Net unrealized appreciation in value of
investments, futures and short positions .............. 123,147
------------
Net assets ............................................... $ 12,023,338
============
Class A:
Capital shares outstanding ............................... 555,905
Net assets ............................................... $ 6,555,624
Net asset value and redemption
price per share ....................................... $ 11.79
============
Maximum offering price per share
(net asset value divided by 94.25%) ................... $ 12.51
============
Class B:
Capital shares outstanding ............................... 198,943
Net assets ............................................... $ 2,324,343
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ..................... $ 11.68
============
Class C:
Capital shares outstanding ............................... 269,022
Net assets ............................................... $ 3,143,371
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ..................... $ 11.68
============
(1) Investments, at cost ................................. $ 11,622,603
(2) Securities sold short, at proceeds ................... 33,877
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ............................................. $ 72,924
Interest .............................................. 47,742
------------
Total investment income ............................... 120,666
------------
Expenses:
Management fees ....................................... 189,739
Custodian fees ........................................ 3,494
Transfer agent/maintenance fees ....................... 15,996
Administration fees ................................... 23,173
Directors' fees ....................................... 294
Professional fees ..................................... 21,933
Reports to shareholders ............................... 1,000
Registration fees ..................................... 53,267
Other expenses ........................................ 1,101
12b-1 distribution plan fees - Class A ................ 11,800
12b-1 distribution plan fees - Class B ................ 20,613
12b-1 distribution plan fees - Class C ................ 25,735
------------
Total expenses ........................................ 368,145
Less:
Reimbursement of expenses - Class A ............... (37,019)
Reimbursement of expenses - Class B ............... (15,689)
Reimbursement of expenses - Class C ............... (19,851)
Earnings credits .................................. (826)
------------
Net expenses .......................................... 294,760
------------
Net investment loss ................................... (174,094)
------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) during the period on
Investments ........................................... 1,148,557
Securities sold short ................................. (36,638)
Futures ............................................... 361,704
------------
Net realized gain ..................................... 1,473,623
------------
Net change in unrealized appreciation
(depreciation) during the period on
Investments ........................................... 255,072
Securities sold short ................................. (1,632)
Futures ............................................... 35,505
------------
Net unrealized appreciation ........................... 288,945
------------
Net gain .............................................. 1,762,568
------------
Net increase in net assets
resulting from operations ........................... $ 1,588,474
============
- --------------------------------------------------------------------------------
See accompanying notes.
8
Security Equity Fund
Alpha Opportunity Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003*
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ............................................................ $ (174,094) $ (24,944)
Net realized gain during the period on investments and futures ................. 1,473,623 307,216
Net change in unrealized appreciation (depreciation) during the period on
investments, futures and securities sold short ............................... 288,945 (165,798)
------------ -----------
Net increase in net assets resulting from operations ........................... 1,588,474 116,474
------------ -----------
Distributions to shareholders from:
Net realized gain
Class A ...................................................................... (199,700) --
Class B ...................................................................... (101,286) --
Class C ...................................................................... (121,452) --
------------ -----------
Total distributions to shareholders .......................................... (422,438) --
------------ -----------
Capital share transactions:
Proceeds from sale of shares
Class A ...................................................................... 3,466,497 3,210,618
Class B ...................................................................... 224,035 1,699,668
Class C ...................................................................... 1,024,036 1,690,408
Distributions reinvested
Class A ...................................................................... 199,093 --
Class B ...................................................................... 101,286 --
Class C ...................................................................... 120,826 --
Cost of shares redeemed
Class A ...................................................................... (633,085) (327,957)
Class B ...................................................................... (400) --
Class C ...................................................................... (34,197) --
------------ -----------
Net increase from capital share transactions ................................... 4,468,091 6,272,737
------------ -----------
Net increase in net assets ..................................................... 5,634,127 6,389,211
------------ -----------
Net assets:
Beginning of period ............................................................ 6,389,211 --
------------ -----------
End of period .................................................................. $ 12,023,338 $ 6,389,211
============ ===========
Accumulated undistributed net investment loss at end of period ................. $ (268) $ (78)
============ ===========
Capital Share Activity:
Shares sold
Class A ...................................................................... 306,745 318,546
Class B ...................................................................... 19,998 169,772
Class C ...................................................................... 92,100 168,989
Shares reinvested
Class A ...................................................................... 18,034 --
Class B ...................................................................... 9,208 --
Class C ...................................................................... 10,984 --
Shares redeemed
Class A ...................................................................... (56,279) (31,141)
Class B ...................................................................... (35) --
Class C ...................................................................... (3,051) --
* For the period beginning July 7, 2003 (commencement of operations) to
September 30, 2004.
- --------------------------------------------------------------------------------
See accompanying notes.
9
Security Equity Fund
Alpha Opportunity Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003(e)
- -------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.21 $ 10.00
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.16) (0.03)
Net gain (loss) on securities (realized and unrealized) 2.33 0.24
--------------------------
Total from investment operations 2.17 0.21
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains (0.59) --
--------------------------
Total distributions (0.59) --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.79 $ 10.21
==========================
- -------------------------------------------------------------------------------------------------
Total Return(a) 21.68% 2.10%
- -------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 6,556 $ 2,935
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.48%) (1.35%)
Total expenses 2.79% 2.75%
Gross expenses(b) 3.57% 3.25%
Net expenses(d) 2.78% 2.75%
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 1175% 867%
Year Ended
September 30,
Class B 2004 2003(e)
- -------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.20 $ 10.00
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.25) (0.05)
Net gain (loss) on securities (realized and unrealized) 2.32 0.25
--------------------------
Total from investment operations 2.07 0.20
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains (0.59) --
--------------------------
Total distributions (0.59) --
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.68 $ 10.20
==========================
- -------------------------------------------------------------------------------------------------
Total Return(a) 20.68% 2.00%
- -------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,324 $ 1,731
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (2.25%) (2.11%)
Total expenses 3.53% 3.50%
Gross expenses(b) 4.29% 4.01%
Net expenses(d) 3.53% 3.50%
- -------------------------------------------------------------------------------------------------
Portfolio turnover rate 1175% 867%
- --------------------------------------------------------------------------------
See accompanying notes
10
Security Equity Fund
Alpha Opportunity Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003(e)
- ---------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.20 $ 10.00
- ---------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.25) (0.05)
Net gain (loss) on securities (realized and unrealized) 2.32 0.25
--------------------------
Total from investment operations 2.07 0.20
- ---------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- --
Distributions from realized gains (0.59) --
--------------------------
Total distributions (0.59) --
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 11.68 $ 10.20
==========================
- ---------------------------------------------------------------------------------------
Total Return(a) 20.68% 2.00%
- ---------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,143 $ 1,723
- ---------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (2.24%) (2.11%)
Total expenses 3.53% 3.50%
Gross expenses(b) 4.30% 4.01%
Net expenses(d) 3.53% 3.50%
- ---------------------------------------------------------------------------------------
Portfolio turnover rate 1175% 867%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) Security Alpha Opportunity Series was initially capitalized on July 7,
2003 with a net asset value of $10 per share. Percentage amounts for the
period, except total return, have been annualized.
- --------------------------------------------------------------------------------
See accompanying notes.
11
Security Equity Fund
Enhanced Index Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Northern Trust
Subadvisor, Northern Trust
To Our Shareholders:
The Enhanced Index Fund began operations January 29, 1999. The core portfolio is
designed to outperform the Standard & Poor's 500 Stock Index while retaining
similar risk characteristics to the index. Through the use of a proprietary
multi-factor model, stocks that in our view have above-average potential for
appreciation are overweighted, while stocks that have less than average
potential are underweighted. During the one- year period ended September 30,
2004, the portfolio was up 12.22%1 versus 13.87% for the S&P 500 benchmark.
Since inception in 1999, the Fund is down 2.24% versus a negative 0.95% for the
benchmark.
The Northern Trust Investments Quantitative Management group uses a proprietary
model to overweight or underweight stocks relative to the index. Based on our
model, stocks are weighted based on a variety of factors our research has shown
to be predictive of future relative performance. The model's factors are based
on valuation, earnings and momentum characteristics. These factor-based stock
selection criteria are combined with sector, style and company size constraints
to manage the overall risk profile of the portfolio.
The model was successful in selecting stocks that outperformed the benchmark
(prior to deduction of Fund expenses) during the 12 months ending September 30,
2004. The model's valuation factors proved to be the most consistently
successful this past year, while price momentum based factors were the least
successful. Performance differences were also evident among economic sectors and
market capitalization strata. The portfolio benefited from the strong
performance of companies in the industrials, materials and utilities sectors,
traditionally associated as having strong valuation characteristics. The model's
stock selection was also strong among companies in the telecom and healthcare
sectors, despite a market environment generally less accommodating to these
growth dominated sectors. Performance among companies with smaller relative
capitalization was stronger than the largest companies in the index.
Additionally, the portfolio was able to take advantage of shorter-term
opportunities related to changes in index constituents or in corporate actions
through careful trading of issues involved in these events.
Economic Update
Growth in consumer spending is expected to slow from its third-quarter burst as
boosts from prior tax cuts and mortgage refinancing wane. The Federal Interest
Rate Committee is likely to pause in raising interest rates in early 2005, as
economic activity moderates and underlying inflation levels off.
U.S. Equities Outlook
The economic and business performance outlook continues to indicate that
equities will remain the asset of choice when higher risks can be tolerated.
Strong profitability and free cash flow continue to support equity investments.
We favor the industrial side of the economy, due to its stronger financial
position and pent-up demand.
Sincerely,
Enhanced Index Team
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares. Fee waivers and/or
reimbursements reduced Fund expenses and in the absence of such waivers,
the performance quoted would be reduced.
- --------------------------------------------------------------------------------
12
Security Equity Fund
Enhanced Index Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Enhanced Index Series vs. S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Enhanced Index Series $8,291
DATE VALUE
---- -----
1/29/1999 9,425.00
3/31/1999 9,443.92
6/30/1999 10,103.68
9/30/1999 9,462.77
12/31/1999 10,954.87
3/31/2000 11,231.12
6/30/2000 10,878.66
9/30/2000 10,754.82
12/31/2000 9,846.96
3/31/2001 8,617.29
6/30/2001 9,097.63
9/30/2001 7,714.25
12/31/2001 8,521.22
3/31/2002 8,521.22
6/30/2002 7,339.59
9/30/2002 6,052.28
12/31/2002 6,523.01
3/31/2003 6,292.45
6/30/2003 7,224.30
9/30/2003 7,387.62
12/31/2003 8,281.05
3/31/2004 8,405.94
6/30/2004 8,511.61
9/30/2004 8,290.66
S&P 500 Index $9,474
DATE VALUE
---- -----
1/29/1999 $10,000.00
3/31/1999 10,075.52
6/30/1999 10,785.58
9/30/1999 10,111.95
12/31/1999 11,616.46
3/31/2000 11,883.45
6/30/2000 11,568.33
9/30/2000 11,456.43
12/31/2000 10,560.83
3/31/2001 9,309.30
6/30/2001 9,854.43
9/30/2001 8,408.85
12/31/2001 9,307.93
3/31/2002 9,333.23
6/30/2002 8,083.12
9/30/2002 6,687.10
12/31/2002 7,251.86
3/31/2003 7,023.47
6/30/2003 8,104.60
9/30/2003 8,319.10
12/31/2003 9,332.84
3/31/2004 9,491.17
6/30/2004 9,654.81
9/30/2004 9,473.80
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Enhanced Index
Series on January 29, 1999, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares.
- --------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 10.49%
- --------------------------------------------------------
Consumer Staples 10.33
- --------------------------------------------------------
Energy 7.35
- --------------------------------------------------------
Financials 20.02
- --------------------------------------------------------
Health Care 13.09
- --------------------------------------------------------
Industrials 11.58
- --------------------------------------------------------
Information Technology 15.22
- --------------------------------------------------------
Materials 3.30
- --------------------------------------------------------
Telecommunication Services 3.69
- --------------------------------------------------------
Utilities 2.72
- --------------------------------------------------------
U.S. Government Securities 0.32
- --------------------------------------------------------
Cash & other assets, less liabilities 1.89
- --------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
A Shares 12.22% (2.61%) (2.24%) (1-29-99)
- --------------------------------------------------------------------------------
A Shares with sales charge 5.77% (3.76%) (3.25%) (1-29-99)
- --------------------------------------------------------------------------------
B Shares 11.49% (3.38%) (3.01%) (1-29-99)
- --------------------------------------------------------------------------------
B Shares with CDSC 7.49% (3.38%) (3.01%) (1-29-99)
- --------------------------------------------------------------------------------
C Shares 11.46% (3.36%) (2.97%) (1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 11.46% (3.36%) (2.97%) (1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
13
Security Equity Fund
Enhanced Index Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- ------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- ------------------------------------------------------------------------
Enhanced Index
Series - Class A
Actual $1,000.00 $ 986.30 $ 7.59
Hypothetical 1,000.00 1,017.50 7.51
- ------------------------------------------------------------------------
Enhanced Index
Series - Class B
Actual 1,000.00 984.50 11.32
Hypothetical 1,000.00 1,013.72 11.49
- ------------------------------------------------------------------------
Enhanced Index
Series - Class C
Actual 1,000.00 983.40 11.32
Hypothetical 1,000.00 1,013.72 11.49
- ------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -1.37%, -1.55% and
-1.66%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.52%, 2.27%
and 2.27% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
14
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks - 97.8%
Advertising - 0.3%
Omnicom Group, Inc. 688 $ 50,265
------------
50,265
------------
Aerospace & Defense - 1.7%
Boeing Company 647 33,398
General Dynamics Corporation 591 60,341
Honeywell International, Inc. 385 13,806
Lockheed Martin Corporation 288 16,065
Northrop Grumman Corporation 1,080 57,597
Rockwell Colllins, Inc. 1,000 37,140
United Technologies Corporation 440 41,087
------------
259,434
------------
Agricultural Products - 0.3%
Archer-Daniels-Midland Company 2,766 46,967
------------
46,967
------------
Air Freight & Logistics - 1.0%
FedEx Corporation 358 30,677
United Parcel Service, Inc. (Cl.B) 1,558 118,283
------------
148,960
------------
Aluminum - 0.2%
Alcoa, Inc. 874 29,358
------------
29,358
------------
Apparel Retail - 0.6%
Gap, Inc. 100 1,870
Limited Brands 1,745 38,896
TJX Companies, Inc. 2,059 45,380
------------
86,146
------------
Apparel, Accessories & Luxury Goods - 0.1%
Coach, Inc.* 100 4,242
Jones Apparel Group, Inc. 400 14,320
------------
18,562
------------
Application Software - 0.3%
Compuware Corporation* 3,575 18,411
Parametric Technology Corporation* 5,993 31,643
------------
50,054
------------
Asset Management & Custody Banks - 0.9%
Bank of New York Company, Inc. 136 3,967
Franklin Resources, Inc. 700 39,032
Mellon Financial Corporation 1,711 47,378
State Street Corporation 1,158 49,458
------------
139,835
------------
Auto Parts & Equipment - 0.2%
Visteon Corporation 3,249 25,960
------------
25,960
------------
Automobile Manufacturers - 0.4%
Ford Motor Company 2,907 40,844
General Motors Corporation 559 23,746
------------
64,590
------------
Biotechnology - 1.3%
Amgen, Inc.* 1,764 99,983
Applera Corporation -
Applied Biosystems Group 1,900 35,853
Biogen Idec, Inc.* 200 12,234
Chiron Corporation* 742 32,796
Genzyme Corporation* 216 11,753
Gilead Sciences, Inc.* 400 14,952
------------
207,571
------------
Brewers - 0.4%
Adolph Coors Company (Cl.B) 266 18,067
Anheuser-Busch Companies, Inc. 824 41,159
------------
59,226
------------
Broadcasting & Cable TV - 0.8%
Clear Channel Communications, Inc. 1,736 54,111
Comcast Corporation* 2,279 64,359
------------
118,470
------------
Building Products - 0.3%
Masco Corporation 1,504 51,933
------------
51,933
------------
Casinos & Gaming - 0.3%
Harrah's Entertainment, Inc. 761 40,318
------------
40,318
------------
Communications Equipment - 2.6%
Avaya, Inc.* 1,575 21,956
Cisco Systems, Inc.* 11,502 208,186
Lucent Technologies, Inc.* 5,871 18,611
Motorola, Inc. 3,053 55,076
Qualcomm, Inc. 1,758 68,632
Tellabs, Inc.* 3,200 29,408
------------
401,869
------------
Computer & Electronics Retail - 0.4%
Circuit City Stores, Inc. 2,000 30,680
RadioShack Corporation 1,262 36,144
------------
66,824
------------
Computer Hardware - 3.1%
Dell, Inc.* 2,884 102,670
Hewlett-Packard Company 4,508 84,525
International Business Machines
Corporation 2,863 245,474
NCR Corporation* 435 21,572
Sun Microsystems, Inc.* 5,565 22,482
------------
476,723
------------
Computer Storage & Peripherals - 0.3%
EMC Corporation* 4,310 49,737
------------
49,737
------------
- --------------------------------------------------------------------------------
See accompanying notes.
15
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Construction & Farm Machinery - 1.0%
Caterpillar, Inc. 893 $ 71,842
Deere & Company 600 38,730
Paccar, Inc. 698 48,246
------------
158,818
------------
Consumer Finance - 1.4%
American Express Company 1,623 83,519
MBNA Corporation 3,148 79,330
SLM Corporation 1,413 63,020
------------
225,869
------------
Data Processing & Outsourced Services - 0.6%
Automatic Data Processing, Inc. 617 25,494
Convergys Corporation* 1,194 16,035
First Data Corporation 549 23,882
SunGard Data Systems, Inc.* 856 20,347
------------
85,758
------------
Department Stores - 0.5%
Federated Department Stores, Inc. 882 40,069
May Department Stores Company 1,575 40,368
------------
80,437
------------
Distillers & Vintners - 0.2%
Brown-Forman Corporation (Cl.B) 800 36,640
------------
36,640
------------
Diversified Banks - 3.8%
Bank of America Corporation 5,692 246,634
U.S. Bancorp 1,734 50,113
Wachovia Corporation 2,597 121,929
Wells Fargo & Company 3,006 179,248
------------
597,924
------------
Diversified Capital Markets - 1.1%
J.P. Morgan Chase & Company 4,433 176,123
------------
176,123
------------
Diversified Chemicals - 1.6%
Dow Chemical Company 2,041 92,212
E.I. du Pont de Nemours & Company 2,074 88,767
Eastman Chemical Company 800 38,040
PPG Industries, Inc. 439 26,902
------------
245,921
------------
Diversified Commercial Services - 1.0%
Cendant Corporation 2,917 63,007
Cintas Corporation 200 8,408
Equifax, Inc. 1,425 37,563
H & R Block, Inc. 900 44,478
------------
153,456
------------
Diversified Metals & Mining - 0.2%
Phelps Dodge Corporation* 300 27,609
------------
27,609
------------
Drug Retail - 0.2%
Walgreen Company 655 23,469
------------
23,469
------------
Electric Utilities - 2.0%
Allegheny Energy, Inc.* 1,500 23,940
CenterPoint Energy, Inc. 3,300 34,188
DTE Energy Company 1,000 42,190
Edison International 1,494 39,606
Entergy Corporation 846 51,276
Exelon Corporation 194 7,118
Pinnacle West Captial Corporation 300 12,450
Progress Energy, Inc. 1,070 45,304
Progress Energy, Inc. -
Contingent Value Obligation*(2) 400 56
Southern Company 61 1,828
TXU Corporation 1,200 57,504
------------
315,460
------------
Electrical Components & Equipment - 0.4%
American Power Conversion Corporation 500 8,695
Emerson Electric Company 738 45,675
Power-One, Inc.* 2,234 14,476
------------
68,846
------------
Electronic Equipment Manufacturers - 0.5%
Agilent Technologies, Inc.* 1,994 43,011
Tektronix, Inc. 1,200 39,900
------------
82,911
------------
Electronic Manufacturing Services - 0.2%
Jabil Circuit, Inc.* 557 12,811
Molex, Inc. (Voting) 600 17,892
------------
30,703
------------
Employment Services - 0.2%
Robert Half International, Inc. 1,444 37,212
------------
37,212
------------
Environmental Services - 0.3%
Waste Management, Inc. 1,773 48,474
------------
48,474
------------
Food Distributors - 0.4%
Sysco Corporation 1,881 56,280
------------
56,280
------------
Food Retail - 0.5%
Kroger Company* 1,620 25,143
Safeway, Inc.* 698 13,478
Supervalu, Inc. 1,300 35,815
------------
74,436
------------
Footwear - 0.2%
Reebok International, Ltd. 1,000 36,720
------------
36,720
------------
- --------------------------------------------------------------------------------
See accompanying notes.
16
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Forest Products - 0.4%
Louisiana-Pacific Corporation 1,313 $ 34,072
Weyerhaeuser Company 460 30,581
------------
64,653
------------
General Merchandise Stores - 0.3%
Family Dollar Stores, Inc. 500 13,550
Target Corporation 706 31,946
------------
45,496
------------
Gold - 0.1%
Newmont Mining Corporation 214 9,743
------------
9,743
------------
Health Care Distributors - 0.4%
Cardinal Health, Inc. 1,282 56,113
------------
56,113
------------
Health Care Equipment - 1.5%
Becton, Dickinson & Company 999 51,648
Biomet, Inc. 200 9,376
Boston Scientific Corporation* 499 19,825
Fisher Scientific International, Inc.* 192 11,199
Guidant Corporation 584 38,568
Medtronic, Inc. 1,393 72,297
Thermo Electron Corporation* 499 13,483
Zimmer Holdings, Inc.* 204 16,124
------------
232,520
------------
Health Care Facilities - 0.7%
HCA, Inc. 1,523 58,102
Health Management Associates, Inc. 1,327 27,111
Manor Care, Inc. 1,048 31,398
------------
116,611
------------
Health Care Services - 0.2%
IMS Health, Inc. 689 16,481
Medco Health Solutions, Inc.* 719 22,217
------------
38,698
------------
Health Care Supplies - 0.2%
Bausch & Lomb, Inc. 500 33,225
Caremark Rx, Inc.* 1 16
------------
33,241
------------
Home Improvement Retail - 1.5%
Home Depot, Inc. 4,008 157,114
Lowe's Companies, Inc. 1,472 80,003
------------
237,117
------------
Homebuilding - 0.2%
Centex Corporation 700 35,322
------------
35,322
------------
Hotels, Resorts & Cruise Lines - 0.1%
Carnival Corporation 228 10,782
------------
10,782
------------
Household Products - 2.4%
Clorox Company 849 45,252
Colgate-Palmolive Company 843 38,087
Kimberly-Clark Corporation 1,096 70,790
Procter & Gamble Company 3,924 212,367
------------
366,496
------------
Housewares & Specialties - 0.0%
Newell Rubbermaid, Inc. 100 2,004
------------
2,004
------------
Hypermarkets & Supercenters - 2.3%
Costco Wholesale Corporation 253 10,515
Wal-Mart Stores, Inc. 6,583 350,215
------------
360,730
------------
Industrial Conglomerates - 4.2%
3M Company 827 66,135
General Electric Company 14,441 484,929
Textron, Inc. 309 19,860
Tyco International, Ltd. 2,879 88,270
------------
659,194
------------
Industrial Machinery - 0.7%
Crane Company 1,073 31,031
Dover Corporation 1,000 38,870
Illinois Tool Works, Inc. 92 8,572
Parker-Hannifin Corporation 400 23,544
------------
102,017
------------
Insurance Brokers - 0.3%
Marsh & McLennan Companies, Inc. 1,025 46,904
------------
46,904
------------
Integrated Oil & Gas - 4.9%
ChevronTexaco Corporation 3,564 191,173
ConocoPhillips 1,049 86,909
Exxon Mobil Corporation 10,215 493,691
Occidental Petroleum Corporation 1 56
------------
771,829
------------
Integrated Telecommunication Services - 2.8%
AT&T Corporation 255 3,652
Alltel Corporation 5 275
BellSouth Corporation 3,821 103,625
CenturyTel, Inc. 300 10,272
Citizens Communications Company* 2,300 30,797
Qwest Communications International, Inc.* 2,838 9,450
SBC Communications, Inc. 5,344 138,677
Sprint Corporation 589 11,857
Verizon Communications, Inc. 3,430 135,073
------------
443,678
------------
Internet Retail - 0.5%
eBay, Inc.* 836 76,862
------------
76,862
------------
- --------------------------------------------------------------------------------
See accompanying notes.
17
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Internet Software & Services - 0.3%
Yahoo!, Inc.* 1,384 $ 46,931
------------
46,931
------------
Investment Banking & Brokerage - 1.8%
Charles Schwab Corporation 3,534 32,477
Goldman Sachs Group, Inc. 838 78,135
Merrill Lynch & Company, Inc. 1,725 85,767
Morgan Stanley 1,582 77,993
------------
274,372
------------
Leisure Products - 0.2%
Hasbro, Inc. 1,900 35,720
------------
35,720
------------
Life & Health Insurance - 1.0%
AFLAC, Inc. 171 6,705
Jefferson-Pilot Corporation 832 41,317
Lincoln National Corporation 726 34,122
MetLife, Inc. 1,813 70,072
Prudential Financial, Inc. 167 7,856
------------
160,072
------------
Managed Health Care - 1.0%
Cigna Corporation 500 34,815
UnitedHealth Group, Inc. 816 60,172
WellPoint Health Networks, Inc.* 519 54,542
------------
149,529
------------
Metal & Glass Containers - 0.1%
Ball Corporation 500 18,715
------------
18,715
------------
Motorcycle Manufacturers - 0.3%
Harley-Davidson, Inc. 847 50,346
------------
50,346
------------
Movies & Entertainment - 2.1%
Time Warner, Inc.* 7,713 124,488
Viacom, Inc. (Cl.B) 3,413 114,540
Walt Disney Company 3,933 88,689
------------
327,717
------------
Multi-Line Insurance - 2.1%
American International Group, Inc. 4,219 286,850
Loews Corporation 700 40,950
------------
327,800
------------
Multi-Utilities & Unregulated Power - 0.7%
Constellation Energy Group 1,013 40,358
Dominion Resources, Inc. 500 32,625
Duke Energy Corporation 1,090 24,950
Dynegy, Inc.* 2,200 10,978
------------
108,911
------------
Office Electronics - 0.2%
Xerox Corporation* 2,494 35,116
------------
35,116
------------
Oil & Gas Drilling - 0.2%
Nabors Industries, Ltd.* 600 28,410
------------
28,410
------------
Oil & Gas Equipment & Services - 0.6%
BJ Services Company 873 45,754
Schlumberger, Ltd. 683 45,973
------------
91,727
------------
Oil & Gas Exploration & Production - 1.1%
Anadarko Petroleum Corporation 900 59,724
Burlington Resources, Inc. 962 39,250
Devon Energy Corporation 300 21,303
Unocal Corporation 1,170 50,310
------------
170,587
------------
Oil & Gas Refining, Marketing & Transportation - 0.5%
Kinder Morgan, Inc. 600 37,692
Sunoco, Inc. 500 36,990
Williams Companies, Inc. 800 9,680
------------
84,362
------------
Other Diversified Financial Services - 2.6%
Citigroup, Inc. 8,227 362,975
Principal Financial Group, Inc. 1,092 39,279
------------
402,254
------------
Packaged Foods & Meats - 0.4%
Sara Lee Corporation 2,519 57,584
------------
57,584
------------
Paper Packaging - 0.4%
Bemis Company, Inc. 500 13,290
Georgia-Pacific Corporation 639 22,972
International Paper Company 740 29,903
------------
66,165
------------
Personal Products - 0.2%
Gillette Company 767 32,015
------------
32,015
------------
Pharmaceuticals - 7.7%
Abbott Laboratories 2,303 97,555
Bristol-Myers Squibb Company 3,787 89,638
Eli Lilly & Company 1,843 110,672
Forest Laboratories, Inc.* 1,238 55,685
Hospira, Inc.* 1,300 39,780
Johnson & Johnson 4,847 273,032
Merck & Company, Inc. 2,976 98,208
Mylan Laboratories, Inc. 1,100 19,800
Pfizer, Inc. 12,080 369,648
Schering-Plough Corporation 527 10,045
Wyeth 1,160 43,384
------------
1,207,447
------------
- --------------------------------------------------------------------------------
See accompanying notes.
18
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Property & Casualty Insurance - 1.6%
Ace, Ltd. 834 $ 33,410
Allstate Corporation 1,710 82,063
Cincinnati Financial Corporation 940 38,747
MBIA, Inc. 735 42,784
Progressive Corporation 529 44,833
St. Paul Travelers Companies, Inc. 83 2,744
XL Capital, Ltd. 103 7,621
------------
252,202
------------
Publishing - 0.5%
Gannett Company, Inc. 20 1,675
Knight-Ridder, Inc. 330 21,599
New York Times Company 300 11,730
Tribune Company 1,100 45,265
------------
80,269
------------
Railroads - 0.5%
Burlington Northern Santa Fe Corporation 1,424 54,553
Norfolk Southern Corporation 800 23,792
------------
78,345
------------
Real Estate Investment Trusts - 0.3%
Apartment Investment & Management
Company 184 6,400
Equity Office Properties Trust 4 109
Equity Residential 1,300 40,300
------------
46,809
------------
Regional Banks - 1.7%
BB&T Corporation 100 3,969
Fifth Third Bancorp 1,389 68,367
First Horizon National Corporation 807 34,992
KeyCorp 1,100 34,760
National City Corporation 162 6,256
North Fork Bancorporation, Inc. 210 9,334
PNC Financial Services Group 126 6,817
SunTrust Banks, Inc. 907 63,862
Zions Bancorporation 530 32,351
------------
260,708
------------
Restaurants - 0.8%
Darden Restaurants, Inc. 200 4,664
McDonald's Corporation 2,887 80,922
Wendy's International, Inc. 1,028 34,541
------------
120,127
------------
Semiconductor Equipment - 0.3%
Applied Materials, Inc.* 943 15,550
Teradyne, Inc.* 1,785 23,919
------------
39,469
------------
Semiconductors - 2.9%
Advanced Micro Devices, Inc.* 2,500 32,500
Analog Devices, Inc. 1,058 41,029
Intel Corporation 10,923 219,115
National Semiconductor Corporation* 1,920 29,741
Texas Instruments, Inc. 3,925 83,524
Xilinx, Inc. 1,520 41,040
------------
446,949
------------
Soft Drinks - 2.1%
Coca-Cola Company 4,215 168,811
Coca-Cola Enterprises, Inc. 1,100 20,790
Pepsi Bottling Group, Inc. 1,500 40,725
PepsiCo, Inc. 2,036 99,051
------------
329,377
------------
Specialized Finance - 0.0%
Moody's Corporation 100 7,325
------------
7,325
------------
Specialty Chemicals - 0.3%
Rohm & Haas Company 461 19,809
Sigma-Aldrich Corporation 417 24,186
------------
43,995
------------
Specialty Stores - 0.2%
Office Depot, Inc.* 1,800 27,054
------------
27,054
------------
Steel - 0.1%
Nucor Corporation 100 9,137
------------
9,137
------------
Systems Software - 4.0%
BMC Software, Inc.* 2,300 36,363
Microsoft Corporation 15,605 431,478
Novell, Inc.* 2,400 15,144
Oracle Corporation* 9,006 101,588
Symantec Corporation* 300 16,464
Veritas Software Corporation* 1,517 27,003
------------
628,040
------------
Thrifts & Mortgage Finance - 1.3%
Fannie Mae 1,621 102,772
Freddie Mac 555 36,208
Golden West Financial Corporation 415 46,044
Washington Mutual, Inc. 525 20,517
------------
205,541
------------
Tobacco - 1.1%
Altria Group, Inc. 3,581 168,450
------------
168,450
------------
- --------------------------------------------------------------------------------
See accompanying notes.
19
Security Equity Fund
Enhanced Index Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Trading Companies & Distributors - 0.3%
W. W. Grainger, Inc. 700 $ 40,355
------------
40,355
------------
Wireless Telecommunication Services - 0.8%
AT&T Wireless Services, Inc.* 5,302 78,364
Nextel Communications, Inc.* 2,262 53,926
------------
132,290
------------
Total common stocks
(cost $14,511,420) 15,258,100
------------
U.S. Government Securities - 0.3%
U.S. Treasury Bill, 1.60% - 2004(1) $ 50,000 49,809
------------
Total U.S. Government securities
(cost $49,819) 49,809
------------
Repurchase Agreement - 2.7%
United Missouri Bank, 1.35%, dated
9-30-04, matures 10-01-04; repurchase
amount of $418,016 (Collateralized
by U.S. Treasury Note, 2.125%,
10-31-04 with a value of $426,870) $418,000 418,000
------------
Total repurchase agreement
(cost $418,000) 418,000
------------
Total investments - 100.8%
(cost $14,979,239) 15,725,909
Liabilities, less cash & other assets - (0.8%) (122,600)
------------
Total net assets - 100% $ 15,603,309
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $15,663,628.
* Non-income producing security
(1) Security is segregated as collateral for futures contracts.
(2) Security is restricted. The total market value of restricted securities is
$56 (cost $190), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to September 28, 2000.
- --------------------------------------------------------------------------------
See accompanying notes.
20
Security Equity Fund
Enhanced Index Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ................................. $ 15,725,909
Cash ..................................................... 1,965
Receivables:
Fund shares sold ...................................... 11,937
Dividends ............................................. 18,828
Prepaid expenses ......................................... 11,602
------------
Total assets ............................................. 15,770,241
------------
Liabilities:
Payable for:
Variation margin ...................................... 50
Management fees ....................................... 6,415
Custodian fees ........................................ 2,470
Transfer and administration fees ...................... 4,746
Professional fees ..................................... 7,714
12b-1 distribution plan fees .......................... 143,511
Other ................................................. 2,026
------------
Total liabilities ........................................ 166,932
------------
Net Assets ............................................... $ 15,603,309
============
Net assets consist of:
Paid in capital .......................................... $ 20,708,599
Accumulated undistributed net investment
income ................................................ --
Accumulated undistributed net realized
loss on sale of investments
and futures ........................................... (5,848,635)
Net unrealized appreciation in value of
investments and futures ............................... 743,345
------------
Net assets ............................................... $ 15,603,309
============
Class A:
Capital shares outstanding ............................... 812,643
Net assets ............................................... $ 7,017,166
Net asset value and redemption price
per share ............................................. $ 8.63
============
Maximum offering price per share (net asset
value divided by 94.25%) .............................. $ 9.16
============
Class B:
Capital shares outstanding ............................... 643,394
Net assets ............................................... $ 5,304,968
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ..................... $ 8.25
============
Class C:
Capital shares outstanding ............................... 396,877
Net assets ............................................... $ 3,281,175
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ..................... $ 8.27
============
(1) Investments, at cost ................................. $ 14,979,239
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ............................................. $ 274,532
Interest .............................................. 3,059
------------
Total investment income ............................... 277,591
------------
Expenses:
Management fees ....................................... 120,171
Custodian fees ........................................ 20,167
Transfer agent/maintenance fees ....................... 37,164
Administration fees ................................... 29,199
Directors' fees ....................................... 457
Professional fees ..................................... 9,224
Reports to shareholders ............................... 1,766
Registration fees ..................................... 28,066
Other expenses ........................................ 1,298
12b-1 distribution plan fees - Class A ................ 17,929
12b-1 distribution plan fees - Class B ................ 54,113
12b-1 distribution plan fees - Class C ................ 34,399
------------
Total expenses ........................................ 353,953
Less: Expenses waived ................................ (40,057)
Earnings credits ................................ (836)
------------
Net expenses .......................................... 313,060
------------
Net investment loss ................................... (35,469)
------------
Net Realized and Unrealized Gain:
Net realized loss during the period on
Investments ........................................... 1,081,474
Futures ............................................... 33,495
------------
Net realized gain ..................................... 1,114,969
------------
Net change in unrealized appreciation
during the period on
Investments ........................................... 607,447
Futures ............................................... 4,828
------------
Net unrealized appreciation ........................... 612,275
------------
Net gain .............................................. 1,727,244
------------
Net increase in net assets
resulting from operations ........................... $ 1,691,775
============
- --------------------------------------------------------------------------------
See accompanying notes.
21
Security Equity Fund
Enhanced Index Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ............................................................. $ (35,469) $ (56,631)
Net realized gain (loss) during the period on investments and futures ........... 1,114,969 (2,930,280)
Net change in unrealized appreciation during the period on
investments and futures .................................................... 612,275 6,120,571
------------ ------------
Net increase in net assets resulting from operations ............................ 1,691,775 3,133,660
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A .................................................................... 1,834,103 2,367,320
Class B .................................................................... 912,388 1,206,524
Class C .................................................................... 1,337,801 1,120,893
Cost of shares redeemed
Class A .................................................................... (1,977,745) (4,508,312)
Class B .................................................................... (1,094,636) (3,498,690)
Class C .................................................................... (1,397,756) (2,949,239)
------------ ------------
Net decrease from capital share transactions .................................... (385,845) (6,261,504)
------------ ------------
Net increase (decrease) in net assets ........................................... 1,305,930 (3,127,844)
------------ ------------
Net assets:
Beginning of period ............................................................. 14,297,379 17,425,223
------------ ------------
End of period ................................................................... $ 15,603,309 $ 14,297,379
============ ============
Accumulated undistributed net investment income at
end of period .............................................................. $ -- $ --
============ ============
Capital Share Activity:
Shares sold
Class A .................................................................... 214,183 333,447
Class B .................................................................... 110,168 177,203
Class C .................................................................... 163,235 159,884
Shares redeemed
Class A .................................................................... (230,862) (642,114)
Class B .................................................................... (132,909) (513,292)
Class C .................................................................... (169,518) (430,959)
- --------------------------------------------------------------------------------
See accompanying notes.
22
Security Equity Fund
Enhanced Index Series
Financial Highlights
Selected data for each share of capital stock outstanding throughout each period
- --------------------------------------------------------------------------------
Year Ended,
September 30,
Class A 2004 2003(f) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.69 $ 6.30 $ 8.03 $ 11.29 $ 10.04
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.02 -- (0.01) -- --
Net gain (loss) on securities (realized and unrealized) 0.92 1.39 (1.72) (3.17) 1.37
---------------------------------------------------------------------
Total from investment operations 0.94 1.39 (1.73) (3.17) 1.37
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.09) (0.12)
---------------------------------------------------------------------
Total distributions -- -- -- (0.09) (0.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.63 $ 7.69 $ 6.30 $ 8.03 $ 11.29
=====================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 12.22% 22.06% (21.54%) (28.27%) 13.65%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 7,017 $ 6,377 $ 7,171 $ 6,699 $ 8,219
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) 0.19% 0.00% (0.10%) 0.02% (0.05%)
Total expenses 1.55% 1.73% 1.61% 1.42% 1.44%
Gross expenses(b) 1.80% 1.83% 1.61% 1.42% 1.44%
Net expenses(d) 1.54% 1.73% 1.61% 1.42% 1.44%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 60% 62% 40% 73%
Year Ended,
September 30,
Class B 2004 2003(f) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.40 $ 6.11 $ 7.87 $ 11.15 $ 9.99
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.05) (0.05) (0.07) (0.08) (0.09)
Net gain (loss) on securities (realized and unrealized) 0.90 1.34 (1.69) (3.11) 1.37
---------------------------------------------------------------------
Total from investment operations 0.85 1.29 (1.76) (3.19) 1.28
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.09) (0.12)
---------------------------------------------------------------------
Total distributions -- -- -- (0.09) (0.12)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.25 $ 7.40 $ 6.11 $ 7.87 $ 11.15
=====================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.49% 21.11% (22.36%) (28.81%) 12.82%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 5,305 $ 4,929 $ 6,125 $ 7,360 $ 10,960
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.56%) (0.75%) (0.84%) (0.74%) (0.79%)
Total expenses 2.30% 2.48% 2.35% 2.17% 2.18%
Gross expenses(b) 2.55% 2.58% 2.35% 2.17% 2.18%
Net expenses(d) 2.29% 2.48% 2.35% 2.17% 2.18%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 60% 62% 40% 73%
- --------------------------------------------------------------------------------
See accompanying notes
23
Security Equity Fund
Enhanced Index Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended,
September 30,
Class C 2004 2003(f) 2002(e) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.42 $ 6.12 $ 7.88 $ 11.16 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.05) (0.05) (0.07) (0.08) (0.09)
Net gain (loss) on securities (realized and unrealized) 0.90 1.35 (1.69) (3.11) 1.37
--------------------------------------------------------------------
Total from investment operations 0.85 1.30 (1.76) (3.19) 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.09) (0.12)
--------------------------------------------------------------------
Total distributions -- -- -- (0.09) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.27 $ 7.42 $ 6.12 $ 7.88 $ 11.16
====================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.46% 21.24% (22.34%) (28.78%) 12.69%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,281 $ 2,991 $ 4,129 $ 4,840 $ 7,092
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.56%) (0.74%) (0.85%) (0.74%) (0.77%)
Total expenses 2.30% 2.47% 2.35% 2.17% 2.15%
Gross expenses(b) 2.55% 2.57% 2.35% 2.17% 2.15%
Net expenses(d) 2.29% 2.47% 2.35% 2.17% 2.15%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 79% 60% 62% 40% 73%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) Northern Trust became the sub-adviser for Enhanced Index Series effective
May 1, 2003. Prior to May 1, 2003 Security Management Company, LLC paid
Deutsch Asset Management, Inc. for sub-advisory services.
- --------------------------------------------------------------------------------
See accompanying notes.
24
Security Equity Fund
Equity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
Mark Mitchell
Portfolio Manager
To Our Shareholders:
With the retirement of Terry Milberger in February 2004, this marks my first
annual letter to the Equity Series shareholders. Fiscal year 2004 was a normal
year in many respects; market returns were positive, but not as spectacular as
in fiscal year 2003. The Equity Series returned 8.87%(1) for the period ended
September 30, 2004, lagging the benchmark S&P 500 Index's return of 13.87% and
the Fund's peer group median return of 10.40%. As in 2003, the market favored
lower-quality, higher-beta stocks, and in that environment, the Fund tends to
underperform. Although disappointing for this particular period, we believe that
our investing approach delivers positive performance over the long term.
Our approach to managing Security Equity Fund is based on the investment
philosophy described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
For this Fund, we apply this philosophy to a broad range of both growth and
value companies.
Industrials and Consumer Discretionary Stocks are Top Performers
The Fund's industrial holdings were up 25% compared to 23% for the index.
Positions in General Dynamics and Federal Express contributed positively to the
Fund. General Dynamics benefited from a recovery in its aircraft business and
strong defense spending. Federal Express had strong results driven by continued
economic growth and business model efficiencies.
The Fund's consumer discretionary holdings performed well, besting the index
sector return of 14%. Carnival Cruise Lines appreciated 46%, driven by solid
operating fundamentals and recognition of an upcoming industry capacity
slowdown. Harley Davidson was up 24% largely as a result of executing well
against near-term concerns about a slowdown in its business.
Technology and Financials Disappointing
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in ADC Telecom and not owning Qualcomm had
a negative impact on the Fund. ADC Telecom was down 48% as a result of a slower
broadband build out than was expected. Conversely, Qualcomm was up over 88% as
it benefited from strong wireless handset demand.
Further consolidation in the financial sector had a negative impact on the Fund.
Fleet Boston, not owned in the Fund, was up over 50% due to being acquired by
Bank America. And JP Morgan was up approximately 20% as it improved its
competitive position by acquiring Bank One.
2005 Market Outlook
Our outlook for the equity market continues to be guardedly optimistic. As in
prior years, there are many potential positive and negative influences. We
believe the most significant issue in 2005 will be a slowing profit cycle. In
such an environment, more normal equity returns are likely. Skilled stock
picking versus owning the market index will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value.(2) We recognize there are many investment fund
alternatives available today and thank you for your business and the confidence
you place in us.
Sincerely,
Mark Mitchell
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
(2) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
- --------------------------------------------------------------------------------
25
Security Equity Fund
Equity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Equity Series vs.
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Equity Series $21,564
DATE VALUE
---- -----
9/30/1994 9,425.00
12/31/1994 9,831.69
3/31/1995 10,787.55
6/30/1995 11,860.45
9/30/1995 12,777.30
12/31/1995 13,609.13
3/31/1996 14,709.71
6/30/1996 15,344.66
9/30/1996 15,958.45
12/31/1996 16,694.89
3/31/1997 16,810.82
6/30/1997 19,662.86
9/30/1997 21,077.29
12/31/1997 21,636.32
3/31/1998 24,727.22
6/30/1998 25,493.56
9/30/1998 22,632.56
12/31/1998 27,363.02
3/31/1999 27,637.20
6/30/1999 29,172.60
9/30/1999 27,308.18
12/31/1999 30,369.32
3/31/2000 30,681.53
6/30/2000 29,801.67
9/30/2000 29,120.49
12/31/2000 26,565.59
3/31/2001 23,220.05
6/30/2001 24,776.88
9/30/2001 21,066.97
12/31/2001 23,418.79
3/31/2002 23,286.29
6/30/2002 19,874.50
9/30/2002 16,860.20
12/31/2002 17,887.05
3/31/2003 17,390.19
6/30/2003 19,543.26
9/30/2003 19,808.26
12/31/2003 21,630.71
3/31/2004 21,862.94
6/30/2004 22,161.52
9/30/2004 21,564.35
S&P 500 Index $28,636
DATE VALUE
---- -----
9/30/1994 $10,000.00
12/31/1994 9,998.63
3/31/1995 10,972.04
6/30/1995 12,020.09
9/30/1995 12,975.60
12/31/1995 13,756.95
3/31/1996 14,494.80
6/30/1996 15,144.67
9/30/1996 15,612.86
12/31/1996 16,915.00
3/31/1997 17,367.96
6/30/1997 20,400.43
9/30/1997 21,930.28
12/31/1997 22,560.75
3/31/1998 25,708.00
6/30/1998 26,557.16
9/30/1998 23,914.50
12/31/1998 29,005.52
3/31/1999 30,454.92
6/30/1999 32,601.21
9/30/1999 30,565.05
12/31/1999 35,112.66
3/31/2000 35,919.68
6/30/2000 34,967.18
9/30/2000 34,628.95
12/31/2000 31,921.86
3/31/2001 28,138.90
6/30/2001 29,786.63
9/30/2001 25,417.13
12/31/2001 28,134.75
3/31/2002 28,211.22
6/30/2002 24,432.55
9/30/2002 20,212.86
12/31/2002 21,919.95
3/31/2003 21,229.60
6/30/2003 24,497.49
9/30/2003 25,145.84
12/31/2003 28,210.06
3/31/2004 28,688.62
6/30/2004 29,183.26
9/30/2004 28,636.13
$10,000 Over Ten Years
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1994, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares.
- --------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 13.77%
- --------------------------------------------------------
Consumer Staples 10.74
- --------------------------------------------------------
Energy 5.86
- --------------------------------------------------------
Financials 17.93
- --------------------------------------------------------
Health Care 17.24
- --------------------------------------------------------
Industrials 13.28
- --------------------------------------------------------
Information Technology 14.03
- --------------------------------------------------------
Materials 3.34
- --------------------------------------------------------
Telecommunication Services 1.87
- --------------------------------------------------------
U.S. Government Agency 2.62
- --------------------------------------------------------
Liabilities, less cash & other assets (0.68)
- --------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 Since
1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
A Shares 8.87% (4.56%) 8.02% N/A
- --------------------------------------------------------------------------------
A Shares with sales charge 2.61% (5.68%) 7.38% N/A
- --------------------------------------------------------------------------------
B Shares 8.13% (5.38%) 7.02% N/A
- --------------------------------------------------------------------------------
B Shares with CDSC 4.13% (5.38%) 7.02% N/A
- --------------------------------------------------------------------------------
C Shares 8.26% (5.43%) N/A (5.26%)
(1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 8.26% (5.43%) N/A (5.23%)
(1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
- --------------------------------------------------------------------------------
See accompanying notes.
26
Security Equity Fund
Equity Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- -------------------------------------------------------------------------
Equity Series - Class A
Actual $1,000.00 $ 986.30 $ 6.44
Hypothetical 1,000.00 1,018.65 6.55
- -------------------------------------------------------------------------
Equity Series - Class B
Actual 1,000.00 983.20 10.12
Hypothetical 1,000.00 1,014.93 10.28
- -------------------------------------------------------------------------
Equity Series - Class C
Actual 1,000.00 984.00 10.12
Hypothetical 1,000.00 1,014.93 10.28
- -------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -1.37%, -1.68% and
-1.60%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.29%, 2.03%
and 2.03% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
27
Security Equity Fund
Equity Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks - 98.1%
Aerospace & Defense - 4.3%
General Dynamics Corporation 88,400 $ 9,025,640
L-3 Communications Holdings, Inc. 42,000 2,814,000
United Technologies Corporation 79,400 7,414,372
-------------
19,254,012
-------------
Air Freight & Logistics - 1.9%
FedEx Corporation 99,000 8,483,310
-------------
8,483,310
-------------
Airlines - 1.0%
Southwest Airlines Company 327,800 4,464,636
-------------
4,464,636
-------------
Aluminum - 1.1%
Alcoa, Inc. 145,000 4,870,550
-------------
4,870,550
-------------
Asset Management & Custody Banks - 1.3%
Bank of New York Company, Inc. 200,000 5,834,000
-------------
5,834,000
-------------
Biotechnology - 3.0%
Amgen, Inc.* 237,100 13,438,828
-------------
13,438,828
-------------
Brewers - 1.6%
Anheuser-Busch Companies, Inc. 140,000 6,993,000
-------------
6,993,000
-------------
Broadcasting & Cable TV - 1.2%
Comcast Corporation* 195,100 5,509,624
-------------
5,509,624
-------------
Communications Equipment - 1.8%
ADC Telecommunications, Inc.* 1,500,000 2,715,000
Cisco Systems, Inc.* 293,800 5,317,780
-------------
8,032,780
-------------
Computer Hardware - 3.2%
Dell, Inc.* 222,600 7,924,560
International Business
Machines Corporation 77,000 6,601,980
-------------
14,526,540
-------------
Consumer Finance - 1.3%
MBNA Corporation 239,000 6,022,800
-------------
6,022,800
-------------
Data Processing & Outsourced Services - 2.8%
Computer Sciences Corporation* 55,000 2,590,500
First Data Corporation 230,000 10,005,000
-------------
12,595,500
-------------
Department Stores - 2.4%
Kohl's Corporation* 220,800 10,640,352
-------------
10,640,352
-------------
Diversified Banks - 3.3%
Bank of America Corporation 120,000 5,199,600
Wells Fargo & Company 160,000 9,540,800
-------------
14,740,400
-------------
Diversified Chemicals - 0.7%
E.I. du Pont de Nemours & Company 75,000 3,210,000
-------------
3,210,000
-------------
Drug Retail - 1.7%
CVS Corporation 178,600 7,524,418
-------------
7,524,418
-------------
General Merchandise Stores - 0.8%
Target Corporation 81,200 3,674,300
-------------
3,674,300
-------------
Health Care Equipment - 2.3%
Boston Scientific Corporation* 194,300 7,719,539
Medtronic, Inc. 53,600 2,781,840
-------------
10,501,379
-------------
Home Improvement Retail - 2.8%
Home Depot, Inc. 254,500 9,976,400
Lowe's Companies, Inc. 43,000 2,337,050
-------------
12,313,450
-------------
Hotels, Resorts & Cruise Lines - 1.6%
Carnival Corporation 155,000 7,329,950
-------------
7,329,950
-------------
Household Products - 2.7%
Colgate-Palmolive Company 100,000 4,518,000
Procter & Gamble Company 140,000 7,576,800
-------------
12,094,800
-------------
Hypermarkets & Supercenters - 2.6%
Wal-Mart Stores, Inc. 220,000 11,704,000
-------------
11,704,000
-------------
Industrial Conglomerates - 6.1%
3M Company 52,700 4,214,419
General Electric Company 550,000 18,469,000
Tyco International, Ltd. 147,800 4,531,548
-------------
27,214,967
-------------
Industrial Gases - 1.5%
Praxair, Inc. 160,000 6,838,400
-------------
6,838,400
-------------
Integrated Oil & Gas - 3.8%
ChevronTexaco Corporation 120,000 6,436,800
Exxon Mobil Corporation 221,100 10,685,763
-------------
17,122,563
-------------
- --------------------------------------------------------------------------------
See accompanying notes.
28
Security Equity Fund
Equity Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Integrated Telecommunication Services - 1.9%
SBC Communications, Inc. 170,000 $ 4,411,500
Verizon Communications, Inc. 100,000 3,938,000
-------------
8,349,500
-------------
Investment Banking & Brokerage - 2.8%
Goldman Sachs Group, Inc. 50,000 4,662,000
Merrill Lynch & Company, Inc. 90,500 4,499,660
Morgan Stanley 67,500 3,327,750
-------------
12,489,410
-------------
Life & Health Insurance - 0.9%
AFLAC, Inc. 101,800 3,991,578
-------------
3,991,578
-------------
Managed Health Care - 2.8%
Anthem, Inc.* 55,000 4,798,750
UnitedHealth Group, Inc. 106,500 7,853,310
-------------
12,652,060
-------------
Motorcycle Manufacturers - 1.3%
Harley-Davidson, Inc. 94,100 5,593,304
-------------
5,593,304
-------------
Movies & Entertainment - 3.7%
Time Warner, Inc.* 460,000 7,424,400
Viacom, Inc. (Cl.B) 271,700 9,118,252
-------------
16,542,652
-------------
Multi-Line Insurance - 3.3%
American International Group, Inc. 220,000 14,957,800
-------------
14,957,800
-------------
Oil & Gas Equipment & Services - 1.1%
BJ Services Company 8,700 455,967
Halliburton Company 133,500 4,497,615
-------------
4,953,582
-------------
Oil & Gas Exploration & Production - 0.9%
Anadarko Petroleum Corporation 62,500 4,147,500
-------------
4,147,500
-------------
Other Diversified Financial Services - 3.6%
Citigroup, Inc. 360,500 15,905,260
-------------
15,905,260
-------------
Pharmaceuticals - 9.1%
Abbott Laboratories 130,000 5,506,800
Eli Lilly & Company 37,000 2,221,850
Johnson & Johnson 187,300 10,550,609
Merck & Company, Inc. 101,600 3,352,800
Pfizer, Inc. 544,300 16,655,580
Wyeth 60,000 2,244,000
-------------
40,531,639
-------------
Property & Casualty Insurance - 1.4%
Chubb Corporation 89,200 6,268,976
-------------
6,268,976
-------------
Principal
Amount or
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Semiconductor Equipment - 0.3%
Applied Materials, Inc.* 73,900 $ 1,218,611
-------------
1,218,611
-------------
Semiconductors - 1.5%
Intel Corporation 323,400 6,487,404
-------------
6,487,404
-------------
Soft Drinks - 2.2%
PepsiCo, Inc. 200,000 9,730,000
-------------
9,730,000
-------------
Systems Software - 4.5%
Microsoft Corporation 600,900 16,614,885
Oracle Corporation* 290,900 3,281,352
-------------
19,896,237
-------------
Total common stocks
(cost $382,532,751) 438,650,072
-------------
U. S. Government Sponsored Agencies - 2.6%
Federal Home Loan Bank,
1.60%, 10-01-04 $ 3,800,000 3,800,000
Federal National Mortgage Association:
1.53%, 10-01-04 $ 2,117,000 2,117,000
1.67%, 10-05-04 $ 2,200,000 2,199,592
1.72%, 10-07-04 $ 2,270,000 2,269,349
1.73%, 10-13-04 $ 1,341,000 1,340,227
-------------
Total U. S. Government sponsored agencies
(cost $11,726,168) - 2.6% 11,726,168
-------------
Total investments
(cost $394,258,919) - 100.7% 450,376,240
Liabilities, less cash and other assets - (0.7%) (3,062,839)
-------------
Total net assets - 100.0% $ 447,313,401
=============
The identified cost of investments owned at September 30, 2004 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
- --------------------------------------------------------------------------------
See accompanying notes.
29
Security Equity Fund
Equity Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ............................... $ 450,376,240
Receivables:
Fund shares sold .................................... 36,963
Securities sold ..................................... 1,327,756
Dividends ........................................... 207,252
Prepaid expenses ....................................... 22,559
-------------
Total assets ........................................... 451,970,770
-------------
Liabilities:
Cash overdraft ......................................... 31,061
Payable for:
Securities purchased ................................ 3,403,986
Fund shares redeemed ................................ 623,094
Management fees ..................................... 278,679
Custodian fees ...................................... 3,050
Transfer and administration fees .................... 79,396
Professional fees ................................... 39,405
12b-1 distribution plan fees ........................ 134,911
Other ............................................... 63,787
-------------
Total liabilities ...................................... 4,657,369
-------------
Net Assets ............................................. $ 447,313,401
=============
Net assets consist of:
Paid in capital ........................................ $ 362,191,150
Accumulated undistributed net investment
income .............................................. --
Accumulated undistributed net realized
gain on sale of investments ......................... 29,004,930
Net unrealized appreciation in value
of investments ...................................... 56,117,321
-------------
Net assets ............................................. $ 447,313,401
=============
Class A:
Capital shares outstanding ............................. 60,169,380
Net assets ............................................. $ 391,384,476
Net asset value and redemption price
per share ........................................... $ 6.50
=============
Maximum offering price per share
(net asset value divided by 94.25%) ................. $ 6.90
=============
Class B:
Capital shares outstanding ............................. 8,476,185
Net assets ............................................. $ 49,600,169
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ................... $ 5.85
=============
Class C:
Capital shares outstanding ............................. 1,027,884
Net assets ............................................. $ 6,328,756
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ................... $ 6.16
=============
(1) Investments, at cost ............................... $ 394,258,919
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ........................................... $ 6,521,925
Interest ............................................ 84,638
-------------
Total investment income ............................. 6,606,563
-------------
Expenses:
Management fees ..................................... 3,657,792
Custodian fees ...................................... 18,509
Transfer agent/maintenance fees ..................... 676,118
Administration fees ................................. 440,031
Directors' fees ..................................... 14,476
Professional fees ................................... 60,865
Reports to shareholders ............................. 62,486
Registration fees ................................... 49,071
Other expenses ...................................... 21,803
12b-1 distribution plan fees - Class A .............. 1,056,740
12b-1 distribution plan fees - Class B .............. 581,114
12b-1 distribution plan fees - Class C .............. 68,982
-------------
Total expenses ...................................... 6,707,987
Less: Earnings credits .............................. (826)
-------------
Net expenses ........................................ 6,707,161
-------------
Net investment loss ................................. (100,598)
-------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments ......................................... 53,906,512
-------------
Net realized gain ................................... 53,906,512
-------------
Net change in unrealized depreciation
during the period on
Investments ......................................... (10,398,098)
-------------
Net unrealized depreciation ......................... (10,398,098)
-------------
Net gain ............................................ 43,508,414
-------------
Net increase in net assets
resulting from operations ......................... $ 43,407,816
=============
- --------------------------------------------------------------------------------
See accompanying notes.
30
Security Equity Fund
Equity Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment income (loss) ...................................................... $ (100,598) $ 607,081
Net realized gain (loss) during the period on investments ......................... 53,906,512 (8,071,790)
Net change in unrealized appreciation (depreciation)
during the period on investments ................................................ (10,398,098) 89,930,127
------------- -------------
Net increase in net assets resulting from operations ............................ 43,407,816 82,465,418
------------- -------------
Distributions to shareholders from:
Net investment income
Class A ......................................................................... (684,512) --
Class B ......................................................................... -- --
Class C ......................................................................... -- --
------------- -------------
Total distributions to shareholders ............................................. (684,512) --
------------- -------------
Capital share transactions:
Proceeds from sale of shares
Class A ......................................................................... 34,438,875 52,599,625
Class B ......................................................................... 8,956,642 19,942,502
Class C ......................................................................... 2,153,270 3,455,973
Distributions reinvested
Class A ......................................................................... 627,027 --
Class B ......................................................................... -- --
Class C ......................................................................... -- --
Cost of shares redeemed
Class A ......................................................................... (111,058,761) (105,856,454)
Class B ......................................................................... (26,061,410) (35,443,343)
Class C ......................................................................... (3,010,496) (2,656,042)
------------- -------------
Net decrease from capital share transactions .................................... (93,954,853) (67,957,739)
------------- -------------
Net increase (decrease) in net assets ........................................... (51,231,549) 14,507,679
------------- -------------
Net assets:
Beginning of period ............................................................... 498,544,950 484,037,271
------------- -------------
End of period ..................................................................... $ 447,313,401 $ 498,544,950
============= =============
Accumulated undistributed net investment income (loss) at end of period ........... $ -- $ 607,081
============= =============
Capital Share Activity:
Shares sold
Class A ......................................................................... 5,383,103 9,525,481
Class B ......................................................................... 1,534,595 3,963,505
Class C ......................................................................... 351,499 647,916
Shares reinvested
Class A ......................................................................... 97,974 --
Class B ......................................................................... -- --
Class C ......................................................................... -- --
Shares redeemed
Class A ......................................................................... (17,251,738) (18,674,422)
Class B ......................................................................... (4,466,840) (6,830,650)
Class C ......................................................................... (491,760) (499,324)
- --------------------------------------------------------------------------------
See accompanying notes.
31
Security Equity Fund
Equity Series
Financial Highlights
Selected data for each share of capital stock outstanding throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002(e),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.98 $ 5.09 $ 6.36 $ 10.26 $ 9.96
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.01 0.01 0.01 -- --
Net gain (loss) on securities (realized and unrealized) 0.52 0.88 (1.28) (2.49) 0.66
----------------------------------------------------------------------
Total from investment operations 0.53 0.89 (1.27) (2.49) 0.66
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
Distributions from realized gains -- -- -- (1.40) (0.36)
Return of capital -- -- -- (0.01) --
----------------------------------------------------------------------
Total distributions (0.01) -- -- (1.41) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.50 $ 5.98 $ 5.09 $ 6.36 $ 10.26
======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 8.87% 17.49% (19.97%) (27.66%) 6.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 391,384 $ 430,161 $ 412,791 $ 563,553 $ 853,126
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) 0.08% 0.23% 0.13% 0.03% 0.03%
Total expenses 1.28% 1.25% 1.11% 1.02% 1.02%
Gross expenses(b) 1.28% 1.25% 1.11% 1.02% 1.02%
Net expensesd 1.28% 1.25% 1.11% 1.02% 1.02%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 54% 30% 23% 54%
Year Ended,
September 30,
Class B 2004 2003 2002(e),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.41 $ 4.64 $ 5.86 $ 9.65 $ 9.47
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.04) (0.03) (0.05) (0.07) (0.10)
Net gain (loss) on securities (realized and unrealized) 0.48 0.80 (1.17) (.31) 0.64
----------------------------------------------------------------------
Total from investment operations 0.44 0.77 (1.22) (2.38) 0.54
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (1.40) (0.36)
Return of capital -- -- -- (0.01) --
----------------------------------------------------------------------
Total distributions -- -- -- (1.41) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.85 $ 5.41 $ 4.64 $ 5.86 $ 9.65
======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 8.13% 16.59% (20.82%) (28.34%) 5.69%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 49,600 $ 61,733 $ 66,267 $ 96,067 $ 156,633
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.67%) (0.52%) (0.78%) (0.97%) (0.97%)
Total expenses 2.03% 2.00% 2.02% 2.02% 2.02%
Gross expenses(b) 2.03% 2.00% 2.02% 2.02% 2.02%
Net expenses(d) 2.03% 2.00% 2.02% 2.02% 2.02%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 54% 30% 23% 54%
- --------------------------------------------------------------------------------
See accompanying notes.
32
Security Equity Fund
Equity Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(e),(f),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.69 $ 4.88 $ 6.16 $ 10.07 $ 9.89
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.04) (0.03) (0.05) (0.07) (0.10)
Net gain (loss) on securities (realized and unrealized) 0.51 0.84 (1.23) (2.43) 0.64
------------------------------------------------------------------------
Total from investment operations 0.47 0.81 (1.28) (2.50) 0.54
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (1.40) (0.36)
Return of capital -- -- -- (0.01) --
------------------------------------------------------------------------
Total distributions -- -- -- (1.41) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.16 $ 5.69 $ 4.88 $ 6.16 $ 10.07
========================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 8.26% 16.60% (20.78%) (28.35%) 5.55%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 6,329 $ 6,651 $ 4,979 $ 4,230 $ 5,426
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.67%) (0.52%) (0.76%) (0.97%) (0.96%)
Total expenses 2.03% 2.00% 2.02% 2.02% 2.02%
Gross expenses(b) 2.03% 2.00% 2.02% 2.02% 2.02%
Net expenses(d) 2.03% 2.00% 2.02% 2.02% 2.02%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 54% 30% 23% 54%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Equity Series exclude the historical
financial highlights of the Total Return series Class A, B and C shares.
The assets of the Total Return Series were acquired by the Equity Series
on August 27, 2002.
(f) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(g) Effective May 1, 2002 the fee structure for Equity Series changed. Per
share information reflects this change.
- --------------------------------------------------------------------------------
See accompanying notes.
33
Security Equity Fund
Global Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO OppenheimerFunds(R)
Subadvisor, OppenheimerFunds, Inc.
[PHOTO OMITTED]
William L. Wilby
Co-Portfolio Manager
[PHOTO OMITTED]
Rajeev Bhaman
Co-Portfolio Manager
To Our Shareholders:
During the fiscal year ended September 30, 2004, the Security Global Fund's
strong performance was primarily driven by its holdings within the information
technology and consumer discretionary sectors. For the period, the Fund returned
19.26%(1), outpacing the 17.10% returned by the MSCI World Index, the Fund's
benchmark.
Markets worldwide turned in strong performances during the fourth quarter of
2003, and stayed relatively robust into the first quarter of 2004. By spring,
however, investor sentiment weakened as the background media noise focused on a
worsening situation in Iraq, rising deficits in the US, and the threat of an
oil-led rise in inflation. While these broader issues did not affect many of the
portfolio's holdings directly, they did influence overall investor psychology.
Consequently, any negative news regarding a specific industry or company was
typically followed by a significant sell-off.
Internationally, Japan continued to enjoy a remarkable turnaround. However,
China's efforts to decelerate its overheated economy and its ability to
carefully manage the slowdown raised concerns for investors. Another emerging
concern is the recent spike in oil prices. Strong demand in China, coupled with
tensions in the Middle East, drove oil from $35 a barrel to more than $50 a
barrel by the end of September.
In Europe, companies such as Siemens and Daimler Chrysler have had success in
negotiating concessions from their labor unions. Given their success, there is
reason for optimism that long-needed restructuring on the continent will finally
gain some momentum.
The new technology and mass affluence themes were the Fund's clear outperformers
during this reporting period. Both Qualcomm and Ericsson are telecommunication
equipment companies that have outperformed in a relatively weak market. Sirius,
a subscription-based radio system that broadcasts digital-quality audio
throughout the continental U.S. from orbiting satellites, was another great
performer over this period.
Fund detractors of the last 12 months included a Taiwanese semiconductor
manufacturer that suffered during the industry's sell-off. Another drag on
performance was a Japanese mobile phone carrier, whose stock was hit hard when
operating margins got squeezed in the company's attempts to gain market share
earlier in the year. Rather than wait out the stock's recovery, we recognized
our miscalculation and sold the position.
During this period we also began building several positions, including oil
service companies Transocean, Inc. and Technip S.A., both of which should
benefit from a rebound in oil exploration spurred by the hike in energy prices.
Another acquisition, Toyota Motor Corporation, was a play within our mass
affluence investment theme.
We are not confined to a particular country or region nor are we compelled to
replicate an index. Our mandate is to invest in well-managed companies with
strong competitive positions and high product demand, wherever we may find them.
Sincerely,
William L. Wilby
Co-Portfolio Manager
Rajeev Bhaman
Co-Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares. Investment in international
securities entail greater risks than investment in domestic securities.
- --------------------------------------------------------------------------------
34
Security Equity Fund
Global Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Global Series vs. Morgan Stanley
Capital International World Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Global Series $24,042
DATE VALUE
---- -----
9/30/1994 9,425.00
12/31/1994 9,650.65
3/31/1995 9,528.49
6/30/1995 9,735.22
9/30/1995 10,280.24
12/31/1995 10,651.32
3/31/1996 11,333.47
6/30/1996 11,947.41
9/30/1996 12,103.33
12/31/1996 12,468.84
3/31/1997 12,769.30
6/30/1997 14,056.96
9/30/1997 14,550.56
12/31/1997 13,330.32
3/31/1998 15,370.20
6/30/1998 15,038.12
9/30/1998 13,318.47
12/31/1998 15,890.04
3/31/1999 16,184.30
6/30/1999 17,617.21
9/30/1999 17,898.68
12/31/1999 24,601.67
3/31/2000 27,894.92
6/30/2000 26,876.25
9/30/2000 26,318.07
12/31/2000 25,353.66
3/31/2001 21,711.99
6/30/2001 23,248.05
9/30/2001 19,054.08
12/31/2001 22,005.39
3/31/2002 22,316.06
6/30/2002 20,210.44
9/30/2002 16,378.91
12/31/2002 16,689.58
3/31/2003 15,291.59
6/30/2003 18,467.27
9/30/2003 20,158.66
12/31/2003 23,627.75
3/31/2004 24,594.26
6/30/2004 24,283.60
9/30/2004 24,041.97
MSCI World Index $20,118
DATE VALUE
---- -----
9/30/1904 $10,000.00
12/31/1994 9,939.08
3/31/1995 10,417.85
6/30/1995 10,875.19
9/30/1995 11,495.96
12/31/1995 12,055.90
3/31/1996 12,561.40
6/30/1996 12,938.90
9/30/1996 13,125.85
12/31/1996 13,742.72
3/31/1997 13,797.30
6/30/1997 15,890.05
9/30/1997 16,360.92
12/31/1997 15,973.55
3/31/1998 18,277.59
6/30/1998 18,665.34
9/30/1998 16,444.02
12/31/1998 19,933.83
3/31/1999 20,661.51
6/30/1999 21,666.50
9/30/1999 21,362.04
12/31/1999 24,985.35
3/31/2000 25,256.80
6/30/2000 24,378.40
9/30/2000 23,171.27
12/31/2000 21,754.67
3/31/2001 18,975.02
6/30/2001 19,502.15
9/30/2001 16,712.24
12/31/2001 18,160.44
3/31/2002 18,237.62
6/30/2002 16,596.61
9/30/2002 13,558.72
12/31/2002 14,608.48
3/31/2003 13,886.05
6/30/2003 16,280.49
9/30/2003 17,083.38
12/31/2003 19,519.62
3/31/2004 20,113.52
6/30/2004 20,216.26
9/30/2004 20,118.37
$10,000 Over Ten Years
This chart assumes a $10,000 investment in Class A shares of Global Series on
September 30, 1994, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares.
- -------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 16.44%
- -------------------------------------------------------
Consumer Staples 9.77
- -------------------------------------------------------
Energy 7.19
- -------------------------------------------------------
Financials 18.12
- -------------------------------------------------------
Health Care 14.15
- -------------------------------------------------------
Industrials 4.99
- -------------------------------------------------------
Information Technology 15.95
- -------------------------------------------------------
Materials 1.48
- -------------------------------------------------------
Telecommunication Services 8.22
- -------------------------------------------------------
Utilities 0.90
- -------------------------------------------------------
Cash & other assets, less liabilities 2.79
- -------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 Since
1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
A Shares 19.26% 6.09% 9.16% N/A
- --------------------------------------------------------------------------------
A Shares with sales charge 12.41% 4.84% 8.52% N/A
- --------------------------------------------------------------------------------
B Shares 18.30% 5.66% 8.39% N/A
- --------------------------------------------------------------------------------
B Shares with CDSC 14.30% 5.66% 8.39% N/A
- --------------------------------------------------------------------------------
C Shares 18.35% 5.23% N/A 6.30%
(1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 18.35% 5.23% N/A 6.30%
(1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
- --------------------------------------------------------------------------------
See accompanying notes.
35
Security Equity Fund
Global Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- -------------------------------------------------------------------------
Global Series - Class A
Actual $1,000.00 $ 977.50 $ 8.75
Hypothetical 1,000.00 1,016.29 8.92
- -------------------------------------------------------------------------
Global Series - Class B
Actual 1,000.00 972.90 12.40
Hypothetical 1,000.00 1,012.57 12.65
- -------------------------------------------------------------------------
Global Series - Class C
Actual 1,000.00 973.50 12.40
Hypothetical 1,000.00 1,012.57 12.65
- -------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -2.25%, -2.71% and
-2.65%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.76%, 2.50%
and 2.50% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
36
Security Equity Fund
Global Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Foreign Bond - 0.0%
India - 0.0%
Hindustan Lever, Ltd., 9.00% - 2005(1) 1,036,800 $ 1,379
------------
Total foreign bond
(cost $15,941) 1,379
------------
Common Stocks - 95.9%
Australia - 0.5%
Australia & New Zealand Banking
Group, Ltd. 41,181 567,349
Leighton Holdings Ltd. 10,302 71,488
------------
638,837
------------
Bermuda - 0.7%
Ace, Ltd. 24,540 983,072
------------
983,072
------------
Brazil - 1.2%
Companhia de Bebidas das Americas
ADR 27,357 612,797
Empresa Brasileira de
Aeronautica S.A. ADR 39,068 1,031,395
Tele Norte Leste Participacoes S.A. 3 40
------------
1,644,232
------------
Canada - 2.1%
Alcan, Inc. 687 32,842
EnCana Corporation 16,008 738,072
Husky Energy, Inc. 52,280 1,271,938
Manulife Financial Corporation 18,073 791,154
------------
2,834,006
------------
Finland - 0.1%
Stora Enso Oyj (Cl.R) 11,580 156,480
------------
156,480
------------
France - 7.2%
Alcatel S.A.* 51,860 606,099
Axa 7,000 141,625
Carrefour S.A. 9,040 425,192
Essilor International S.A. 8,630 554,680
France Telecom S.A. 44,165 1,100,350
JC Decaux S.A.* 23,850 542,077
Sanofi-Aventis 34,635 2,512,204
Societe Generale 14,210 1,257,478
Societe Television Francaise(1) 17,190 487,634
Technip S.A. 8,750 1,412,775
Total S.A. 2,825 575,419
------------
9,615,533
------------
Germany - 2.9%
Allianz AG 10,646 1,072,199
BASF AG 2,992 176,327
Deutsche Post AG 10,780 209,266
MLP AG 16,949 272,395
Muenchener Rueckversicherungs-
Gesellschaft AG 800 77,064
SAP AG 8,549 1,328,294
Siemens AG 9,756 717,445
------------
3,852,990
------------
Hong Kong - 2.8%
HSBC Holdings plc 91,600 1,456,569
Hong Kong & China Gas Company, Ltd. 391,400 730,294
Hutchison Whampoa, Ltd. 71,082 556,037
Television Broadcasts, Ltd. 238,991 1,069,599
------------
3,812,499
------------
India - 2.8%
Gail India, Ltd. 14,490 60,102
Hindustan Lever, Ltd. 271,300 739,882
Icici Bank, Ltd. ADR 52,350 722,430
Infosys Technologies, Ltd. 35,532 1,309,432
Oil & Natural Gas Corporation, Ltd. 9,450 153,778
Zee Telefilms, Ltd. 229,600 758,928
------------
3,744,552
------------
Ireland - 0.5%
Anglo Irish Bank Corporation plc 38,300 707,821
------------
707,821
------------
Israel - 0.3%
Teva Pharmaceutical Industries,
Ltd. ADR 17,140 444,783
------------
444,783
------------
Italy - 0.4%
Eni SpA 26,189 586,782
------------
586,782
------------
Japan - 8.3%
Canon, Inc. 10,000 469,991
Chugai Pharmaceutical Company, Ltd. 35,900 517,580
Credit Saison Company, Ltd.** 23,700 728,966
JGC Corporation 23,000 233,934
KDDI Corporation 433 2,101,846
Keyence Corporation 2,400 504,759
Murata Manufacturing Company, Ltd. 10,900 524,157
NEC Corporation 16,750 100,152
Nikon Corporation 61,114 575,569
Nippon Telegraph & Telephone
Corporation 29 115,511
Resona Holdings, Inc.* 293,000 441,301
Seven-Eleven Japan Company, Ltd. 17,000 485,869
Sharp Corporation 41,000 563,952
Shionogi & Company, Ltd. 62,000 888,246
Shiseido Company, Ltd. 34,000 418,001
Sony Corporation 3,300 112,580
Toyota Motor Corporation 34,300 1,313,306
Trend Micro, Inc. 17,000 731,116
Yahoo Japan Corporation* 39 173,388
Yahoo Japan Corporation
(Deferred Settlement)* 39 171,973
------------
11,172,197
------------
Korea - 1.8%
Hyundai Heavy Industries Company, Ltd. 17,369 467,598
SK Telecom Company, Ltd. 2,040 310,916
SK Telecom Company, Ltd. ADR 19,700 383,165
Samsung Electronics Company, Ltd. 3,165 1,258,854
------------
2,420,533
------------
- --------------------------------------------------------------------------------
37
Security Equity Fund
Global Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Mexico - 1.7%
Fomento Economico Mexicano,
S.A. de C.V. 138,400 $ 610,526
Grupo Modelo, S.A. de C.V. (Cl.C) 191,700 465,695
Grupo Televisa S.A. ADR 20,664 1,089,613
Telefonos de Mexico S.A.
de C.V. ADR 5,050 162,963
------------
2,328,797
------------
Netherlands - 2.5%
ABN Amro Holding N.V. 56,400 1,281,192
Aegon N.V. 81,987 883,866
ING Groep N.V. 7,442 187,817
Koninklijke (Royal) Philips Electronics N.V. 7,980 182,762
Unilever N.V. 3,256 187,316
Wolters Kluwer N.V. 36,028 606,319
------------
3,329,272
------------
Norway - 0.5%
Tandberg ASA 70,900 639,854
------------
639,854
------------
Portugal - 0.2%
Electricidade de Portugal S.A. 68,100 198,763
------------
198,763
------------
Singapore - 0.6%
Singapore Press Holdings, Ltd. 291,848 821,668
------------
821,668
------------
Spain - 0.9%
Amadeus Global Travel Distribution S.A. 71,572 566,245
Antena 3 de Television S.A.* 62 3,690
Endesa S.A. 6,580 125,282
Iberdrola S.A. 7,680 159,294
Telefonica S.A. 19,203 287,394
------------
1,141,905
------------
Sweden - 4.2%
Hennes & Mauritz AB (Cl.B) 98,500 2,712,735
Telefonaktiebolaget LM Ericsson (Cl.B)* 927,600 2,879,558
------------
5,592,293
------------
Switzerland - 2.1%
Nestle S.A. 882 202,012
Novartis AG 19,945 929,606
Roche Holding AG 15,604 1,612,009
Swiss Re 2,137 122,963
------------
2,866,590
------------
Taiwan - 0.7%
Taiwan Semiconductor Manufacturing
Company, Ltd. ADR 138,387 988,083
------------
988,083
------------
United Kingdom - 14.3%
3i Group plc** 45,534 458,946
AstraZeneca plc 13,190 540,609
BAE Systems plc 54,185 220,613
BP plc ADR 20,167 1,160,207
Boots Group plc 48,462 563,436
Cable & Wireless plc* 41,750 73,849
Cadbury Schweppes plc 164,540 1,264,664
Diageo plc 20,010 249,842
Dixons Group plc 446,693 1,380,194
Lloyds TSB Group plc 16,287 127,172
Pearson plc 97,400 1,041,638
Peninsular & Oriental Steam
Navigation Company 29,370 139,244
Reckitt Benckiser plc 94,902 2,328,656
Reed Elsevier plc 73,355 644,450
Royal Bank of Scotland Group plc 92,019 2,657,545
Shell Transport & Trading Company plc 22,052 161,911
Smith & Nephew plc 88,400 812,618
Vodafone Group plc 2,059,090 4,936,981
WPP Group plc ADR 54,440 506,351
------------
19,268,926
------------
United States - 36.6%
Advanced Micro Devices, Inc.* 95,600 1,242,800
Affymetrix, Inc.* 20,700 635,697
Altera Corporation* 6,600 129,162
Amazon.com, Inc.* 13,800 563,868
American Express Company 20,900 1,075,514
Amgen, Inc.* 23,500 1,331,980
Applera Corporation - Applied
Biosystems Group 24,200 456,654
BEA Systems, Inc.* 71,200 491,992
Berkshire Hathaway, Inc. (Cl.B)* 350 1,004,850
Boeing Company 14,000 722,680
Burlington Resources, Inc. 16,400 669,120
Cadence Design Systems, Inc.* 44,964 586,330
Charles Schwab Corporation 44,400 408,036
ChevronTexaco Corporation 23,166 1,242,624
Circuit City Stores, Inc. 63,371 972,111
Cisco Systems, Inc.* 46,000 832,600
Citigroup, Inc. 9,966 439,700
Coach, Inc.* 8,100 343,602
Commerce Bancorp, Inc. 4,400 242,880
Corning, Inc.* 62,500 692,500
Electronic Arts, Inc.* 3,828 176,050
Eli Lilly & Company 8,000 480,400
Everest Re Group, Ltd. 6,200 460,846
Express Scripts, Inc.* 8,200 535,788
Gap, Inc. 26,200 489,940
Genentech, Inc.* 12,900 676,218
Genzyme Corporation* 12,200 663,802
Gilead Sciences, Inc.* 35,000 1,308,300
Gillette Company 25,700 1,072,718
GlobalSantaFe Corporation 44,900 1,376,185
Human Genome Sciences, Inc.* 15,300 166,923
IMS Health, Inc. 26,400 631,488
International Business Machines
Corporation 15,767 1,351,863
International Game Technology 28,500 1,024,575
J.P. Morgan Chase & Company 61,769 2,454,082
JDS Uniphase Corporation* 226,000 761,620
Juniper Networks, Inc.* 20,800 490,880
Lockheed Martin Corporation 11,700 652,626
MBNA Corporation 48,300 1,217,160
Millennium Pharmaceuticals, Inc.* 14,500 198,795
National Semiconductor Corporation* 52,000 805,480
Nektar Therapeutics* 3,000 43,440
- --------------------------------------------------------------------------------
See accompanying notes.
38
Security Equity Fund
Global Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
United States (continued)
Nektar Therapeutics*(2) 10,308 $ 119,412
Northern Trust Corporation 9,600 391,680
Northrop Grumman Corporation 12,400 661,292
Novell, Inc.* 94,400 595,664
Pfizer, Inc. 33,038 1,010,963
Qualcomm, Inc. 34,540 1,348,442
Quest Diagnostics, Inc. 13,700 1,208,614
RadioShack Corporation 15,700 449,648
Raytheon Company 29,000 1,101,420
Red Hat, Inc.* 20,000 244,800
Schering-Plough Corporation 38,600 735,716
Scientific Atlanta, Inc. 15,800 409,536
Silicon Laboratories, Inc.* 3,700 122,433
Sirius Satellite Radio, Inc.* 1,240,796 3,970,547
Starbucks Corporation* 16,800 763,728
Sun Microsystems, Inc.* 175,300 708,212
Symantec Corporation* 15,700 861,616
Transocean, Inc.* 45,600 1,631,568
Veritas Software Corporation* 15,600 277,680
Wachovia Corporation 29,908 1,404,181
------------
49,141,031
------------
Total common stocks
(cost $109,780,128) 128,931,499
------------
Preferred Stocks - 1.3%
Brazil - 0.7%
Tele Norte Leste Participacoes S.A. 69,840 920,938
------------
920,938
------------
Germany - 0.6%
Porsche AG 1,175 763,488
------------
763,488
------------
Total preferred stocks
(cost $1,725,126) 1,684,426
------------
Repurchase Agreement - 2.4%
State Street, 0.50%, dated 9-30-04,
matures 10-01-04; repurchase
amount of $3,183,964 (Collateralized
by FNMA, 1.875%, 02-15-05 with a
value of $3,249,562) $3,183,963 3,183,963
------------
Total repurchase agreement
(cost $3,183,963) 3,183,963
------------
Total investments - 99.6%
(cost $114,705,158) 133,801,267
Cash & other assets, less liabilities - 0.4% 566,199
------------
Total net assets - 100.0% $134,367,466
============
Investment Concentration
At September 30, 2004, Global Series' investment concentration by industry was
as follows:
Aerospace & Defense 0.2%
Air Freight & Logistics 3.3%
Automobiles 1.5%
Beverages 2.4%
Biotechnology 3.7%
Capital Markets 0.9%
Chemicals 0.3%
Commercial Banks 2.0%
Commercial Services & Supplies 0.4%
Communications Equipment 6.1%
Computers & Peripherals 1.5%
Construction & Engineering 0.2%
Consumer Finance 2.3%
Diversified Financial Services 8.8%
Diversified Telecommunications 4.0%
Electric Utilities 0.4%
Electronic Equipment & Instruments 0.8%
Energy Equipment & Services 1.1%
Food & Staples Retailing 1.1%
Food Products 0.3%
Gas Utilities 0.5%
Health Care Equipment & Services 1.4%
Health Care Providers & Services 1.8%
Hotels, Restaurants & Leisure Products 1.8%
Household Durables 2.6%
Household Products 2.3%
Industrial Conglomerates 0.5%
Insurance 4.1%
Internet & Catalog Retail 0.4%
Internet Software & Services 1.2%
IT Services 1.0%
Leisure Equipment & Products 0.4%
Machinery 0.3%
Marine 0.1%
Media 8.6%
Oil & Gas 6.1%
Paper & Forest Products 1.1%
Personal Products 1.1%
Pharmaceuticals 7.3%
Semiconductors & Semiconductor Equipment 2.4%
Software 3.0%
Specialty Retail 1.1%
Textiles, Apparel & Luxury Goods 2.6%
Wireless Telecommunications 4.2%
Repurchase agreement 2.4%
Cash & other assets, less liabilities 0.4%
------------
100.0%
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $116,271,272.
* Non-income producing security
** Passive Foreign Investment Company
ADR (American Depositary Receipt)
plc (public limited company)
(1) Principal amount on foreign bond is reflected in local currency (e.g.
Indian Rupee) while market value is reflected in U.S. dollars.
(2) Security is restricted. The total market value of restricted securities is
$119,412 (cost $117,000), or 0.0% of total net assets. The acquisition
date was August 5, 2004.
- --------------------------------------------------------------------------------
See accompanying notes.
39
Security Equity Fund
Global Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ................................ $ 133,801,267
Cash ................................................... 161,514
Cash denominated in a foreign currency,
at value(2) .......................................... 154,854
Receivables:
Fund shares sold ..................................... 59,871
Securities sold ...................................... 563,845
Interest ............................................. 3,027
Dividends ............................................ 156,340
Foreign taxes recoverable ............................... 14,400
Prepaid expenses ........................................ 17,417
-------------
Total assets ............................................ 134,932,535
-------------
Liabilities:
Payable for:
Securities purchased ................................. 128,347
Fund shares redeemed ................................. 99,669
Management fees ...................................... 108,363
Transfer and administration fees ..................... 47,856
Professional fees .................................... 7,513
12b-1 distribution plan fees ......................... 162,534
Other ................................................ 10,787
-------------
Total liabilities ....................................... 565,069
-------------
Net Assets .............................................. $ 134,367,466
=============
Net assets consist of:
Paid in capital ......................................... $ 133,885,738
Accumulated net investment loss ......................... (315,022)
Accumulated undistributed net realized
loss on sale of investments
and foreign currency transactions .................... (18,303,047)
Net unrealized appreciation in value of
investments and translation of assets
and liabilities in foreign currency .................. 19,099,797
-------------
Net assets .............................................. $ 134,367,466
=============
Class A:
Capital shares outstanding .............................. 7,069,081
Net assets .............................................. $ 98,450,117
Net asset value and redemption price
per share ............................................ $ 13.93
=============
Maximum offering price per share
(net asset value divided by 94.25%) ..................... $ 14.78
=============
Class B:
Capital shares outstanding .............................. 2,193,037
Net assets .............................................. $ 28,360,067
Net asset value, offering and redemption
price per share (excluding applicable
contingent deferred sales charge) .................... $ 12.93
=============
Class C:
Capital shares outstanding .............................. 571,720
Net assets .............................................. $ 7,557,282
Net asset value, offering and redemption
price per share (excluding applicable
contingent deferred sales charge) .................... $ 13.22
=============
(1) Investments, at cost ................................ $ 114,705,158
(2) Cash denominated in a foreign currency,
at cost ............................................. 150,746
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ............................................ $ 1,903,155
Interest ............................................. 19,313
-------------
1,922,468
Less: Foreign tax expense ............................ (134,753)
-------------
Total investment income .............................. 1,787,715
-------------
Expenses:
Management fees ...................................... 1,134,113
Custodian fees ....................................... 82,133
Transfer agent/maintenance fees ...................... 251,505
Administration fees .................................. 174,941
Directors' fees ...................................... 3,504
Professional fees .................................... 38,568
Reports to shareholders .............................. 15,520
Registration fees .................................... 46,905
Other expenses ....................................... 4,213
12b-1 distribution plan fees - Class A ............... 203,110
12b-1 distribution plan fees - Class B ............... 243,589
12b-1 distribution plan fees - Class C ............... 78,082
-------------
Total expenses ....................................... 2,276,183
Less: Earnings credits ............................... (921)
-------------
Net expenses ......................................... 2,275,262
-------------
Net investment loss .................................. (487,547)
-------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) during the period on
Investments .......................................... 4,102,643
Foreign currency transactions ........................ (87,256)
-------------
Net realized gain .................................. 4,015,387
-------------
Net change in unrealized appreciation
(depreciation) during the period on
Investments .......................................... 13,437,501
Translation of assets and liabilities
denominated in foreign currencies .................... (3,102)
-------------
Net unrealized appreciation .......................... 13,434,399
-------------
Net gain ............................................. 17,449,786
-------------
Net increase in net assets
resulting from operations .......................... $ 16,962,239
=============
- --------------------------------------------------------------------------------
See accompanying notes.
40
Security Equity Fund
Global Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ................................................................. $ (487,547) $ (219,964)
Net realized gain (loss) during the period on investments
and foreign currency transactions ................................................. 4,015,387 (8,868,831)
Net change in unrealized appreciation during the period on
investments and translation of assets and liabilities in foreign currencies ....... 13,434,399 22,337,055
------------- -------------
Net increase in net assets resulting from operations ................................ 16,962,239 13,248,260
------------- -------------
Capital share transactions:
Proceeds from sale of shares
Class A ........................................................................... 62,153,125 170,505,008
Class B ........................................................................... 13,008,655 2,446,819
Class C ........................................................................... 2,011,154 1,296,276
Issuance of shares in connection with international Series Merger (Note 8)
Class A ........................................................................... 4,450,969 --
Class B ........................................................................... 2,248,383 --
Class C ........................................................................... 2,646,183 --
Cost of shares redeemed
Class A ........................................................................... (22,537,310) (187,958,287)
Class B ........................................................................... (7,327,595) (8,037,983)
Class C ........................................................................... (3,745,740) (993,174)
------------- -------------
Net increase (decrease) from capital share transactions ............................. 52,907,824 (22,741,341)
------------- -------------
Net increase (decrease) in net assets ............................................... 69,870,063 (9,493,081)
------------- -------------
Net assets:
Beginning of period ................................................................. 64,497,403 73,990,484
------------- -------------
End of period ....................................................................... $ 134,367,466 $ 64,497,403
============= =============
Accumulated net investment loss at end of period .................................... $ (315,022) $ (277,637)
============= =============
Capital Share Activity:
Shares sold
Class A ........................................................................... 4,739,362 17,102,956
Class B ........................................................................... 1,072,788 259,359
Class C ........................................................................... 162,899 135,732
Shares issued in connection with International Series merger
Class A ........................................................................... 366,909 --
Class B ........................................................................... 198,022 --
Class C ........................................................................... 228,231 --
Shares redeemed
Class A ........................................................................... (1,693,741) (18,807,897)
Class B ........................................................................... (584,090) (891,673)
Class C ........................................................................... (296,232) (104,715)
- --------------------------------------------------------------------------------
See accompanying notes.
41
Security Equity Fund
Global Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004(h) 2003 2002(e),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 11.68 $ 9.49 $ 11.04 $ 18.86 $ 13.99
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.03) (0.03) (0.05) (0.08) (0.11)
Net gain (loss) on securities (realized and unrealized) 2.28 2.22 (1.50) (4.33) 6.47
-----------------------------------------------------------------------
Total from investment operations 2.25 2.19 (1.55) (4.41) 6.36
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (3.41) (1.49)
-----------------------------------------------------------------------
Total distributions -- -- -- (3.41) (1.49)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.93 $ 11.68 $ 9.49 $ 11.04 $ 18.86
=======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 19.26% 23.08% (14.04%) (27.60%) 47.04%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 98,450 $ 42,711 $ 50,893 $ 48,089 $ 60,909
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.20%) (0.26%) (0.46%) (0.57%) (0.62%)
Total expenses 1.79% 2.00% 1.85% 1.90% 1.92%
Gross expenses(b) 1.79% 2.00% 1.85% 1.90% 1.92%
Net expenses(d) 1.79% 2.00% 1.85% 1.90% 1.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 62% 36% 38% 92%
Year Ended
September 30,
Class B 2004(h) 2003 2002(e),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.93 $ 8.89 $ 10.38 $ 18.00 $ 13.45
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.04) (0.10) (0.14) (0.17)
Net gain (loss) on securities (realized and unrealized) 2.13 2.08 (1.39) (4.07) 6.21
-----------------------------------------------------------------------
Total from investment operations 2.00 2.04 (1.49) (4.21) 6.04
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (3.41) (1.49)
-----------------------------------------------------------------------
Total distributions -- -- -- (3.41) (1.49)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.93 $ 10.93 $ 8.89 $ 10.38 $ 18.00
=======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 18.30% 22.95% (14.35%) (27.86%) 46.53%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 28,360 $ 16,461 $ 19,021 $ 23,533 $ 30,951
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.00%) (0.42%) (0.89%) (1.07%) (0.96%)
Total expenses 2.54% 2.18% 2.28% 2.39% 2.29%
Gross expenses(b) 2.54% 2.18% 2.28% 2.39% 2.29%
Net expenses(d) 2.54% 2.18% 2.28% 2.39% 2.29%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 62% 36% 38% 92%
- --------------------------------------------------------------------------------
See accompanying notes.
42
Security Equity Fund
Global Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004(h) 2003 2002(e),(f),(g) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 11.17 $ 9.14 $ 10.72 $ 18.55 $ 13.90
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.09) (0.15) (0.21) (0.26)
Net gain (loss) on securities (realized and unrealized) 2.18 2.12 (1.43) (4.21) 6.40
------------------------------------------------------------------------
Total from investment operations 2.05 2.03 (1.58) (4.42) 6.14
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (3.41) (1.49)
------------------------------------------------------------------------
Total distributions -- -- -- (3.41) (1.49)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.22 $ 11.17 $ 9.14 $ 10.72 $ 18.55
========================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 18.35% 22.21% (14.74%) (28.20%) 45.67%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 7,557 $ 5,326 $ 4,076 $ 3,569 $ 2,691
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.02%) (0.96%) (1.33%) (1.57%) (1.53%)
Total expenses 2.54% 2.77% 2.74% 2.91% 2.92%
Gross expenses(b) 2.54% 2.77% 2.74% 2.91% 2.92%
Net expenses(d) 2.54% 2.77% 2.74% 2.91% 2.92%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 25% 62% 36% 38% 92%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) As required, effective October 1, 2001, the Funds adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended September 30, 2002, was to increase net investment
income per share by less than 1/2 of a cent, decrease net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase the ratio of net investment income to average net assets from
0.06% to 0.07%. Per share, ratios and supplemental data for periods prior
to October 1, 2001 have not been restated to reflect this change in
presentation.
(f) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(g) Effective May 1, 2002 the fee structure for Global Series changed. Per
share information reflects this change.
(h) The financial highlights for the Global Series exclude the historical
financial highlights of the International Series Class A, B and C shares.
The assets of the International Series were acquired by the Global Series
on October 3, 2003.
- --------------------------------------------------------------------------------
See accompanying notes.
43
Security Equity Fund
Large Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
Mark Mitchell
Portfolio Manager
To Our Shareholders:
Fiscal year 2004 was a normal year in many respects. Market returns were
positive, but not as spectacular as in fiscal year 2003. The Large Cap Growth
Series returned 4.27%(1) over the one-year period ended September 30, 2004,
lagging the benchmark Russell 1000 Growth Index's return of 7.51% and the Fund's
peer group median return of 6.92%. As in 2003, the market favored lower-quality,
higher-beta stocks, and in that environment, the Fund tends to underperform.
Although disappointing for this particular period, we believe that our approach
delivers positive performance over the long term.
Our approach to managing Security Large Cap Growth Fund is based on our
investment philosophy described below.
We understand a company's growth potential over the long-term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking.
For this Fund, we apply this philosophy to a broad range of growth companies.
Industrials and Consumer Staples Stocks
are Top Performers
The Fund's industrial holdings were up 21% compared to 14% for the index.
Positions in General Dynamics and Federal Express contributed positively to the
Fund. General Dynamics benefited from a recovery in its aircraft business and
strong defense spending. Federal Express had strong results driven by continued
economic growth and business model efficiencies.
The Fund's consumer staples holdings performed well, appreciating 9% compared to
6% for the index. Avon Products benefited from continued operational execution,
and CVS was strong due to a continued turnaround and the belief in its ability
to add shareholder value through the acquisition of Eckerd.
Technology and Healthcare Disappointing
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Texas Instruments and Emulex had a negative impact on the Fund.
Texas Instruments was down 17% as a result of an industry-wide slowdown and a
corresponding inventory correction in semiconductors. Emulex experienced
unexpected new competition that eroded part of its core business, thus reducing
its future growth opportunities.
Overall, healthcare as a sector underperformed the index. Cardinal Health and
Amgen both had a negative impact on the fund. Cardinal was down more than 18% as
a result of the industry undergoing a significant change in how pharmaceutical
manufacturers price and distribute their products. Amgen was down more than 12%
due to fears about reimbursement for some of their key products.
2005 Market Outlook
Our outlook for the equity market continues to be guardedly optimistic. As in
prior years, there are many potential positive and negative influences. We
believe the most significant issue in 2005 will be a slowing profit cycle. In
such an environment more normal equity returns are likely. Skilled stock picking
versus owning the market index will be critical. This favors our focus on
identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging(2) is a sound way to
build long-term value. We recognize there are many investment fund alternatives
available today and thank you for your business and the confidence you place in
us.
Sincerely,
Mark Mitchell
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares. Fee waivers and/or reimbursements
reduced Fund expenses and in the absence of such waivers, the performance
quoted would be reduced.
(2) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
- --------------------------------------------------------------------------------
44
Security Equity Fund
Large Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Large Cap Growth Series vs.
Russell 1000 Growth Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Large Cap Growth Series $5,523
DATE VALUE
---- -----
5/1/2000 9,425.00
6/30/2000 9,641.85
9/30/2000 9,151.74
12/31/2000 7,558.91
3/31/2001 6,314.80
6/30/2001 6,767.20
9/30/2001 5,655.04
12/31/2001 6,380.77
3/31/2002 6,164.00
6/30/2002 5,023.56
9/30/2002 4,335.53
12/31/2002 4,646.56
3/31/2003 4,618.28
6/30/2003 5,221.49
9/30/2003 5,296.89
12/31/2003 5,739.87
3/31/2004 5,739.87
6/30/2004 5,824.69
9/30/2004 5,523.09
Russell 1000 Growth Index $5,513
DATE VALUE
---- -----
5/1/2000 $10,000.00
6/30/2000 10,215.80
9/30/2000 9,665.85
12/31/2000 7,603.20
3/31/2001 6,014.12
6/30/2001 6,520.45
9/30/2001 5,254.83
12/31/2001 6,050.69
3/31/2002 5,894.05
6/30/2002 4,793.50
9/30/2002 4,072.29
12/31/2002 4,363.25
3/31/2003 4,316.46
6/30/2003 4,933.91
9/30/2003 5,127.23
12/31/2003 5,661.58
3/31/2004 5,705.90
6/30/2004 5,816.42
9/30/2004 5,512.78
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Large Cap Growth
Series on May 1, 2000, reflects deduction of the 5.75% sales load and assumes
all dividends reinvested. The chart does not reflect the deduction of taxes that
a shareholder would pay on distributions or the redemption of fund shares.
- -------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 16.38%
- -------------------------------------------------------
Consumer Staples 10.97
- -------------------------------------------------------
Energy 1.20
- -------------------------------------------------------
Exchange Traded Funds 3.00
- -------------------------------------------------------
Financials 8.81
- -------------------------------------------------------
Health Care 23.64
- -------------------------------------------------------
Industrials 11.83
- -------------------------------------------------------
Information Technology 21.54
- -------------------------------------------------------
Cash & other assets, less liabilities 2.63
- -------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 1 Year Since Inception
- --------------------------------------------------------------------------------
A Shares 4.27% (11.39%) (5-1-00)
- --------------------------------------------------------------------------------
A Shares with sales charge (1.73%) (12.57%) (5-1-00)
- --------------------------------------------------------------------------------
B Shares 3.67% (12.12%) (5-1-00)
- --------------------------------------------------------------------------------
B Shares with CDSC (0.33%) (12.52%) (5-1-00)
- --------------------------------------------------------------------------------
C Shares 3.47% (12.05%) (5-1-00)
- --------------------------------------------------------------------------------
C Shares with CDSC 3.47% (12.05%) (5-1-00)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
- --------------------------------------------------------------------------------
See accompanying notes.
45
Security Equity Fund
Large Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- ------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- ------------------------------------------------------------------------
Large Cap Growth
Series - Class A
Actual $1,000.00 $ 962.20 $ 9.17
Hypothetical 1,000.00 1,015.79 9.42
- ------------------------------------------------------------------------
Large Cap Growth
Series - Class B
Actual 1,000.00 959.30 12.56
Hypothetical 1,000.00 1,012.32 12.90
- ------------------------------------------------------------------------
Large Cap Growth
Series - Class C
Actual 1,000.00 957.80 12.55
Hypothetical 1,000.00 1,012.32 12.90
- ------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -3.78%, -4.07% and
-4.22%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.86%, 2.55%
and 2.55% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
46
Security Equity Fund
Large Cap Growth Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks - 97.4%
Aerospace & Defense - 4.3%
General Dynamics Corporation 3,700 $ 377,770
United Technologies Corporation 4,300 401,534
------------
779,304
------------
Air Freight & Logistics - 2.1%
FedEx Corporation 4,500 385,605
------------
385,605
------------
Airlines - 1.6%
Southwest Airlines Company 20,700 281,934
------------
281,934
------------
Biotechnology - 5.5%
Amgen, Inc.* 14,400 816,192
Chiron Corporation* 4,100 181,220
------------
997,412
------------
Brewers - 2.0%
Anheuser-Busch Companies, Inc. 7,200 359,640
------------
359,640
------------
Broadcasting & Cable TV - 1.6%
Comcast Corporation* 10,200 288,048
------------
288,048
------------
Communications Equipment - 3.5%
ADC Telecommunications, Inc.* 112,500 203,625
Cisco Systems, Inc.* 23,400 423,540
------------
627,165
------------
Computer Hardware - 2.9%
Dell, Inc.* 14,700 523,320
------------
523,320
------------
Consumer Finance - 1.5%
MBNA Corporation 10,900 274,680
------------
274,680
------------
Data Processing & Outsourced Services - 4.0%
First Data Corporation 16,500 717,750
------------
717,750
------------
Department Stores - 1.8%
Kohl's Corporation* 6,750 325,283
------------
325,283
------------
Drug Retail - 2.1%
CVS Corporation 9,000 379,170
------------
379,170
------------
Exchange Traded Funds - 3.0%
iShares Russell 1000 Growth Index Fund 12,000 543,360
------------
543,360
------------
General Merchandise Stores - 1.7%
Target Corporation 6,600 298,650
------------
298,650
------------
Health Care Equipment - 3.1%
Boston Scientific Corporation* 14,200 564,166
------------
564,166
------------
Home Improvement Retail - 4.5%
Home Depot, Inc. 11,800 462,560
Lowe's Companies, Inc. 6,600 358,710
------------
821,270
------------
Hotels, Resorts & Cruise Lines - 1.4%
Carnival Corporation 5,500 260,095
------------
260,095
------------
Hypermarkets & Supercenters - 3.8%
Wal-Mart Stores, Inc. 12,500 665,000
------------
665,000
------------
Industrial Conglomerates - 3.8%
3M Company 1,500 119,955
General Electric Company 17,100 574,218
------------
694,173
------------
Internet Retail - 1.0%
eBay, Inc.* 1,900 174,686
------------
174,686
------------
Investment Banking & Brokerage - 1.1%
Goldman Sachs Group, Inc. 2,200 205,128
------------
205,128
------------
Managed Health Care - 2.0%
UnitedHealth Group, Inc. 4,900 361,326
------------
361,326
------------
Motorcycle Manufacturers - 1.1%
Harley-Davidson, Inc. 3,200 190,208
------------
190,208
------------
Movies & Entertainment - 3.4%
Viacom, Inc. (Cl.B) 18,100 607,436
------------
607,436
------------
Multi-Line Insurance - 3.7%
American International Group, Inc. 9,900 673,101
------------
673,101
------------
Oil & Gas Equipment & Services - 1.2%
BJ Services Company 3,000 157,230
Halliburton Company 1,800 60,642
------------
217,872
------------
Other Diversified Financial Services - 2.4%
Citigroup, Inc. 10,000 441,200
------------
441,200
------------
- --------------------------------------------------------------------------------
See accompanying notes.
47
Security Equity Fund
Large Cap Growth Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- -------------------------------------------------------------------------------
Common Stocks (continued)
Pharmaceuticals - 13.0%
Eli Lilly & Company 2,400 $ 144,120
Johnson & Johnson 10,600 597,098
Merck & Company, Inc. 4,100 135,300
Pfizer, Inc. 42,000 1,285,200
Wyeth 5,200 194,480
------------
2,356,198
------------
Semiconductor Equipment - 0.5%
Applied Materials, Inc.* 5,800 95,642
------------
95,642
------------
Semiconductors - 2.9%
Analog Devices, Inc. 1,400 54,292
Applied Micro Circuits Corporation* 14,500 45,385
Intel Corporation 20,800 417,248
------------
516,925
------------
Soft Drinks - 3.2%
Cott Corporation* 3,500 100,940
PepsiCo, Inc. 9,900 481,635
------------
582,575
------------
Systems Software - 7.8%
Microsoft Corporation 32,100 887,565
Oracle Corporation* 31,900 359,832
Veritas Software Corporation* 9,600 170,880
------------
1,418,277
------------
Total common stocks
(cost $17,188,460) 17,626,599
------------
Repurchase Agreement - 6.5%
State Street, 0.50%, dated 9-30-04,
matures 10-01-04; repurchase amount
of $1,172,650 (Collateralized by
FHLB 1.875%, 02-15-05 with a
value of $1,196,680) $ 1,172,634 1,172,634
------------
Total repurchase agreement
(cost $1,172,634) - 6.5% 1,172,634
------------
Total investments (cost $18,361,094) - 103.9% 18,799,233
Liabilities, less cash & other assets - (3.9%) (696,898)
------------
Total net assets - 100.0% $ 18,102,335
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $18,643,515.
* Non-income producing security
- --------------------------------------------------------------------------------
See accompanying notes.
48
Security Equity Fund
Large Cap Growth Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ................................ $ 18,799,233
Receivables:
Fund shares sold ..................................... 6,085
Securities sold ...................................... 82,268
Dividends ............................................ 6,328
Prepaid expenses ........................................ 15,549
------------
Total assets ............................................ 18,909,463
------------
Liabilities:
Cash overdraft .......................................... 17
Payable for:
Securities purchased ................................. 673,058
Fund shares redeemed ................................. 20,568
Management fees ...................................... 11,164
Custodian fees ....................................... 506
Transfer and administration fees ..................... 19,608
Professional fees .................................... 7,325
12b-1 distribution plan fees ......................... 72,945
Other ................................................ 1,937
------------
Total liabilities ....................................... 807,128
------------
Net Assets .............................................. $ 18,102,335
============
Net assets consist of:
Paid in capital ......................................... $ 20,345,442
Accumulated undistributed net investment
income ............................................... --
Accumulated undistributed net realized
loss on sale of investments .......................... (2,681,246)
Net unrealized appreciation in value
of investments ....................................... 438,139
------------
Net assets .............................................. $ 18,102,335
============
Class A:
Capital shares outstanding .............................. 1,955,034
Net assets .............................................. $ 11,455,236
Net asset value and redemption price
per share ............................................ $ 5.86
============
Maximum offering price per share
(net asset value divided by 94.25%) .................. $ 6.22
============
Class B:
Capital shares outstanding .............................. 630,283
Net assets .............................................. $ 3,559,241
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) .................... $ 5.65
============
Class C:
Capital shares outstanding .............................. 544,307
Net assets .............................................. $ 3,087,858
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) .................... $ 5.67
============
(1) Investments, at cost ................................ $ 18,361,094
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ............................................ $ 266,177
Interest ............................................. 2,122
------------
Total investment income .............................. 268,299
------------
Expenses:
Management fees ...................................... 262,722
Custodian fees ....................................... 7,503
Transfer agent/maintenance fees ...................... 119,966
Administration fees .................................. 25,529
Directors' fees ...................................... 912
Professional fees .................................... 9,186
Reports to shareholders .............................. 2,818
Registration fees .................................... 28,110
Other expenses ....................................... 1,789
12b-1 distribution plan fees - Class A ............... 39,926
12b-1 distribution plan fees - Class B ............... 67,969
12b-1 distribution plan fees - Class C ............... 35,048
------------
Total expenses ....................................... 601,478
Less: Expenses waived ................................ (43,011)
Earnings credits ............................... (871)
------------
Net expenses ............................................ 557,596
------------
Net investment loss ..................................... (289,297)
------------
Net Realized and Unrealized Gain (Loss):
Net realized gain during the period on
Investments .......................................... 1,338,820
------------
Net realized gain .................................. 1,338,820
------------
Net change in unrealized depreciation
during the period on
Investments .......................................... (146,746)
------------
Net unrealized depreciation .......................... (146,746)
------------
Net gain ............................................. 1,192,074
------------
Net increase in net assets
resulting from operations .......................... $ 902,777
============
- --------------------------------------------------------------------------------
See accompanying notes.
49
Security Equity Fund
Large Cap Growth Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ......................................................... $ (289,297) $ (183,113)
Net realized gain (loss) during the period on investments ................... 1,338,820 (2,266,684)
Net change in unrealized appreciation (depreciation)
during the period on investments .......................................... (146,746) 5,276,183
------------ ------------
Net increase in net assets resulting from operations ........................ 902,777 2,826,386
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A ................................................................... 11,629,566 9,276,514
Class B ................................................................... 2,089,630 5,959,453
Class C ................................................................... 906,174 790,028
Cost of shares redeemed
Class A ................................................................... (16,966,073) (4,326,342)
Class B ................................................................... (5,250,568) (1,646,003)
Class C ................................................................... (1,376,326) (451,972)
------------ ------------
Net increase (decrease) from capital share transactions ..................... (8,967,597) 9,601,678
------------ ------------
Net increase (decrease) in net assets ....................................... (8,064,820) 12,428,064
------------ ------------
Net assets:
Beginning of period ......................................................... 26,167,155 13,739,091
------------ ------------
End of period ............................................................... $ 18,102,335 $ 26,167,155
============ ============
Accumulated net investment income at end of period .......................... $ -- $ --
============ ============
Capital Share Activity:
Shares sold
Class A ................................................................... 1,956,772 1,662,989
Class B ................................................................... 358,069 1,088,511
Class C ................................................................... 153,643 152,477
Shares redeemed
Class A ................................................................... (2,880,964) (793,945)
Class B ................................................................... (930,168) (319,346)
Class C ................................................................... (235,580) (89,726)
- --------------------------------------------------------------------------------
See accompanying notes.
50
Security Equity Fund
LargeCap Growth Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002 2001 2000(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.62 $ 4.60 $ 6.00 $ 9.71 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.05) (0.04) (0.05) (0.08) (0.05)
Net gain (loss) on securities (realized and unrealized) 0.29 1.06 (1.35) (3.63) (0.24)
-----------------------------------------------------------------------
Total from investment operations 0.24 1.02 (1.40) (3.71) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
-----------------------------------------------------------------------
Total distributions -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.86 $ 5.62 $ 4.60 $ 6.00 $ 9.71
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.27% 22.17% (22.33%) (38.21%) (2.90%)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 11,455 $ 16,179 $ 9,243 $ 2,436 $ 2,405
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.81%) (0.71%) (1.00%) (1.10%) (1.25%)
Total expenses 1.84% 1.83% 1.99% 2.00% 1.92%
Gross expenses(b) 2.00% 1.83% 1.99% 2.15% 1.92%
Net expenses(e) 1.83% 1.83% 1.99% 1.99% 1.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 39% 12% 6% 5%
Year Ended
September 30,
Class B 2004 2003 2002 2001 2000(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.45 $ 4.50 $ 5.92 $ 9.65 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.09) (0.07) (0.11) (0.14) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.29 1.02 (1.31) (3.59) (0.27)
-----------------------------------------------------------------------
Total from investment operations 0.20 0.95 (1.42) (3.73) (0.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
-----------------------------------------------------------------------
Total distributions -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.65 $ 5.45 $ 4.50 $ 5.92 $ 9.65
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 3.67% 21.11% (23.99%) (38.65%) (3.50%)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,559 $ 6,557 $ 1,949 $ 1,955 $ 2,039
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.55%) (1.49%) (1.88%) (1.85%) (2.02%)
Total expenses 2.56% 2.59% 2.82% 2.75% 2.68%
Gross expenses(b) 2.72% 2.59% 2.82% 2.92% 2.68%
Net expenses(e) 2.56% 2.59% 2.82% 2.75% 2.61%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 39% 12% 6% 5%
- --------------------------------------------------------------------------------
See accompanying notes.
51
Security Equity Fund
Large Cap Growth Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(f) 2001 2000(d)
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.48 $ 4.52 $ 5.93 $ 9.65 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.09) (0.07) (0.11) (0.13) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.28 1.03 (1.30) (3.59) (0.27)
-----------------------------------------------------------------
Total from investment operations 0.19 0.96 (1.41) (3.72) (0.35)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
-----------------------------------------------------------------
Total distributions -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.67 $ 5.48 $ 4.52 $ 5.93 $ 9.65
=================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 3.47% 21.24% (23.78%) (38.55%) (3.50%)
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 3,088 $ 3,432 $ 2,547 $ 2,577 $ 2,102
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.58%) (1.44%) (1.88%) (1.85%) (2.00%)
Total expenses 2.61% 2.58% 2.82% 2.75% 2.66%
Gross expenses(b) 2.77% 2.58% 2.82% 2.92% 2.66%
Net expenses(e) 2.61% 2.58% 2.82% 2.75% 2.60%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 39% 12% 6% 5%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Security Large Cap Growth Series was initially capitalized on May 1, 2000,
with a net asset value of $10 per share. Percentage amounts for the
period, except total return, have been annualized.
(e) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction to custodian expenses.
(f) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002. See accompanying notes.
- --------------------------------------------------------------------------------
52
Security Equity Fund
Mid Cap Value Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
James P. Schier
Senior Portfolio Manager
To Our Shareholders:
The year ended September 30, 2004 was another solid year for the Mid Cap Value
Series. The Fund gained 25.59%(1) versus a gain of 23.43% for the S&P Mid Cap
Value Index for the 12-month period ended September 30, 2004.
Our strategy for the Mid Cap Value Series is to seek appreciable securities of
companies that are able to grow and/or reinvest in increasingly profitable
ventures and hold them over three to five years to capture the better part of
the improvements in profitability. We are focused on investing in securities
when we find opportunities, with our individual position sizes reflecting the
magnitude and the confidence in the opportunity. For the Fund, we target
securities generally priced at or below a market multiple that we believe are
able to increase their return on capital over time.
Materials, Energy, and Consumer Discretionary Stocks are Top Performers
Stock selection in the materials sector advanced 58% with the Fund overweight
the index in this sector. Potash, Phelps Dodge, Arch Coal and USEC each gained
more than 60% as tightening supply conditions helped all of these companies. In
May, we took advantage of the weakness in this sector, caused by fears of a
slowing Chinese economy, to add to positions in Phelps Dodge and to initiate a
position in Inco. Very tight supply conditions in copper and energy, combined
with limited new supply should benefit these companies extremely well in a low
positive growth environment.
With a 15.7% weight in this sector, almost twice the benchmark, our energy names
gained approximately 50%. Given oil's accelerating strength due to the
hurricanes, political disruptions and strategic inventory building, we have
reduced the Fund exposure to 11%.
Besides materials and energy, the consumer discretionary holdings gained 39%.
Coldwater Creek advanced 252% during the year as this apparel company's catalog
continues to be well received by the market and the company adds a store base.
Healthcare and Capital Goods Disappoint
In healthcare, the Fund's holdings declined 23% in value with one stock
accounting for the damage. Hollis-Eden Pharmaceuticals fell approximately 55% on
profit taking after other companies announced new therapeutic agents targeting
some of the company's areas of focus.
Stock selection in capital goods was also sub par as the Fund's holdings in this
sector gained only 11%. Quanta Services, a company that provides maintenance and
infrastructure build-out services to the electric, phone and cable industries,
declined 27%. Capstone Turbine declined 26% as the market has been slow to
respond to the company's new micro turbine products. And finally, Stonepath, a
freight logistics company, declined 64% on news that the company will be
restating financials from prior years. We believe the weakness is temporary in
nature for all three holdings.
Muted Outlook for 2005
With 2004 being the second up year in the market, the equity market is not
offering compelling opportunities and sectors lack dramatic mispricing. Our
proprietary valuation work continues to suggest there are better opportunities
in smaller capitalization names, however, the valuation discounts are less than
they were five to seven years ago. Growth names appear to offer slightly better
opportunity than value names, but equity valuations are not cheap. Profit
margins are high, and there is little opportunity for expanding earnings growth.
New issuances and secondary offerings have been abundant this past year, and it
is discomforting to find corporations so eager to sell stock.
>From a macro standpoint, we believe the economy will slow in 2005, as the
benefits of stimulus from tax cuts and mortgage refinancing seem largely spent.
At this point, the best catalyst for growth may be a significant drop in crude
oil prices and a rebound in capital deployment by corporations.
Although there are many exciting small and mid-cap companies to choose from, we
believe investors should have exposure to this portion of the equity market.
With low fixed income rates providing a significant prop to equity valuations,
it is hard to believe that equities are priced to provide double-digit returns
in the year ahead.
Sincerely,
James P. Schier
Senior Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
- --------------------------------------------------------------------------------
53
Security Equity Fund
Mid Cap Value Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Mid Cap Value Series vs.
Mid Cap Value Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Mid Cap Value Series $34,743
DATE VALUE
---- -----
5/1/1997 9,425.00
6/30/1997 10,386.43
9/30/1997 12,205.47
12/31/1997 12,202.23
3/31/1998 13,982.73
6/30/1998 13,915.00
9/30/1998 11,679.70
12/31/1998 14,172.13
3/31/1999 13,968.14
6/30/1999 16,872.51
9/30/1999 16,124.56
12/31/1999 17,264.18
3/31/2000 19,149.76
6/30/2000 18,997.70
9/30/2000 21,035.34
12/31/2000 21,872.71
3/31/2001 22,618.49
6/30/2001 24,688.89
9/30/2001 20,080.59
12/31/2001 24,342.16
3/31/2002 26,771.85
6/30/2002 24,635.98
9/30/2002 19,098.54
12/31/2002 20,725.87
3/31/2003 20,228.63
6/30/2003 25,732.17
9/30/2003 27,664.63
12/31/2003 31,468.20
3/31/2004 33,864.25
6/30/2004 34,754.22
9/30/2004 34,742.81
S&P Mid Cap Value Index $25,763
DATE VALUE
---- -----
5/1/1997 $10,000.00
6/30/1997 10,925.23
9/30/1997 12,471.40
12/31/1997 13,146.38
3/31/1998 14,440.15
6/30/1998 13,842.25
9/30/1998 11,932.74
12/31/1998 13,761.77
3/31/1999 12,653.42
6/30/1999 14,543.13
9/30/1999 13,126.61
12/31/1999 14,081.67
3/31/2000 14,964.64
6/30/2000 14,567.38
9/30/2000 16,467.23
12/31/2000 18,001.12
3/31/2001 17,381.57
6/30/2001 19,360.83
9/30/2001 16,839.62
12/31/2001 19,286.99
3/31/2002 21,200.92
6/30/2002 19,956.18
9/30/2002 16,268.59
12/31/2002 17,337.54
3/31/2003 16,331.37
6/30/2003 19,462.62
9/30/2003 20,862.99
12/31/2003 24,305.58
3/31/2004 25,646.95
6/30/2004 25,966.12
9/30/2004 25,763.46
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Mid Cap Value
Series on May 1, 1997, reflects deduction of the 5.75% sales load and assumes
all dividends reinvested. The chart does not reflect the deduction of taxes that
a shareholder would pay on distributions or the redemption of fund shares.
- --------------------------------------------------------
Portfolio Composition by Sector
Consumer Discretionary 2.19%
- --------------------------------------------------------
Consumer Staples 5.90
- --------------------------------------------------------
Energy 11.14
- --------------------------------------------------------
Exchange Traded Funds 2.38
- --------------------------------------------------------
Financials 16.15
- --------------------------------------------------------
Health Care 6.04
- --------------------------------------------------------
Industrials 16.86
- --------------------------------------------------------
Information Technology 14.13
- --------------------------------------------------------
Materials 15.48
- --------------------------------------------------------
Pharmaceuticals 0.64
- --------------------------------------------------------
Telecommunication Services 0.83
- --------------------------------------------------------
Utilities 3.93
- --------------------------------------------------------
Cash & other assets, less liabilities 4.33
- --------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
Periods Ended 9-30-04 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
A Shares 25.59% 16.57% 19.21% (5-1-97)
- --------------------------------------------------------------------------------
A Shares with sales charge 18.38% 15.20% 18.26% (5-1-97)
- --------------------------------------------------------------------------------
B Shares 24.67% 15.54% 18.11% (5-1-97)
- --------------------------------------------------------------------------------
B Shares with CDSC 20.67% 15.54% 18.11% (5-1-97)
- --------------------------------------------------------------------------------
C Shares 24.70% 15.52% 16.14% (1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 24.70% 15.52% 16.14% (1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
- --------------------------------------------------------------------------------
See accompanying notes.
54
Security Equity Fund
Mid Cap Value Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for
Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------
Fund Expenses
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------
Mid Cap Value
Series - Class A
Actual $1,000.00 $1,025.60 $ 7.38
Hypothetical 1,000.00 1,017.85 7.35
- --------------------------------------------------------------------------
Mid Cap Value
Series - Class B
Actual 1,000.00 1,021.60 11.13
Hypothetical 1,000.00 1,014.13 11.09
- --------------------------------------------------------------------------
Mid Cap Value
Series - Class C
Actual 1,000.00 1,022.00 11.13
Hypothetical 1,000.00 1,014.13 11.09
- --------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was 2.56%, 2.16% and 2.20%,
for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.45%, 2.19%
and 2.19% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
55
Security Equity Fund
Mid Cap Value Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Convertible Bond - 0.6%
Pharmaceuticals - 0.6%
Ligand Pharmaceuticals,
6.00% - 2007(2) $ 1,250,000 $ 2,198,438
------------
Total convertible bond
(cost $1,250,000) 2,198,438
------------
Preferred Stock - 0.1%
Diversified Metals & Mining - 0.1%
Arch Coal, Inc., 5.00% - 2049 4,600 411,700
------------
Total preferred stock
(cost $230,000) 411,700
------------
Common Stocks 95.0%
Aerospace & Defense - 1.3%
Aviall, Inc.* 103,600 2,113,440
Curtiss-Wright Corporation 40,000 2,289,200
------------
4,402,640
------------
Agricultural Products - 3.6%
Archer-Daniels-Midland Company 420,000 7,131,600
Corn Products International, Inc. 116,000 5,347,600
------------
12,479,200
------------
Air Freight & Logistics - 0.3%
Airnet Systems, Inc.* 168,000 722,400
Stonepath Group, Inc.*(3),(4) 480,000 393,120
------------
1,115,520
------------
Apparel Retail - 0.4%
Children's Place Retail Stores, Inc.* 49,800 1,190,718
------------
1,190,718
------------
Application Software - 0.4%
Ulticom, Inc.* 97,000 1,432,690
------------
1,432,690
------------
Biotechnology - 1.0%
Millennium Pharmaceuticals, Inc.* 240,000 3,290,400
------------
3,290,400
------------
Communications Equipment - 0.8%
Avanex Corporation* 1,112,400 2,269,296
Ciena Corporation* 250,000 495,000
------------
2,764,296
------------
Computer Storage & Peripherals - 0.7%
Adaptec, Inc.* 312,600 2,375,760
------------
2,375,760
------------
Construction & Engineering - 6.2%
Dycom Industries, Inc.* 100,000 2,839,000
MasTec, Inc.* 452,900 2,377,725
Quanta Services, Inc.* 877,600 5,309,480
Shaw Group, Inc.* 895,000 10,740,000
------------
21,266,205
------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Data Processing & Outsourced Services - 3.0%
Computer Sciences Corporation* 218,000 $ 10,267,800
------------
10,267,800
------------
Diversified Commercial Services - 1.8%
Angelica Corporation 6,100 151,768
FTI Consulting, Inc.* 320,000 6,048,000
------------
6,199,768
------------
Diversified Metals & Mining - 10.3%
Arch Coal, Inc. 185,100 6,569,199
Consol Energy, Inc. 54,300 1,894,527
Inco, Ltd.* 360,000 14,058,000
Phelps Dodge Corporation*(1) 75,000 6,902,250
Usec, Inc. 580,000 6,014,600
------------
35,438,576
------------
Electric Utilites - 3.9%
Cinergy Corporation 85,000 3,366,000
KFx Inc.* 1,320,000 10,177,200
------------
13,543,200
------------
Electrical Components & Equipment - 1.7%
Electric City Corporation* 1,518,000 2,094,840
Power-One, Inc.* 150,000 972,000
Preformed Line Products Company 1,900 57,342
Thomas & Betts Corporation* 100,000 2,682,000
------------
5,806,182
------------
Electronic Equipment Manufacturers - 3.1%
Maxwell Technologies, Inc.* 392,500 4,046,675
Merix Corporation* 453,000 4,693,080
Powell Industries, Inc.* 105,300 1,774,305
------------
10,514,060
------------
Environmental Services - 1.2%
Republic Services, Inc. 59,000 1,755,840
TRC Companies, Inc.* 120,000 2,252,400
------------
4,008,240
------------
Exchange Traded Funds - 2.4%
iShares Russell 2000 Value Index Fund 19,000 3,250,900
iShares S&P MidCap 400/Barra
Value Index Fund 43,000 4,956,610
------------
8,207,510
------------
Fertilizers & Agricultural Chemicals - 1.7%
Potash Corporation of Saskatchewan, Inc. 90,000 5,775,300
------------
5,775,300
------------
Footwear - 0.8%
Brown Shoe Company, Inc. 115,000 2,881,900
------------
2,881,900
------------
Health Care Facilities - 2.1%
Community Health Systems, Inc.* 130,000 3,468,400
Triad Hospitals, Inc.* 112,000 3,857,280
------------
7,325,680
------------
- --------------------------------------------------------------------------------
See accompanying notes.
56
Security Equity Fund
Mid Cap Value Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Health Care Services - 1.7%
Hooper Holmes, Inc. 1,076,900 $ 4,824,512
NDCHealth Corporation 62,600 1,004,730
------------
5,829,242
------------
Home Furnishings - 0.4%
Mohawk Industries, Inc.* 18,000 1,429,020
------------
1,429,020
------------
Industrial Conglomerates - 0.9%
Alleghany Corporation* 11,526 3,145,445
------------
3,145,445
------------
Industrial Machinery - 1.4%
Capstone Turbine Corporation* 1,350,000 2,065,500
Quixote Corporation 123,300 2,377,224
Valmont Industries, Inc. 12,900 269,223
------------
4,711,947
------------
Insurance Brokers - 2.3%
AON Corporation(1) 232,000 6,667,680
Hub International, Ltd. 64,000 1,157,120
------------
7,824,800
------------
Integrated Oil & Gas - 2.9%
Murphy Oil Corporation 116,000 10,065,320
------------
10,065,320
------------
Internet Software & Services - 0.5%
Global Crossing, Ltd.* 101,900 1,683,388
S1 Corporation* 11,550 92,169
------------
1,775,557
------------
Investment Banking & Brokerage - 1.0%
American Capital Strategies, Ltd. 106,600 3,340,844
------------
3,340,844
------------
IT Consulting & Other Services - 2.1%
Acxiom Corporation(1) 225,000 5,341,500
Keane, Inc.* 125,000 1,920,000
------------
7,261,500
------------
Marine - 0.8%
Frontline, Ltd. 53,000 2,501,070
Ship Finance International, Ltd. 18,550 372,855
------------
2,873,925
------------
Multi-Line Insurance - 1.4%
American Financial Group, Inc. 155,000 4,632,950
------------
4,632,950
------------
Oil & Gas Drilling - 0.7%
Nabors Industries, Ltd.* 53,000 2,509,550
------------
2,509,550
------------
Oil & Gas Equipment & Services - 1.4%
Key Energy Services, Inc.* 438,000 4,839,900
------------
4,839,900
------------
Oil & Gas Exploration & Production - 3.9%
Denbury Resources, Inc.* 264,600 6,720,840
Pioneer Natural Resources Company 188,870 6,490,373
------------
13,211,213
------------
Oil & Gas Refining, Marketing & Transportation - 2.2%
Williams Companies, Inc. 630,000 7,623,000
------------
7,623,000
------------
Other Diversified Financial Services - 1.7%
Principal Financial Group, Inc. 160,000 5,755,200
------------
5,755,200
------------
Packaged Foods & Meats - 2.3%
Hain Celestial Group, Inc.* 110,000 1,944,800
Hormel Foods Corporation 220,000 5,891,600
------------
7,836,400
------------
Paper Packaging - 2.0%
Bemis Company, Inc. 116,000 3,083,280
Sonoco Products Company 145,000 3,833,800
------------
6,917,080
------------
Pharmaceuticals - 1.3%
Hollis-Eden Pharmaceuticals, Inc.* 192,403 2,072,180
Ligand Pharmaceuticals, Inc. (Cl.B)* 226,800 2,272,536
------------
4,344,716
------------
Property & Casualty Insurance - 4.3%
First American Corporation 238,500 7,352,955
W.R. Berkley Corporation 180,000 7,588,800
------------
14,941,755
------------
Real Estate Investment Trusts - 2.9%
Bimini Mortgage Management, Inc.* 125,000 1,970,000
HomeBanc Corporation* 434,400 3,909,600
MortgageIt Holdings, Inc.* 291,800 4,216,510
------------
10,096,110
------------
Regional Banks - 2.6%
Corus Bankshares, Inc. 13,600 586,568
Iberiabank Corporation 20,100 1,160,172
Mercantile Bankshares Corporation 67,000 3,213,320
Wilmington Trust Corporation 48,200 1,745,322
Zions Bancorporation 38,000 2,319,520
------------
9,024,902
------------
Semiconductor Equipment - 1.5%
Ultratech, Inc.* 331,000 5,186,770
------------
5,186,770
------------
Semiconductors - 2.1%
Applied Micro Circuits Corporation* 760,000 2,378,800
IXYS Corporation* 435,100 3,124,018
MIPS Technologies, Inc.* 6,300 35,910
Stats Chippac, Ltd. ADR* 261,000 1,560,780
------------
7,099,508
------------
- --------------------------------------------------------------------------------
See accompanying notes.
57
Security Equity Fund
Mid Cap Value Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Specialty Chemicals - 1.4%
H.B. Fuller Company 100,000 $ 2,740,000
Material Sciences Corporation* 85,700 1,156,093
Minerals Technologies, Inc. 15,000 882,900
------------
4,778,993
------------
Specialty Stores - 0.5%
Linens 'n Things, Inc.* 81,600 1,890,672
------------
1,890,672
------------
Tires & Rubber - 0.0%
Bandag, Inc. 3,400 148,920
------------
148,920
------------
Trucking - 1.3%
SCS Transportation, Inc.* 11,000 208,340
Werner Enterprises, Inc. 225,000 4,344,750
------------
4,553,090
------------
Wireless Telecommunication Services - 0.8%
Wireless Facilities, Inc.* 411,400 2,867,458
------------
2,867,458
------------
Total common stocks
(cost $261,084,863) 326,801,432
------------
Warrants - 0.0%
Electric City Corporation 442,750 130,620
------------
Total warrants
(cost $414,564) 130,620
------------
U.S. Government Sponsored Agencies - 4.1%
Federal Home Loan Bank,
1.74%, 10-22-04 $ 2,000,000 1,997,970
Federal Home Loan Mortgage
Corporation, 1.735%, 10-20-04 $ 1,600,000 1,598,535
Federal National Mortgage Association:
1.67%, 10-05-04 $ 2,000,000 1,999,629
1.72%, 10-07-04 $ 3,398,000 3,397,026
1.73%, 10-08-04 $ 1,692,000 1,691,431
1.72%, 10-12-04 $ 1,426,000 1,425,250
1.73%, 10-13-04 $ 1,993,000 1,991,851
------------
10,505,187
------------
Total U.S. Government sponsored agencies
(cost $14,101,692) 14,101,692
------------
Principal Market
Amount or Value
- --------------------------------------------------------------------------------
Repurchase Agreement - 0.2%
United Missouri Bank, 1.35%, dated 9-30-04,
matures 10-01-04; repurchase amount
of $528,020 (Collateralized by US
Treasury Note, 10-31-04 with a
value of $544,000) $ 538,000 $ 538,000
------------
Total repurchase agreement
(cost $538,000) 538,000
------------
Total investments (cost $277,619,119) - 100.0% 344,181,882
Cash & other assets, less liabilities - 0.0% 259,726
------------
Total net assets - 100.0% $344,441,608
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $277,853,097.
* Non-income producing security
ADR (American Depositary Receipt)
(1) Security is segregated as collateral for written option contracts.
(2) Security is a 144A Series. The total market value of 144A securities is
$2,198,438 (cost $1,250,000), or 0.6% of total net assets.
(3) Security is a restricted security. The total market value of restricted
securities is $393,120 (cost $648,000), or 0.1% of total net assets. The
acquisition date was February 25, 2003.
(4) Security is fair valued by the Board of Directors. The total market value
of the fair valued securities is $393,120 (cost $648,000), or 0.1% of
total net asets.
- --------------------------------------------------------------------------------
See accompanying notes.
58
Security Equity Fund
Mid Cap Value Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ............................... $ 344,181,882
Cash ................................................... 6,144
Receivables:
Fund shares sold .................................... 775,897
Securities sold ..................................... 3,114,220
Interest ............................................ 28,125
Dividends ........................................... 207,010
Prepaid expenses ....................................... 28,514
-------------
Total assets ........................................... 348,341,792
-------------
Liabilities:
Payable for:
Securities purchased ................................ 2,356,409
Fund shares redeemed ................................ 323,490
Written options, at value ........................... 659,350
Management fees ..................................... 247,004
Custodian fees ...................................... 3,200
Transfer and administration fees .................... 66,064
Professional fees ................................... 23,760
12b-1 distribution plan fees ........................ 193,390
Other ............................................... 27,517
-------------
Total liabilities ...................................... 3,900,184
-------------
Net Assets ............................................. $ 344,441,608
=============
Net assets consist of:
Paid in capital ........................................ $ 250,254,292
Accumulated undistributed net investment
income .............................................. --
Accumulated undistributed net realized
gain on sale of investments
and options ......................................... 27,920,496
Net unrealized appreciation in
value of investments and options .................... 66,266,820
-------------
Net assets ............................................. $ 344,441,608
=============
Class A:
Capital shares outstanding ............................. 7,083,432
Net assets ............................................. $ 215,658,374
Net asset value and redemption price
per share ........................................... $ 30.45
=============
Maximum offering price per share
(net asset value divided by 94.25%) ................. $ 32.31
=============
Class B:
Capital shares outstanding ............................. 2,631,592
Net assets ............................................. $ 74,650,296
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ................... $ 28.37
=============
Class C:
Capital shares outstanding ............................. 1,876,655
Net assets ............................................. $ 54,132,938
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ................... $ 28.85
=============
(1) Investments, at cost ............................... $ 277,619,119
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ........................................... $ 3,165,062
Interest ............................................ 341,154
-------------
Total investment income ............................. 3,506,216
-------------
Expenses:
Management fees ..................................... 2,785,747
Custodian fees ...................................... 16,337
Transfer agent/maintenance fees ..................... 491,278
Administration fees ................................. 269,513
Directors' fees ..................................... 9,704
Professional fees ................................... 34,086
Reports to shareholders ............................. 33,188
Registration fees ................................... 49,150
Other expenses ...................................... 8,317
12b-1 distribution plan fees - Class A .............. 462,233
12b-1 distribution plan fees - Class B .............. 686,953
12b-1 distribution plan fees - Class C .............. 458,708
-------------
Total expenses ...................................... 5,305,214
Less:
Earnings credits ................................ (973)
-------------
Net expenses ....................................... 5,304,241
-------------
Net investment loss ................................ (1,798,025)
-------------
Net Realized and Unrealized Gain (Loss):
Net realized gain during the period on
Investments ......................................... 28,591,187
Options written ..................................... 1,345,369
-------------
Net realized gain ................................. 29,936,556
-------------
Net change in unrealized appreciation
(depreciation) during the period on
Investments ......................................... 29,761,033
Options written ..................................... (399,771)
-------------
Net unrealized appreciation ......................... 29,361,262
-------------
Net gain ............................................ 59,297,818
-------------
Net increase in net assets
resulting from operations ....................... $ 57,499,793
=============
- --------------------------------------------------------------------------------
See accompanying notes.
59
Security Equity Fund
Mid Cap Value Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ............................................................. $ (1,798,025) $ (994,030)
Net realized gain during the period on investments and options written .......... 29,936,556 2,854,877
Net change in unrealized appreciation during the period on
investments and options written ............................................... 29,361,262 53,000,947
------------- -------------
Net increase in net assets resulting from operations ............................ 57,499,793 54,861,794
------------- -------------
Distributions to shareholders from:
Net realized gain
Class A ....................................................................... (1,473,564) --
Class B ....................................................................... (633,167) --
Class C ....................................................................... (407,446) --
------------- -------------
Total distributions to shareholders ........................................... (2,514,177) --
------------- -------------
Capital share transactions:
Proceeds from sale of shares
Class A ....................................................................... 132,501,639 65,771,619
Class B ....................................................................... 19,430,639 14,474,911
Class C ....................................................................... 21,596,162 10,825,157
Distributions reinvested
Class A ....................................................................... 1,356,918 --
Class B ....................................................................... 610,765 --
Class C ....................................................................... 381,240 --
Cost of shares redeemed
Class A ....................................................................... (65,062,200) (51,319,933)
Class B ....................................................................... (12,576,287) (13,136,730)
Class C ....................................................................... (9,550,640) (5,174,008)
------------- -------------
Net increase from capital share transactions .................................. 88,688,236 21,441,016
------------- -------------
Net increase in net assets .................................................... 143,673,852 76,302,810
Net assets:
Beginning of period ............................................................. 200,767,756 124,464,946
------------- -------------
End of period ................................................................... $ 344,441,608 $ 200,767,756
============= =============
Accumulated undistributed net investment income (loss) at end of period ......... $ -- $ 146,960
============= =============
Capital Share Activity:
Shares sold
Class A ....................................................................... 4,668,091 3,192,088
Class B ....................................................................... 736,445 756,268
Class C ....................................................................... 801,556 540,730
Shares reinvested
Class A ....................................................................... 50,089 --
Class B ....................................................................... 24,065 --
Class C ....................................................................... 14,771 --
Shares redeemed
Class A ....................................................................... (2,285,236) (2,597,504)
Class B ....................................................................... (475,742) (731,230)
Class C ....................................................................... (351,589) (284,240)
- --------------------------------------------------------------------------------
See accompanying notes.
60
Security Equity Fund
Mid Cap Value Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended,
September 30,
Class A 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 24.48 $ 16.90 $ 18.04 $ 20.75 $ 16.60
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.09) (0.07) (0.04) -- (0.04)
Net gain (loss) on securities (realized and unrealized) 6.32 7.65 (0.78) (0.90) 4.89
-----------------------------------------------------------------------
Total from investment operations 6.23 7.58 (0.82) (0.90) 4.85
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70)
Return of capital -- -- (0.11) -- --
-----------------------------------------------------------------------
Total distributions (0.26) -- (0.32) (1.81) (0.70)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 30.45 $ 24.48 $ 16.90 $ 18.04 $ 20.75
=======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 25.59% 44.85% (4.89%) (4.54%) 30.46%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 215,659 $ 113,822 $ 68,544 $ 50,541 $ 34,458
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.31%) (0.33%) (0.20%) 0.01% (0.25%)
Total expenses 1.48% 1.65% 1.45% 1.30% 1.29%
Gross expenses(b) 1.48% 1.65% 1.45% 1.30% 1.29%
Net expenses(d) 1.48% 1.65% 1.45% 1.30% 1.29%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 52% 51% 55% 69%
Year Ended,
September 30,
Class B 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 22.99 $ 15.99 $ 17.26 $ 20.11 $ 16.26
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.28) (0.20) (0.21) (0.19) (0.22)
Net gain (loss) on securities (realized and unrealized) 5.92 7.20 (0.74) (0.85) 4.77
-----------------------------------------------------------------------
Total from investment operations 5.64 7.00 (0.95) (1.04) 4.55
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70)
Return of capital -- -- (0.11) -- _
-----------------------------------------------------------------------
Total distributions (0.26) -- (0.32) (1.81) (0.70)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.37 $ 22.99 $ 15.99 $ 17.26 $ 20.11
=======================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 24.67% 43.78% (5.88%) (5.45%) 29.21%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 74,650 $ 53,947 $ 37,136 $ 26,967 $ 14,041
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.07%) (1.08%) (1.09%) (0.98%) (1.27%)
Total expenses 2.23% 2.40% 2.34% 2.30% 2.32%
Gross expenses(b) 2.23% 2.40% 2.34% 2.30% 2.32%
Net expenses(d) 2.23% 2.40% 2.34% 2.30% 2.32%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 52% 51% 55% 69%
- --------------------------------------------------------------------------------
See accompanying notes.
61
Security Equity Fund
Mid Cap Value Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended,
September 30,
Class C 2004 2003 2002(e) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 23.37 $ 16.26 $ 17.53 $ 20.39 $ 16.51
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.29) (0.21) (0.21) (0.19) (0.22)
Net gain (loss) on securities (realized and unrealized) 6.03 7.32 (0.74) (0.86) 4.80
-------------------------------------------------------------------
Total from investment operations 5.74 7.11 (0.95) (1.05) 4.58
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.26) -- (0.21) (1.81) (0.70)
Return of capital -- -- (0.11) -- _
-------------------------------------------------------------------
Total distributions (0.26) -- (0.32) (1.81) (0.70)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.85 $ 23.37 $ 16.26 $ 17.53 $ 20.39
===================================================================
- ------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 24.70% 43.73% (5.79%) (5.42%) 28.93%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 54,133 $ 32,999 $ 18,785 $ 6,976 $ 3,069
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.06%) (1.08%) (1.06%) (0.98%) (1.28%)
Total expenses 2.23% 2.40% 2.35% 2.30% 2.36%
Gross expenses(b) 2.23% 2.40% 2.35% 2.30% 2.36%
Net expenses(d) 2.23% 2.40% 2.35% 2.30% 2.36%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 45% 52% 51% 55% 69%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
- --------------------------------------------------------------------------------
See accompanying notes.
62
Security Equity Fund
Select 25(R) Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
Mark Mitchell
Portfolio Manager
To Our Shareholders:
With the retirement of Terry Milberger in February 2004, this marks my first
annual letter to the Select 25 Series shareholders. Fiscal year 2004 was a
normal year in many respects; market returns were positive, but not as
spectacular as in fiscal year 2003. Select 25 Series returned 7.43%(1) for the
period ended September 30, 2004, lagging the benchmark S&P 500 Index's return of
13.87%, but outperforming the Fund's peer group median return of 6.92%. As in
2003, the market favored lower- quality, higher-beta stocks, and in that
environment, the Fund tends to underperform. Although disappointing for this
particular period, we believe that our investing approach delivers positive
performance over the long term.
Our approach to managing Select 25 Series is based on our investment philosophy
described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
This philosophy is applied to a broad range of growth companies. Each of our
research analysts recommends his or her favorite stocks based on this analysis.
We then narrow the list to our select 25-30 names that are included in the
portfolio.
Industrials and Energy Stocks are Top Performers
The Fund's industrial holdings were up 35% compared to 23% for the index.
Positions in Federal Express and L-3 Communications contributed positively to
the Fund. Federal Express had strong results driven by continued economic growth
and business model efficiencies. L-3 Communications benefited from strong
defense-related spending as a result of military action in multiple global
theatres.
The Fund's energy holdings performed well, appreciating nearly 54% compared to
45% for the index. BJ Services was our best performing energy stock,
appreciating over 53%. The energy sector benefited significantly from the
increase in the price of crude oil.
Technology and Healthcare Disappointing
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in ADC Telecom and Mindspeed Technologies
had a negative impact on the Fund. ADC Telecom was down 48% as a result of a
slower broadband build-out than was expected, while Mindspeed's earnings
breakeven was pushed out as the expected upcoming wave of telecomm-related
spending has yet to materialize.
Overall, healthcare as a sector underperformed the index. Cardinal Health and
Amgen both had a negative impact on the fund. Cardinal was down more than 18% as
a result of undergoing a substantial industry change in how pharmaceutical
manufacturers distribute and price their products. Amgen was down over 12% due
to fears about reimbursement for some of its key products.
2005 Market Outlook
Our outlook for the equity market continues to be guardedly optimistic. As in
prior years, there are many potential positive and negative influences. We
believe the most significant issue in 2005 will be a slowing profit cycle. In
such an environment, more normal equity returns are likely. Skilled stock
picking versus owning the market index will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value.(2) We recognize there are many investment fund
alternatives available today and thank you for your business and the confidence
you place in us.
Sincerely,
Mark Mitchell
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
(2) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
- --------------------------------------------------------------------------------
63
Security Equity Fund
Select 25(R) Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Select 25(R) Series vs.
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Select 25(R) Series $7,361
DATE VALUE
---- -----
1/29/1999 9,425.00
3/31/1999 9,802.07
6/30/1999 9,915.17
9/30/1999 9,924.60
12/31/1999 11,734.21
3/31/2000 11,573.99
6/30/2000 11,065.03
9/30/2000 10,688.03
12/31/2000 9,660.70
3/31/2001 8,228.09
6/30/2001 8,793.59
9/30/2001 7,144.20
12/31/2001 8,605.09
3/31/2002 8,539.11
6/30/2002 7,002.83
9/30/2002 6,145.15
12/31/2002 6,343.07
3/31/2003 6,173.42
6/30/2003 6,776.63
9/30/2003 6,852.03
12/31/2003 7,417.53
3/31/2004 7,719.13
6/30/2004 7,775.68
9/30/2004 7,360.98
S&P 500 Index $9,474
DATE VALUE
---- -----
1/29/1999 $10,000.00
3/31/1999 10,075.52
6/30/1999 10,785.58
9/30/1999 10,111.95
12/31/1999 11,616.46
3/31/2000 11,883.45
6/30/2000 11,568.33
9/30/2000 11,456.43
12/31/2000 10,560.83
3/31/2001 9,309.30
6/30/2001 9,854.43
9/30/2001 8,408.85
12/31/2001 9,307.93
3/31/2002 9,333.23
6/30/2002 8,083.12
9/30/2002 6,687.10
12/31/2002 7,251.86
3/31/2003 7,023.47
6/30/2003 8,104.60
9/30/2003 8,319.10
12/31/2003 9,332.84
3/31/2004 9,491.17
6/30/2004 9,654.81
9/30/2004 9,473.80
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Select 25(R) Series
on January 29, 1999, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares.
- -----------------------------------------------------
Portfolio Composition by Sector
- -----------------------------------------------------
Consumer Discretionary 18.75%
- -----------------------------------------------------
Consumer Staples 12.14
- -----------------------------------------------------
Energy 10.03
- -----------------------------------------------------
Financials 8.43
- -----------------------------------------------------
Health Care 14.45
- -----------------------------------------------------
Industrials 13.50
- -----------------------------------------------------
Information Technology 11.80
- -----------------------------------------------------
Materials 3.81
- -----------------------------------------------------
Utilities 3.59
- -----------------------------------------------------
Cash & other assets, less liabilities 3.50
- -----------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
Periods Ended 9-30-04 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
A Shares 7.43% (5.80%) (4.27%) (1-29-99)
- --------------------------------------------------------------------------------
A Shares with sales charge 1.25% (6.91%) (5.26%) (1-29-99)
- --------------------------------------------------------------------------------
B Shares 6.53% (6.54%) (4.95%) (1-29-99)
- --------------------------------------------------------------------------------
B Shares with CDSC 2.53% (6.54%) (4.95%) (1-29-99)
- --------------------------------------------------------------------------------
C Shares 6.52% (6.55%) (4.90%) (1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 6.52% (6.55%) (4.90%) (1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
64
Security Equity Fund
Select 25(R) Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including manage-ment fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Fund Expenses
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------------
Select 25(R)
Series - Class A
Actual $1,000.00 $ 953.60 $ 7.91
Hypothetical 1,000.00 1,017.04 8.16
- --------------------------------------------------------------------------------
Select 25(R)
Series - Class B
Actual 1,000.00 949.40 11.52
Hypothetical 1,000.00 1,013.32 11.89
- --------------------------------------------------------------------------------
Select 25(R)
Series - Class C
Actual 1,000.00 949.50 11.52
Hypothetical 1,000.00 1,013.32 11.89
- --------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -4.64%, -5.06% and
-5.05%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.61%, 2.35%
and 2.35% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
65
Security Equity Fund
Select 25(R) Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 96.5%
Aerospace & Defense - 4.8%
L-3 Communications Holdings, Inc. 16,000 $ 1,072,000
-----------
1,072,000
-----------
Air Freight & Logistics - 5.1%
FedEx Corporation 13,300 1,139,677
-----------
1,139,677
-----------
Biotechnology - 4.1%
Amgen, Inc.* 16,100 912,548
-----------
912,548
-----------
Brewers - 4.0%
Anheuser-Busch Companies, Inc. 18,000 899,100
-----------
899,100
-----------
Communications Equipment - 3.6%
ADC Telecommunications, Inc.* 292,800 529,968
Cisco Systems, Inc.* 15,000 271,500
-----------
801,468
-----------
Construction & Engineering - 3.6%
Shaw Group, Inc.* 68,000 816,000
-----------
816,000
-----------
Data Processing & Outsourced Services - 3.9%
First Data Corporation 20,000 870,000
-----------
870,000
-----------
Department Stores - 3.9%
Kohl's Corporation* 18,000 867,420
-----------
867,420
-----------
Electric Utilities - 3.6%
KFx Inc.* 104,300 804,153
-----------
804,153
-----------
Health Care Equipment - 3.2%
Boston Scientific Corporation* 18,100 719,113
-----------
719,113
-----------
Home Improvement Retail - 2.6%
Home Depot, Inc. 15,000 588,000
-----------
588,000
-----------
Hotels, Resorts & Cruise Lines - 4.0%
Carnival Corporation 19,000 898,510
-----------
898,510
-----------
Hypermarkets & Supercenters - 3.8%
Wal-Mart Stores, Inc. 16,000 851,200
-----------
851,200
-----------
Industrial Gases - 3.8%
Praxair, Inc. 20,000 854,800
-----------
854,800
-----------
Motorcycle Manufacturers - 2.1%
Harley-Davidson, Inc. 8,100 481,464
-----------
481,464
-----------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Movies & Entertainment - 6.1%
Time Warner, Inc.* 30,600 $ 493,884
Viacom, Inc. (Cl.B) 26,100 875,916
-----------
1,369,800
-----------
Multi-Line Insurance - 4.2%
American International Group, Inc. 14,000 951,860
-----------
951,860
-----------
Oil & Gas Equipment & Services - 5.6%
BJ Services Company 24,000 1,257,840
-----------
1,257,840
-----------
Oil & Gas Refining, Marketing & Transportation - 4.4%
Williams Companies, Inc. 82,000 992,200
-----------
992,200
-----------
Other Diversified Financial Services - 4.2%
Citigroup, Inc. 21,300 939,756
-----------
939,756
-----------
Pharmaceuticals - 7.2%
Johnson & Johnson 15,000 844,950
Pfizer, Inc. 25,000 765,000
-----------
1,609,950
-----------
Semiconductor Equipment - 0.9%
Mindspeed Technologies, Inc.* 100,000 200,000
-----------
200,000
-----------
Semiconductors - 3.5%
Analog Devices, Inc. 20,000 775,600
-----------
775,600
-----------
Soft Drinks - 4.3%
PepsiCo, Inc. 20,000 973,000
-----------
973,000
-----------
Total common stocks
(cost $20,399,748) 21,645,459
-----------
Repurchase Agreement - 3.5%
United Missouri Bank, 1.35%, dated 9-30-04,
matures 10-01-04; repurchase amount of
$783,029 (Collateralized by U.S.
Treasury Note, 10-31-04
with a value of $799,245) $783,000
783,000
-----------
Total repurchase agreement
(cost $783,000) 783,000
-----------
Total investments
(cost $21,182,748) - 100.0% 22,428,459
Liabilities, less cash & other assets - 0.0% (961)
-----------
Total net assets - 100.0% $22,427,498
===========
The identified cost of investments owned at September 30, 2004 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
- --------------------------------------------------------------------------------
See accompanying notes.
66
Security Equity Fund
Select 25(R) Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ...................................... $ 22,428,459
Cash .......................................................... 1,116
Receivables:
Fund shares sold ........................................... 3,996
Securities sold ............................................ 25,684
Dividends .................................................. 4,859
Prepaid expenses .............................................. 11,855
------------
Total assets .................................................. 22,475,969
------------
Liabilities:
Payable for:
Fund shares redeemed ....................................... 4,207
Management fees ............................................ 14,111
Custodian fees ............................................. 520
Transfer and administration fees ........................... 6,096
Professional fees .......................................... 7,333
12b-1 distribution plan fees ............................... 12,937
Other ...................................................... 3,267
------------
Total liabilities ............................................. 48,471
------------
Net Assets .................................................... $ 22,427,498
============
Net assets consist of:
Paid in capital ............................................... $ 33,185,400
Accumulated undistributed net investment
income ..................................................... --
Accumulated undistributed net realized
loss on sale of investments ................................ (12,003,613)
Net unrealized appreciation in value
of investments ............................................. 1,245,711
------------
Net assets .................................................... $ 22,427,498
============
Class A:
Capital shares outstanding .................................... 1,181,383
Net assets .................................................... $ 9,228,482
Net asset value and redemption price
per share .................................................. $ 7.81
============
Maximum offering price per share (net asset value
divided by 94.25%) ......................................... $ 8.29
============
Class B:
Capital shares outstanding .................................... 977,651
Net assets .................................................... $ 7,332,528
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) .......................... $ 7.50
============
Class C:
Capital shares outstanding .................................... 779,842
Net assets .................................................... $ 5,866,488
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) .......................... $ 7.52
============
(1) Investments, at cost ...................................... $ 21,182,748
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................. $ 197,410
Interest ................................................... 7,092
------------
Total investment income ..................................... 204,502
------------
Expenses:
Management fees ............................................ 188,718
Custodian fees ............................................. 3,227
Transfer agent/maintenance fees ............................ 69,208
Administration fees ........................................ 24,666
Directors' fees ............................................ 756
Professional fees .......................................... 9,118
Reports to shareholders .................................... 3,158
Registration fees .......................................... 28,209
Other expenses ............................................. 2,006
12b-1 distribution plan fees - Class A ..................... 26,172
12b-1 distribution plan fees - Class B ..................... 82,369
12b-1 distribution plan fees - Class C ..................... 64,569
------------
Total expenses ............................................. 502,176
Less: Earnings credits ..................................... (826)
------------
Net expenses ............................................... 501,350
------------
Net investment loss ........................................ (296,848)
------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments ................................................ 369,019
------------
Net realized gain ........................................... 369,019
------------
Net change in unrealized appreciation
during the period on
Investments ................................................ 1,699,912
------------
Net unrealized appreciation ................................ 1,699,912
------------
Net gain ................................................... 2,068,931
------------
Net increase in net assets
resulting from operations ............................... $ 1,772,083
============
- --------------------------------------------------------------------------------
See accompanying notes.
67
Security Equity Fund
Select 25(R) Series
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
Year Ended Year Ended
September 30, 2004 September 30, 2003
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ....................................................... $ (296,848) $ (281,129)
Net realized gain (loss) during the period on investments ................. 369,019 (3,750,965)
Net change in unrealized appreciation during the period on investments .... 1,699,912 6,658,939
------------ ------------
Net increase in net assets resulting from operations ...................... 1,772,083 2,626,845
------------ ------------
Distributions to shareholders from:
Capital share transactions:
Proceeds from sale of shares
Class A .................................................................. 1,637,921 2,124,128
Class B .................................................................. 715,600 870,627
Class C .................................................................. 833,037 2,518,754
Cost of shares redeemed
Class A .................................................................. (3,579,210) (4,949,490)
Class B .................................................................. (2,158,912) (2,109,351)
Class C .................................................................. (1,616,683) (711,166)
------------ ------------
Net decrease from capital share transactions ............................. (4,168,247) (2,256,498)
------------ ------------
Net increase (decrease) in net assets .................................... (2,396,164) 370,347
------------ ------------
Net assets:
Beginning of period ....................................................... 24,823,662 24,453,315
End of period ............................................................. $ 22,427,498 $ 24,823,662
============ ============
Accumulated net investment income at end of period ........................ $ -- $ --
============ ============
Capital Share Activity:
Shares sold
Class A .................................................................. 204,861 308,267
Class B .................................................................. 93,954 129,196
Class C .................................................................. 108,652 368,021
Shares redeemed
Class A .................................................................. (452,794) (707,984)
Class B .................................................................. (282,274) (310,636)
Class C .................................................................. (210,959) (105,802)
- --------------------------------------------------------------------------------
See accompanying notes.
68
Security Equity Fund
Select 25(R) Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.27 $ 6.52 $ 7.58 $ 11.34 $ 10.53
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.06) (0.05) (0.07) (0.06) (0.09)
Net gain (loss) on securities (realized and unrealized) 0.60 0.80 (0.99) (3.70) 0.90
------------------------------------------------------------------
Total from investment operations 0.54 0.75 (1.06) (3.76) 0.81
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------------------------------------------------------------------
Total distributions -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.81 $ 7.27 $ 6.52 $ 7.58 $ 11.34
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 7.43% 11.50% (13.98%) (33.16%) 7.69%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 9,228 $ 10,396 $ 11,933 $ 14,347 $ 22,006
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.75%) (0.70%) (0.81%) (0.60%) (0.74%)
Total expenses 1.56% 1.63% 1.46% 1.39% 1.35%
Gross expenses(b) 1.56% 1.63% 1.46% 1.39% 1.35%
Net expenses(d) 1.56% 1.63% 1.46% 1.39% 1.35%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 54% 33% 44% 89%
Year Ended
September 30,
Class B 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.04 $ 6.36 $ 7.44 $ 11.22 $ 10.52
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.11) (0.10) (0.13) (0.13) (0.17)
Net gain (loss) on securities (realized and unrealized) 0.57 0.78 (0.95) (3.65) 0.87
------------------------------------------------------------------
Total from investment operations 0.46 0.68 (1.08) (3.78) 0.70
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------------------------------------------------------------------
Total distributions -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.50 $ 7.04 $ 6.36 $ 7.44 $ 11.22
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 6.53% 10.69% (14.52%) (33.69%) 6.65%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 7,333 $ 8,203 $ 8,566 $ 11,519 $ 18,199
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.50%) (1.45%) (1.56%) (1.35%) (1.49%)
Total expenses 2.31% 2.38% 2.21% 2.14% 2.11%
Gross expenses(b) 2.31% 2.38% 2.21% 2.14% 2.11%
Net expenses(d) 2.31% 2.38% 2.21% 2.14% 2.11%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 54% 33% 44% 89%
See accompanying notes.
- --------------------------------------------------------------------------------
69
Security Equity Fund
Select 25(R) Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(e) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 7.06 $ 6.38 $ 7.47 $ 11.26 $ 10.55
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.11) (0.10) (0.13) (0.13) (0.17)
Net gain (loss) on securities (realized and unrealized) 0.57 0.78 (0.96) (3.66) 0.88
------------------------------------------------------------------
Total from investment operations 0.46 0.68 (1.09) (3.79) 0.71
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------------------------------------------------------------------
Total distributions -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.52 $ 7.06 $ 6.38 $ 7.47 $ 11.26
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 6.52% 10.66% (14.59%) (33.66%) 6.73%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 5,866 $ 6,225 $ 3,954 $ 4,531 $ 7,294
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.50%) (1.44%) (1.56%) (1.35%) (1.49%)
Total expenses 2.31% 2.37% 2.21% 2.14% 2.10%
Gross expenses(b) 2.31% 2.37% 2.21% 2.14% 2.10%
Net expenses(d) 2.31% 2.37% 2.21% 2.14% 2.10%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 54% 33% 44% 89%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
See accompanying notes.
- --------------------------------------------------------------------------------
70
Security Equity Fund
Small Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
RS | investments
Subadvisor, RS Investments
[PHOTO OMITTED]
Bill Wolfenden
Portfolio Manager
To Our Shareholders:
The Security Small Cap Growth Fund produced returns above the benchmark Russell
2000 Growth Index for the 12-month period ended September 30, 2004. The Fund was
up 12.73%(1) versus an 11.93% rise in the Russell 2000 Growth Index.
While the 2003 market environment provided a tailwind, this year investors
proceeded with extreme caution, creating a headwind for both growth companies
and for small-cap stocks. Mutual fund cash flows on a year-to-date basis flowed
overwhelmingly to "value" mutual funds rather than "growth" funds. Investors
also favored the larger, more liquid stocks across the market cap strata.
According to Prudential Equity Group, stocks in the Russell 2000 Growth Index
with market caps of less than $1 billion produced negative returns for the
year-to-date period through September 30, 2004, while stocks above $1 billion
were slightly positive for the same period. Despite this relative headwind,
strong stock selection contributed to positive returns.
Technology constituted approximately 22% of the portfolio on average over the
period, in line with the benchmark. The Fund owned a number of Internet-related
technology companies that were less dependent on enterprise technology spending
or product cycle traction. Jupitermedia Corporation, an Internet advertising
company, benefited from the increased spending for advertising online. j2 Global
Communications, Inc., an Internet business services company with a dominant
market share in the fax to e-mail market, was also a strong performer. j2 Global
has focused on marketing fax services for more than eight years and has shown
strong organic growth, as well as marketing power. The company has grown close
to 50% organically over the last two years, and we anticipate a continuation of
similar growth in the near-term.
The consumer sector provided mixed results. Many of our Internet-related
positions produced strong returns, such as Infospace, Inc. an Internet search
provider. CNET Networks, Inc., a leading provider of branded technology content
in both print, broadcast, and the Internet, also produced consistently strong
performance in 2004. Longtime holdings Guitar Center, Inc. and Aaron Rents, Inc.
produced solid returns. These retailers provide unique retail concepts, have
executed consistently, and have produced dependable earnings growth. However,
Casual Male Retail Group, Inc. and Charlotte Russe Holding, Inc. detracted from
returns.
Over the last several quarters, we have been building our exposure to the energy
sector, and it represented nearly 7% of assets at the end of September 2004. The
majority of our positions are in the oil service industry, which provide the
"picks and shovels" to the exploration segment. We believe many of these
companies are still in front of significant earnings expansion as integrated
producers and exploration companies continue to expand their search for more oil
and natural gas. Superior Energy Services, Inc., a long time holding in the
portfolio, is starting to benefit from increased drilling and production
activity in the Gulf of Mexico due to prolonged high prices of oil and natural
gas.
It has been a rewarding 12-month period for investors in the portfolio.
Depending on our research-driven investment process, we have produced solid
returns in a tough environment for small cap growth investors. The portfolio
maintains an attractive valuation relative to earnings growth rate, which helps
provide optimism as we close 2004.
Sincerely,
Bill Wolfenden
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares. Investments in small company
stocks may present additional risks such as less predictable earnings,
higher volatility and less liquidity than larger, more established
companies.
- --------------------------------------------------------------------------------
71
Security Equity Fund
Small Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Small Cap Growth Series vs.
Russell 2000 Growth Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Small Cap Growth Series $13,740
DATE VALUE
---- -----
10/15/1997 9,425.00
12/31/1997 9,063.07
3/31/1998 10,128.75
6/30/1998 9,921.28
9/30/1998 8,204.86
12/31/1998 10,006.15
3/31/1999 10,015.58
6/30/1999 10,572.01
9/30/1999 12,241.27
12/31/1999 18,728.39
3/31/2000 23,780.70
6/30/2000 20,741.57
9/30/2000 21,370.69
12/31/2000 16,926.61
3/31/2001 12,356.95
6/30/2001 13,572.73
9/30/2001 10,271.26
12/31/2001 12,042.52
3/31/2002 11,665.21
6/30/2002 10,428.47
9/30/2002 8,258.93
12/31/2002 8,751.53
3/31/2003 8,248.45
6/30/2003 10,522.80
9/30/2003 12,189.26
12/31/2003 13,572.73
3/31/2004 14,453.12
6/30/2004 14,222.55
9/30/2004 13,740.43
Russell 2000 Growth Index $9,634
DATE VALUE
---- -----
10/15/1997 $10,000.00
12/31/1997 9,180.81
3/31/1998 10,271.66
6/30/1998 9,680.76
9/30/1998 7,516.68
12/31/1998 9,294.11
3/31/1999 9,137.79
6/30/1999 10,485.49
9/30/1999 9,970.23
12/31/1999 13,299.60
3/31/2000 14,534.92
6/30/2000 13,462.59
9/30/2000 12,927.63
12/31/2000 10,315.79
3/31/2001 8,747.02
6/30/2001 10,319.67
9/30/2001 7,421.14
12/31/2001 9,363.46
3/31/2002 9,179.82
6/30/2002 7,739.04
9/30/2002 6,073.63
12/31/2002 6,529.39
3/31/2003 6,275.55
6/30/2003 7,790.90
9/30/2003 8,606.49
12/31/2003 9,698.35
3/31/2004 10,240.11
6/30/2004 10,249.93
9/30/2004 9,633.73
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Small Cap Growth
Series on October 15, 1997, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares.
- ------------------------------------------------------
Portfolio Composition by Sector
- ------------------------------------------------------
Consumer Discretionary 15.33%
- ------------------------------------------------------
Consumer Staples 0.43
- ------------------------------------------------------
Energy 7.92
- ------------------------------------------------------
Exchange Traded Funds 1.19
- ------------------------------------------------------
Financials 8.89
- ------------------------------------------------------
Health Care 19.39
- ------------------------------------------------------
Industrials 12.40
- ------------------------------------------------------
Information Technology 24.93
- ------------------------------------------------------
Materials 0.52
- ------------------------------------------------------
Cash & other assets, less liabilities 9.00
- ------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
Periods Ended 9-30-04 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
A Shares 12.73% 2.35% 5.57% (10-15-97)
- --------------------------------------------------------------------------------
A Shares with sales charge 6.24% 1.14% 4.68% (10-15-97)
- --------------------------------------------------------------------------------
B Shares 11.88% 1.49% 4.58% (10-15-97)
- --------------------------------------------------------------------------------
B Shares with CDSC 7.88% 1.49% 4.58% (10-15-97)
- --------------------------------------------------------------------------------
C Shares 11.84% 1.55% 3.94% (1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 11.84% 1.55% 3.94% (1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
72
Security Equity Fund
Small Cap Growth Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Fund Expenses
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------------
Small Cap Growth
Series - Class A
Actual $1,000.00 $ 950.70 $10.59
Hypothetical 1,000.00 1,014.28 10.94
- --------------------------------------------------------------------------------
Small Cap Growth
Series - Class B
Actual 1,000.00 946.60 14.24
Hypothetical 1,000.00 1,010.51 14.71
- --------------------------------------------------------------------------------
Small Cap Growth
Series - Class C
Actual 1,000.00 946.80 14.24
Hypothetical 1,000.00 1,010.51 14.71
- --------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -4.93%, -5.34% and
-5.32%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (2.16%, 2.91%
and 2.91% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
73
Security Equity Fund
Small Cap Growth Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 91.0%
Aerospace & Defense - 2.1%
Applied Signal Technology, Inc. 10,450 $ 334,295
Engineered Support Systems, Inc. 8,650 394,786
-----------
729,081
-----------
Air Freight & Logistics - 1.9%
Dynamex, Inc.* 17,950 309,458
Forward Air Corporation* 9,090 363,782
-----------
673,240
-----------
Apparel Retail - 2.9%
Casual Male Retail Group, Inc.* 51,600 270,384
Charlotte Russe Holding, Inc.* 28,450 326,606
Jos. A. Bank Clothiers, Inc.* 14,387 398,232
-----------
995,222
-----------
Apparel, Accessories & Luxury Goods - 1.8%
Ashworth, Inc.* 41,250 338,250
Oxford Industries, Inc. 8,140 303,215
-----------
641,465
-----------
Application Software - 1.4%
SafeNet, Inc.* 10,650 280,947
Synplicity, Inc.* 39,450 203,562
-----------
484,509
-----------
Biotechnology - 3.7%
Alexion Pharmaceuticals, Inc.* 18,050 324,900
Connetics Corporation* 7,830 211,567
Nabi Biopharmaceuticals* 13,700 183,306
Oscient Pharmaceutical Corporation* 15,300 54,315
QLT, Inc.* 14,800 246,420
Rigel Pharmaceuticals, Inc.* 10,200 258,060
-----------
1,278,568
-----------
Casinos & Gaming - 2.6%
Multimedia Games, Inc.* 15,760 244,280
Scientific Games Corporation* 35,150 671,365
-----------
915,645
-----------
Communications Equipment - 0.8%
NetSolve, Inc.* 26,050 282,121
-----------
282,121
-----------
Computer Storage & Peripherals - 0.9%
M-Systems Flash Disk Pioneers, Ltd.* 19,700 325,444
-----------
325,444
-----------
Construction & Farm Machinery - 0.8%
Wabash National Corporation* 9,900 271,953
-----------
271,953
-----------
Consumer Finance - 0.9%
EZCORP, Inc.* 34,750 302,360
-----------
302,360
-----------
Data Processing & Outsourced Services - 1.2%
Open Solutions, Inc.* 16,700 416,999
-----------
416,999
-----------
Distributors - 0.8%
Beacon Roofing Supply, Inc.* 16,250 266,500
-----------
266,500
-----------
Diversified Banks - 0.6%
Signature Bank* 8,150 218,012
-----------
218,012
-----------
Diversified Commercial Services - 3.4%
Laureate Education, Inc.* 11,040 410,909
Marlin Business Services, Inc.* 17,210 322,860
Navigant Consulting, Inc.* 20,600 452,376
-----------
1,186,145
-----------
Diversified Metals & Mining - 0.5%
Brush Engineered Materials, Inc.* 8,700 180,177
-----------
180,177
-----------
Electronic Equipment Manufacturers - 1.8%
BEI Technologies, Inc. 11,250 308,250
Sypris Solutions, Inc. 23,150 315,997
-----------
624,247
-----------
Employment Services - 1.0%
Kforce, Inc.* 41,900 351,122
-----------
351,122
-----------
Exchange Traded Funds - 1.2%
iShares Russell 2000 Growth Index Fund 7,100 415,847
-----------
415,847
-----------
Health Care Equipment - 5.0%
ArthroCare Corporation* 10,140 297,001
Closure Medical Corporation* 18,000 256,320
Endocardial Solutions, Inc.* 20,000 231,400
Hologic, Inc.* 14,700 283,269
Intuitive Surgical, Inc.* 7,260 179,685
Spectranetics Corporation* 54,250 277,217
ThermoGenesis Corporation* 47,000 225,600
-----------
1,750,492
-----------
Health Care Facilities - 1.2%
Kindred Healthcare, Inc.* 16,900 412,360
-----------
412,360
-----------
Health Care Services - 5.0%
Amedisys, Inc.* 3,200 95,840
America Service Group, Inc.* 11,900 488,376
LabOne, Inc.* 14,700 429,681
Merge Technologies, Inc.* 21,750 375,405
Providence Service Corporation* 18,950 367,061
-----------
1,756,363
-----------
Health Care Supplies - 0.7%
Orthovita, Inc.* 56,850 254,404
-----------
254,404
-----------
Industrial Machinery - 1.1%
Ceradyne, Inc.* 8,800 386,408
-----------
386,408
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
74
Security Equity Fund
Small Cap Growth Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Internet Software & Services - 10.3%
CNET Networks, Inc.* 37,800 $ 345,870
Digitas, Inc.* 59,000 456,070
Embarcadero Technologies Inc.* 34,700 293,562
InfoSpace, Inc.* 10,180 482,430
j2 Global Communications, Inc.* 13,550 428,044
Jupitermedia Corporation* 16,100 286,580
Keynote Systems, Inc.* 36,050 510,468
Radware, Ltd.* 14,850 326,700
ValueClick, Inc.* 49,350 465,864
-----------
3,595,588
-----------
IT Consulting & Other Services - 0.8%
Lionbridge Technologies, Inc.* 30,300 260,277
-----------
260,277
-----------
Leisure Products - 1.2%
K2, Inc.* 29,350 419,998
-----------
419,998
-----------
Managed Health Care - 1.4%
American Medical Security Group, Inc.* 14,800 473,452
-----------
473,452
-----------
Movies & Entertainment - 1.3%
Image Entertainment, Inc.* 50,400 208,656
NTN Communications, Inc.* 87,900 228,540
-----------
437,196
-----------
Oil & Gas Drilling - 3.6%
Grey Wolf, Inc.* 74,950 366,505
Patterson-Uti Energy, Inc. 24,750 471,982
Unit Corporation* 11,900 417,452
-----------
1,255,939
-----------
Oil & Gas Equipment & Services - 4.3%
Cal Dive International, Inc.* 9,990 355,844
Maverick Tube Corporation* 12,810 394,676
Oil States International, Inc.* 19,500 364,650
Superior Energy Services, Inc.* 29,900 386,308
-----------
1,501,478
-----------
Packaged Foods & Meats - 0.4%
Peet's Coffee & Tea, Inc.* 6,350 148,526
-----------
148,526
-----------
Pharmaceuticals - 2.4%
AtheroGenics, Inc.* 6,050 199,347
Bradley Pharmaceuticals, Inc.* 13,650 277,778
Cypress Bioscience, Inc.* 18,650 217,646
Discovery Laboratories, Inc.* 8,300 55,610
Durect Corporation* 53,200 74,480
-----------
824,861
-----------
Property & Casualty Insurance - 3.0%
Affirmative Insurance Holdings, Inc.* 18,150 286,407
Infinity Property & Casualty Corporation 16,050 473,957
ProAssurance Corporation* 8,430 295,219
-----------
1,055,583
-----------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Real Estate Investment Trusts - 1.9%
BioMed Realty Trust, Inc. 18,200 $ 320,138
Saxon Capital, Inc.* 16,150 347,225
-----------
667,363
-----------
Regional Banks - 2.5%
Nara Bancorp, Inc. 13,300 267,995
PrivateBancorp, Inc. 9,860 265,826
Southwest Bancorporation of Texas, Inc. 15,750 317,205
-----------
851,026
-----------
Restaurants - 1.0%
Rare Hospitality International, Inc.* 12,650 337,123
-----------
337,123
-----------
Semiconductor Equipment - 2.5%
FormFactor, Inc.* 13,750 266,338
LogicVision, Inc.* 69,250 117,033
Mykrolis Corporation* 18,100 182,267
Ultratech, Inc.* 19,500 305,565
-----------
871,203
-----------
Semiconductors - 5.2%
Microsemi Corporation* 20,500 289,050
O2Micro International, Ltd.* 29,850 320,589
SRS Labs, Inc.* 51,250 272,650
Sigmatel, Inc.* 16,150 342,542
Silicon Image, Inc.* 24,500 309,680
Zoran Corporation* 18,200 286,104
-----------
1,820,615
-----------
Specialty Stores - 3.8%
Aaron Rents, Inc. 25,675 558,688
Cost Plus, Inc.* 12,430 439,773
Guitar Center, Inc.* 7,550 326,915
-----------
1,325,376
-----------
Trucking - 2.1%
Old Dominion Freight Line, Inc.* 13,200 380,292
Vitran Corporation, Inc.* 22,750 338,293
-----------
718,585
-----------
Total common stocks
(cost $26,947,537) 31,682,873
-----------
Repurchase Agreement - 8.8%
United Missouri Bank, 1.35%, dated 9-30-04,
matures 10-01-04; repurchase amount
of $3,052,114 (Collateralized by U.S.
Treasury Note, 10-31-04 with a value
of $3,113,221) $3,052,000 3,052,000
-----------
Total repurchase agreement
(cost $3,052,000) 3,052,000
-----------
Total investments
(cost $29,999,537) - 99.8% 34,734,873
Cash & other assets, less liabilities - 0.2% 86,774
-----------
Total net assets - 100.0% $34,821,647
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $30,146,049.
* Non-income producing security
- --------------------------------------------------------------------------------
See accompanying notes.
75
Security Equity Fund
Small Cap Growth Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ..................................... $ 34,734,873
Cash ......................................................... 2,543
Receivables:
Fund shares sold .......................................... 57,692
Securities sold ........................................... 422,755
Dividends ................................................. 4,119
Prepaid expenses ............................................. 9,676
------------
Total assets ................................................. 35,231,658
------------
Liabilities:
Payable for:
Securities purchased ...................................... 288,935
Fund shares redeemed ...................................... 20,508
Management fees ........................................... 27,421
Custodian fees ............................................ 3,600
Transfer and administration fees .......................... 25,404
Professional fees ......................................... 7,285
12b-1 distribution plan fees .............................. 34,293
Other .................................................... 2,565
------------
Total liabilities ............................................ 410,011
------------
Net Assets ................................................... $ 34,821,647
============
Net assets consist of:
Paid in capital .............................................. $ 38,994,077
Accumulated undistributed net investment
income .................................................... --
Accumulated undistributed net realized
loss on sale of investments ............................... (8,907,766)
Net unrealized appreciation
in value of investments ................................... 4,735,336
------------
Net assets ................................................... $ 34,821,647
============
Class A:
Capital shares outstanding ................................... 1,635,623
Net assets ................................................... $ 21,443,126
Net asset value and redemption price
per share .................................................. $ 13.11
============
Maximum offering price per share
(net asset value divided by 94.25%) ....................... $ 13.91
============
Class B:
Capital shares outstanding ................................... 753,173
Net assets ................................................... $ 9,218,389
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ......................... $ 12.24
============
Class C:
Capital shares outstanding ................................... 333,620
Net assets ................................................... $ 4,160,132
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ......................... $ 12.47
============
(1) Investments, at cost ..................................... $ 29,999,537
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................. $ 26,550
Interest .................................................. 16,976
------------
Total investment income ................................... 43,526
------------
Expenses:
Management fees ........................................... 299,756
Custodian fees ............................................ 22,637
Transfer agent/maintenance fees ........................... 156,009
Administration fees ....................................... 30,162
Directors' fees ........................................... 943
Professional fees ......................................... 9,173
Reports to shareholders ................................... 3,537
Registration fees ......................................... 27,945
Other expenses ............................................ 1,738
12b-1 distribution plan fees - Class A .................... 44,296
12b-1 distribution plan fees - Class B .................... 80,395
12b-1 distribution plan fees - Class C .................... 42,178
------------
Total expenses ............................................ 718,769
Less: Earnings credits ................................... (2,231)
------------
Net expenses .............................................. 716,538
------------
Net investment loss ....................................... (673,012)
------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments ............................................... 4,201,550
------------
Net realized gain ........................................ 4,201,550
------------
Net change in unrealized depreciation
during the period on:
Investments ............................................... (49,010)
------------
Net unrealized depreciation ............................... (49,010)
------------
Net gain .................................................. 4,152,540
------------
Net increase in net assets
resulting from operations ................................ $ 3,479,528
============
- --------------------------------------------------------------------------------
See accompanying notes.
76
Security Equity Fund
Small Cap Growth Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ..................................... $ (673,012) $ (414,114)
Net realized gain during the period on investments ...... 4,201,550 2,366,986
Net change in unrealized appreciation (depreciation)
during the period on investments ....................... (49,010) 5,227,406
------------ ------------
Net increase in net assets resulting from operations .... 3,479,528 7,180,278
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A ................................................ 12,131,835 6,184,996
Class B ................................................ 4,066,427 2,757,770
Class C ................................................ 2,162,637 1,133,518
Cost of shares redeemed
Class A ................................................ (7,250,354) (4,215,103)
Class B ................................................ (2,615,904) (2,226,918)
Class C ................................................ (1,929,569) (842,930)
------------ ------------
Net increase from capital share transactions ............ 6,565,072 2,791,333
------------ ------------
Net increase in net assets .............................. 10,044,600 9,971,611
------------ ------------
Net assets:
Beginning of period ..................................... 24,777,047 14,805,436
------------ ------------
End of period ........................................... $ 34,821,647 $ 24,777,047
============ ============
Accumulated net investment income at end of period ...... $ -- $ --
============ ============
Capital Share Activity:
Shares sold
Class A ................................................ 956,806 655,128
Class B ................................................ 342,362 304,029
Class C ................................................ 172,645 130,394
Shares redeemed
Class A ................................................ (559,729) (476,304)
Class B ................................................ (214,052) (253,852)
Class C ................................................ (155,932) (97,903)
- --------------------------------------------------------------------------------
See accompanying notes.
77
Security Equity Fund
Small Cap Growth Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002(f) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 11.63 $ 7.88 $ 9.80 $ 22.08 $ 12.98
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.25) (0.18) (0.20) (0.18) (0.19)
Net gain (loss) on securities (realized and unrealized) 1.73 3.93 (1.72) (10.78) 9.75
------------------------------------------------------------------
Total from investment operations 1.48 3.75 (1.92) (10.96) 9.56
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (1.32) (0.46)
------------------------------------------------------------------
Total distributions -- -- -- (1.32) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.11 $ 11.63 $ 7.88 $ 9.80 $ 22.08
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 12.73% 47.59% (19.59%) (51.94%) 74.58%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 21,443 $ 14,406 $ 8,350 $ 17,235 $ 38,172
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.95%) (2.01%) (1.93%) (1.32%) (0.97%)
Total expenses 2.09% 2.25% 2.14% 1.91% 1.55%
Gross expenses(b) 2.09% 2.51% 2.14% 1.91% 1.64%
Net expenses(d) 2.09% 2.25% 2.14% 1.91% 1.55%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 206% 302% 394% 318%
Year Ended
September 30,
Class B 2004 2003 2002(f) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.94 $ 7.47 $ 9.37 $ 21.34 $ 12.69
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.33) (0.24) (0.26) (0.28) (0.31)
Net gain (loss) on securities (realized and unrealized) 1.63 3.71 (1.64) (10.37) 9.42
------------------------------------------------------------------
Total from investment operations 1.30 3.47 (1.90) (10.65) 9.11
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (1.32) (0.46)
------------------------------------------------------------------
Total distributions -- -- -- (1.32) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.24 $ 10.94 $ 7.47 $ 9.37 $ 21.34
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.88% 46.45% (20.28%) (52.31%) 72.70%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 9,218 $ 6,838 $ 4,292 $ 6,173 $ 11,688
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (2.69%) (2.76%) (2.69%) (2.07%) (1.81%)
Total expenses 2.84% 3.00% 2.90% 2.67% 2.44%
Gross expenses(b) 2.84% 3.23% 2.90% 2.67% 2.48%
Net expenses(d) 2.83% 3.00% 2.90% 2.67% 2.44%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 206% 302% 394% 318%
- --------------------------------------------------------------------------------
See accompanying notes.
78
Security Equity Fund
Small Cap Growth Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(e,f) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 11.15 $ 7.61 $ 9.53 $ 21.74 $ 12.86
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.33) (0.24) (0.26) (0.28) (0.35)
Net gain (loss) on securities (realized and unrealized) 1.65 3.78 (1.66) (10.61) 9.69
------------------------------------------------------------------
Total from investment operations 1.32 3.54 (1.92) (10.89) 9.34
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (1.32) (0.46)
------------------------------------------------------------------
Total distributions -- -- -- (1.32) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.47 $ 11.15 $ 7.61 $ 9.53 $ 21.74
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.84% 46.52% (20.15%) 52.46%) 73.54%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 4,160 $ 3,533 $ 2,164 $ 2,339 $ 3,741
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (2.69%) (2.76%) (2.69%) (2.09%) (1.81%)
Total expenses 2.83% 3.00% 2.91% 2.68% 2.39%
Gross expenses(b) 2.83% 3.23% 2.91% 2.68% 2.47%
Net expenses(d) 2.82% 3.00% 2.91% 2.68% 2.39%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 157% 206% 302% 394% 318%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) RS Investments, Inc. became the sub-adviser of Small Cap Growth Series
effective September 3, 2002. Prior to September 3, 2002, Security
Management Company, LLC (SMC) paid Strong Capital management, Inc. for
sub-advisory services.
- --------------------------------------------------------------------------------
See accompanying notes.
79
Security Equity Fund
Social Awareness Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
Mark Mitchell
Portfolio Manager
To Our Shareholders:
Fiscal year 2004 was a normal year in many respects; market returns were
positive, but not as spectacular as in fiscal year 2003. The Social Awareness
Series returned 5.04%(1) for the one-year period ended September 30, 2004,
lagging the benchmark Domini Social Index 400 Index's return of 12.24% and the
Fund's peer group median return of 10.40%. As in 2003, the market favored
lower-quality, higher-beta stocks, and in that environment, the Fund tends to
underperform. Although disappointing for this particular period, we believe that
our approach delivers positive performance over the long term.
Our approach to managing the Social Awareness Series is based on our investment
philosophy described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
Once we determine that companies meet our investment criteria, we review them to
ensure they meet our social criteria as well. We employ this philosophy to a
universe of value and growth companies.
Materials and Energy Stocks are Top Performers
Praxair, the funds only material sector holding, had a great year and gained
40%. The company benefited from an improvement in the overall global economy.
In the energy sector, BJ Services was up 53% as a result of the substantial
price appreciation of crude oil.
Technology and Healthcare Disappointing
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in Veritas and not owning Yahoo had a
negative impact on the Fund. Veritas was down over 40% due to a delay in filing
its financials. This has now been completed and the company looks fine. Yahoo
was up over 90% as they benefited from strong online advertising trends and
positive sentiment generated by the Google IPO.
Overall, healthcare as a sector underperformed the index. Cardinal Health and
Amgen both had a negative impact on the fund. Cardinal was down more than 18% as
a result of undergoing a substantial industry change in how pharmaceutical
manufacturers price and distribute their products. Merck impacted the Fund
negatively due to concerns over pharmaceutical industry and company-specific
growth prospects. Additionally, Merck experienced a significant product recall
that hurt the company's performance.
2005 Market Outlook
Our outlook for the equity market continues to be guardedly optimistic. As in
prior years, there are many potential positive and negative influences. We
believe the most significant issue in 2005 will be a slowing profit cycle. In
such an environment, more normal equity returns are likely. Skilled stock
picking versus owning beta will be critical. This favors our focus on
identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value.(2) We recognize there are many investment fund
alternatives available today and thank you for your business and the confidence
you place in us.
Sincerely,
Mark Mitchell
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares. Fee waivers and/or reimbursements
reduced Fund expenses and in the absence of such waivers, the performance
quoted would be reduced.
(2) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
- --------------------------------------------------------------------------------
80
Security Equity Fund
Social Awareness Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Social Awareness Series vs.
Domini Social Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Social Awareness Series $12,399
DATE VALUE
---- -----
11/1/1996 9,425.00
12/31/1996 9,440.95
3/31/1997 9,007.54
6/30/1997 10,433.42
9/30/1997 11,300.25
12/31/1997 11,543.52
3/31/1998 13,047.83
6/30/1998 13,337.36
9/30/1998 12,191.82
12/31/1998 15,056.73
3/31/1999 15,472.31
6/30/1999 16,444.12
9/30/1999 15,376.41
12/31/1999 17,395.06
3/31/2000 18,355.32
6/30/2000 17,784.35
9/30/2000 16,895.46
12/31/2000 15,224.03
3/31/2001 13,437.64
6/30/2001 14,026.49
9/30/2001 11,876.20
12/31/2001 13,232.53
3/31/2002 13,192.84
6/30/2002 11,465.99
9/30/2002 9,758.99
12/31/2002 10,480.17
3/31/2003 10,189.05
6/30/2003 11,545.39
9/30/2003 11,803.42
12/31/2003 12,822.33
3/31/2004 12,888.49
6/30/2004 13,047.28
9/30/2004 12,398.88
Domini Social Index $19,425
DATE VALUE
---- -----
11/1/1996 $10,000.00
12/31/1996 10,553.42
3/31/1997 10,912.97
6/30/1997 12,857.55
9/30/1997 13,937.09
12/31/1997 14,590.67
3/31/1998 16,693.50
6/30/1998 17,352.54
9/30/1998 15,687.26
12/31/1998 19,631.95
3/31/1999 20,652.83
6/30/1999 22,054.81
9/30/1999 20,722.25
12/31/1999 24,442.96
3/31/2000 25,223.63
6/30/2000 23,868.27
9/30/2000 22,758.31
12/31/2000 20,947.73
3/31/2001 18,427.12
6/30/2001 19,421.49
9/30/2001 16,665.94
12/31/2001 18,415.79
3/31/2002 18,453.04
6/30/2002 16,227.21
9/30/2002 13,469.96
12/31/2002 14,715.09
3/31/2003 14,219.65
6/30/2003 16,406.57
9/30/2003 16,969.49
12/31/2003 18,905.61
3/31/2004 19,704.28
6/30/2004 20,156.64
9/30/2004 19,425.31
$10,000 Since Inception
This chart assumes a $10,000 investment in Class A shares of Social Awareness
Series on November 1, 1996, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares.
- -------------------------------------------------------
Portfolio Composition by Sector
- -------------------------------------------------------
Consumer Discretionary 15.13%
- -------------------------------------------------------
Consumer Staples 11.75
- -------------------------------------------------------
Energy 1.09
- -------------------------------------------------------
Financials 21.92
- -------------------------------------------------------
Health Care 16.69
- -------------------------------------------------------
Industrials 5.93
- -------------------------------------------------------
Information Technology 16.94
- -------------------------------------------------------
Materials 1.86
- -------------------------------------------------------
Telecommunication Services 4.35
- -------------------------------------------------------
Cash & other assets, less liabilities 4.34
- -------------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
Periods Ended 9-30-04 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
A Shares 5.04% (4.21%) 3.53% (11-1-96)
- --------------------------------------------------------------------------------
A Shares with sales charge (1.00%) (5.34%) 2.76% (11-1-96)
- --------------------------------------------------------------------------------
B Shares 4.27% (5.10%) 2.51% (11-1-96)
- --------------------------------------------------------------------------------
B Shares with CDSC 0.27% (5.10%) 2.51% (11-1-96)
- --------------------------------------------------------------------------------
C Shares 4.29% (5.10%) (4.92%) (1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 4.29% (5.10%) (4.92%) (1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
See accompanying notes.
- --------------------------------------------------------------------------------
81
Security Equity Fund
Social Awareness Series
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Fund Expenses
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------------
Social Awareness
Series - Class A
Actual $1,000.00 $ 962.00 $ 8.58
Hypothetical 1,000.00 1,016.39 8.58
- --------------------------------------------------------------------------------
Social Awareness
Series - Class B
Actual 1,000.00 958.50 12.21
Hypothetical 1,000.00 1,012.67 12.55
- --------------------------------------------------------------------------------
Social Awareness
Series - Class C
Actual 1,000.00 958.40 12.21
Hypothetical 1,000.00 1,012.67 12.55
- --------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -3.80%, -4.15% and
-4.16%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.74%, 2.48%
and 2.48% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
82
Security Equity Fund
Social Awareness Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 95.7%
Advertising - 0.5%
Omnicom Group, Inc. 1,100 $ 80,366
-----------
80,366
-----------
Air Freight & Logistics - 2.1%
FedEx Corporation 4,200 359,898
-----------
359,898
-----------
Airlines - 1.4%
Southwest Airlines Company 17,800 242,436
-----------
242,436
-----------
Asset Management & Custody Banks - 0.8%
Bank of New York Company, Inc. 4,700 137,099
-----------
137,099
-----------
Biotechnology - 5.1%
Amgen, Inc.* 12,200 691,496
Chiron Corporation* 3,900 172,380
-----------
863,876
-----------
Broadcasting & Cable TV - 2.1%
Comcast Corporation* 12,537 354,045
-----------
354,045
-----------
Communications Equipment - 3.0%
ADC Telecommunications, Inc.* 77,500 140,275
Cisco Systems, Inc.* 20,700 374,670
-----------
514,945
-----------
Computer Hardware - 2.7%
Dell, Inc.* 12,800 455,680
-----------
455,680
-----------
Construction & Engineering - 1.1%
Shaw Group, Inc.* 15,000 180,000
-----------
180,000
-----------
Consumer Finance - 3.9%
American Express Company 6,200 319,052
MBNA Corporation 13,300 335,160
-----------
654,212
-----------
Department Stores - 1.6%
Kohl's Corporation* 5,500 265,045
-----------
265,045
-----------
Diversified Banks - 4.4%
Bank of America Corporation 6,000 259,980
Wells Fargo & Company 8,200 488,966
-----------
748,946
-----------
Diversified Capital Markets - 1.2%
J.P. Morgan Chase & Company 5,300 210,569
-----------
210,569
-----------
Drug Retail - 2.1%
CVS Corporation 8,300 349,679
-----------
349,679
-----------
General Merchandise Stores - 1.6%
Target Corporation 5,900 266,975
-----------
266,975
-----------
Health Care Equipment - 4.1%
Boston Scientific Corporation* 11,700 464,841
Medtronic, Inc. 4,600 238,740
-----------
703,581
-----------
Home Improvement Retail - 4.1%
Home Depot, Inc. 11,600 454,720
Lowe's Companies, Inc. 4,300 233,705
-----------
688,425
-----------
Household Products - 4.5%
Colgate-Palmolive Company 5,300 239,454
Procter & Gamble Company 9,800 530,376
-----------
769,830
-----------
Industrial Conglomerates - 1.3%
3M Company 2,800 223,916
-----------
223,916
-----------
Industrial Gases - 1.9%
Praxair, Inc. 7,400 316,276
-----------
316,276
-----------
Insurance Brokers - 0.8%
Marsh & McLennan Companies, Inc. 3,000 137,280
-----------
137,280
-----------
Integrated Telecommunication Services - 4.3%
SBC Communications, Inc. 10,948 284,101
Verizon Communications, Inc. 11,500 452,870
-----------
736,971
-----------
Investment Banking & Brokerage - 1.7%
Goldman Sachs Group, Inc. 1,800 167,832
Merrill Lynch & Company, Inc. 2,500 124,300
-----------
292,132
-----------
Life & Health Insurance - 1.0%
AFLAC, Inc. 4,400 172,524
-----------
172,524
-----------
Managed Health Care - 1.4%
UnitedHealth Group, Inc. 3,300 243,342
-----------
243,342
-----------
Motorcycle Manufacturers - 1.0%
Harley-Davidson, Inc. 2,900 172,376
-----------
172,376
-----------
Movies & Entertainment - 4.4%
Time Warner, Inc.* 18,500 298,590
Viacom, Inc. (Cl.B) 13,100 439,636
-----------
738,226
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
83
Security Equity Fund
Social Awareness Series
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal
Amount or
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Multi-Line Insurance - 5.3%
American International Group, Inc. 13,154 $ 894,340
-----------
894,340
-----------
Oil & Gas Equipment & Services - 0.9%
BJ Services Company 2,900 151,989
-----------
151,989
-----------
Oil & Gas Exploration & Production - 0.2%
Anadarko Petroleum Corporation 500 33,180
-----------
33,180
-----------
Pharmaceuticals - 6.0%
Johnson & Johnson 12,904 726,882
Merck & Company, Inc. 8,900 293,700
-----------
1,020,582
-----------
Property & Casualty Insurance - 2.8%
Chubb Corporation 6,700 470,876
-----------
470,876
-----------
Semiconductor Equipment - 0.4%
Applied Materials, Inc.* 4,600 75,854
-----------
75,854
-----------
Semiconductors - 2.6%
Analog Devices, Inc. 1,100 42,658
Intel Corporation 19,500 391,170
-----------
433,828
-----------
Soft Drinks - 5.2%
Coca-Cola Company 9,300 372,465
PepsiCo, Inc. 10,300 501,095
-----------
873,560
-----------
Systems Software - 8.2%
Microsoft Corporation 40,200 1,111,530
Oracle Corporation* 14,300 161,304
Veritas Software Corporation* 6,700 119,260
-----------
1,392,094
Total common stocks
(cost $17,693,288) 16,224,953
-----------
Repurchase Agreement - 5.5%
United Missouri Bank, 1.35%, dated 9-30-04,
matures 10-01-04; repurchase amount
of $938,035 (Collateralized by U.S.
Treasury Note, 10-31-04, with a
value of $957,681) $938,000 938,000
-----------
Total repurchase agreement
(cost $938,000) 938,000
-----------
Total investments
(cost $18,631,288) - 101.2% 17,162,953
Liabilities, less cash & other assets - (1.2%) (202,117)
-----------
Total net assets - 100.0% $16,960,836
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $18,632,092.
* Non-income producing security
- --------------------------------------------------------------------------------
See accompanying notes.
84
Security Equity Fund
Social Awareness Series
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ..................................... $ 17,162,953
Cash ......................................................... 1,173
Receivables:
Fund shares sold .......................................... 7,625
Securities sold ........................................... 33,784
Dividends ................................................. 11,091
Prepaid expenses ............................................. 11,286
------------
Total assets ................................................. 17,227,912
------------
Liabilities:
Payable for:
Securities purchased ...................................... 224,824
Fund shares redeemed ...................................... 654
Management fees ........................................... 10,594
Custodian fees ............................................ 700
Transfer and administration fees .......................... 4,913
Professional fees ......................................... 7,227
12b-1 distribution plan fees .............................. 15,810
Other ..................................................... 2,354
------------
Total liabilities ............................................ 267,076
------------
Net Assets ................................................... $ 16,960,836
============
Net assets consist of:
Paid in capital .............................................. $ 19,890,512
Accumulated undistributed net investment
income .................................................... --
Accumulated undistributed net realized
loss on sale of investments ............................... (1,461,341)
Net unrealized depreciation
in value of investments ................................... (1,468,335)
------------
Net assets ................................................... $ 16,960,836
============
Class A:
Capital shares outstanding ................................... 518,054
Net assets ................................................... $ 9,707,914
Net asset value and redemption price
per share ................................................. $ 18.74
============
Maximum offering price per share
(net asset value divided by 94.25%) ....................... $ 19.88
============
Class B:
Capital shares outstanding ................................... 325,181
Net assets ................................................... $ 5,638,684
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ......................... $ 17.34
============
Class C:
Capital shares outstanding ................................... 91,003
Net assets ................................................... $ 1,614,238
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ......................... $ 17.74
============
(1) Investments, at cost ..................................... $ 18,631,288
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................. $ 211,938
Interest .................................................. 5,407
------------
Total investment income ................................... 217,345
------------
Expenses:
Management fees ........................................... 178,309
Custodian fees ............................................ 4,443
Transfer agent/maintenance fees ........................... 51,563
Administration fees ....................................... 22,156
Directors' fees ........................................... 525
Professional fees ......................................... 8,717
Reports to shareholders ................................... 3,224
Registration fees ......................................... 29,057
Other expenses ............................................ 1,645
12b-1 distribution plan fees - Class A .................... 24,995
12b-1 distribution plan fees - Class B .................... 61,508
12b-1 distribution plan fees - Class C .................... 16,822
------------
Total expenses ............................................ 402,964
Less: Expenses waived .................................... (29,503)
Earnings credits ..................................... (900)
------------
Net expenses .............................................. 372,561
------------
Net investment loss ....................................... (155,216)
------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments ............................................... 798,923
------------
Net realized gain ........................................ 798,923
------------
Net change in unrealized appreciation
during the period on
Investments ............................................... 188,654
------------
Net unrealized appreciation ............................... 188,654
------------
Net gain .................................................. 987,577
------------
Net increase in net assets
resulting from operations ................................ $ 832,361
============
- --------------------------------------------------------------------------------
See accompanying notes.
85
Security Equity Fund
Social Awareness Series
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss ....................................................... $ (155,216) $ (179,491)
Net realized gain (loss) during the period on investments ................. 798,923 (902,119)
Net change in unrealized appreciation during the period on investments .... 188,654 3,990,064
------------ ------------
Net increase in net assets resulting from operations ...................... 832,361 2,908,454
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A .................................................................. 2,812,864 2,824,966
Class B .................................................................. 544,989 681,521
Class C .................................................................. 321,631 489,488
Cost of shares redeemed
Class A .................................................................. (2,826,052) (2,475,626)
Class B .................................................................. (1,343,364) (1,664,723)
Class C .................................................................. (326,581) (295,687)
------------ ------------
Net decrease from capital share transactions .............................. (816,513) (440,061)
------------ ------------
Net increase in net assets ................................................ 15,848 2,468,393
Net assets:
Beginning of period ....................................................... 16,944,988 14,476,595
------------ ------------
End of period ............................................................. $ 16,960,836 $ 16,944,988
============ ============
Accumulated net investment income at end of period ........................ $ -- $ --
============ ============
Capital Share Activity:
Shares sold
Class A .................................................................. 146,627 169,124
Class B .................................................................. 30,639 44,117
Class C .................................................................. 17,701 30,846
Shares redeemed
Class A .................................................................. (146,827) (149,561)
Class B .................................................................. (75,487) (107,048)
Class C .................................................................. (17,726) (19,076)
- --------------------------------------------------------------------------------
See accompanying notes.
86
Security Equity Fund
Social Awareness Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 17.84 $ 14.75 $ 17.95 $ 26.04 $ 24.05
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.10) (0.13) (0.11) (0.07) (0.13)
Net gain (loss) on securities (realized and unrealized) 1.00 3.22 (3.09) (7.55) 2.50
------------------------------------------------------------------
Total from investment operations 0.90 3.09 (3.20) (7.62) 2.37
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.47) (0.38)
------------------------------------------------------------------
Total distributions -- -- -- (0.47) (0.38)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.74 $ 17.84 $ 14.75 $ 17.95 $ 26.04
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 5.04% 20.95% (17.83%) (29.71%) 9.88%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 9,708 $ 9,243 $ 7,355 $ 10,909 $ 17,702
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.55%) (0.76%) (0.58%) (0.30%) (0.51%)
Total expenses 1.77% 2.05% 1.66% 1.43% 1.42%
Gross expenses(b) 1.93% 2.05% 1.66% 1.43% 1.42%
Net expenses(d) 1.76% 2.05% 1.66% 1.43% 1.42%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 26% 3% 17% 26%
Year Ended
September 30,
Class B 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 16.63 $ 13.85 $ 17.01 $ 24.96 $ 23.35
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.23) (0.24) (0.26) (0.28) (0.38)
Net gain (loss) on securities (realized and unrealized) 0.94 3.02 (2.90) (7.20) 2.37
------------------------------------------------------------------
Total from investment operations 0.71 2.78 (3.16) (7.48) 1.99
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.47) (0.38)
------------------------------------------------------------------
Total distributions -- -- -- (0.47) (0.38)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.34 $ 16.63 $ 13.85 $ 17.01 $ 24.96
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.27% 20.07% (18.58%) (30.44%) 8.53%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 5,639 $ 6,153 $ 5,999 $ 8,969 $ 12,633
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.30%) (1.51%) (1.49%) (1.31%) (1.52%)
Total expenses 2.52% 2.80% 2.57% 2.43% 2.43%
Gross expenses(b) 2.68% 2.80% 2.57% 2.43% 2.43%
Net expenses(d) 2.51% 2.80% 2.57% 2.43% 2.43%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 26% 3% 17% 26%
- --------------------------------------------------------------------------------
See accompanying notes.
87
Security Equity Fund
Social Awareness Series
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(e) 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 17.01 $ 14.17 $ 17.40 $ 25.50 $ 23.87
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.24) (0.24) (0.26) (0.28) (0.41)
Net gain (loss) on securities (realized and unrealized) 0.97 3.08 (2.97) (7.35) 2.42
------------------------------------------------------------------
Total from investment operations 0.73 2.84 (3.23) (7.63) 2.01
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- (0.47) (0.38)
------------------------------------------------------------------
Total distributions -- -- -- (0.47) (0.38)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.74 $ 17.01 $ 14.17 $ 17.40 $ 25.50
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.29% 20.04% (18.56%) (30.39%) 8.43%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 1,614 $ 1,548 $ 1,123 $ 1,126 $ 918
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.30%) (1.51%) (1.48%) (1.33%) (1.64%)
Total expenses 2.52% 2.80% 2.57% 2.45% 2.55%
Gross expenses(b) 2.68% 2.80% 2.57% 2.45% 2.55%
Net expenses(d) 2.51% 2.80% 2.57% 2.45% 2.55%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 28% 26% 3% 17% 26%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
- --------------------------------------------------------------------------------
See accompanying notes.
88
Security
Large Cap Value Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
YOU, YOUR ADVISOR AND
Dreyfus
A MELLON FINANCIAL COMPANY
Subadvisor, Dreyfust
[PHOTO OMITTED]
Brian C. Ferguson
Portfolio Manager
To our Shareholders:
Portfolio Review
U.S. equity markets have experienced lower volatility in 2004, ostensibly due to
continuing uncertainty as pressures of war, rising energy prices, terrorism and
the U.S. presidential election created a tentativeness that was apparent in both
market activity and liquidity. After a string of healthy quarterly profits, most
of the S&P 500 companies will face tougher comparisons. As a result, this has
led to more modest earnings expectations over the next few quarters, creating an
additional drag on the market. Seemingly, market perception is the driver behind
the latest sector and industry trends, as the market wavers between a focus on
earnings deceleration and a healthy absolute growth rate. One distinct hallmark
of post Sarbanes-Oxley corporate America is fiscal frugality. Non-financial
corporations have been piling up cash at the fastest pace in the last three
decades, creating the highest ratio of cash-to-debt (24%) for public companies
since 1969. In addition, these cash hoards have grown as companies are paying
down debt and buying back stock at nearly twice the pace of 2003. The preference
for increased levels of cash and lower debt reflects a broader level of
conservatism and risk assessment among corporations, who are willing to tolerate
an underperforming asset (cash) rather than be excessively leveraged. While
there has been a palatable pause due in part to the confluence of these events,
the economy remains healthy and more normalized growth rates in GDP and equity
returns should be the trend in this phase of expansion. Increasing corporate
expenditures, sinking jobless claims, and improving fundamentals should offset
the rise in interest rates and underpin a sustainable advance by the U.S. large
cap market.
Despite posting a solid absolute return of 11.98%(1) for the 12 months ended
September 30, 2004, the Fund lagged the S&P BARRA Value index, which advanced
20.47% during the period. While the Fund had strong performance in many of the
capital goods and industrial-related stocks it was overshadowed by weakness in
healthcare, information technology, financials and consumer staples. The
portfolio had been positioned to take advantage of a stronger economic
environment with the expectation that many companies would be more aggressive in
utilizing the substantial cash balances that have been built up the last few
years. However, this has been slower to materialize than we had forecast.
Capital goods and industrial-related stocks Ericsson, United Technologies,
Corning and Eaton lead performance during the period as corporate capital
spending witnessed a steady uptick after the severe pull back of the past few
years. Energy holdings Exxon, BP and Schlumberger helped round out the other
top-performing stocks as energy prices spiked on strong global demand.
The healthcare sector had the greatest impact on the Fund's relative return as
medical distributors Cardinal Health and McKesson sold off after Cardinal
reported accounting irregularities. The portfolio was also impacted by an
overweight position in the weak pharmaceutical industry, which acted as a drag
on the relative performance. Information technology lagged due to a rise in
global inventories, mainly in the weak semiconductor industry. The portfolio was
overweight in the industry and holdings in Intel, Agere Systems and ST
Microelectronics were the main detractors. Financial services trailed on a
relative basis as mortgage lender Fannie Mae sold off on accounting issues and
fears that regulatory pressures would hinder earnings growth going forward.
Overweight positions in food retailers, Safeway and Kroger, also hurt
performance as both firms continue to struggle after a workers' strike in
southern California.
Although less robust than 2003, we expect the economy to continue at a more
modest 3-4% growth rate. Stock valuations have tightened up in various segments
of the equity markets. This should play to our strength in fundamental research
and stock selection. Our portfolio team is focusing on the most severely
discounted stocks across all sectors. On a broader level, there has been a
distinct shift away from a consumer-driven economic expansion, as the credit
tightening cycle is underway and energy prices now command a greater portion of
household income. Heading into the fourth quarter, outlooks have admittedly
shifted to 2005 with the expectation that equity markets will rise moderately in
an earnings-driven environment. For our portfolio, these events emphasize
company valuations and our investment philosophy leads our management team to
focus on opportunities to initiate new positions or increase current ones at
undervalued price levels.
Sincerely,
Brian C. Ferguson
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
- --------------------------------------------------------------------------------
89
Security
Large Cap Value Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Large Cap Value Fund vs.
S&P Barra Value Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Large Cap Value Fund $16,800
DATE VALUE
---- -----
9/30/1994 9,425.00
12/31/1994 9,791.40
3/31/1995 10,364.74
6/30/1995 11,344.93
9/30/1995 12,023.97
12/31/1995 12,507.79
3/31/1996 13,358.00
6/30/1996 13,885.22
9/30/1996 14,394.19
12/31/1996 14,847.28
3/31/1997 14,810.41
6/30/1997 16,862.35
9/30/1997 19,476.08
12/31/1997 19,551.80
3/31/1998 21,140.75
6/30/1998 20,447.82
9/30/1998 17,928.15
12/31/1998 19,491.21
3/31/1999 19,491.21
6/30/1999 22,291.67
9/30/1999 20,079.31
12/31/1999 19,980.30
3/31/2000 18,791.34
6/30/2000 17,776.38
9/30/2000 18,617.35
12/31/2000 18,532.91
3/31/2001 17,275.95
6/30/2001 17,977.51
9/30/2001 15,697.43
12/31/2001 17,497.73
3/31/2002 17,292.22
6/30/2002 15,413.27
9/30/2002 12,477.41
12/31/2002 13,270.09
3/31/2003 12,594.84
6/30/2003 14,473.79
9/30/2003 15,002.24
12/31/2003 16,887.88
3/31/2004 17,417.47
6/30/2004 17,211.52
9/30/2004 16,799.62
S&P Barra Value index $28,650
DATE VALUE
---- -----
9/30/1994 $10,000.00
12/31/1994 9,924.76
3/31/1995 10,881.50
6/30/1995 11,828.88
9/30/1995 12,769.23
12/31/1995 13,595.13
3/31/1996 14,463.96
6/30/1996 14,760.93
9/30/1996 15,150.04
12/31/1996 16,587.04
3/31/1997 16,880.61
6/30/1997 19,322.71
9/30/1997 21,092.89
12/31/1997 21,558.95
3/31/1998 24,049.08
6/30/1998 24,172.09
9/30/1998 21,051.61
12/31/1998 24,720.89
3/31/1999 25,425.76
6/30/1999 28,170.37
9/30/1999 25,574.08
12/31/1999 27,866.88
3/31/2000 27,932.63
6/30/2000 26,732.15
9/30/2000 29,090.58
12/31/2000 29,565.32
3/31/2001 27,633.66
6/30/2001 28,850.97
9/30/2001 24,175.37
12/31/2001 26,101.30
3/31/2002 26,445.72
6/30/2002 23,629.81
9/30/2002 18,795.31
12/31/2002 20,653.39
3/31/2003 19,516.07
6/30/2003 23,192.44
9/30/2003 23,781.79
12/31/2003 27,221.51
3/31/2004 28,133.95
6/30/2004 28,356.87
9/30/2004 28,649.96
$10,000 Over Ten Years
This chart assumes a $10,000 investment in Class A shares of Large Cap Value
Fund on September 30, 1994, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares.
- -----------------------------------------------------
Portfolio Composition by Sector
- -----------------------------------------------------
Consumer Discretionary 12.86%
- -----------------------------------------------------
Consumer Staples 2.93
- -----------------------------------------------------
Energy 11.96
- -----------------------------------------------------
Financials 34.30
- -----------------------------------------------------
Health Care 2.56
- -----------------------------------------------------
Industrials 9.55
- -----------------------------------------------------
Information Technology 11.31
- -----------------------------------------------------
Materials 2.86
- -----------------------------------------------------
Telecommunication Services 5.79
- -----------------------------------------------------
Utilities 3.45
- -----------------------------------------------------
Preferred Stocks 0.87
- -----------------------------------------------------
Corporate Bonds 0.25
- -----------------------------------------------------
U.S. Government Sponsored Agency 0.24
- -----------------------------------------------------
Cash & other assets, less liabilities 1.07
- -----------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
Periods Ended 9-30-04 Since
1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
A Shares 11.98% (3.50%) 5.31% N/A
- --------------------------------------------------------------------------------
A Shares with sales charge 5.54% (4.64%) 4.69% N/A
- --------------------------------------------------------------------------------
B Shares 11.29% (4.37%) 4.30% N/A
- --------------------------------------------------------------------------------
B Shares with CDSC 7.29% (4.37%) 4.30% N/A
- --------------------------------------------------------------------------------
C Shares 11.29% (4.30%) N/A (3.22%)
(1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 11.29% (4.30%) N/A (3.22%)
(1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
90
Security
Large Cap Value Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Fund Expenses
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------------
Large Cap Value Fund
- - Class A
Actual $1,000.00 $ 964.50 $ 7.75
Hypothetical 1,000.00 1,017.24 7.96
- --------------------------------------------------------------------------------
Large Cap Value Fund
- - Class B
Actual 1,000.00 961.00 11.39
Hypothetical 1,000.00 1,013.52 11.69
- --------------------------------------------------------------------------------
Large Cap Value Fund
- - Class C
Actual 1,000.00 961.70 11.39
Hypothetical 1,000.00 1,013.52 11.69
- --------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -3.55%, -3.90% and
-3.83%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.57%, 2.31%
and 2.31% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
91
Security
Large Cap Value Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock - 0.9%
Movies & Entertainment - 0.9%
News Corporation, Ltd. ADR 15,500 $ 485,615
-----------
Total preferred stock
(cost $400,204) 485,615
-----------
Common Stocks - 97.6%
Advertising - 1.8%
Omnicom Group, Inc. 13,700 1,000,922
-----------
1,000,922
-----------
Aerospace & Defense - 4.1%
Boeing Company 14,200 733,004
Rockwell Collins, Inc. 7,800 289,692
United Technologies Corporation 13,800 1,288,644
-----------
2,311,340
-----------
Apparel, Accessories & Luxury Goods - 0.5%
Jones Apparel Group, Inc. 7,500 268,500
-----------
268,500
-----------
Broadcasting & Cable TV - 3.8%
Clear Channel Communications, Inc. 29,600 922,632
Liberty Media Corporation* 118,000 1,028,960
Liberty Media International, Inc.* 4,875 162,640
-----------
2,114,232
-----------
Communications Equipment - 1.4%
Nokia Oyj ADR 56,100 769,692
-----------
769,692
-----------
Computer Hardware - 2.3%
Hewlett-Packard Company 14,700 275,625
International Business Machines
Corporation 7,900 677,346
NCR Corporation* 6,300 312,417
-----------
1,265,388
-----------
Consumer Electronics - 1.3%
Koninklijke (Royal) Philips
Electronics N.V. 32,200 737,702
-----------
737,702
-----------
Data Processing & Outsourced Services - 3.2%
Automatic Data Processing, Inc. 21,400 884,248
DST Systems, Inc.* 14,000 622,580
SunGard Data Systems, Inc.* 11,800 280,486
-----------
1,787,314
-----------
Diversified Banks - 8.2%
Bank of America Corporation 43,250 1,874,023
U.S. Bancorp 32,900 950,810
Wachovia Corporation 25,000 1,173,750
Wells Fargo & Company 9,900 590,337
-----------
4,588,920
-----------
Diversified Capital Markets - 2.7%
J.P. Morgan Chase & Company 38,300 $1,521,659
-----------
1,521,659
-----------
Diversified Chemicals - 1.2%
Dow Chemical Company 14,700 664,146
-----------
664,146
-----------
Electric Utilities - 3.5%
Entergy Corporation 8,200 497,002
Exelon Corporation 9,000 330,210
PG&E Corporation* 10,000 304,000
PPL Corporation 6,400 301,952
TXU Corporation 10,300 493,576
-----------
1,926,740
-----------
Electrical Components & Equipment - 0.5%
Emerson Electric Company 4,800 297,072
-----------
297,072
-----------
Food Retail - 0.8%
Safeway, Inc.* 24,300 469,233
-----------
469,233
-----------
General Merchandise Stores - 0.6%
Dollar General Corporation 16,200 326,430
-----------
326,430
-----------
Health Care Equipment - 0.8%
Boston Scientific Corporation* 10,700 425,111
-----------
425,111
-----------
Health Care Services - 1.0%
Medco Health Soulutions, Inc.* 18,000 556,200
NeighborCare, Inc.* 227 5,754
-----------
561,954
-----------
Health Care Supplies - 0.2%
Caremark Rx, Inc.* 3,900 125,073
-----------
125,073
-----------
Household Products - 0.5%
Kimberly-Clark Corporation 4,300 277,737
-----------
277,737
-----------
Housewares & Specialties - 0.4%
Newell Rubbermaid, Inc. 12,700 254,508
-----------
254,508
-----------
Industrial Conglomerates - 4.2%
General Electric Company 35,000 1,175,300
Tyco International, Ltd. 38,200 1,171,212
-----------
2,346,512
-----------
Industrial Machinery - 0.7%
Eaton Corporation 5,900 374,119
-----------
374,119
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
92
Security
Large Cap Value Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Integrated Oil & Gas - 8.9%
BP plc ADR 14,700 $ 845,691
ChevronTexaco Corporation 15,000 804,600
ConocoPhillips 7,300 604,805
Exxon Mobil Corporation 40,200 1,942,866
Total S.A. ADR 7,300 745,841
-----------
4,943,803
-----------
Integrated Telecommunication Services - 5.8%
Alltel Corporation 12,300 675,393
Sprint Corporation 49,700 1,000,461
Verizon Communications, Inc. 39,500 1,555,510
-----------
3,231,364
-----------
Investment Banking & Brokerage - 5.9%
Goldman Sachs Group, Inc. 12,800 1,193,472
Merrill Lynch & Company, Inc. 14,300 710,996
Morgan Stanley 28,200 1,390,260
-----------
3,294,728
-----------
Life & Health Insurance - 3.6%
Genworth Financial, Inc.* 29,200 680,360
Prudential Financial, Inc. 21,600 1,016,064
UnumProvident Corporation 19,500 305,955
-----------
2,002,379
-----------
Movies & Entertainment - 1.9%
Viacom, Inc. (Cl.B) 31,800 1,067,208
-----------
1,067,208
-----------
Multi-Line Insurance - 4.3%
American International Group, Inc. 25,900 1,760,941
Hartford Financial Services Group, Inc. 10,500 650,265
-----------
2,411,206
-----------
Office Electronics - 0.5%
Xerox Corporation* 19,900 280,192
-----------
280,192
-----------
Oil & Gas Equipment & Services - 1.7%
Cooper Cameron Corporation* 6,200 340,008
Schlumberger, Ltd. 9,000 605,790
-----------
945,798
-----------
Oil & Gas Exploration & Production - 1.4%
Apache Corporation 8,500 425,935
Pioneer Natural Resources Company 10,400 358,592
-----------
784,527
-----------
Other Diversified Financial Services - 3.8%
Citigroup, Inc. 48,566 2,142,732
-----------
2,142,732
-----------
Packaged Foods & Meats - 1.0%
Kraft Foods, Inc. 17,400 551,928
-----------
551,928
-----------
Paper Products - 1.7%
Bowater, Inc. 7,300 278,787
International Paper Company 16,100 650,601
-----------
929,388
-----------
Pharmaceuticals - 0.6%
Barr Pharmaceuticals, Inc.* 7,700 319,011
-----------
319,011
-----------
Property & Casualty Insurance - 0.6%
Allstate Corporation 7,000 335,930
St. Paul Travelers Companies, Inc. 2 66
-----------
335,996
-----------
Regional Banks - 1.1%
PNC Financial Services Group 5,700 308,370
SunTrust Banks, Inc. 4,300 302,763
-----------
611,133
-----------
Restaurants - 1.2%
McDonald's Corporation 24,000 672,720
-----------
672,720
-----------
Semiconductors - 0.7%
Fairchild Semiconductor
International, Inc.* 26,600 376,922
-----------
376,922
-----------
Specialty Stores - 1.3%
Advance Auto Parts, Inc.* 9,800 337,120
AutoZone, Inc.* 5,100 393,975
-----------
731,095
-----------
Systems Software - 3.3%
Microsoft Corporation 41,800 1,155,770
Oracle Corporation* 59,800 674,544
-----------
1,830,314
-----------
Thrifts & Mortgage Finance - 4.0%
Countrywide Financial Corporation 5,400 212,706
Fannie Mae 5,500 348,700
Freddie Mac 13,000 848,120
PMI Group, Inc. 20,200 819,716
-----------
2,229,242
-----------
Tobacco - 0.6%
Altria Group, Inc. 7,200 338,688
-----------
338,688
-----------
Total common stocks
(cost $51,812,588) 54,444,678
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
93
Security
Large Cap Value Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Corporate Bonds - 0.2%
Refining - 0.2%
Crown Central Petroleum Corporation,
10.875% - 2005 $200,000 $ 141,000
-----------
141,000
-----------
Services - 0.0%
American Eco Corporation,
9.625% - 2008*(1,2) 125,000 --
-----------
--
-----------
Total corporate bonds
(cost $325,265) 141,000
-----------
U.S. Government Sponsored Agencies - 0.2%
Federal Home Loan Bank,
1.60%, 10-01-04 135,000 135,000
-----------
Total U.S. government sponsored agencies
(cost $135,000) 135,000
-----------
Total investments (cost $52,673,058) - 98.9% 55,206,293
Cash & other assets, less liabilities - 1.1% 589,303
-----------
Total net assets - 100.0% $55,795,596
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $52,934,037.
* Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
(1) Security is in default due to bankruptcy.
(2) Security is fair valued by the Board of Directors. The total market value
of fair valued securities amounts to $0 or 0.0% of total assets.
- --------------------------------------------------------------------------------
See accompanying notes.
94
Security
Large Cap Value Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) ..................................... $ 55,206,293
Cash ......................................................... 123
Receivables:
Fund shares sold .......................................... 7,513
Securities sold ........................................... 742,057
Interest .................................................. 3,605
Dividends ................................................. 66,585
Prepaid expenses ............................................. 20,468
------------
Total assets ................................................. 56,046,644
------------
Liabilities:
Payable for:
Securities purchased ...................................... 124,537
Fund shares redeemed ...................................... 8,046
Management fees ........................................... 34,693
Custodian fees ............................................ 1,700
Transfer and administration fees .......................... 20,250
Professional fees ......................................... 9,194
12b-1 distribution plan fees .............................. 36,127
Other ..................................................... 16,501
------------
Total liabilities ............................................ 251,048
------------
Net Assets ................................................... $ 55,795,596
============
Net assets consist of:
Paid in capital .............................................. $ 67,921,188
Accumulated undistributed net investment
income .................................................... 56,499
Accumulated undistributed net realized loss
on sale of investments .................................... (14,715,326)
Net unrealized appreciation
in value of investments ................................... 2,533,235
------------
Net assets ................................................... $ 55,795,596
============
Class A:
Capital shares outstanding ................................... 7,538,632
Net assets ................................................... $ 43,070,908
Net asset value and redemption price
per share .................................................. $ 5.71
============
Maximum offering price per share
(net asset value divided by 94.25%) ....................... $ 6.06
============
Class B:
Capital shares outstanding ................................... 1,876,045
Net assets ................................................... $ 10,163,756
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ......................... $ 5.42
============
Class C:
Capital shares outstanding ................................... 464,345
Net assets ................................................... $ 2,560,932
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ......................... $ 5.52
============
(1)Investments, at cost ...................................... $ 52,673,058
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................. $ 1,087,549
Interest .................................................. 30,614
------------
Total investment income ................................... 1,118,163
------------
Expenses:
Management fees ........................................... 491,519
Custodian fees ............................................ 9,091
Transfer agent/maintenance fees ........................... 171,519
Administration fees ....................................... 60,932
Directors' fees ........................................... 30,205
Professional fees ......................................... 13,863
Reports to shareholders ................................... 8,482
Registration fees ......................................... 39,115
Other expenses ............................................ 7,814
12b-1 distribution plan fees - Class A .................... 124,221
12b-1 distribution plan fees - Class B .................... 131,307
12b-1 distribution plan fees - Class C .................... 27,171
------------
Total expenses ............................................ 1,115,239
Less: Earnings credits ................................... (826)
------------
Net expenses .............................................. 1,114,413
------------
Net investment income ..................................... 3,750
------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments ............................................... 5,850,836
------------
Net realized gain ......................................... 5,850,836
------------
Net change in unrealized appreciation
during the period on
Investments ............................................... 1,248,889
------------
Net unrealized appreciation ............................... 1,248,889
------------
Net gain .................................................. 7,099,725
------------
Net increase in net assets
resulting from operations ................................ $ 7,103,475
============
- --------------------------------------------------------------------------------
See accompanying notes.
95
Security
Large Cap Value Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment income ..................................................... $ 3,750 $ 117,302
Net realized gain (loss) during the period on investments ................. 5,850,836 (4,625,189)
Net change in unrealized appreciation during the period on investments .... 1,248,889 12,145,945
------------ ------------
Net increase in net assets resulting from operations ...................... 7,103,475 7,638,058
------------ ------------
Distributions to shareholders from:
Net investment income
Class A .................................................................. (112,367) --
Class B .................................................................. -- --
Class C .................................................................. -- --
------------ ------------
Total distributions to shareholders ....................................... (112,367) --
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A .................................................................. 9,899,761 15,980,582
Class B .................................................................. 4,542,029 8,414,192
Class C .................................................................. 1,821,834 955,668
Distributions reinvested
Class A .................................................................. 105,691 --
Class B .................................................................. -- --
Class C .................................................................. -- --
Cost of shares redeemed
Class A .................................................................. (18,334,145) (9,542,638)
Class B .................................................................. (7,295,608) (2,539,716)
Class C .................................................................. (1,609,840) (643,187)
------------ ------------
Net increase (decrease) from capital share transactions ................... (10,870,278) 12,624,901
------------ ------------
Net increase (decrease) in net assets ..................................... (3,879,170) 20,262,959
------------ ------------
Net assets:
Beginning of period ....................................................... 59,674,766 39,411,807
------------ ------------
End of period ............................................................. $ 55,795,596 $ 59,674,766
============ ============
Accumulated undistributed net investment income at end of period .......... $ 56,499 $ 154,396
============ ============
Capital Share Activity:
Shares sold
Class A .................................................................. 1,736,330 3,275,684
Class B .................................................................. 832,794 1,770,126
Class C .................................................................. 324,573 207,972
Shares reinvested
Class A .................................................................. 18,840 --
Class B .................................................................. -- --
Class C .................................................................. -- --
Shares redeemed
Class A .................................................................. (3,197,972) (2,059,730)
Class B .................................................................. (1,357,469) (571,007)
Class C .................................................................. (290,056) (141,469)
- --------------------------------------------------------------------------------
See accompanying notes.
96
Security
Large Cap Value Fund
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004 2003 2002(f,h) 2001(e) 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 5.11 $ 4.25 $ 5.37 $ 6.42 $ 7.17
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.01 0.02 0.01 0.03 0.07
Net gain (loss) on securities (realized and unrealized) 0.60 0.84 (1.10) (1.03) (0.58)
------------------------------------------------------------------
Total from investment operations 0.61 0.86 (1.09) (1.00) (0.51)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.01) -- (0.03) (0.05) (0.13)
Distributions from realized gains -- -- -- -- (0.11)
------------------------------------------------------------------
Total distributions (0.01) -- (0.03) (0.05) (0.24)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.71 $ 5.11 $ 4.25 $ 5.37 $ 6.42
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.98% 20.24% (20.51%) (15.68%) (7.28%)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 43,071 $ 45,858 $ 32,997 $ 45,006 $ 60,448
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) 0.19% 0.41% 0.20% 0.49% 0.99%
Total expenses 1.52% 1.45% 1.37% 1.32% 1.27%
Gross expenses(b) 1.52% 1.45% 1.37% 1.32% 1.27%
Net expenses(d) 1.52% 1.45% 1.37% 1.32% 1.27%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 75% 76% 68% 180% 144%
Year Ended
September 30,
Class B 2004 2003 2002(f,h) 2001(e) 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 4.87 $ 4.08 $ 5.18 $ 6.21 $ 6.95
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.03) (0.02) (0.04) (0.03) --
Net gain (loss) on securities (realized and unrealized) 0.58 0.81 (1.06) (1.00) (0.58)
------------------------------------------------------------------
Total from investment operations 0.55 0.79 (1.10) (1.03) (0.58)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- (0.05)
Distributions from realized gains -- -- -- -- (0.11)
------------------------------------------------------------------
Total distributions -- _ -- -- (0.16)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.42 $ 4.87 $ 4.08 $ 5.18 $ 6.21
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.29% 19.36% (21.24%) (16.59%) (8.36%)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 10,164 $ 11,687 $ 4,905 $ 5,657 $ 7,152
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.57%) (0.42%) (0.71%) (0.51%) 0.01%
Total expenses 2.27% 2.20% 2.27% 2.32% 2.27%
Gross expenses(b) 2.27% 2.20% 2.27% 2.32% 2.27%
Net expenses(d) 2.27% 2.20% 2.27% 2.32% 2.27%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 75% 76% 68% 180% 144%
- --------------------------------------------------------------------------------
See accompanying notes.
97
Security
Large Cap Value Fund
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004 2003 2002(f,g,h) 2001(e) 2000
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 4.96 $ 4.16 $ 5.28 $ 6.32 $ 7.11
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.03) (0.02) (0.04) (0.03) (0.01)
Net gain (loss) on securities (realized and unrealized) 0.59 0.82 (1.08) (1.01) (0.56)
------------------------------------------------------------------
Total from investment operations 0.56 0.80 (1.12) (1.04) (0.57)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- (0.11)
Distributions from realized gains -- -- -- -- (0.11)
------------------------------------------------------------------
Total distributions -- -- -- -- (0.22)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.52 $ 4.96 $ 4.16 $ 5.28 $ 6.32
==================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(a) 11.29% 19.23% (21.21%) (16.46%) (8.10%)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,561 $ 2,130 $ 1,510 $ 904 $ 483
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (0.57%) (0.33%) (0.72%) (0.55%) (0.10%)
Total expenses 2.28% 2.20% 2.25% 2.33% 2.28%
Gross expenses(b) 2.28% 2.20% 2.25% 2.33% 2.28%
Net expenses(d) 2.28% 2.20% 2.25% 2.33% 2.28%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 75% 76% 68% 180% 144%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The Dreyfus Corporation became sub-adviser of Security Large Cap Value
Fund effective January 1, 2001. Prior to January 1, 2001, advisory
services were provided by the Investment Manager.
(f) As required, effective October 1, 2001, the Funds adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended September 30, 2002, was to increase net investment
income per share by less than 1/2 of a cent, decrease net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase the ratio of net investment income to average net assets from
0.06% to 0.07%. Per share, ratios and supplemental data for periods prior
to October 1, 2001 have not been restated to reflect this change in
presentation.
(g) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 30, 2002.
(h) Effective May 1, 2002 the fee structure for Security Large Cap Value Fund
changed. Per share information reflects this change.See accompanying
notes.
- --------------------------------------------------------------------------------
98
Security
Mid Cap Growth Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
[LOGO] Security
Funds
Advisor, Security Management Company, LLC
[PHOTO OMITTED]
James P. Schier
Senior Portfolio Manager
To Our Shareholders:
Following double-digit returns in 2003, fiscal year 2004 proved to be more
challenging for the Security Mid Cap Growth Fund. For the 12-month period ended
September 30, 2004, the Fund returned 5.23%(1), but lagged the S&P Mid Cap
Growth Index's gain of 11.73%.
Our strategy for the Fund is to seek appreciable securities of companies that
are able to grow and/or reinvest in increasingly profitable ventures and hold
them over three to five years to capture the best part of the improvements in
profits or profitability, and the strategy continues to work. We are focused on
investing in securities when we find opportunities, with our individual position
sizes reflecting the magnitude of our confidence in the opportunity. For this
Fund, we target securities of companies that appear likely to generate
above-average profitability at prices that, as of yet, do not reflect that
potential.
Technology and Consumer Discretionary Led Returns
The Fund's technology holdings overall rose more than 5% with 10 positions
gaining more than 50% in value. Two of these, Monolithic Systems and XICOR, were
the result of proposed buy-outs while the rest represented old-fashioned strong
demand for needed products and services. Mature companies with earnings and cash
flow also outperformed. The most significant contributors in this area were
Acxiom up 51%, Microsemiconductor up 86%, KFX Inc. up 53%, Commscope up 66% and
Harris Corporation up 55%.
The consumer discretionary sector gained 32% over the year. Lion's Gate
Entertainment, which produces films and series for TV and cable, gained 190%.
Lion's Gate is very effective at producing low-cost films that can be profitable
on relatively low revenue generation. The company's large library of 6,000 films
and its prestigious partners, including Microsoft, Cisco and Blockbuster, have
increased interest in the company, especially after SONY acquired MGM.
Healthcare and Small Capitalization Names Hit Hard in July and August
After a good start to the year, the Fund succumbed to a significant sell-off in
July and August that hit the biotechnology exposure hard. The Fund's health care
holdings declined 23% in value. Hollis-Eden and Sciclone Pharmaceuticals
declined approximately 55% on profit taking after other companies announced new
therapeutic agents that address the diseases targeted by these companies. In
addition, Ligand Pharmaceuticals, an especially large holding, declined 22%. The
company's auditors resigned causing the market to become concerned. We interpret
Ligand's circumstances to be short term in nature, and we believe the stock will
regain as the company's leading pain relief drug continues to gain market share.
Some of the Fund's smaller-capitalization holdings also experienced similar
declines. With a lack of long-term negative news, such corrections are usually
quick to reverse once company fundamentals have a chance to emerge. In
technology, the market became concerned that an anticipated inventory build-up
of semiconductor and telecom equipment was a sign of an aborted recovery. We
believe that the build-up was largely planned as part of the upcoming
infrastructure upgrade the incumbent phone companies are embarking on as they
replace outdated twisted pair copper technologies with IP-based infrastructure.
Luckily this thesis appears to be playing out in 2004's fourth calendar quarter.
Muted Outlook for 2005
With 2004 being the second up year in the market, the equity market is not
offering compelling opportunities and sectors lack dramatic mispricing. Our
proprietary valuation work continues to suggest there are better opportunities
in smaller-capitalization names. However, the valuation discounts are less than
they were five to seven years ago. Growth names appear to offer slightly better
opportunity than value names; however, equity valuations are not cheap, and with
profit margins high, there is little opportunity for expanding earnings growth.
New issuances and secondary offerings have been abundant this past year, and it
is discomforting to find corporations so eager to sell stock.
>From a macro standpoint, we believe the economy may slow in 2005, as the
benefits of stimulus from tax cuts and mortgage refinancing seem largely spent.
At this point, the best catalyst for growth may be a significant drop in crude
oil prices and a rebound in capital deployment by corporations from the cash
balances accrued in this recovery.
While there are many exciting small-and mid-cap companies to choose from, we
believe investors should have exposure to this portion of the equity market.
With low fixed income rates providing a significant prop to equity valuations,
it is hard to believe that equities are priced to provide double-digit returns
in the year ahead.
Sincerely,
James P. Schier
Senior Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
- --------------------------------------------------------------------------------
99
Security
Mid Cap Growth Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Security Mid Cap Growth Fund vs.
S&P Midcap Growth Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Security Mid Cap Growth Fund $32,575
DATE VALUE
---- -----
9/30/1994 9,425.00
12/31/1994 9,994.92
3/31/1995 10,339.05
6/30/1995 11,027.33
9/30/1995 12,269.21
12/31/1995 11,923.38
3/31/1996 12,764.02
6/30/1996 13,810.53
9/30/1996 14,153.65
12/31/1996 14,072.59
3/31/1997 12,964.51
6/30/1997 14,792.84
9/30/1997 17,064.40
12/31/1997 16,580.54
3/31/1998 18,299.14
6/30/1998 17,928.08
9/30/1998 14,940.06
12/31/1998 19,356.71
3/31/1999 19,307.65
6/30/1999 22,447.90
9/30/1999 22,546.03
12/31/1999 30,906.59
3/31/2000 36,975.70
6/30/2000 34,961.16
9/30/2000 38,964.74
12/31/2000 35,983.70
3/31/2001 29,707.14
6/30/2001 33,115.22
9/30/2001 24,083.80
12/31/2001 30,726.65
3/31/2002 31,497.67
6/30/2002 25,900.62
9/30/2002 20,075.12
12/31/2002 22,245.41
3/31/2003 21,988.40
6/30/2003 28,327.91
9/30/2003 30,955.10
12/31/2003 34,702.84
3/31/2004 36,653.77
6/30/2004 36,565.09
9/30/2004 32,574.56
S&P Midcap Growth Index $35,652
DATE VALUE
---- -----
9/30/1994 $10,000.00
12/31/1994 9,766.44
3/31/1995 10,567.69
6/30/1995 11,487.06
9/30/1995 12,697.20
12/31/1995 12,432.43
3/31/1996 13,337.78
6/30/1996 13,711.37
9/30/1996 14,260.99
12/31/1996 14,721.37
3/31/1997 14,328.04
6/30/1997 16,921.81
9/30/1997 19,963.72
12/31/1997 19,175.55
3/31/1998 21,516.69
6/30/1998 21,467.90
9/30/1998 18,210.75
12/31/1998 25,857.78
3/31/1999 24,401.72
6/30/1999 27,677.94
9/30/1999 25,753.34
12/31/1999 32,936.69
3/31/2000 39,180.39
6/30/2000 37,857.48
9/30/2000 42,160.24
12/31/2000 35,952.05
3/31/2001 29,426.45
6/30/2001 34,000.89
9/30/2001 27,147.81
12/31/2001 33,085.79
3/31/2002 34,227.91
6/30/2002 29,773.98
9/30/2002 25,439.88
12/31/2002 26,744.09
3/31/2003 25,937.55
6/30/2003 30,091.54
9/30/2003 31,899.96
12/31/2003 35,028.67
3/31/2004 36,633.98
6/30/2004 36,914.20
9/30/2004 35,652.45
$10,000 Over Ten Years
This chart assumes a $10,000 investment in Class A shares of Security Mid Cap
Growth Fund on September 30, 1994, reflects deduction of the 5.75% sales load
and assumes all dividends reinvested. The chart does not reflect the deduction
of taxes that a shareholder would pay on distributions or the redemption of fund
shares.
- -----------------------------------------------------
Portfolio Composition by Sector
- -----------------------------------------------------
Consumer Discretionary 12.62%
- -----------------------------------------------------
Energy 10.58
- -----------------------------------------------------
Exchange Traded Funds 5.71
- -----------------------------------------------------
Financials 4.08
- -----------------------------------------------------
Health Care 13.86
- -----------------------------------------------------
Industrials 11.68
- -----------------------------------------------------
Information Technology 33.42
- -----------------------------------------------------
Materials 3.18
- -----------------------------------------------------
Utilities 3.73
- -----------------------------------------------------
Warrants 0.10
- -----------------------------------------------------
Cash & other assets, less liabilities 1.04
- -----------------------------------------------------
- --------------------------------------------------------------------------------
Average Annual Returns
- --------------------------------------------------------------------------------
Periods Ended 9-30-04 Since
1 Year 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
A Shares 5.23% 7.53% 12.43% N/A
- --------------------------------------------------------------------------------
A Shares with sales charge (0.82%) 6.27% 11.77% N/A
- --------------------------------------------------------------------------------
B Shares 4.44% 6.57% 11.35% N/A
- --------------------------------------------------------------------------------
B Shares with CDSC 0.44% 6.57% 11.35% N/A
- --------------------------------------------------------------------------------
C Shares 4.59% 6.75% N/A 7.91%
(1-29-99)
- --------------------------------------------------------------------------------
C Shares with CDSC 4.59% 6.75% N/A 7.91%
(1-29-99)
- --------------------------------------------------------------------------------
The performance data above represent past performance that is not predictive of
future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Fund and in
the absence of such waiver, the performance quoted would be reduced.
- --------------------------------------------------------------------------------
See accompanying notes.
100
Security
Mid Cap Growth Fund
(unaudited)
Manager's Commentary
November 15, 2004
- --------------------------------------------------------------------------------
PERFORMANCE
Information About Your Fund's Expenses
Calculating your ongoing fund expenses
Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, which may include sales charges (loads) on purchase payments; contingent
deferred sales charges on redemptions; and redemption fees, if any; and (2)
ongoing costs, including management fees; distribution and/or service fees
(12b-1); and other Fund expenses. This Example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with ongoing costs of investing in other mutual funds. The
Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period, April 1, 2004 - September 30, 2004.
Actual Expenses
The first line for each class of shares in the table provides information about
actual account values and actual expenses. You may use the information in this
table, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the table under the heading entitled "Expenses Paid During Period"
to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares on the table provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) on purchase payments, contingent deferred sales charges on
redemptions, and redemption fees, if any. Therefore, the second line for each
class of shares is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
Fund Expenses
- --------------------------------------------------------------------------------
Beginning Ending Expenses Paid
Account Value Account Value During
04-01-04 09-30-04(1) Period(2)
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- - Class A
Actual $1,000.00 $ 888.70 $ 6.74
Hypothetical 1,000.00 1,018.00 7.20
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- - Class B
Actual 1,000.00 884.90 10.28
Hypothetical 1,000.00 1,014.23 10.99
- --------------------------------------------------------------------------------
Mid Cap Growth Fund
- - Class C
Actual 1,000.00 885.40 10.28
Hypothetical 1,000.00 1,014.23 10.99
- --------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the
Fund for the period April 1, 2004 to September 30, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund's expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period April 1, 2004 to September 30, 2004 was -11.13%, -11.51% and
-11.46%, for Class A, B and C class shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.42%, 2.17%
and 2.17% for Class A, B and C class shares, respectively) multiplied by
the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
- --------------------------------------------------------------------------------
101
Security
Mid Cap Growth Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks - 98.9%
Application Software - 2.3%
Cognos, Inc.* 4,100 $ 145,632
Hyperion Solutions Corporation*(1) 50,000 1,699,500
InteliData Technologies Corporation* 393,250 133,705
Tibco Software, Inc.* 289,600 2,464,496
-----------
4,443,333
-----------
Asset Management & Custody Banks - 3.0%
Northern Trust Corporation 104,000 4,243,200
Waddell & Reed Financial, Inc. 70,000 1,540,000
-----------
5,783,200
-----------
Biotechnology - 3.9%
Cell Genesys, Inc.* 54,000 484,380
Charles River Laboratories
International, Inc.* 34,000 1,557,200
Chiron Corporation* 34,000 1,502,800
Kosan Biosciences, Inc.* 169,100 974,016
La Jolla Pharmaceutical Company* 29,200 89,060
Novavax, Inc.* 126,000 393,120
SciClone Pharmaceuticals, Inc.* 339,367 1,208,147
Strategic Diagnostics Inc.* 206,300 441,482
Vical, Inc.* 156,000 748,956
-----------
7,399,161
-----------
Casinos & Gaming - 1.7%
GTech Holdings Corporation 130,000 3,291,600
-----------
3,291,600
-----------
Commodity Chemicals - 0.8%
Headwaters, Inc.* 50,000 1,543,000
-----------
1,543,000
-----------
Communications Equipment - 8.5%
ADC Telecommunications, Inc.* 1,200,000 2,172,000
Andrew Corporation* 280,000 3,427,200
Avici Systems, Inc.* 121,500 755,730
Ciena Corporation* 280,000 554,400
Cisco Systems, Inc.* 39,700 718,570
EFJ, Inc.* 63,600 426,120
Extreme Networks, Inc.* 250,000 1,112,500
Finisar Corporation* 1,255,900 1,632,670
Harmonic, Inc.* 200,000 1,330,000
Harris Corporation 53,700 2,950,278
Symmetricom, Inc.* 126,000 1,191,960
-----------
16,271,428
-----------
Computer Storage & Peripherals - 0.9%
Adaptec, Inc.* 213,500 1,622,600
Maxtor Corporation* 38,867 202,108
-----------
1,824,708
-----------
Construction & Engineering - 1.6%
Shaw Group, Inc.* 253,700 3,044,400
-----------
3,044,400
-----------
Data Processing & Outsourced Services - 3.2%
Computer Sciences Corporation* 85,000 $ 4,003,500
Hewitt Associates, Inc.* 36,000 952,560
Per-Se Technologies, Inc.* 74,000 1,015,280
Sabre Holdings Corporation 6,700 164,351
-----------
6,135,691
-----------
Diversified Commercial Services - 2.6%
Cendant Corporation 20,000 432,000
ChoicePoint, Inc.* 47,000 2,004,550
Equifax, Inc. 41,390 1,091,040
Navigant Consulting, Inc.* 64,800 1,423,008
-----------
4,950,598
-----------
Electric Utilities - 3.7%
KFx Inc.* 924,000 7,124,040
-----------
7,124,040
-----------
Electrical Components & Equipment - 4.8%
American Power Conversion Corporation 2,600 45,214
Electric City Corporation*(2,3) 1,068,000 1,473,840
Plug Power, Inc.* 504,000 3,230,640
Power-One, Inc.* 685,000 4,438,800
-----------
9,188,494
-----------
Electronic Equipment Manufacturers - 3.2%
Aeroflex, Inc.* 180,000 1,902,600
Identix, Inc.* 59,400 395,604
Maxwell Technologies, Inc.* 310,000 3,196,100
Universal Display Corporation* 75,000 631,500
-----------
6,125,804
-----------
Exchange Traded Funds - 5.7%
iShares Russell 2000 Growth Index Fund 42,000 2,459,940
iShares S&P MidCap 400 Index Fund 12,200 1,448,750
iShares S&P MidCap 400/BARRA
Growth Index Fund 33,000 3,962,640
S & P MidCap 400 Depositary Receipts 28,000 3,038,840
-----------
10,910,170
-----------
General Merchandise Stores - 2.6%
Fred's, Inc. 275,000 4,939,000
-----------
4,939,000
-----------
Health Care Equipment - 0.2%
Bioject Medical Technologies, Inc.* 300,000 324,000
-----------
324,000
-----------
Health Care Facilities - 2.7%
LifePoint Hospitals, Inc.*(1) 72,000 2,160,720
U.S. Physical Therapy, Inc.* 97,000 1,318,230
United Surgical Partners
International, Inc.* 50,000 1,717,500
-----------
5,196,450
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
102
Security
Mid Cap Growth Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Common Stocks (continued)
Health Care Services - 1.3%
NDCHealth Corporation 59,400 $ 953,370
Providence Service Corporation* 78,900 1,528,293
-----------
2,481,663
-----------
Health Care Supplies - 1.1%
Orthovita, Inc.* 375,000 1,678,125
Staar Surgical Company* 128,700 424,710
-----------
2,102,835
-----------
Industrial Machinery - 0.4%
Tennant Company 17,100 693,063
-----------
693,063
-----------
Internet Software & Services - 0.8%
Netopia, Inc.* 3,000 6,420
RADVision, Ltd.* 151,500 1,458,945
-----------
1,465,365
-----------
IT Consulting & Other Services - 6.4%
Accenture, Ltd.* 10,300 278,615
Acxiom Corporation 383,800 9,111,412
Keane, Inc.* 182,000 2,795,520
-----------
12,185,547
-----------
Leisure Products - 1.1%
Mattel, Inc. 115,000 2,084,950
-----------
2,084,950
-----------
Metal & Glass Containers - 2.4%
Pactiv Corporation* 195,000 4,533,750
-----------
4,533,750
-----------
Movies & Entertainment - 2.8%
Lions Gate Entertainment Corporation* 608,300 5,292,210
-----------
5,292,210
-----------
Oil & Gas Drilling - 1.4%
Ensco International, Inc. 82,300 2,688,741
-----------
2,688,741
-----------
Oil & Gas Equipment & Services - 1.2%
BJ Services Company 43,000 2,253,630
-----------
2,253,630
-----------
Oil & Gas Exploration & Production - 6.2%
EOG Resources, Inc. 66,000 4,346,100
Pioneer Natural Resources Company 135,669 4,650,612
Rentech, Inc.* 1,139,300 1,025,370
Syntroleum Corporation* 254,450 1,786,239
-----------
11,808,321
-----------
Oil & Gas Refining, Marketing
& Transportation - 1.8%
Western Gas Resources, Inc. 40,000 1,143,600
Williams Companies, Inc. 190,000 2,299,000
-----------
3,442,600
-----------
Pharmaceuticals - 4.7%
Hollis-Eden Pharmaceuticals, Inc.* 257,744 2,775,903
Ligand Pharmaceuticals, Inc. (Cl.B)* 618,000 6,192,360
-----------
8,968,263
-----------
Publishing - 2.1%
E.W. Scripps Company(1) 86,000 4,109,080
-----------
4,109,080
-----------
Regional Banks - 1.1%
Boston Private Financial Holdings, Inc.(1) 65,000 1,622,400
Southwest Bancorporation of Texas, Inc. 19,800 398,772
-----------
2,021,172
-----------
Restaurants - 0.8%
Rare Hospitality International, Inc.* 60,000 1,599,000
-----------
1,599,000
-----------
Semiconductor Equipment - 0.5%
Mindspeed Technologies, Inc.* 509,100 1,018,200
-----------
1,018,200
-----------
Semiconductors - 5.6%
Applied Micro Circuits Corporation* 500,000 1,565,000
Fairchild Semiconductor
International, Inc.* 16,600 235,222
Hi/fn, Inc.* 152,800 1,340,056
Intersil Corporation 52,000 828,360
IXYS Corporation* 298,900 2,146,102
Microsemi Corporation* 320,000 4,512,000
-----------
10,626,740
-----------
Specialty Stores - 1.5%
Cost Plus, Inc.* 19,250 681,065
Hibbett Sporting Goods, Inc.* 103,500 2,120,715
-----------
2,801,780
-----------
Systems Software - 2.0%
McAfee, Inc.* 8,100 162,810
Microsoft Corporation 40,400 1,117,060
Red Hat, Inc.* 17,000 208,080
Wind River Systems, Inc.* 186,000 2,269,200
-----------
3,757,150
-----------
Trading Companies & Distributors - 2.3%
MSC Industrial Direct Company, Inc. 130,000 4,430,400
-----------
4,430,400
-----------
Total common stocks
(cost $161,737,749) 188,859,537
-----------
- --------------------------------------------------------------------------------
See accompanying notes.
103
Security
Mid Cap Growth Fund
Schedule of Investments
September 30, 2004
- --------------------------------------------------------------------------------
Number Market
of Shares Value
- --------------------------------------------------------------------------------
Warrants - 0.1%
Bioject Medical Technologies, Inc. 5,625 $ 63
Electric City Corporation 311,500 91,899
Hollis-Eden Pharmaceuticals, Inc. 8,143 34,204
Orthovita, Inc. 75,000 43,937
Syntroleum Corporation 14,100 30,315
------------
Total warrants (cost $479,124) 200,418
------------
Total investments (cost $162,216,873) - 99.0% 189,059,955
Cash & other assets, less liabilities - 1.0% 1,991,631
------------
Total net assets - 100.0% $191,051,586
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2004 was $163,293,530.
* Non-income producing security
(1) Security is segregated as collateral for written option contracts.
(2) PIPE-Private Investment in Public Equity - is the term used for stock
issued by a company in the secondary market as a means of raising capital
more quickly and less expensively than through registration in a secondary
public offering.
(3) Security is a restricted security. The total market value of restricted
securities is $1,473,840 (cost $1,844,330), or 0.77% of total net assets.
The acquisition date was March 19, 2004.
- --------------------------------------------------------------------------------
See accompanying notes.
104
Security
Mid Cap Growth Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 2004
- --------------------------------------------------------------------------------
Assets:
Investments, at value(1) .................................... $ 189,059,955
Receivables:
Fund shares sold ......................................... 91,809
Securities sold .......................................... 3,268,467
Dividends ................................................ 41,330
Prepaid expenses ............................................ 25,109
-------------
Total assets ................................................ 192,486,670
-------------
Liabilities:
Cash overdraft .............................................. 207,020
Payable for:
Securities purchased ..................................... 316,517
Fund shares redeemed ..................................... 166,939
Written options, at value ................................ 379,455
Management fees .......................................... 116,955
Custodian fees ........................................... 2,500
Transfer and administration fees ......................... 45,774
Professional fees ........................................ 16,486
12b-1 distribution plan fees ............................. 147,656
Other .................................................... 35,782
-------------
Total liabilities ........................................... 1,435,084
-------------
Net Assets .................................................. $ 191,051,586
=============
Net assets consist of:
Paid in capital ............................................. $ 155,591,917
Accumulated undistributed net investment
income ................................................... --
Accumulated undistributed net realized
gain on sale of investments
and options .............................................. 8,529,996
Net unrealized appreciation in value of
investments and written options .......................... 26,929,673
-------------
Net assets .................................................. $ 191,051,586
=============
Class A:
Capital shares outstanding .................................. 13,591,288
Net assets .................................................. $ 149,714,505
Net asset value and redemption price
per share ................................................ $ 11.02
=============
Maximum offering price per share
(net asset value divided by 94.25%) ...................... $ 11.69
=============
Class B:
Capital shares outstanding .................................. 2,764,826
Net assets .................................................. $ 26,577,815
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ........................ $ 9.61
=============
Class C:
Capital shares outstanding .................................. 1,415,269
Net assets .................................................. $ 14,759,266
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ........................ $ 10.43
=============
(1) Investments, at cost .................................... $ 162,216,873
Statement of Operations
For the Year Ended September 30, 2004
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................ $ 583,851
Interest ................................................. 39,744
-------------
Total investment income .................................. 623,595
-------------
Expenses:
Management fees .......................................... 1,567,094
Custodian fees ........................................... 16,178
Transfer agent/maintenance fees .......................... 467,142
Administration fees ...................................... 190,989
Directors' fees .......................................... 31,936
Professional fees ........................................ 33,408
Reports to shareholders .................................. 32,860
Registration fees ........................................ 66,925
Other expenses ............................................ 12,183
12b-1 distribution plan fees - Class A ................... 406,931
12b-1 distribution plan fees - Class B ................... 301,143
12b-1 distribution plan fees - Class C ................... 160,591
-------------
Total expenses ........................................... 3,287,380
Less: Earnings credits .................................. (890)
-------------
Net expenses ............................................. 3,286,490
-------------
Net investment loss ...................................... (2,662,895)
-------------
Net Realized and Unrealized Gain:
Net realized gain during the period on
Investments .............................................. 15,275,286
Options written .......................................... 334,084
-------------
Net realized gain ........................................ 15,609,370
-------------
Net change in unrealized appreciation
(depreciation) during the period on
Investments .............................................. (2,937,253)
Options written .......................................... 86,591
-------------
Net unrealized depreciation .............................. (2,850,662)
-------------
Net gain ................................................. 12,758,708
-------------
Net increase in net assets
resulting from operations ............................... $ 10,095,813
=============
- --------------------------------------------------------------------------------
See accompanying notes.
105
Security
Mid Cap Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations:
Net investment loss .......................................................... $ (2,662,895) $ (1,782,165)
Net realized gain during the period on investments and options
written and purchased ....................................................... 15,609,370 7,985,872
Net change in unrealized appreciation (depreciation) during the period on
investments and options written and purchased ............................... (2,850,662) 52,286,497
------------- -------------
Net increase in net assets resulting from operations ......................... 10,095,813 58,490,204
------------- -------------
Distributions to shareholders from:
Net realized gain
Class A ..................................................................... (5,436,898) --
Class B ..................................................................... (1,171,101) --
Class C ..................................................................... (553,046) --
------------- -------------
Total distributions to shareholders ......................................... (7,161,045) --
------------- -------------
Capital share transactions:
Proceeds from sale of shares
Class A ..................................................................... 56,721,885 40,656,683
Class B ..................................................................... 7,305,168 9,427,357
Class C ..................................................................... 6,528,566 4,322,997
Distributions reinvested
Class A ..................................................................... 5,189,647 --
Class B ..................................................................... 1,150,087 --
Class C ..................................................................... 519,780 --
Issuance of shares in connection with Technology Series merger (Note 9)
Class A ..................................................................... 7,786,451 --
Class B ..................................................................... 1,764,789 --
Class C ..................................................................... 2,411,529 --
Cost of shares redeemed
Class A ..................................................................... (56,580,537) (44,459,945)
Class B ..................................................................... (10,368,864) (8,552,708)
Class C ..................................................................... (6,258,847) (2,270,432)
------------- -------------
Net increase (decrease) from capital share transactions ..................... 16,169,654 (876,048)
------------- -------------
Net increase (decrease) in net assets ....................................... 19,104,422 57,614,156
------------- -------------
Net assets:
Beginning of period .......................................................... 171,947,164 114,333,008
------------- -------------
End of period ................................................................ $ 191,051,586 $ 171,947,164
============= =============
Accumulated undistributed net investment income at end of period ............. $ -- $ --
============= =============
Capital Share Activity:
Shares sold
Class A ..................................................................... 4,917,993 4,578,400
Class B ..................................................................... 723,937 1,135,067
Class C ..................................................................... 615,289 497,073
Shares reinvested
Class A ..................................................................... 458,045 --
Class B ..................................................................... 115,703 --
Class C ..................................................................... 48,173 --
Shares issued in connection with Technology Series merger
Class A ..................................................................... 694,178 --
Class B ..................................................................... 177,910 --
Class C ..................................................................... 225,079 --
Shares redeemed
Class A ..................................................................... (4,857,485) (5,138,315)
Class B ..................................................................... (1,016,474) (1,168,642)
Class C ..................................................................... (563,683) (277,157)
- --------------------------------------------------------------------------------
See accompanying notes.
106
Security
Mid Cap Growth Fund
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class A 2004(g) 2003 2002(f) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.84 $ 7.03 $ 8.48 $ 15.28 $ 9.19
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.10) (0.09) (0.07) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.71 3.91 (1.30) (5.38) 6.60
-----------------------------------------------------------------------
Total from investment operations 0.58 3.81 (1.39) (5.45) 6.52
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43)
-----------------------------------------------------------------------
Total distributions (0.40) -- (0.06) (1.35) (0.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.02 $ 10.84 $ 7.03 $ 8.48 $ 15.28
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 5.23% 54.20% (16.64%) (38.19%) 72.82%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 149,715 $ 134,208 $ 90,948 $ 131,498 $ 204,787
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.11%) (1.14%) (0.92%) (0.64%) (0.62%)
Total expenses 1.41% 1.41% 1.20% 1.09% 1.11%
Gross expenses(b) 1.41% 1.41% 1.20% 1.09% 1.11%
Net expenses(d) 1.41% 1.41% 1.20% 1.09% 1.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 50% 57% 47% 48% 35%
Year Ended
September 30,
Class B 2004(g) 2003 2002(f) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 9.57 $ 6.26 $ 7.62 $ 14.02 $ 8.54
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.19) (0.15) (0.16) (0.17) (0.19)
Net gain (loss) on securities (realized and unrealized) 0.63 3.46 (1.14) (4.88) 6.10
-----------------------------------------------------------------------
Total from investment operations 0.44 3.31 (1.30) (5.05) 5.91
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43)
-----------------------------------------------------------------------
Total distributions (0.40) -- (0.06) (1.35) (0.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.61 $ 9.57 $ 6.26 $ 7.62 $ 14.02
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.44% 52.88% (17.35%) (38.83%) 71.17%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 26,578 $ 26,459 $ 17,502 $ 28,580 $ 38,812
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.86%) (1.89%) (1.84%) (1.64%) (1.61%)
Total expenses 2.16% 2.16% 2.11% 2.09% 2.11%
Gross expenses(b) 2.16% 2.16% 2.11% 2.09% 2.11%
Net expenses(d) 2.16% 2.16% 2.11% 2.09% 2.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 50% 57% 47% 48% 35%
- --------------------------------------------------------------------------------
See accompanying notes.
107
Security
Mid Cap Growth Fund
Financial Highlights
Selected data for each share of capital stock outstanding
throughout each period
- --------------------------------------------------------------------------------
Year Ended
September 30,
Class C 2004(g) 2003 2002(e,f) 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net asset value, beginning of period $ 10.34 $ 6.76 $ 8.22 $ 14.99 $ 9.11
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.21) (0.16) (0.16) (0.18) (0.20)
Net gain (loss) on securities (realized and unrealized) 0.70 3.74 (1.24) (5.24) 6.51
-----------------------------------------------------------------------
Total from investment operations 0.49 3.58 (1.40) (5.42) 6.31
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.40) -- (0.06) (1.35) (0.43)
-----------------------------------------------------------------------
Total distributions (0.40) -- (0.06) (1.35) (0.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.43 $ 10.34 $ 6.76 $ 8.22 $ 14.99
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(a) 4.59% 52.96% (17.30%) (38.78%) 71.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 14,759 $ 11,279 $ 5,883 $ 4,194 $ 3,017
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income (loss) (1.86%) (1.89%) (1.85%) (1.66%) (1.61%)
Total expenses 2.16% 2.16% 2.12% 2.09% 2.11%
Gross expenses(b) 2.16% 2.16% 2.12% 2.09% 2.11%
Net expenses(d) 2.16% 2.16% 2.12% 2.09% 2.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 50% 57% 47% 48% 35%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after expense reductions
or fee waivers and custodian fee earnings credits.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) Effective May 1, 2002 the fee structure for Security Mid Cap Growth Fund
changed. Per share information reflects this change.
(g) The financial highlights for the Mid Cap Growth Fund exclude the
historical financial highlights of the Technology Series Class A, B and C
shares. The assets of the Technology Series were acquired by the Mid Cap
Growth Fund on October 3, 2003.See accompanying notes.
- --------------------------------------------------------------------------------
108
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Security Large Cap Value, Equity and Mid Cap Growth Funds (the Funds) are
registered under the Investment Company Act of 1940, as amended, as open-end
management investment companies. The shares of Security Equity Fund are
currently issued in multiple Series, with each Series, in effect, representing a
separate fund. The Fund accounts for the assets of each Series separately. Class
"A" shares are generally sold with a sales charge at the time of purchase. Class
"A" shares are not subject to a sales charge when they are redeemed, except that
purchases of Class "A" shares of $1 million or more sold without a front-end
sales charge are subject to a contingent deferred sales charge if redeemed
within one year of purchase. Class "B" shares are offered without a front-end
sales charge but incur additional class-specific expenses. Class B shares may be
subject to a contingent deferred sales charge for six years and automatically
convert to Class A shares after eight years. Redemptions of the shares within
five years of acquisition incur a contingent deferred sales charge. Class "C"
shares are offered without a front-end sales charge but incur additional
class-specific expenses. Redemptions of the shares within one year of
acquisition incur a contingent deferred sales charge. The following is a summary
of the significant accounting policies followed by the Funds in the preparation
of their financial statements.
A. Security Valuation - Valuations of the Fund's securities are supplied
by pricing services approved by the Board of Directors. The Fund's officers,
under the general supervision of the Board of Directors, regularly review
procedures used by, and valuations provided by, the pricing services. Each
security owned by a Fund that is listed on a securities exchange is valued at
its last sale price on that exchange on the date as of which assets are valued.
Where the security is listed on more than one exchange, the Fund will use the
price of that exchange that it generally considers to be the principal exchange
on which the stock is traded. Fund securities listed on the Nasdaq Stock Market,
Inc. ("Nasdaq") will be valued at the Nasdaq Official Closing Price. Securities
for which market quotations are not readily available are valued by a pricing
service considering securities with similar yields, quality, type of issue,
coupon, duration and rating. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Fund's
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. If events
occur that will affect the value of a fund's portfolio securities before the NAV
has been calculated (a "significant event"), the security will generally be
priced using a fair value procedure. If the Valuation Committee determines a
significant event has occurred, it will evaluate the impact of that event on an
affected security or securities, to determine whether a fair value adjustment
would materially affect the fund's NAV per share. Some of the factors which may
be considered by the Board of Directors in determining fair value are
fundamental analytical data relating to the investment; the nature and duration
of any restrictions on disposition; trading in similar securities of the same
issuer or comparable companies; information from broker-dealers; and an
evaluation of the forces that influence the market in which the securities are
purchased and sold. The Fund generally will value short-term debt securities at
prices based on market quotations for such securities or securities of similar
type, yield, quality and duration, except those securities purchased with 60
days or less to maturity are valued on the basis of amortized cost which
approximates market value.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of foreign securities are determined as of the close of
such foreign markets or the close of the New York Stock Exchange, if earlier.
All investments quoted in foreign currency are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Investments in foreign securities may involve risks not present in
domestic investments. The Valuation Committee will determine the current value
of such foreign securities by taking into consideration certain factors which
may include those discussed above, as well as the following factors, among
others: the value of the securities traded on other foreign markets, ADR
trading, closed-end fund trading, foreign currency exchange activity, and the
trading prices of financial products that are tied to foreign securities such as
WEBS(R). In addition, the Board of Directors has authorized the Valuation
Committee and Administrator to use prices and other information supplied by
IDC's Fair Value Information Service in valuing such securities. Since foreign
securities may be denominated in a foreign currency and involve settlement and
pay interest or dividends in foreign currencies, changes in the relationship of
these foreign currencies to the U.S. dollar can significantly affect the value
of the investments and earnings of the Funds. Foreign investments may also
subject the Series to foreign government exchange restrictions, expropriation,
taxation or other political, social or economic developments, all of which could
affect the market and/or credit risk of the investments.
B. Repurchase Agreements - In connection with transactions in repurchase
agreements, it is the Funds' policy that its custodian take possession of the
underlying collateral and that the fair value of the collateral exceed the
principal amount of the repurchase transaction, including accrued interest, at
all times. If the seller defaults, and the fair value of the collateral
declines, realization of the collateral by the Funds may be delayed or limited.
C. Foreign Currency Transactions - The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
- --------------------------------------------------------------------------------
109
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
Net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales of foreign currencies, and the difference between
asset and liability amounts initially stated in foreign currencies and the U.S.
dollar value of the amounts actually received or paid. Net unrealized foreign
exchange gains or losses arise from changes in the value of portfolio securities
and other assets and liabilities at the end of the reporting period, resulting
from changes in the exchange rates.
D. Forward Foreign Currency Exchange Contracts - Global Series may enter
into forward foreign exchange contracts in order to manage foreign currency risk
from purchase or sale of securities denominated in foreign currency. The Series
may also enter into such contracts to manage changes in foreign currency
exchange rates on portfolio positions. These contracts are marked to market
daily, by recognizing the difference between the contract exchange rate and the
current market rate as unrealized gains or losses. Realized gains or losses are
recognized when contracts are settled and are reflected in the Statement of
Operations. These contracts involve market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The face or contract
amount in U.S. dollars reflects the total exposure these funds have in that
particular currency contract. Losses may arise due to changes in the value of
the foreign currency or if the counterparty does not perform under the contract.
E. Futures - Large Cap Value Fund, Equity Series, Social Awareness Series,
Small Cap Growth Series, Enhanced Index Series, Alpha Opportunity Series and Mid
Cap Growth Fund utilize futures contracts to a limited extent, with the
objectives of maintaining full exposure to the underlying stock market,
enhancing returns, maintaining liquidity, and minimizing transaction costs.
These Funds or Series, as applicable, may purchase futures contracts to
immediately position incoming cash in the market, thereby simulating a fully
invested position in the underlying index while maintaining a cash balance for
liquidity. In the event of redemptions, the Funds or Series, as applicable, may
pay departing shareholders from its cash balances and reduce their futures
positions accordingly. Returns may be enhanced by purchasing futures contracts
instead of the underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks contained in the indexes and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Upon entering into a futures
contract, the Funds are required to deposit and maintain as collateral either
cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Cash deposits are shown as restricted cash on
the Statement of Assets and Liabilities; securities held as collateral are noted
in the Schedule of Investments. Subsequent changes in the value of the contract
are recorded as unrealized gains or losses. Variation margin is paid or received
in cash daily by the Funds. The Funds realize a gain or loss when the contract
is closed or expires.
F. Options Written - The Fund may purchase put and call options and write
such options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell (and the writer the
obligation to sell or purchase), respectively,a security at a specified price,
until a certain date. Options may be used to hedge the Fund's portfolio, to
increase returns or to maintain exposure to the equity markets. The primary
risks associated with the use of options are an imperfect correlation between
the change in market value of the securities held by the series and the price of
the option, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract.
The premium received for a written option is recorded as an asset with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
G. Security Transactions and Investment Income - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Realized gains and losses are reported on an identified cost basis. Dividend
income less foreign taxes withheld (if any) plus foreign taxes recoverable (if
any) are recorded on the ex-dividend date. Interest income is recognized on the
accrual basis including the amortization of premiums and accretion of discounts
on debt securities.
H. Expenses - Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses are allocated to the
Funds on the basis of relative net assets. Class specific expenses, such as
12b-1 fees, are borne by that class. Income, other expenses and realized and
unrealized gains and losses of a Fund are allocated to each respective class in
proportion to the relative net assets of each class.
I. Distributions to Shareholders - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
J. Taxes - The Funds complied with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distributed all of
their taxable net income and net realized gains sufficient to relieve them from
all, or substantially all, federal income, excise and state income taxes.
Therefore, no provision for federal or state income tax is required.
K. Earnings Credits - Under the fee schedule with the custodian, the Funds
earn credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the Statement of Operations are before the reduction in expense from the related
earnings credits.
L. Use of Estimates - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and
- --------------------------------------------------------------------------------
110
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
M. Short Sales - Certain Funds may make short sales "against the box," in
which the Fund enters into a short sale of a security it owns. At no time will
more than 15% of the value of the Funds' net assets be in deposits on short
sales against the box. In a short sale that is not "against the box," a Fund
sells a security which it does not own, in anticipation of a decline in the
market value of the security. To complete the sale, the Fund must borrow the
security generally from the broker through which the short sale is made in order
to make delivery to the buyer. The Fund must replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is said
to have a "short position" in securities sold until it delivers them to the
broker. For financial statement purposes, an amount equal to the settlement
amount is included in the Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the short position. Subsequent
fluctuations in the market prices of securities sold, but not yet purchased, may
require purchasing the securities at prices which differ from the market value
reflected on the Statement of Assets and Liabilities. The Funds are liable for
any dividends or interest payable on securities while those securities are in a
short position. As collateral for its short positions, the Funds are required
under the Investment Company Act of 1940 to maintain segregated assets
consisting of cash, cash equivalents or liquid securities. These segregated
assets are valued consistent with Note 1a above. These segregated assets are
required to be adjusted daily to reflect changes in the market value of the
securities sold short.
N. Indemnifications - Under the Fund's organizational documents, its
Officers and Directors are indemnified against certain liabilities arising out
of the performance of their duties to the Funds. In addition, in the normal
course of business, the Funds enter into contracts that provide general
indemnification to other parties. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred, and may not occur. However, the
Funds have not had prior claims or losses pursuant to these contracts and expect
the risk of loss to be remote.
2. Management fees and other transactions with affiliates
Management fees are payable to Security Management Company, LLC (SMC or
Investment Manager) as follows:
- --------------------------------------------------------------------------------
Management
Management Fee Waivers
Fees (as a % (as a % of
of net assets) of net assets)
- --------------------------------------------------------------------------------
Security Equity Fund:
Alpha Opportunity Series* 2.00%(1) N/A
Enhanced Index Series 0.75% 0.25%
Equity Series 0.75% N/A
Global Series 1.00% N/A
Large Cap Growth Series 1.00% 0.25%
Mid Cap Value Series 1.00%(2) N/A
Select 25(R) Series 0.75% N/A
Small Cap Growth Series 1.00% N/A
Social Awareness Series 1.00% 0.25%
Security Large Cap Value Fund 0.75% N/A
Security Mid Cap Growth Fund 0.75% N/A
- --------------------------------------------------------------------------------
* This Fund was not offered for sale until July 1, 2003. Alpha Opportunity
Fund's management fee will range from 1.25% to 2.75% of average daily net
assets as discussed below.
- --------------------------------------------------------------------------------
(1) SMC receives a management fee from the Alpha Opportunity Series that is
composed of two components. The first component is an annual base fee
equal to 2.00% of Alpha Opportunity Series average daily net assets. The
second component is a performance adjustment that either increases or
decreases the base fee, depending on how Alpha Opportunity Series
performed relative to the S&P 500 Index. The Investment Manager will
receive the 2.00% annual base fee for the first year of the Series'
investment operations, and thereafter if the Alpha Opportunity Series
investment performance matches the investment record of the S&P 500 Index
over the prior 12 month period. If the investment performance of the
Series' Class A shares exceeds the investment record of the S&P 500 Index,
the performance adjustment increases the fee paid to the Investment
Manager proportionately, reaching a maximum annual fee of 2.75% if the
Series outperforms the investment record of the S&P 500 Index by 15
percentage points over the measuring period. If the investment performance
of the Series' Class A shares trails the investment record of the S&P 500
Index, the performance adjustment decreases the fee paid to the Investment
Manager proportionately, reaching a minimum annual fee of 1.25% if the
Series underperforms the investment record of the S&P 500 Index by 15
percentage points over the measurement period. The performance adjustment
is calculated on the basis of a "rolling" 12 month measurement period, so
that a fee rate calculated on the basis of investment performance over a
12 month period will apply only for the next succeeding month, and then
will be subject to recalculation for the following month on the basis of
the Series' investment performance over the prior 12 month period. The pro
rata adjustment is allocated to each respective class in proportion to the
relative net assets of each class. Performance adjustments began on August
1, 2004 based upon Alpha Opportunity Fund's performance during the 12
months ended June 30, 2004.
(2) Prior to February 1, 2004 management fees were payable to SMC at an annual
rate of 1.00% of the average daily net assets.
- --------------------------------------------------------------------------------
111
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
Effective February 1, 2004, management fees were payable at an annual rate of
1.00% of the average daily net assets of $200 million or less, plus an
additional annual rate of 0.75% of the average daily net assets of the Series in
excess of $200 million.
SMC also acts as the administrative agent and transfer agent for the
Funds, and as such performs administrative functions, transfer agency and
dividend disbursing services, and the bookkeeping, accounting and pricing
functions for each fund. For these services, the Investment Manager receives the
following:
- --------------------------------------------------------------------------------
Administrative Fees
(as a % of net assets)*
- --------------------------------------------------------------------------------
Security Equity Fund:
Alpha Opportunity Series 0.145%
Enhanced Index Series 0.09%
Equity Series 0.09%
Global Series 0.045% + greater of 0.10% or $60,000
Large Cap Growth Series 0.09%
Mid Cap Value Series 0.09%
Select 25 Series 0.09%
Small Cap Growth Series 0.09%
Social Awareness Series 0.09%
Security Large Cap Value Fund 0.09%
Security Mid Cap Growth Fund 0.09%
- --------------------------------------------------------------------------------
* Effective February 1, 2004 the minimum annual charge for administrative
fees is $25,000 for each Series or Fund.
- --------------------------------------------------------------------------------
SMC is paid the following for providing transfer agent services to the
Funds:
- --------------------------------------------------------------------------------
Effective Prior to
February 1, 2004 February 1, 2004
- --------------------------------------------------------------------------------
Annual per account charge $5.00 - $8.00 $8.00
Transaction fee $0.60 - $1.10 $1.00
Annual minimum charge
(per Series or Fund) $25,000 N/A
Certain out-of-pocket charges Varies N/A
- --------------------------------------------------------------------------------
SMC pays the Dreyfus Corporation an annual fee equal to .25% of the
average daily closing value of the combined net assets of Large Cap Value Fund
and another fund managed by SMC, SBL Series B, computed on a daily basis.
Beginning January 1, 2002, the Dreyfus Corporation agreed to waive .10% of the
average daily closing value of the combined net assets of these funds, computed
on a daily basis, until December 31, 2006.
SMC pays OppenheimerFunds, Inc. an annual fee equal to a percentage of the
average daily closing value of the combined average daily net assets of Global
Series and another fund managed by SMC, SBL Series D, computed on a daily basis
as follows:
Combined Average Daily Net Assets Annual Fees
--------------------------------------------------------
$0 to $300 Million ....................... .35%
$300 Million to $750 Million ............. .30%
$750 Million or more ..................... .25%
SMC pays RS Investments an annual fee equal to a percentage of the average
daily closing value of the combined net assets of SmallCap Growth Series and
another fund managed by SMC, SBL Series X, computed on a daily basis as follows:
Combined Average Daily Net Assets Annual Fees
--------------------------------------------------------
$0 to $100 Million ....................... .55%
$100 Million to $400 Million ............. .50%
Over $400 Million ........................ .45%
SMC pays Northern Trust an annual fee equal to a percentage of the average
daily closing value of the combined net assets of Security Equity Fund Enhanced
Index Series and SBL Series H, computed on a daily basis as follows:
Combined Average Daily Net Assets Annual Fees
--------------------------------------------------------
$0 to $100 Million ....................... .20%
$100 Million to $300 Million ............. .15%
$300 Million or more ..................... .13%
SMC pays Mainstream Investment Advisers, LLC an annual fee equal to 2.50%
of that portion of the Alpha Opportunity Fund's assets managed by Mainstream.
The sub-advisory fee will be adjusted upward or downward, depending on how that
portion of Alpha Opportunity Series' assets performed relative to the S&P 500
Index. The pro rata adjustment will be determined based upon the investment
performance of that portion of Alpha Opportunity Series' assets managed by
Mainstream relative to the investment record of the S&P 500 Index. The amount of
any upward adjustment in the Base Fee will be equal to 1.50% (a) multiplied by
the number of percentage points by which the investment performance of the Alpha
Opportunity Series assets managed by Mainstream exceeds the investment record of
the S&P500 Index (b) divided by .30, up to a maximum of 4.00% or a minimum of
1.00% in annual sub-advisory fees.
During its first 12 months of operations, the Investment Manager paid
Mainstream the base fee of 2.50% without any adjustment for performance.
Performance adjustments began on August 1, 2004 based upon the performance
during the 12 months ended July 1, 2004 of that portion of Alpha Opportunity
Series assets managed by Mainstream. Thereafter, the Investment Manager will
calculate the performance adjustment at the end of each calendar month based
upon the investment performance of the assets managed by Mainstream during the
twelve-month period ending on the last day of the prior month compared to the
investment record of the S&P 500 Index during the same period.
The Alpha Opportunity Series assets are reallocated between Mainstream and
the Investment Manager on a monthly basis to an approximately equal allocation.
This procedure ensures that the Investment Manager cannot make allocation
decisions that favor the Investment Manager over Mainstream.
SMC has agreed to limit the total expenses for each class of the Enhanced
Index and Select 25 Series to 1.75%, Social Awareness, Mid Cap Value, Small Cap
Growth and Large Cap Growth Series to 2.00% exclusive of interest, taxes,
- --------------------------------------------------------------------------------
112
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
extraordinary expenses, brokerage fees and commissions and 12b-1 fees for the
aforementioned Series. SMC has agreed to limit the total other expenses of Alpha
Opportunity to 0.50%. The expense limits other than those for Enhanced Index and
Select 25 Series are voluntary limits that may be terminated at any time without
notice to shareholders.
The Funds have adopted Distribution Plans related to the offering of Class
A, Class B and Class C shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The plans provide for payments at an annual rate of 1.00%
of the average daily net assets of each Fund's Class B, Class C shares, and
0.25% of the average daily net assets of each Fund's Class A shares.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc. and the distributor of the Funds, received net underwriting
commissions on sales of shares after allowances to brokers and dealers as
follows:
SDI
Underwriting
Commissions
Security Large Cap Value Fund $10,942
Security Equity Fund:
Social Awareness Series 7,142
Mid Cap Value Series 28,320
Small Cap Growth Series 15,019
Enhanced Index Series 2,962
Select 25(R) Series 4,955
Alpha Opportunity Series 5,979
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries, which
include SMC and SDI.
3. Unrealized Appreciation/Depreciation
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) on investments at September 30, 2004, were as follows:
- --------------------------------------------------------------------------------
Gross Gross Net unrealized
unrealized unrealized appreciation
appreciation (depreciation) (depreciation)
- --------------------------------------------------------------------------------
Security Large Cap Value Fund $ 4,349,203 $ (2,076,947) $ 2,272,256
Security Equity Fund:
Equity Series 81,437,361 (25,320,040) 56,117,321
Global Series 21,074,366 (3,544,371) 17,529,995
Social Awareness Series 1,584,491 (3,053,632) (1,469,141)
Mid Cap Value Series 75,027,810 (8,699,025) 66,328,785
Small Cap Growth Series 5,724,643 (1,135,819) 4,588,824
Enhanced Index Series 693,282 (631,001) 62,281
Select 25(R) Series 2,761,794 (1,516,083) 1,245,711
Large Cap Growth Series 936,666 (780,949) 155,717
Alpha Opportunity Series 170,030 (41,828) 128,202
Security Mid Cap
Growth Fund 47,225,627 (21,459,202) 25,766,425
- --------------------------------------------------------------------------------
4. Investment Transactions
Investment transactions for the year ended September 30, 2004, (excluding
overnight investments and short-term commercial paper) were as follows:
- --------------------------------------------------------------------------------
Proceeds
Purchases from Sales
- --------------------------------------------------------------------------------
Security Large Cap Value Fund $ 48,201,008 $ 57,729,623
Security Equity Fund:
Equity Series 133,360,451 223,262,450
Global Series 74,998,128 27,162,575
Social Awareness Series 4,786,911 5,938,747
Mid Cap Value Series 212,265,480 131,606,453
Small Cap Growth Series 47,889,395 43,314,409
Enhanced Index Series 12,382,692 12,695,357
Select 25(R) Series 10,572,641 14,756,373
Large Cap Growth Series 11,272,199 20,739,673
Alpha Opportunity Series 61,302,835 59,830,569
Security Mid Cap Growth Fund 110,092,494 102,373,184
- --------------------------------------------------------------------------------
5. Open Futures Contracts
Open futures contracts for Alpha Opportunity Series and Enhanced Index
Series as of September 30, 2004, were as follows:
- --------------------------------------------------------------------------------
Alpha Opportunity Series Enhanced Index Series
S&P 500 Index Futures S&P 500 E-Mini Futures
- --------------------------------------------------------------------------------
Position Long Long
Number of Contracts 19 5
Expiration Date 12-16-2004 12-17-2004
Contract Amount $5,350,348 $282,075
Market Value $5,295,775 $278,750
Unrealized Loss $(54,573) $(3,325)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
113
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
6. Options Written
The following options written were outstanding for Mid Cap Value Series at
September 30, 2004:
Mid Cap Value Series Call Options Written Outstanding
Expiration Exercise Number of Market
Common Stock Date Price Contracts Value
- --------------------------------------------------------------------------------
Phelps Dodge Corporation 10-15-04 $70.00 250 $547,500
-------- --------
Total call options outstanding
(premiums received, $144,246) 250 $547,500
======== ========
Mid Cap Value Series Put Options Written Outstanding
Expiration Exercise Number of Market
Common Stock Date Price Contracts Value
- --------------------------------------------------------------------------------
Granite Construction, Inc. 11-19-04 $22.50 765 $ 30,600
Shaw Group, Inc. 10-15-04 12.50 1,250 81,250
-------- --------
Total put options outstanding
(premiums received, $219,161) 2,015 $111,850
======== ========
Transactions in options written for Mid Cap Value Series for the year ended
September 30, 2004 were as follows:
Mid Cap Value Series Call Options Written
Number of Premium
Contracts Amount
- --------------------------------------------------------------------------------
Balance at September 30, 2003 810 $ 124,078
Opened 5,601 983,696
Bought Back (1,260) (188,054)
Expired (4,603) (709,620)
Exercised (298) (65,854)
--------- ---------
Balance at September 30, 2004 250 $ 144,246
========= =========
Mid Cap Value Series Put Options Written
Number of Premium
Contracts Amount
- --------------------------------------------------------------------------------
Balance at September 30, 2003 -- $ --
Opened 9,176 1,084,955
Expired (3,030) (457,505)
Exercised (4,131) (408,289)
-------- -----------
Balance at September 30, 2004 2,015 $ 219,161
======== ===========
The following options written were outstanding for Mid Cap Growth Fund at
September 30, 2004:
Mid Cap Growth Fund Call Options Written Outstanding
Expiration Exercise Number of Market
Common Stock Date Price Contracts Value
- --------------------------------------------------------------------------------
Hyperion Solutions
Corporation 11-19-04 $40.00 500 $ 20,000
LifePoint Hospitals, Inc. 11-19-04 30.00 360 50,400
Southwest Bancorporation
of Texas, Inc. 11-19-04 22.50 198 4,950
-------- --------
Total call options outstanding
(premiums received, $217,053) 1,058 $ 75,350
======== ========
Mid Cap Growth Fund Put Options Written Outstanding
Expiration Exercise Number of Market
Common Stock Date Price Contracts Value
- --------------------------------------------------------------------------------
Adtran, Inc. 11-19-04 25.00 416 $128,960
Intersil Corporation 1-21-05 15.00 640 80,000
Mindspeed Technologies,
Inc. 1-21-05 2.50 1,233 80,145
Pactiv Corporation 11-19-04 22.50 500 15,000
-------- --------
Total put options outstanding
(premiums received, $248,993) 2,789 $304,105
======== ========
Transactions in options written for Security Mid Cap Growth Fund for the year
ended September 30, 2004 were as follows:
Mid Cap Growth Fund Call Options Written
Number of Premium
Contracts Amount
- --------------------------------------------------------------------------------
Balance at September 30, 2003 -- $ --
Opened 3,048 497,958
Bought Back (569) (96,240)
Expired (771) (112,352)
Exercised (650) (72,313)
--------- ---------
Balance at September 30, 2004 1,058 $ 217,053
========= =========
Mid Cap Growth Fund Put Options Written
Number of Premium
Contracts Amount
- --------------------------------------------------------------------------------
Balance at September 30, 2003 -- $ --
Opened 9,639 871,668
Bought Back (740) (102,060)
Expired (1,080) (109,843)
Exercised (5,030) (410,772)
--------- ---------
Balance at September 30, 2004 2,789 $ 248,993
========= =========
- --------------------------------------------------------------------------------
114
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
7. Federal tax matters
The tax character of distributions paid during the fiscal years ended
September 30, 2004 and 2003, was the same as that reported in the Statement of
Changes in Net Assets, except as follows:
Ordinary Capital
2004 Income Gain Total
- --------------------------------------------------------------------------------
Equity Series $607,081 $77,431 $684,512
Alpha Opportunity Series 341,942 80,496 422,438
All tax distributions for 2003 were the same as those reported in the Statement
of Changes in Net Assets.
Note: For federal income tax purposes, short term capital gain distributions are
treated as ordinary income distributions.
As of September 30, 2004 the components of accumulated earnings/(deficit) on a
tax basis were the same as those reported in the Statement of Assets and
Liabilities, except as follows:
Capital Losses
Undistributed Undistributed Accumulated Unrealized and Unrealized
Ordinary Long-Term Accumulated Capital and Appreciation Appreciation/
Income Gain Earnings Other Losses* (Depreciation)** (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------------
Security Large Cap Value Fund $ 1,644 $ -- $ 1,644 $(14,399,492) $ 2,272,256 $(12,125,592)
Security Equity Fund:
Global Series -- -- -- (17,051,955) 17,533,683 481,728
Social Awareness Series -- -- -- (1,460,537) (1,469,139) (2,929,676)
Mid Cap Value Series 1,509,480 26,644,993 28,154,473 -- 66,032,843 94,187,316
SmallCap Growth Series -- -- -- (8,761,254) 4,588,824 (4,172,430)
Enhanced Index Series -- -- -- (5,167,570) 62,280 (5,105,290)
Large Cap Growth Series -- -- -- (2,398,825) 155,717 (2,243,108)
Alpha Opportunity Series 1,008,366 146,042 1,154,408 -- 128,102 1,282,510
Security Mid Cap Growth Fund -- 13,025,807 13,025,807 (3,419,154) 25,853,016 35,459,669
* Certain Funds had net capital loss carryovers and deferred post October
losses as identified elsewhere in the Notes.
** The differences between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of wash sale
losses, the differences between book and tax basis passive foreign
investment companies and bond discount accretion.
In accordance with the provisions of the Internal Revenue Code, the
percentage of ordinary dividends (including short-term capital gains)
attributable to the fiscal year ended September 30, 2004, which qualify for the
dividends received deduction for corporate shareholders is 100% for the Security
Large Cap Value Fund and Mid Cap Value Series and 4% for the Alpha Opportunity
Series.
- --------------------------------------------------------------------------------
As of September 30, 2004, the accumulated net realized loss on sales of
investments for federal income tax purposes which are available to offset future
taxable gains and post-October losses that are deferred to the first day of the
next fiscal year are as follows:
- --------------------------------------------------------------------------------
115
Notes to Financial Statements
September 30, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capital Loss Deferred Post-
Carryovers Expires In October Losses
- --------------------------------------------------------------------------------
Security Large Cap Value Fund $ 5,190,501 2009 $ --
56,003 2010
9,152,988 2011
-----------
14,399,492
Global Series 286,251 2008
1,719,360 2009 64,170
5,895,542 2010
6,689,272 2011
2,397,360 2012
-----------
16,987,785
Social Awareness Series 309,787 2009 --
132,011 2010
1,018,739 2011
-----------
1,460,537
SmallCap Growth Series 8,761,254 2010 --
Enhanced Index Series 138,713 2009 --
976,489 2010
1,591,954 2011
2,460,414 2012
-----------
5,167,570
Select 25(R) Series 368,467 2008 --
2,259,072 2009
3,363,943 2010
2,960,418 2011
3,051,714 2012
-----------
12,003,614
Large Cap Growth Series 58,405 2009 --
296,393 2010
1,736,216 2011
307,811 2012
-----------
2,398,825
Security Mid Cap Growth Fund 2,835,175 2009 --
567,035 2010
16,944 2011
-----------
3,419,154
- --------------------------------------------------------------------------------
The Security Equity Fund - Global Series obtained approximately $2,885,458
of capital losses (included above) from its merger with Security Equity Fund -
International Series (see Note 8), which may be applied against realized net
taxable capital gains in future years or until September 30, 2010, subject to
certain limitations imposed by Section 382 of the Internal Revenue Code.
Security Mid Cap Growth fund obtained approximately $3,419,154 of capital
losses (included above) from its merger with Security Equity Fund - Technology
Series (see Note 9), which may be applied against realized net taxable capital
gains in future years or until September 30, 2011, subject to certain
limitations imposed by Section 382 of the Internal Revenue Code.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent book/tax
differences. These differ-ences are primarily due to post-October losses, losses
deferred due to wash sales, foreign currency gains and losses, and the
"mark-to-market" of certain passive foreign investment companies (PFICs) for tax
purposes. To the extent these differences are permanent, reclassifications are
made to the appropriate equity accounts in the period that the differences
arise.
On the Statements of Assets and Liabilities, the following adjustments
were made for permanent tax differences:
- --------------------------------------------------------------------------------
Accumulated Undistributed
Net Realized Net Investment
Gain/(Loss) Income Paid-In-Capital
- --------------------------------------------------------------------------------
Security Equity Fund:
Alpha Opportunity Series (173,904) 173,904 --
Enhanced Index Series -- 35,469 (35,469)
Equity Series (44,991) 178,029 (133,038)
Global Series 33,669 447,120 (480,789)
Large Cap Growth Series -- 289,287 (289,287)
Mid Cap Value Series (1,651,065) 1,651,605 --
Select 25(R) Series -- 296,848 (296,848)
Small Cap Growth Series -- 673,012 (673,012)
Social Awareness Series -- 155,216 (155,216)
Security Large Cap Value Fund (10,720) 10,720 --
Security Mid Cap Growth Fund 1,979,759 2,666,588 (4,646,347)
- --------------------------------------------------------------------------------
8. Acquisition of Security Equity Fund - International Series
Pursuant to a plan of reorganization approved by Security Equity Fund
International Series shareholders, Security Equity Fund Global Series acquired
all the net assets of International Series, which totalled $9,345,535 on the
closing date of the reorganization, October 3, 2003. In exchange for the assets
of International Series 793,162 shares of Global Series were distributed to
International shareholders of record as of immediately after the closing date.
This exchange qualified as a tax-free reorganization under Section 368(a)(1)(c)
of the Internal Revenue Code. International Series net assets included $432,828
of unrealized appreciation, $3,042 of accumulated net investment income and
$3,019,816 of accumulated realized loss on sale of investments. The aggregate
net assets of Global Series immediately before the acquisition totalled
$68,353,149. Following the acquisition, the combined net assets of Global Series
totalled $77,698,684.
9. Acquisition of Security Equity Fund-Technology Series
Pursuant to a plan of reorganization approved by Security Equity Fund
Technology Series shareholders, Security Mid Cap Growth Fund acquired all the
net assets of Technology Series, which totalled $11,962,769 on the closing date
of the reorganization October 3, 2003. In exchange for the assets of Technology
Series 1,097,167 shares of Mid Cap Growth Fund were distributed to Technology
shareholders of record as of immediately after the closing date. This exchange
qualified as a tax-free reorganization under Section 368(a)(1)(c) of the
Internal Revenue Code. Technology Series net assets included $1,703,882 of
unrealized appreciation, $3,694 of accumulated net investment loss and
$7,442,356 of accumulated realized loss on sale of investments. The aggregate
net assets of Mid Cap Growth Fund immediately before the acquisition totalled
$178,458,228. Following the acquisition, the combined net assets of Mid Cap
Growth Fund totalled $190,420,997.
- --------------------------------------------------------------------------------
116
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders
Security Large Cap Value Fund, Security Equity Fund and Security Mid Cap Growth
Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Security Equity Fund (comprised of Alpha
Opportunity, Enhanced Index, Equity, Global, Large Cap Growth, Mid Cap Value,
Select 25(R), Small Cap Growth and Social Awareness Series), Security Large Cap
Value Fund and Security Mid Cap Growth Fund (the Funds) as of September 30,
2004, and the related statements of operations, for the year then ended, changes
in net assets and financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of September 30, 2004, by
correspondence with the custodians and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective entities/series constituting the Funds at September 30, 2004,
and the results of their operations, for the year then ended, the changes in
their net assets and their financial highlights for each of the periods
indicated above, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Kansas City, Missouri
November 5, 2004
- --------------------------------------------------------------------------------
117
Directors and Officers (unaudited)
The business address of each director and officer is One Security Benefit Place,
Topeka, KS 66636-0001.
- --------------------------------------------------------------------------------
Directors
Name
(Date of Birth)
Year Elected*** Principal Occupation(s) During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Donald A. Chubb, Jr.** Business broker, Griffith & Blair Realtors
(12-14-46)
1994
- ---------------------------------------------------------------------------------------------------------------------------------
Harry W. Craig, Jr. Chairman, CEO, Secretary & Director, Martin Tractor Company, Inc.
(04-11-39)
2004
- ---------------------------------------------------------------------------------------------------------------------------------
Penny A. Lumpkin** Partner, Vivians' Gift Shop
(08-20-39) Vice President, Palmer Companies, Inc.
1993 Vice President, PLB
Vice President, Town Crier
Vice President & Treasurer, Palmer News, Inc.
Vice President, M/S News, Inc.
Secretary, Kansas City Periodicals
Vice President, Bellaire Shopping Center
Partner, Goodwin Enterprises
- ---------------------------------------------------------------------------------------------------------------------------------
Mark L. Morris** Independent Investor, Morris Co.
(02-03-34) Former General Partner, Mark Morris Associates
1991
- ---------------------------------------------------------------------------------------------------------------------------------
Maynard F. Oliverius** President & Chief Executive Officer, Stormont-Vail HealthCare
(12-18-43)
1998
- ---------------------------------------------------------------------------------------------------------------------------------
John D. Cleland* Retired. Prior to January 1, 2003, Senior Vice President, Security Benefit Group, Inc. &
(05-01-36) Security Benefit Life Insurance Company
1991 (Director)
2000 (Chairman of the Board)
- ---------------------------------------------------------------------------------------------------------------------------------
Michael G. Odlum* President & Managing Member Representative, Security Management Company, LLC
(01-12-52) President & Chief Operating Officer, Allied Investment Advisors, Inc.
2004 (President) Principal, Vanguard Group
2004 (Director)
- ---------------------------------------------------------------------------------------------------------------------------------
* These directors are deemed to be "interested persons" of the Funds under
the Investment Company Act of 1940, as amended, by reason of their
positions with the Funds' Investment Manager and/or the parent of the
Investment Manager.
** These directors serve on the Funds' joint audit committee, the purpose of
which is to meet with the independent auditors, to review the work of the
auditors, and to oversee the handling by Security Management Company, LLC
of the accounting function for the Funds.
*** Each director oversees 35 Security Fund portfolios and serves until the
next annual meeting, or until a successor has been duly elected and
qualified.
- --------------------------------------------------------------------------------
118
Directors and Officers (unaudited) (continued)
- --------------------------------------------------------------------------------
Officers
Name
(Date of Birth)
Title
Year Elected* Principal Occupation(s) During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Steven M. Bowser Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(02-11-60) Vice President & Senior Portfolio Manager, Security Benefit Group, Inc. &
Vice President Security Benefit Life Insurance Company
2003
- ---------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood Assistant Vice President, Chief Compliance Officer & Treasurer, Security Management Company, LLC;
(11-03-63) Assistant Vice President, Security Benefit Group, Inc. & Security Benefit Life Insurance Company
Treasurer Vice President & Director, Security Distributors, Inc.
1988
- ---------------------------------------------------------------------------------------------------------------------------------
Mark Lamb Vice President, Security Management Company, LLC, Security Benefit Group, Inc. &
(02-03-60) Security Benefit Life Insurance Company
Vice President
2003
- ---------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.;
(06-05-61) Vice President, Associate General Counsel & Assistance Secretary, Security Benefit Group, Inc. &
Secretary Security Benefit Life Insurance Company
1987
- ---------------------------------------------------------------------------------------------------------------------------------
Mark Mitchell Vice President & Portfolio Manager, Security Management Company, LLC
(08-24-64)
Vice President
2003
- ---------------------------------------------------------------------------------------------------------------------------------
James P. Schier Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(12-28-57) Vice President, Security Benefit Group, Inc. & Security Benefit Life Insurance Company
Vice President
1998
- ---------------------------------------------------------------------------------------------------------------------------------
Cindy L. Shields Vice President & Head of Equity Asset Management, Security Management Company, LLC,
(06-05-67) Security Benefit Group, Inc. & Security Benefit Life Insurance Company
Vice President
1988
- ---------------------------------------------------------------------------------------------------------------------------------
Christopher D. Swickard Assistant Secretary, Security Management Company, LLC
(10-09-65) Second Vice President & Assistant Counsel, Security Benefit Group, Inc. &
Assistant Secretary Security Benefit Life Insurance Company
1996
- ---------------------------------------------------------------------------------------------------------------------------------
* Officers serve until the next annual meeting or until a successor has been
duly elected and qualified.
Each of the Security Funds files a complete schedule of portfolio holdings with
the U.S. Securities and Exchange Commission for the first and third quarters of
each fiscal year on Form N-Q. The Forms N-Q of each such Fund are available on
the Commission's website at www.sec.gov. The Forms N-Q may be reviewed and
copied at the Commission's Public Reference Room in Washington, DC. Information
on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. The portfolio holdings of each of the Security Funds are
available on their website, www.securitybenefit.com or by calling
1-800-888-2461.
A description of the policies and procedures that the Security Funds use to
determine how to vote proxies relating to portfolio securities is available upon
request, free of charge by calling 1-800-888-2461, or accessing the U.S.
Securities and Exchange Commission website at www.sec.gov. Information regarding
how the Security Funds voted proxies relating to portfolio securities during the
12 month period ended June 30, 2004 is available upon request, free of charge by
calling 1-800-888-2461, or accessing the U.S. Securities and Exchange Commission
website at www.sec.gov.
The statement of additional information ("SAI") includes additional information
about the Funds' Directors and is available upon request without charge by
calling 1-800-888-2461.
- --------------------------------------------------------------------------------
119
This page left blank intentionally.
- --------------------------------------------------------------------------------
120
- --------------------------------------------------------------------------------
The Security Group of Mutual Funds
Security Equity Fund
o Alpha Opportunity Series
o Enhanced Index Series
o Equity Series
o Global Series
o Large Cap Growth Series
o Mid Cap Value Series
o Select 25(R) Series
o Small Cap Growth Series
o Social Awareness Series
Security Large Cap Value Fund
Security Mid Cap Growth Fund
Security Income Fund
o Diversified Income Series
o High Yield Series
o Income Opportunity Series
o Capital Preservation Series
Security Municipal Bond Fund
Security Cash Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Security Funds Officers and Directors
Directors
Donald A. Chubb, Jr.
John D. Cleland
Harry W. Craig, Jr.
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Michael G. Odlum
Maynard F. Oliverius
Officers
John D. Cleland, Chairman of the Board
Michael G. Odlum, President
Steve M. Bowser, Vice President, Equity Fund
Mark Lamb,Vice President, Equity Fund
Mark Mitchell, Vice President, Equity Fund
James P. Schier, Vice President, Equity and Mid Cap Growth Fund
Cindy L. Shields, Vice President, Equity Fund
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Chief Compliance Officer & Treasurer
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
- ----------------------------------
[LOGO] Security Distributors, Inc.
- ----------------------------------
One Security Benefit Place
Topeka, KS 66636-0001
SDI 604 (R9-04)
46-06047-00
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to its principal
executive officer and principal financial officer. A copy of the Registrant's
code of ethics is filed herewith as Exhibit 10(a)(1). No amendments were made to
the provisions of the code of ethics during the period covered by this report.
No implicit or explicit waivers to the provisions of the code of ethics were
granted during the period covered by this report. The Registrant hereby
undertakes to provide any person without charge, upon request, a copy of its
Code by calling the Registrant at 1-800-888-2461.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Directors has determined that Maynard Oliverius, a
member of the Audit Committee of the Board, is an audit committee financial
expert. Mr. Oliverius is "independent" for purposes of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by
the Registrant's principal accountant (the "Auditor") for the audit of
the Registrant's annual financial statements, or services that are
normally provided by the Auditor in connection with the statutory and
regulatory filings or engagements for the Reporting Periods, were
$98,000 in 2003 and $122,000 in 2004.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods
for assurance and related services by the Auditor that are reasonably
related to the performance of the audit of the Registrant's financial
statements and are not reported under paragraph (a) of this Item 4 were
$3,000 in 2003 and $3,000 in 2004. These services consisted of a review
of the Registrant's semi-annual financial statements, compliance with
required internal control reviews and general accounting consultations.
The aggregate fees billed in the Reporting Periods for assurance and
related services by the Auditor to the Registrant's investment adviser
(not including any sub-investment adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing
services to the Registrant ("Service Affiliates") which required
pre-approval by the Audit Committee were $14,000 in 2003 and $18,000 in
2004, which related to the review of the transfer agent function.(1)
----------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not
required to pre-approve non-audit services. Therefore, the information
here represents only fees for pre-approved non-audit services rendered
after May 6, 2003, to Service Affiliates.
(c) Tax Fees. The aggregate fees billed to the Registrant in the Reporting
Periods for professional services rendered by the Auditor for tax
compliance, tax advice and tax planning ("Tax Services") were $18,000
in 2003 and $42,000 in 2004. These services consisted of (i) review (in
2003) or preparation (in 2004) of U.S. federal, state, local and excise
tax returns; (ii) U.S. federal, state and local tax planning, advice
and assistance regarding statutory, regulatory or administrative
developments, (iii) tax advice regarding tax
qualification matters and/or treatment of various financial instruments
held or proposed to be acquired or held, and (iv) determination of
Passive Foreign Investment Companies.
The aggregate fees billed in the Reporting Periods for Tax Services by
the Auditor to Service Affiliates which required pre-approval by the
Audit Committee were $0 in 2003 and $0 in 2004.(2)
----------
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not
required to pre-approve Tax Services. Therefore, the information here
represents only fees for pre-approved Tax Services rendered after May
6, 2003, to Service Affiliates.
(d) All Other Fees. The aggregate fees billed to the Registrant in the
Reporting Periods for products and services provided by the Auditor,
other than the services reported in paragraphs (a) through (c) of this
Item, were $0 in 2003 and $0 in 2004.
The aggregate fees billed in the Reporting Periods for Non-Audit
Services by the Auditor to Service Affiliates, other than the services
reported in paragraphs (b) through (d) of this Item, which required
pre-approval by the Audit Committee were $0 in 2003 and $0 in 2004.(3)
----------
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not
required to pre-approve these services. Therefore, the information here
represents only fees for pre-approved services rendered after May 6,
2003, to Service Affiliates.
(e) (1) Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and
procedures for pre-approval of the auditor's engagements for
audit and non-audit services to the Registrant. Pre-approval
considerations include whether the proposed services are
compatible with maintaining the auditor's independence as
specified in applicable rules.
(e) (2) Percentage of Non-Audit Services Approved under (c)(7)(i)(C).
The percentage of the services described in each of (b)
through (d) of this Item 4 (only those that relate to the
Registrant) that were approved by the Audit Committee pursuant
to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was
0%, 0% and 0%, respectively.
(f) Not applicable.
(g) Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for
services rendered to the Registrant, and rendered to Service
Affiliates, for the Reporting Periods were $35,000 in 2003 and $63,000
in 2004.
(h) Auditor Independence. The Registrant's Audit Committee was provided
with information relating to the provision of non-audit services by E&Y
to the Registrant (and its affiliates) that were not pre-approved by
the Audit Committee so that a determination could be made whether the
provision of such services is compatible with maintaining E&Y's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not currently have in place procedures by which shareholders
may recommend nominees to the registrant's board.
There have been no changes to the procedures by which shareholders may recommend
nominees to the registrant's board.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule
30a-3(c) under the Investment Company Act of 1940) are effective based
on their evaluation of these disclosure controls and procedures within
90 days of the filing date of this report on Form N-CSR.
(b) There were no significant changes in the registrant's internal
controls, or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
ITEM 11. EXHIBITS.
(a) (1) Code of Ethics pursuant to Item 2 above.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment
Company Act of 1940, are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SECURITY EQUITY FUND
By: /s/ MICHAEL G. ODLUM
-----------------------------------
Michael G. Odlum, President
Date: December 9, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ MICHAEL G. ODLUM
-----------------------------------
Michael G. Odlum, President
Date: December 9, 2004
By: /s/ BRENDA M. HARWOOD
-----------------------------------
Brenda M. Harwood, Treasurer
Date: December 9, 2004