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 811-03225
SECURITY MUNICIPAL BOND 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 MUNICIPAL BOND 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: December 31
Date of reporting period: June 30, 2005
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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SECURITY FUNDS(SM)
SEMI-ANNUAL REPORT
JUNE 30, 2005
- - SECURITY MUNICIPAL BOND FUND
- - SECURITY INCOME FUND
- DIVERSIFIED INCOME SERIES
- HIGH YIELD SERIES
- INCOME OPPORTUNITY SERIES
- - SECURITY CASH FUND
(SECURITY BENEFIT(SM) LOGO)
Security Distributors, Inc.
SECURITY MUNICIPAL BOND
SECURITY INCOME FUND
SECURITY CASH FUND
JUNE 30, 2005
SEMI-ANNUAL REPORT
(UNAUDITED)
TABLE OF CONTENTS
Chairman's Letter ......................................................... 2
Security Municipal Bond Fund .............................................. 3
Security Income Fund
Diversified Income Series .............................................. 11
High Yield Series ...................................................... 23
Income Opportunity Series .............................................. 35
Security Cash Fund ........................................................ 47
Notes to Financial Statements ............................................. 55
Director's Disclosure ..................................................... 60
Directors and Officers .................................................... 62
1
SECURITY
Chairman's Letter MUNICIPAL BOND FUND
August 15, 2005 (unaudited)
(PHOTO OF JOHN CLELAND)
Chairman of the Board
TO OUR SHAREHOLDERS:
Although economic growth in the first two quarters of 2005 moderated somewhat
from previous periods, it was still reasonably strong overall. Supporting
factors included robust consumer spending, a manufacturing sector that continues
to show signs of strength, and longer-term interest rates that stayed stubbornly
low despite continued increases in short term rates engineered by the Federal
Reserve. In addition, the rise in oil prices toward the end of the period did
not seem to have any significant lasting market impact probably due to the fact
that the overall inflation rate remained relatively benign.
The S&P 500 ended the period relatively flat when looked at from point to point
over the six-month period. But this masks the very different trends in each
quarter: basically down in the 1st quarter and up in the 2nd. The only constant
trend was the rise in short-term interest rates. This quarterly pattern in the
markets reflected the timing of investors' reactions as economic information
unfolded over the period. In the first quarter, both bond and stock markets had
negative returns in response to evidence of economic softening and increasing
inflation pressures. As new information suggested that inflation really was not
rising and that the economy was not weakening, the markets reversed to produce
positive returns in the second quarter. The result was a mixed record of flat to
down for stocks and modestly positive for bonds over the first half.
Interest rates on U.S. Treasury Securities of varying maturities during the
period are summarized below.
% RATES
----------------------------
U.S. TREASURY MATURITY 12/31/04 3/31/05 6/30/05
- ---------------------- -------- ------- -------
3 Month 2.19 2.74 2.97
1 Year 2.67 3.30 3.36
10 Year 4.23 4.50 4.00
Over the first half, mid cap stocks produced the highest return followed by
intermediate duration bonds as can be seen in the table below, which shows the
performance of the major indexes in each quarter and for the six-month period as
a whole.
RETURN %
------------------------------
SIX MONTHS
1ST QTR 2ND QTR 12/31/04-
INDEX 2005 2005 6/30/05
- ----- ------- ------- ----------
S&P 500 (2.15) 1.37 (.81)
S&P Midcap 400 (.67) 3.96 3.26
Russell 2000 (5.37) 4.32 (1.25)
MSCI EAFE ($US) (.17) (1.01) (1.17)
Lehman Aggregate Bond (.48) 3.00 2.51
Lehman High Yield (1.61) 2.76 1.11
Looking ahead the markets are facing risks from various sources: oil prices, a
perceived growing housing bubble, a tightening Federal Reserve policy, and a
China-led foreign currency trend that could hurt the US economy and raise long
term interest rates. Even with these issues, however, the current conditions of
low inflation and reasonably healthy economy could persist for some time, which
would bode well for the markets. Regardless of what the future may bring,
investors always need to be cognizant of the need to maintain a diversified
portfolio strategy that is designed to meet their objectives over the long run.
The goal of the Security Funds is to provide the diversification and clearly
defined investment strategies carried out by professional managers that will
give shareholders effective long-term investment programs. As always, we
appreciate your investment in the Funds and welcome any comments or questions
you may have.
Sincerely,
/s/ John Cleland
- -------------------------------------
John Cleland
Chairman, The Security Funds
2
SECURITY
MUNICIPAL BOND FUND
SALOMON BROTHERS
ASSET MANAGEMENT
SUBADVISOR,
SALOMON BROTHERS ASSET MANAGEMENT, INC.
3
SECURITY
Performance Summary MUNICIPAL BOND FUND
August 15, 2005 (unaudited)
PERFORMANCE
MUNICIPAL BOND FUND VS. LEHMAN BROTHERS MUNICIPAL BOND INDEX
(PERFORMANCE GRAPH)
DATE value
- ---------- ---------
MUNI BOND
06/30/95 9,525.00
09/29/95 9,741.00
12/29/95 10,206.70
03/29/96 9,950.01
06/28/96 9,994.17
09/30/96 10,209.26
12/31/96 10,461.49
03/31/97 10,392.84
06/30/97 10,730.63
09/30/97 11,038.11
12/31/97 11,325.19
03/31/98 11,427.15
06/30/98 11,551.79
09/30/98 12,020.75
12/31/98 12,009.34
03/31/99 12,034.33
06/30/99 11,737.39
09/30/99 11,682.53
12/31/99 11,594.09
03/31/00 11,953.79
06/30/00 12,115.42
09/29/00 12,405.61
12/29/00 13,059.79
03/30/01 13,284.59
06/29/01 13,271.12
09/28/01 13,729.23
12/31/01 13,553.29
03/28/02 13,670.61
06/28/02 14,145.16
09/30/02 14,918.96
12/31/02 14,921.82
03/31/03 15,019.70
06/30/03 15,339.29
09/30/03 15,284.29
12/31/03 15,450.30
03/31/04 15,605.31
06/30/04 15,232.56
09/30/04 15,762.31
12/31/04 15,848.37
03/31/05 15,683.61
06/30/05 16,088.06
LEHMAN MUNICIPAL BOND
MUNICPAL BOND
DATE value
- ----------------- ---------
INCEPTION 6/30/95 10,000.00
9/30/95 10,287.61
12/31/95 10,711.89
3/31/96 10,582.69
6/30/96 10,663.82
9/30/96 10,908.25
12/31/96 11,186.21
3/31/97 11,160.14
6/30/97 11,546.06
9/30/97 11,894.22
12/31/97 12,216.76
3/31/98 12,357.41
6/30/98 12,544.91
9/30/98 12,930.84
12/31/98 13,008.54
3/31/99 13,123.77
6/30/99 12,898.35
9/30/99 12,841.22
12/31/99 12,739.62
3/31/00 13,113.00
06/30/00 13,311.50
09/30/00 13,633.11
12/31/00 14,229.45
03/31/01 14,546.05
06/30/01 14,641.80
09/30/01 15,052.31
12/31/01 14,952.62
03/31/02 15,093.60
06/30/02 15,645.90
09/30/02 16,389.14
12/31/02 16,388.03
03/31/03 16,585.86
06/30/03 17,014.24
09/30/03 17,028.21
12/31/03 17,261.37
03/31/04 17,558.48
06/30/04 17,142.13
09/30/04 17,809.66
12/31/04 18,032.88
03/31/05 18,026.24
06/30/05 18,555.40
$10,000 OVER 10 YEARS
This chart assumes a $10,000 investment in Class A shares of Municipal Bond Fund
on June 30, 1995, and reflects deduction of the 4.75% sales load. The chart does
not reflect the deduction of taxes that a shareholder would pay on distributions
or redemption of fund shares.
PORTFOLIO COMPOSITION BY QUALITY RATING (BASED ON STANDARD AND POOR'S RATINGS)
AAA 79.43%
AA 15.08
BBB 3.79
Cash & other assets, less liabilities 1.70
AVERAGE ANNUAL RETURNS
YEARS ENDED 06-30-05 1 YEAR 5 YEARS 10 YEARS
- -------------------- ------ ------- --------
A Shares 0.60% 4.82% 4.88%
B Shares (0.19%) 4.71% 4.44%
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. 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 applicable taxes were deducted.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Fee waivers and/or reimbursements reduced expenses and in the
absence of such waivers, the performance quoted would be reduced.
4 See accompanying notes.
SECURITY
Performance Summary MUNICIPAL BOND FUND
August 15, 2005 (unaudited)
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, January 1, 2005 - June 30, 2005.
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 in 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
01-01-05 06-30-05(1) PERIOD(2)
------------- ------------- -------------
Security Municipal Bond Fund -
Class A
Actual $1,000.00 $1,015.10 $5.00
Hypothetical 1,000.00 1,019.78 5.01
Security Municipal Bond Fund -
Class B
Actual 1,000.00 1,012.18 8.73
Hypothetical 1,000.00 1,016.34 8.75
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2005 to June 30, 2005 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
January 1, 2005 to June 30, 2005 was 1.51% and 1.22%, for Class A and B
shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.00% and 1.75%
for Class A and B shares, respectively, net of any waivers and reductions)
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
5
SECURITY
Schedule of Investments MUNICIPAL BOND FUND
June 30, 2005 (unaudited)
PRINICIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS - 98.3%
ARIZONA - 2.2%
Arizona State Transportation Board,
5.00% - 2013 $250,000 $ 277,450
-----------
COLORADO - 1.2%
Colorado Health Facilities,
5.00% - 2025 150,000 154,964
-----------
CONNECTICUT - 2.1%
Connecticut Special Tax Obligation
Transportation Infrastructure,
5.00% - 2023 250,000 271,087
-----------
ILLINOIS - 10.3%
Chicago, IL Board of Education,
5.75% - 2027 225,000 244,847
Chicago, IL Board of Education,
5.75% - 2027 25,000 27,205
Chicago, IL Midway Airport,
5.625% - 2029 250,000 259,823
Cook County, IL, 5.625% - 2016 275,000 293,293
Illinois Development Finance
Authority, 5.25% - 2012 220,000 245,188
Illinois Educational Facility, Northwestern
University, 5.50% - 2013 225,000 251,336
-----------
1,321,692
-----------
INDIANA - 4.9%
Indiana Bond Bank, 5.00% - 2023 500,000 523,455
Indiana Health Facility, Hospital
Revenue, 5.00% - 2035 100,000 105,479
-----------
628,934
-----------
KANSAS - 2.1%
Wyandotte County, Kansas City,
KS Unified Government Utility System,
5.75% - 2024 250,000 273,867
-----------
MARYLAND - 6.9%
Maryland State Health & Higher
Education, 6.00% - 2017 300,000 331,797
Northeast Maryland Waste Disposal
Authority, 5.50% - 2016 500,000 550,240
882,037
-----------
MASSACHUSETTS - 3.0%
Massachusetts State Water Pollution
Abatement Trust, 5.75% - 2029 70,000 77,806
Massachusetts State Water
Pollution Abatement Trust,
5.75% - 2029 280,000 307,258
-----------
385,064
-----------
MICHIGAN - 4.6%
Michigan State, 5.50% - 2015 500,000 582,530
-----------
MISSISSIPPI - 5.6%
Mississippi St, 5.00% - 2017 700,000 720,608
-----------
MISSOURI - 2.4%
Missouri State Health, 2.30% - 2026(1) 300,000 300,000
-----------
NEW JERSEY - 2.1%
New Jersey State Educational Facility,
5.00% - 2021 $250,000 $ 273,683
-----------
NEW YORK - 17.6%
New York, NY Transitional Finance
Authority, 5.50% - 2017 250,000 281,205
New York State Dorm Authority,
5.50% - 2012 750,000 853,710
New York State Dorm Authority,
5.50% - 2028 500,000 605,755
New York State Environmental Facilities
Corporation, 5.00% - 2016 460,000 521,957
-----------
2,262,627
-----------
OREGON - 2.0%
Umatilla County, Oregon Hospital
Facility, 5.00% - 2008 250,000 261,957
-----------
PENNSYLVANIA - 4.4%
Philadelphia, PA School District,
5.50% - 2031 500,000 565,790
-----------
PUERTO RICO - 6.8%
Puerto Rico Commonwealth Infrastructure,
5.50% - 2025 250,000 300,523
Puerto Rico Electric Power Authority,
5.25% - 2014 500,000 571,635
-----------
872,158
-----------
TENNESSEE - 3.7%
Memphis-Shelby County, TN Airport
Authority, 6.00% - 2024 300,000 330,360
Tennessee Housing Development
Agency, 6.35% - 2031 140,000 142,591
-----------
472,951
-----------
TEXAS - 9.7%
Lake Dallas Texas Independent School
District, 5.00% - 2034 220,000 232,533
Lower Colorado River Authority,
Texas, 6.00% - 2013 250,000 277,618
North Harris Montgomery Community
College, 5.375% - 2016 500,000 552,805
Williamson County Texas,
5.25% - 2021 165,000 184,670
-----------
1,247,626
-----------
WASHINGTON - 6.7%
Energy Northwest Washington
Electric, 6.00% - 2016 500,000 580,070
Seattle, WA, 5.75% - 2028 250,000 280,365
-----------
860,435
-----------
TOTAL MUNICIPAL BONDS
(cost $11,985,130) 12,615,460
CASH & OTHER ASSETS, LESS LIABILITIES - 1.7% 218,129
-----------
TOTAL NET ASSETS - 100.0% $12,833,589
===========
For federal income tax purposes, the identified cost of investments owned at
June 30, 2005 was $12,302,967.
(1) Variable rate security. Rate indicated is rate effective at June 30, 2005.
6 See accompanying notes.
SECURITY
MUNICIPAL BOND FUND
(unaudited)
Statement of Assets and Liabilities
June 30, 2005
ASSETS:
Investments, at value(1) ........................................ $12,615,460
Cash ............................................................ 24,603
Receivables:
Fund shares sold ............................................. 109
Interest ..................................................... 176,474
Security Management Company .................................. 9,892
Prepaid expenses ................................................ 28,809
-----------
Total assets .................................................... 12,855,347
-----------
LIABILITIES:
Payable for:
Management fees .............................................. 5,317
Transfer agent and administration fees ....................... 4,391
Professional fees ............................................ 5,992
12b-1 distribution plan fees ................................. 3,067
Other ........................................................ 2,991
-----------
Total liabilities ............................................... 21,758
-----------
NET ASSETS ...................................................... $12,833,589
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $12,421,238
Accumulated undistributed net investment income ................. 1,149
Accumulated net realized (loss)
on sale of investments ....................................... (219,128)
Net unrealized appreciation
in value of investments ...................................... 630,330
-----------
Net assets ...................................................... $12,833,589
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,166,739
Net assets ...................................................... $12,168,536
Net asset value and redemption price per share .................. $ 10.43
===========
Maximum offering price per share (net asset
value divided by 95.25%) ..................................... $ 10.95
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 63,667
Net assets ...................................................... $ 665,053
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ............................ $ 10.45
===========
(1)Investments, including repurchase
agreements, at cost .......................................... $11,985,130
Statement of Operations
For the Six Months Ended June 30, 2005
INVESTMENT INCOME:
Interest ..................................................... $ 301,265
-----------
Total investment income ...................................... 301,265
-----------
EXPENSES:
Management fees .............................................. 33,066
Custodian fees ............................................... 626
Transfer agent/maintenance fees .............................. 13,397
Administration fees .......................................... 15,051
Directors' fees .............................................. 13,841
Professional fees ............................................ 4,548
Reports to shareholders ...................................... 1,154
Registration fees ............................................ 14,886
Other expenses ............................................... 5,260
12b-1 distribution plan fees - Class A ....................... 15,685
12b-1 distribution plan fees - Class B ....................... 3,392
-----------
Total expenses ............................................... 120,906
Less:
Reimbursement of expenses - Class A ....................... (49,599)
Reimbursement of expenses - Class B ....................... (2,697)
Earnings credits .......................................... (329)
-----------
Net expenses ................................................. 68,281
-----------
Net investment income ........................................ 232,984
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................................. 103,426
-----------
Realized gain ................................................ 103,426
-----------
Net unrealized depreciation during the period on:
Investments .................................................. (142,301)
-----------
Unrealized depreciation ...................................... (142,301)
-----------
Net loss ..................................................... (38,875)
-----------
Net increase in net assets
resulting from operations ................................. $ 194,109
===========
7 See accompanying notes.
SECURITY
Statement of Changes in Net Assets MUNICIPAL BOND FUND
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 232,984 $ 514,691
Net realized gain (loss) during the period on investments ....... 103,426 (4,714)
Net unrealized depreciation during the period on investments .... (142,301) (170,246)
----------- -----------
Net increase in net assets resulting from operations ............ 194,109 339,731
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ...................................................... (224,302) (481,008)
Class B ...................................................... (9,522) (22,142)
----------- -----------
Total distributions to shareholders ............................. (233,824) (503,150)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ...................................................... 91,196 503,887
Class B ...................................................... 34,850 43,568
Distributions reinvested
Class A ...................................................... 134,535 281,358
Class B ...................................................... 8,508 20,081
Cost of shares redeemed
Class A ...................................................... (1,231,873) (1,138,095)
Class B ...................................................... (93,753) (261,176)
----------- -----------
Net decrease from capital share transactions .................... (1,056,537) (550,377)
----------- -----------
Net decrease in net assets ...................................... (1,096,252) (713,796)
----------- -----------
NET ASSETS:
Beginning of period ............................................. 13,929,841 14,643,637
----------- -----------
End of period ................................................... $12,833,589 $13,929,841
=========== ===========
Accumulated undistributed net investment income at end of period ... $ 1,149 $ 1,989
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ...................................................... 8,771 47,953
Class B ...................................................... 3,343 4,138
Shares reinvested
Class A ...................................................... 12,955 26,976
Class B ...................................................... 818 1,923
Shares redeemed
Class A ...................................................... (118,306) (109,057)
Class B ...................................................... (8,997) (24,948)
8 See accompanying notes.
Financial Highlights SECURITY
MUNICIPAL BOND FUND
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS A 2005(E) 2004 2003 2002 2001 2000
- ------- -------------- ------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 10.46 $ 10.57 $ 10.60 $ 10.15 $ 10.20 $ 9.48
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.19 0.38 0.38 0.45 0.43 0.45
Net gain (loss) on securities
(realized and unrealized) (0.03) (0.11) (0.01) 0.55 (0.05) 0.72
------- ------- ------- ------- ------- -------
Total from investment operations 0.16 0.27 0.37 1.00 0.38 1.17
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.19) (0.38) (0.40) (0.43) (0.43) (0.45)
Distributions from realized gains -- -- -- (0.12) -- --
------- ------- ------- ------- ------- -------
Total distributions (0.19) (0.38) (0.40) (0.55) (0.43) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.43 $ 10.46 $ 10.57 $ 10.60 $ 10.15 $ 10.20
======= ======= ======= ======= ======= =======
TOTAL RETURN(A) 1.51% 2.58% 3.55% 10.11% 3.79% 12.66%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $12,169 $13,212 $13,718 $14,567 $15,672 $16,679
------- ------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 3.56% 3.66% 3.61% 4.09% 4.20% 4.60%
Total expenses 1.01% 1.00% 1.01% 1.00% 0.99% 1.00%
Gross expenses(b) 1.79% 1.62% 1.34% 1.26% 1.17% 1.16%
Net expenses(d) 1.00% 1.00% 1.00% 1.00% 0.99% 1.00%
------- ------- ------- ------- ------- -------
Portfolio turnover rate 49% 17% 57% 50% 54% 52%
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS A 2005(E) 2004 2003 2002 2001 2000
- ------- -------------- ------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $10.47 $10.59 $10.62 $10.16 $10.22 $ 9.50
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.15 0.31 0.31 0.36 0.35 0.38
Net gain (loss) on securities
(realized and unrealized) (0.02) (0.13) (0.02) 0.57 (0.05) 0.71
------ ------ ------ ------ ------ ------
Total from investment operations 0.13 0.18 0.29 0.93 0.30 1.09
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.15) (0.30) (0.32) (0.35) (0.36) (0.37)
Distributions from realized gains -- -- -- (0.12) -- --
------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.30) (0.32) (0.47) (0.36) (0.37)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.45 $10.47 $10.59 $10.62 $10.16 $10.22
====== ====== ====== ====== ====== ======
TOTAL RETURN(A) 1.22% 1.72% 2.82% 9.37% 2.91% 11.79%
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 665 $ 717 $ 926 $1,630 $1,766 $1,605
------ ------ ------ ------ ------ ------
Ratios to average net assets:
Net investment income (loss) 2.82% 2.91% 2.88% 3.34% 3.45% 3.85%
Total expenses 1.76% 1.75% 1.76% 1.75% 1.74% 1.75%
Gross expenses(b) 2.54% 2.36% 2.08% 2.01% 1.93% 1.96%
Net expenses(d) 1.75% 1.75% 1.75% 1.75% 1.74% 1.75%
------ ------ ------ ------ ------ ------
Portfolio turnover rate 49% 17% 57% 50% 54% 52%
9 See accompanying notes.
Financial Highlights SECURITY
MUNICIPAL BOND FUND
Selected data for each share of capital stock outstanding throughout each period
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charge paid at time of
redemption.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction to custodian expenses.
(e) Unaudited figures for the six months ended June 30, 2005. Percentage
amounts for the period, except total return, have been annualized.
10 See accompanying notes.
SECURITY INCOME FUND
DIVERSIFIED INCOME SERIES
(SECURITY FUNDS LOGO)
ADVISOR,
SECURITY MANAGEMENT COMPANY, LLC
11
SECURITY INCOME FUND
Performance Summary DIVERSIFIED INCOME SERIES
August 15, 2005 (unaudited)
PERFORMANCE
DIVERSIFIED INCOME SERIES VS. LEHMAN BROTHERS AGGREGATE BOND INDEX
(PERFORMANCE GRAPH)
DATE value
- ------------------ ---------
DIVERSIFIED INCOME
06/30/95 9,525.00
09/29/95 9,804.22
12/29/95 10,364.43
03/29/96 10,019.73
06/28/96 10,030.41
09/30/96 10,229.56
12/31/96 10,492.76
03/31/97 10,413.35
06/30/97 10,750.22
09/30/97 11,124.19
12/31/97 11,455.58
03/31/98 11,615.36
06/30/98 11,916.41
09/30/98 12,452.47
12/31/98 12,495.18
03/31/99 12,292.38
06/30/99 12,099.52
09/30/99 12,114.76
12/31/99 12,042.68
03/31/00 12,252.13
06/30/00 12,372.19
09/29/00 12,714.30
12/29/00 13,205.71
03/30/01 13,575.82
06/29/01 13,592.82
09/28/01 14,166.26
12/31/01 14,171.06
03/28/02 14,142.02
06/28/02 14,634.45
09/30/02 15,243.03
12/31/02 15,450.19
03/31/03 15,627.59
06/30/03 15,995.02
09/30/03 15,875.93
12/31/03 15,869.57
03/31/04 16,239.87
06/30/04 15,807.84
09/30/04 16,243.37
12/31/04 16,404.24
03/31/05 16,327.94
06/30/05 16,740.24
LEHMAN AGGREGATE BOND
DATE value
- ----------------- ---------
INCEPTION 6/30/95 10,000.00
09/30/95 10,196.69
12/31/95 10,630.97
03/31/96 10,441.33
06/30/96 10,500.94
09/30/96 10,694.29
12/31/96 11,015.23
03/31/97 10,954.05
06/30/97 11,357.55
09/30/97 11,735.07
12/31/97 12,080.78
03/31/98 12,268.42
06/30/98 12,555.20
09/30/98 13,085.85
12/31/98 13,129.96
03/31/99 13,063.23
06/30/99 12,948.14
09/30/99 13,036.81
12/31/99 13,020.93
03/31/00 13,308.38
06/30/00 13,539.02
09/30/00 13,947.65
12/31/00 14,535.38
03/31/01 14,975.33
06/30/01 15,058.91
09/30/01 15,753.94
12/31/01 15,759.74
03/31/02 15,775.21
06/30/02 16,359.03
09/30/02 17,109.55
12/31/02 17,378.17
03/31/03 17,619.73
06/30/03 18,060.23
09/30/03 18,034.17
12/31/03 18,092.01
03/31/04 18,571.95
06/30/04 18,119.42
09/30/04 18,698.66
12/31/04 18,876.97
03/31/05 18,787.51
06/30/05 19,352.64
$10,000 OVER 10 YEARS
This chart assumes a $10,000 investment in Class A shares of Diversified Income
Series on June 30, 1995, and reflects deduction of the 4.75% sales load. The
chart does not reflect the deduction of taxes that a shareholder would pay on
distributions or redemption of fund shares.
PORTFOLIO COMPOSITION BY QUALITY RATING (BASED ON STANDARD AND POOR'S RATINGS)
AAA 63.68%
AA 6.97
A 15.40
BBB 12.43
BB 1.03
B 0.16
Repurchase Agreement 1.48
Liabilities, less cash & other assets (1.15)
AVERAGE ANNUAL RETURNS
SINCE
YEARS ENDED 06-30-05 1 YEAR 5 YEARS 10 YEARS INCEPTION
- -------------------- ------ ------- -------- ---------
A Shares 0.96% 5.24% 5.31% --
B Shares 0.10% 5.12% 4.86% --
C Shares 4.11% 5.44% N/A 5.54%
(5-1-00)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years, and 1% for Class C shares. 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
applicable taxes were deducted. Fee waivers and/or reimbursements reduced
expenses of the Fund and in the absence of such waivers, the performance quoted
would be reduced. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
12 See accompanying notes.
SECURITY INCOME FUND
Performance Summary DIVERSIFIED INCOME SERIES
August 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, 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 Series expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Series 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, January 1, 2005 - June 30, 2005.
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 in the table provides information about
hypothetical account values and hypothetical expenses based on the Series actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Series 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 Series 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
01-01-05 06-30-05(1) PERIOD(2)
------------- ------------- -------------
Diversified Income Series -
Class A
Actual $1,000.00 $1,020.50 $4.76
Hypothetical 1,000.00 1,020.03 4.76
Diversified Income Series -
Class B
Actual 1,000.00 1,016.50 8.50
Hypothetical 1,000.00 1,016.59 8.50
Diversified Income Series -
Class C
Actual 1,000.00 1,016.50 8.50
Hypothetical 1,000.00 1,016.59 8.50
(1) The actual ending account value is based on the actual total return of the
Series for the period January 1, 2005 to June 30, 2005 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period January 1, 2005 to June 30, 2005 was 2.05%, 1.65% and 1.65%, for
Class A, B and C class shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (0.95%, 1.70% and
1.70% for Class A, B and C class shares, respectively, net of any waivers
and expense reductions) multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period).
13
SECURITY INCOME FUND
Schedule of Investments DIVERSIFIED INCOME SERIES
June 30, 2005 (unaudited)
PRINICIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS - 32.0%
AIRLINES - 0.6%
Delta Air Lines, Inc., 7.779% - 2005 $ 19,000 $ 16,545
Southwest Airlines Company,
7.875% - 2007 450,000 481,491
----------
498,036
----------
AUTOMOTIVE - 0.7%
Ford Motor Credit Company,
6.50% - 2007 300,000 302,153
Johnson Controls, Inc., 4.875% - 2013 350,000 351,266
----------
653,419
----------
BANKING - 3.1%
Bank of America Corporation,
7.80% - 2010 300,000 343,118
BankBoston Capital Trust,
3.97% - 2028(3) 700,000 674,530
BCH Cayman Islands, Ltd.,
7.70% - 2006 300,000 310,905
Chase Capital III, 3.88% - 2027(3) 700,000 658,242
Danske Bank A/S, 7.40% - 2010(1, 3) 475,000 502,450
US Central Credit Union,
2.70% - 2009 265,909 258,807
----------
2,748,052
----------
BROKERAGE - 1.9%
Citigroup, Inc., 5.00% - 2014 700,000 716,062
Credit Suisse First Boston USA,
6.125% - 2011 300,000 326,332
Legg Mason, Inc., 6.75% - 2008 350,000 376,514
Waddell & Reed Financial, Inc.,
7.50% - 2006 300,000 305,084
----------
1,723,992
----------
BUILDING MATERIALS - 0.4%
CRH America, Inc., 6.95% - 2012 300,000 338,613
----------
CHEMICALS - 0.5%
PPG Industries, Inc., 7.40% - 2019 350,000 438,503
----------
DIVERSIFIED MANUFACTURING - 1.6%
General Electric Company,
5.00% - 2013 300,000 309,753
Hutchison Whampoa International, Ltd.,
5.45% - 2010(1) 650,000 671,603
Tyco International Group,
7.00% - 2028 350,000 422,097
----------
1,403,453
----------
ELECTRIC - 1.4%
Arizona Public Service Company,
6.375% - 2011 300,000 329,673
Cincinnati Gas & Electric Company,
5.70% - 2012 300,000 320,671
Kansas Gas & Electric, 5.647% - 2021(1) 300,000 304,482
Oncor Electric Delivery Company,
6.375% - 2015 300,000 332,535
----------
1,287,361
----------
ENERGY - INDEPENDENT - 0.8%
Devon Financing Corporation, ULC,
6.875% - 2011 $ 300,000 $ 335,690
Pancanadian Petroleum,
6.30% - 2011 350,000 381,600
----------
717,290
----------
ENERGY - INTEGRATED - 0.5%
Conoco, Inc., 6.95% - 2029 350,000 439,711
----------
ENTERTAINMENT - 0.5%
Time Warner, Inc., 6.875% - 2018 350,000 404,207
----------
FINANCIAL - OTHER - 1.1%
Abbey National plc, 6.69% - 2005 300,000 302,530
Willis Group North America,
5.625% - 2015 700,000 704,501
----------
1,007,031
----------
FINANCIAL COMPANIES - CAPTIVE - 2.3%
Capital One Financial, 5.50% - 2015 750,000 767,280
CIT Group Company of Canada,
4.65% - 2010(1) 1,000,000 1,005,650
General Motors Acceptance
Corporation, 6.125% - 2006 300,000 300,215
----------
2,073,145
----------
FINANCIAL COMPANIES - NONCAPTIVE CONSUMER - 1.1%
Capital One Financial, 4.738% - 2007 350,000 352,359
Countrywide Capital, 8.00% - 2026 300,000 311,090
SLM Corporation, 5.05% - 2014 325,000 334,816
----------
998,265
----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.6%
CIT Group, Inc., 7.625% - 2005 150,000 150,689
General Electric Capital Corporation,
5.875% - 2012 300,000 324,402
General Motors Acceptance Corporation,
6.311% - 2007 59,000 57,152
----------
532,243
----------
GAMING - 0.2%
Park Place Entertainment,
7.875% - 2005 175,000 177,625
----------
HEALTH CARE - 0.4%
Anthem, Inc., 6.80% - 2012 300,000 338,516
----------
INDUSTRIAL - OTHER - 0.4%
Eaton Corporation, 5.75% - 2012 325,000 350,534
----------
INSURANCE - LIFE - 1.1%
AIG Sunamerica Global Financing X,
6.90% - 2032 700,000 861,259
Transamerica Capital II,
7.65% - 2026(1) 100,000 120,156
----------
981,415
----------
14 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments DIVERSIFIED INCOME SERIES
June 30, 2005 (unaudited)
PRINICIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
INSURANCE - PROPERTY & CASUALTY - 0.6%
Nationwide Mutual Insurance Company,
8.25% - 2031(1) $ 400,000 $ 520,405
----------
MEDIA - CABLE - 1.0%
Comcast Corporation, 5.30% - 2014 325,000 334,103
Jones Intercable, Inc., 7.625% - 2008 275,000 296,353
Lenfest Communications, Inc.,
10.50% - 2006 250,000 263,225
----------
893,681
----------
MEDIA - NONCABLE - 0.3%
New York Times Company,
4.50% - 2010 300,000 302,859
----------
OIL FIELD SERVICES - 0.9%
Transocean, Inc., 6.625% - 2011 700,000 786,227
----------
PACKAGING - 0.3%
Bemis Company, Inc., 4.875% - 2012(1) 300,000 306,489
----------
PHARMACEUTICALS - 0.4%
Eli Lilly & Company, 7.125% - 2025 300,000 383,221
----------
PIPELINES - 1.1%
Consolidated Natural Gas Company,
6.625% - 2013 350,000 394,393
Duke Energy Field Services Corporation,
7.50% - 2005 300,000 301,179
Express Pipeline LP, 6.47% - 2013(1) 272,267 281,300
----------
976,872
----------
RAILROADS - 0.9%
Canadian National Railway Company,
6.25% - 2034 700,000 807,323
----------
REAL ESTATE INVESTMENT TRUSTS - 1.9%
Berkshire Hathaway, 4.75% - 2012(1) 1,000,000 1,009,129
Reckson Operating Partnership,
5.15% - 2011 700,000 710,340
----------
1,719,469
----------
RETAILERS - 0.5%
Tandy Corporation, 6.95% - 2007 400,000 415,643
----------
SERVICES - 0.2%
American Eco Corporation,
9.625% - 2008*,(2,4) 25,000 --
MasTec, Inc., 7.75% - 2008 150,000 147,375
----------
147,375
----------
TECHNOLOGY - 2.4%
Affiliated Computer Services,
5.20% - 2015 700,000 697,832
Computer Associates, Inc.,
5.625% - 2014(1) 750,000 760,615
Pitney Bowes, Inc., 5.875% - 2006 350,000 355,327
Science Applications International
Corporation, 7.125% - 2032 300,000 372,077
----------
2,185,851
----------
TELECOMMUNICATIONS - WIRELESS - 1.1%
America Movil S.A. de C.V.,
5.50% - 2014 $ 250,000 $ 249,980
Nextel Communications, Inc.,
6.875% - 2013 700,000 748,125
----------
998,105
----------
TRANSPORTATION SERVICES - 1.2%
Erac USA Finance Company:
7.35% - 2008(1) 350,000 377,632
6.70% - 2034(1) 300,000 336,807
TTX Company, 4.90% - 2015(1) 350,000 349,968
----------
1,064,407
----------
TOTAL CORPORATE BONDS
(cost $27,321,607) 28,619,338
----------
MORTGAGE BACKED SECURITIES - 48.9%
U.S. GOVERNMENT SPONSORED AGENCIES - 45.3%
Federal Home Loan Mortgage Corporation:
#E01378, 5.00% - 2018 1,970,407 1,994,110
#E01488, 5.00% - 2018 1,507,632 1,525,768
#E01538, 5.00% - 2018 1,565,756 1,584,591
#C44050, 7.00% - 2030 36,444 38,375
#C01172, 6.50% - 2031 63,431 65,678
#C01210, 6.50% - 2031 74,233 77,008
#C50964, 6.50% - 2031 66,589 68,948
#C50967, 6.50% - 2031 24,268 25,175
#C01277, 7.00% - 2031 133,712 140,789
#C01292, 6.00% - 2032 277,513 285,028
#C62801, 6.00% - 2032 151,918 156,032
#C01287, 6.50% - 2032 197,491 204,486
#C76358, 5.00% - 2033 1,423,791 1,426,398
#C78238, 5.50% - 2033 1,428,801 1,450,035
#A16943, 6.00% - 2033 1,243,720 1,276,139
#G08014, 5.00% - 2034 1,904,357 1,906,769
#G08015, 5.50% - 2034 1,822,241 1,848,891
#A17903, 6.00% - 2034 1,282,305 1,315,711
Federal National Mortgage Association:
#254473, 5.50% - 2017 1,634,611 1,679,133
#720714, 4.50% - 2018 1,570,578 1,564,566
FNR 2005-46 TW, 5.00% - 2018 1,800,000 1,831,250
#555549, 5.00% - 2018 1,890,446 1,912,824
#750465, 5.00% - 2018 1,532,276 1,550,643
#780952, 4.00% - 2019 1,913,780 1,875,501
FNR 1990-108 G, 7.00% - 2020 62,754 65,360
#252806, 7.50% - 2029 48,687 52,051
#252874, 7.50% - 2029 46,850 50,087
#535277, 7.00% - 2030 43,459 45,833
#190307, 8.00% - 2030 26,770 28,791
#253356, 8.00% - 2030 31,631 34,019
#541735, 8.00% - 2030 25,642 27,578
15 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments DIVERSIFIED INCOME SERIES
June 30, 2005 (unaudited)
PRINICIPAL MARKET
AMOUNT VALUE
---------- -----------
MORTGAGE BACKED SECURITIES (CONTINUED)
U.S. GOVERNMENT SPONSORED AGENCIES (CONTINUED)
Federal National Mortgage Association (continued)
#585348, 6.50% - 2031 $ 49,874 $ 51,632
#254477, 5.50% - 2032 644,929 654,141
#254198, 6.00% - 2032 395,459 405,569
#254377, 6.00% - 2032 543,524 557,590
#666750, 6.00% - 2032 574,214 588,894
#254346, 6.50% - 2032 201,112 208,202
#545691, 6.50% - 2032 270,481 280,016
#659790, 6.50% - 2032 221,340 229,450
#640008, 7.00% - 2032 115,408 121,712
#702879, 5.00% - 2033 1,512,333 1,514,455
#709805, 5.00% - 2033 1,314,930 1,316,775
#688328, 5.50% - 2033 1,135,895 1,152,476
#689108, 5.50% - 2033 699,233 709,640
#709748, 5.50% - 2033 1,465,109 1,486,915
#713971, 5.50% - 2033 1,313,406 1,332,578
#754903, 5.50% - 2033 1,254,331 1,271,755
#725033, 6.00% - 2034 964,875 989,580
#255554, 5.50% - 2035 1,514,006 1,535,603
-----------
40,514,550
-----------
U.S. GOVERNMENT SPONSORED SECURITES - 1.6%
Government National Mortgage Association:
#313107, 7.00% - 2022 104,438 110,575
#328618, 7.00% - 2022 20,031 21,208
#1260, 7.00% - 2023 10,997 11,588
#352022, 7.00% - 2023 55,151 58,391
#369303, 7.00% - 2023 65,516 69,366
#347017, 7.00% - 2024 48,237 51,071
#371006, 7.00% - 2024 28,323 29,987
#371012, 7.00% - 2024 48,269 51,105
#1849, 8.50% - 2024 8,715 9,464
#2320, 7.00% - 2026 25,199 26,554
#780454, 7.00% - 2026 69,568 73,655
#2270, 8.00% - 2026 21,181 22,759
#2445, 8.00% - 2027 24,380 26,196
#2689, 6.50% - 2028 33,597 34,970
#464356, 6.50% - 2028 44,829 46,856
#2616, 7.00% - 2028 32,452 34,196
#462680, 7.00% - 2028 44,992 47,636
#518436, 7.25% - 2029 41,213 43,920
#491492, 7.50% - 2029 34,824 37,320
#510704, 7.50% - 2029 57,819 61,963
#781079, 7.50% - 2029 25,644 27,482
#2909, 8.00% - 2030 29,439 31,633
#479229, 8.00% - 2030 22,965 24,791
#479232, 8.00% - 2030 13,100 14,141
#508342, 8.00% - 2030 55,027 59,400
#564472, 6.50% - 2031 179,569 187,761
#538285, 6.50% - 2031 73,320 76,636
#552324, 6.50% - 2032 139,622 145,936
-----------
1,436,560
-----------
NON-AGENCY SECURITIES - 2.0%
Chase Commercial Mortgage Securities Corporation:
1997-1B, 7.37% - 2029 $1,500,000 $ 1,571,899
1998-1B, 6.56% - 2030 225,000 239,383
Global Rate Eligible Asset Trust
1998-A, 7.33% - 2006(2,4) 41,248 --
-----------
1,811,282
-----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $43,586,839) 43,762,392
-----------
U.S. SPONSORED AGENCY BONDS & NOTES - 8.6%
Federal Home Loan Bank,
6.375% - 2006 800,000 821,313
Federal Home Loan Mortgage,
2.850% - 2007 2,000,000 1,965,870
Federal National Mortgage Association:
4.00% - 2007 2,000,000 2,001,676
6.00% - 2008 400,000 422,818
7.125% - 2030 1,000,000 1,367,236
6.625% - 2030 250,000 324,427
-----------
4,116,157
-----------
Financing Corporation,
9.65% - 2018 500,000 755,602
-----------
TOTAL U.S. SPONSORED AGENCY BONDS & NOTES
(cost $7,106,679) 7,658,942
-----------
U.S. GOVERNMENT SECURITIES - 6.4%
U.S. Treasury Bond,
5.375% - 2031 2,000,000 2,360,000
U.S. Treasury Note:
4.625% - 2006 1,000,000 1,009,375
3.750% - 2007 400,000 400,609
6.25% - 2007 1,500,000 1,562,578
4.00% - 2010 350,000 353,828
-----------
3,326,390
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $5,440,279) 5,686,390
-----------
COMMERCIAL PAPER - 2.6%
FINANCIAL OTHER - 2.6%
Countrywide Financial:
3.45%, 07-01-05 1,000,000 1,000,000
3.52%, 07-05-05 1,300,000 1,299,522
-----------
2,299,522
-----------
TOTAL COMMERCIAL PAPER
(cost $2,299,522) 2,299,522
-----------
16 See accompanying notes.
Schedule of Investments SECURITY INCOME FUND
June 30, 2005 DIVERSIFIED INCOME SERIES
(unaudited)
PRINICIPAL MARKET
AMOUNT VALUE
---------- -----------
ASSET BACKED COMMERCIAL PAPER - 1.2%
SECURITIES - 1.2%
Asset One Securitization,
3.15%, 7-07-05 $1,100,000 $ 1,099,395
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $1,099,395) 1,099,395
-----------
REPURCHASE AGREEMENT - 1.5%
United Missouri Bank, 2.80%, dated
06-30-05, matures 07-01-05;
repurchase amount of $1,326,103
(Collateralized by GNMA, 5.00%,
11-16-31 with a value of
$1,352,956) 1,326,000 1,326,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $1,326,000) 1,326,000
-----------
TOTAL INVESTMENTS - 101.2%
(cost $88,180,321) 90,451,979
LIABILITIES, LESS CASH & OTHER ASSETS - (1.2%) (1,033,677)
-----------
TOTAL NET ASSETS - 100.0% $89,418,302
===========
For federal income tax purposes, the identified cost of investments owned at
June 30, 2005 was $89,571,508.
* Non-income producing security plc (public limited company)
(1) Security is a 144A security. The total market value of 144A securities is
$6,546,686 (cost $6,279,254), or 7.3% of total net assets.
(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 net assets.
(3) Variable rate security. Rate indicated is rate effective June 30, 2005.
(4) Security is in default. Security is also illiquid. The total market value
of illiquid securities is $0 (cost $66,159), or 0.0% of total net assets.
17 See accompanying notes.
SECURITY INCOME FUND
DIVERSIFIED INCOME SERIES
(unaudited)
Statement of Assets and Liabilities
June 30, 2005
ASSETS:
Investments, at value(1) ........................................ $90,451,979
Receivables:
Fund shares sold ............................................. 90,866
Interest ..................................................... 736,144
Prepaid expenses ................................................ 53,571
-----------
Total assets .................................................... 91,332,560
-----------
LIABILITIES:
Cash overdraft .................................................. 1,014,516
Payable for:
Securities purchased ......................................... 697,592
Fund shares redeemed ......................................... 63,260
Management fees .............................................. 25,545
Transfer agent and administration fees ....................... 37,559
Professional fees ............................................ 6,855
12b-1 distribution plan fees ................................. 66,172
Other ........................................................ 2,759
-----------
Total liabilities ............................................... 1,914,258
-----------
NET ASSETS ...................................................... $89,418,302
-----------
NET ASSETS CONSIST OF:
Paid in capital ................................................. $94,466,122
Accumulated net investment loss ................................. (545,147)
Accumulated net realized loss
on sale of investments ....................................... (6,774,331)
Net unrealized appreciation
in value of investments ...................................... 2,271,658
-----------
Net assets ...................................................... $89,418,302
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 15,351,907
Net assets ...................................................... $73,008,939
Net asset value and redemption price per share .................. $ 4.76
===========
Maximum offering price per share (net asset
value divided by 95.25%) ..................................... $ 5.00
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,348,669
Net assets ...................................................... $11,125,035
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) ............................ $ 4.74
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,117,562
Net assets ...................................................... $ 5,284,328
Net asset value, offering and redemption price
per share (excluding any applicable
contingent deferred sales charge) ............................ $ 4.73
===========
(1)Investments, at cost ......................................... $88,180,321
Statement of Operations
For the Six Months Ended June 30, 2005
INVESTMENT INCOME:
Interest ......................................................... $2,285,483
----------
Total investment income .......................................... 2,285,483
----------
EXPENSES:
Management fees ............................................... 159,132
Custodian fees ................................................ 8,593
Transfer agent/maintenance fees ............................... 153,423
Administration fees ........................................... 47,007
Directors' fees ............................................... 1,960
Professional fees ............................................. 10,427
Reports to shareholders ....................................... 6,379
Registration fees ............................................. 19,028
Other expenses ................................................ 4,512
12b-1 distribution plan fees - Class A ........................ 91,116
12b-1 distribution plan fees - Class B ........................ 64,685
12b-1 distribution plan fees - Class C ........................ 25,513
----------
Total expenses ................................................ 591,775
Less:
Reimbursement of expenses - Class A ........................ (76,141)
Reimbursement of expenses - Class B ........................ (13,459)
Reimbursement of expenses - Class C ........................ (5,466)
----------
Net expenses .................................................. 496,709
----------
Net investment income ......................................... 1,788,774
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ................................................... 699,471
----------
Net realized gain ............................................. 699,471
----------
Net unrealized depreciation during the period on:
Investments ................................................... (736,376)
----------
Net unrealized depreciation ................................... (736,376)
----------
Net loss ......................................................... (36,905)
----------
Net increase in net assets resulting from operations ............. $1,751,869
==========
18 See accompanying notes.
SECURITY INCOME FUND
Statement of Changes in Net Assets DIVERSIFIED INCOME SERIES
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .................................. $ 1,788,774 $ 3,842,697
Net realized gain (loss) during
the period on investments ........................... 699,471 (173,715)
Net unrealized depreciation during
the period on investments ........................... (736,376) (689,342)
------------ ------------
Net increase in net assets resulting from operations ... 1,751,869 2,979,640
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................................. (1,487,737) (3,473,423)
Class B ............................................. (209,847) (504,874)
Class C ............................................. (84,175) (207,103)
------------ ------------
Total distributions to shareholders .................... (1,781,759) (4,185,400)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ............................................. 12,334,830 20,132,166
Class B ............................................. 1,219,916 6,958,364
Class C ............................................. 718,939 1,459,722
Distributions reinvested
Class A ............................................. 1,377,026 2,998,350
Class B ............................................. 195,632 473,120
Class C ............................................. 79,080 192,657
Cost of shares redeemed
Class A ............................................. (15,976,544) (24,824,137)
Class B ............................................. (4,608,811) (5,835,767)
Class C ............................................. (734,353) (2,198,352)
------------ ------------
Net decrease from capital share transactions ........... (5,394,285) (643,877)
------------ ------------
Net decrease in net assets ............................. (5,424,175) (1,849,637)
------------ ------------
NET ASSETS:
Beginning of period .................................... 94,842,477 96,692,114
------------ ------------
End of period .......................................... $ 89,418,302 $ 94,842,477
============ ============
Accumulated net investment loss at end of period ....... $ (545,147) $ (552,162)
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ............................................. 2,603,433 4,206,848
Class B ............................................. 258,187 1,459,436
Class C ............................................. 152,431 307,396
Shares reinvested
Class A ............................................. 291,333 629,350
Class B ............................................. 41,556 99,693
Class C ............................................. 16,832 40,652
Shares redeemed
Class A ............................................. (3,373,847) (5,170,948)
Class B ............................................. (976,553) (1,220,488)
Class C ............................................. (155,447) (462,503)
19 See accompanying notes.
Financial Highlights SECURITY INCOME FUND
DIVERSIFIED INCOME SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS A 2005(I) 2004 2003 2002 2001(G) 2000(E)
- ------- -------------- ------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 4.76 $ 4.82 $ 4.90 $ 4.73 $ 4.66 $ 4.52
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.10 0.20 0.20 0.24 0.26 0.28
Net gain (loss) on securities (realized and unrealized) -- (0.04) (0.07) 0.18 0.07 0.14
------- ------- ------- ------- ------- -------
Total from investment operations 0.10 0.16 0.13 0.42 0.33 0.42
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.10) (0.22) (0.21) (0.25) (0.26) (0.28)
Distributions from realized gains -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions (0.10) (0.22) (0.21) (0.25) (0.26) (0.28)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 4.76 $ 4.76 $ 4.82 $ 4.90 $ 4.73 $ 4.66
======= ======= ======= ======= ======= =======
TOTAL RETURN(A) 2.05% 3.37% 2.72% 9.04% 7.33% 9.68%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $73,009 $75,292 $77,950 $68,489 $59,168 $63,293
------- ------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 4.08% 4.18% 4.17% 4.98% 5.57% 6.18%
Total expenses 0.95% 0.95% 0.95% 0.95% 0.95% 0.96%
Gross expenses(b) 1.16% 1.06% 1.04% 1.02% 1.04% 1.19%
Net expenses(d) 0.95% 0.95% 0.95% 0.95% 0.95% 0.96%
------- ------- ------- ------- ------- -------
Portfolio turnover rate 60% 44% 45% 33% 38% 71%
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS B 2005(I) 2004 2003 2002 2001(G) 2000(E)
- ------- -------------- ------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 4.74 $ 4.80 $ 4.88 $ 4.71 $ 4.65 $ 4.51
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.08 0.16 0.17 0.20 0.22 0.23
Net gain (loss) on securities (realized and unrealized) -- (0.04) (0.08) 0.18 0.07 0.16
------- ------- ------- ------- ------- -------
Total from investment operations 0.08 0.12 0.09 0.38 0.29 0.39
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.08) (0.18) (0.17) (0.21) (0.23) (0.25)
Distributions from realized gains -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions (0.08) (0.18) (0.17) (0.21) (0.23) (0.25)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 4.74 $ 4.74 $ 4.80 $ 4.88 $ 4.71 $ 4.65
======= ======= ======= ======= ======= =======
TOTAL RETURN(A) 1.65% 2.60% 1.96% 8.29% 6.36% 8.89%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $11,125 $14,331 $12,902 $20,365 $13,685 $13,850
------- ------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 3.34% 3.42% 3.43% 4.22% 4.83% 5.40%
Total expenses 1.70% 1.70% 1.70% 1.70% 1.70% 1.71%
Gross expenses(b) 1.91% 1.81% 1.79% 1.77% 1.79% 2.02%
Net expenses(d) 1.70% 1.70% 1.70% 1.70% 1.70% 1.71%
------- ------- ------- ------- ------- -------
Portfolio turnover rate 60% 44% 45% 33% 38% 71%
------- ------- ------- ------- ------- -------
20 See accompanying notes.
Financial Highlights SECURITY INCOME FUND
DIVERSIFIED INCOME SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS C 2005(I) 2004 2003 2002(H) 2001(G) 2000(F)
- ------- -------------- ------ ------ ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 4.73 $ 4.79 $ 4.87 $ 4.70 $ 4.65 $ 4.42
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.08 0.16 0.17 0.19 0.21 0.21
Net gain (loss) on securities (realized and unrealized) -- (0.04) (0.07) 0.19 0.08 0.19
------ ------ ------ ------ ------ ------
Total from investment operations 0.08 0.12 0.10 0.38 0.29 0.40
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.08) (0.18) (0.18) (0.21) (0.24) (0.17)
Distributions from realized gains -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (0.08) (0.18) (0.18) (0.21) (0.24) (0.17)
------ ------ ------ ------ ------ ------
Net asset value, end of period $ 4.73 $ 4.73 $ 4.79 $ 4.87 $ 4.70 $ 4.65
====== ====== ====== ====== ====== ======
TOTAL RETURN(A) 1.65% 2.61% 1.98% 8.30% 6.30% 7.88%
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,284 $5,219 $5,840 $4,901 $1,760 $ 442
------ ------ ------ ------ ------ ------
Ratios to average net assets:
Net investment income (loss) 3.34% 3.43% 3.42% 4.18% 4.84% 5.32%
Total expenses 1.70% 1.70% 1.70% 1.70% 1.69% 1.67%
Gross expenses(b) 1.91% 1.81% 1.80% 1.77% 1.79% 1.84%
Net expenses(d) 1.70% 1.70% 1.70% 1.70% 1.69% 1.67%
------ ------ ------ ------ ------ ------
Portfolio turnover rate 60% 44% 45% 33% 38% 40%
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charge paid at time of
redemption.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction to custodian expenses.
(e) Portfolio turnover calculation excludes the portfolio investments in the
Limited Maturity Fund and Corporate Bond Fund prior to merger.
(f) Class C shares were initially offered for sale on May 1, 2000. Percentage
amounts for the period, except for total return, have been annualized.
(g) As required, effective January 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 December 31, 2001 was to decrease net investment
income per share by less than 1/2 of a cent, increase net realized and
unrealized gains and losses by less than 1/2 of a cent and increase the
ratio of net investment income to average net assets from 0.01% to 0.18%.
Per share, ratios and supplemental data for periods prior to January 1,
2001 have not been restated to reflect this change in presentation.
(h) 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.
(i) Unaudited figures for the six months ended June 30, 2005. Percentage
amounts for the period, except total return, have been annualized.
21 See accompanying notes.
This page left blank intentionally.
22
SECURITY INCOME FUND
HIGH YIELD SERIES
(SECURITY FUNDS LOGO)
ADVISOR,
SECURITY MANAGEMENT COMPANY, LLC
23
SECURITY INCOME FUND
Performance Summary HIGH YIELD SERIES
August 15, 2005 (unaudited)
PERFORMANCE
HIGH YIELD SERIES VS.
LEHMAN BROTHERS HIGH YIELD INDEX
DATE value
- ---------- ---------
HIGH YIELD
08/05/96 9,525.00
09/30/96 9,781.13
12/31/96 10,019.35
03/31/97 10,194.64
06/30/97 10,599.53
09/30/97 11,003.32
12/31/97 11,278.65
03/31/98 11,641.71
06/30/98 11,747.59
09/30/98 11,547.45
12/31/98 11,835.90
03/31/99 11,951.34
06/30/99 11,911.59
09/30/99 11,778.78
12/31/99 11,770.53
03/31/00 11,539.45
06/30/00 11,534.45
09/29/00 11,686.67
12/29/00 11,408.90
03/30/01 11,935.96
06/29/01 11,704.42
09/28/01 11,206.81
12/31/01 11,966.49
03/28/02 12,272.56
06/28/02 11,738.61
09/30/02 11,178.30
12/31/02 11,764.15
03/31/03 12,300.92
06/30/03 13,392.56
09/30/03 13,729.67
12/31/03 14,307.86
03/31/04 14,653.42
06/30/04 14,531.64
09/30/04 15,105.25
12/31/04 15,874.54
03/31/05 15,714.83
06/30/05 15,925.16
LEHMAN BROTHERS HIGH YIELD
DATE value
- ----------------- ---------
INCEPTION 8/05/96 10,000.00
09/30/96 10,351.60
12/31/96 10,713.39
03/31/97 10,833.03
06/30/97 11,336.46
09/30/97 11,851.52
12/31/97 12,081.46
03/31/98 12,487.78
06/30/98 12,625.65
09/30/98 12,050.69
12/31/98 12,307.03
03/31/99 12,533.43
06/30/99 12,566.52
09/30/99 12,386.91
12/31/99 12,589.80
03/31/00 12,295.73
06/30/00 12,437.20
09/30/00 12,507.18
12/31/00 11,851.92
03/31/01 12,604.41
06/30/01 12,317.36
09/30/01 11,796.11
12/31/01 12,477.29
03/31/02 12,687.30
06/30/02 11,878.19
09/30/02 11,529.80
12/31/02 12,306.90
03/31/03 13,243.88
06/30/03 14,581.95
09/30/03 14,985.63
12/31/03 15,871.49
03/31/04 16,243.91
06/30/04 16,087.61
09/30/04 16,867.08
12/31/04 17,639.12
03/31/05 17,354.98
06/30/05 17,835.42
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of High Yield Series
on August 5, 1996 (date of inception), and reflects deduction of the 4.75% sales
load. The chart does not reflect the deduction of taxes that a shareholder would
pay on distributions or redemption of fund shares.
PORTFOLIO COMPOSITION BY QUALITY RATING (BASED ON STANDARD AND POOR'S RATINGS)
BBB 0.80%
BB 27.03
B 50.63
CCC 9.52
CC 0.99
NR 4.70
Common Stocks 0.52
Repurchase Agreement 3.64
Cash & other assets, less liabilities 2.17
AVERAGE ANNUAL RETURNS
SINCE
PERIODS ENDED 06-30-05 1 YEAR 5 YEARS INCEPTION
- ---------------------- ------ ------- ---------
A Shares 4.36% 5.66% 5.39%
(8-05-96)
B Shares 3.74% 5.55% 5.12%
(8-05-96)
C Shares 7.77% 5.89% 5.73%
(5-1-00)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years, and 1% for Class C shares. 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
applicable taxes were deducted. Fee waivers and/or reimbursements reduced
expenses of the Series and in the absence of such waivers, the performance
quoted would be reduced. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
24 See accompanying notes.
SECURITY INCOME FUND
Performance Summary HIGH YIELD SERIES
August 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, 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 Series expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Series 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, January 1, 2005 - June 30, 2005.
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 in the table provides information about
hypothetical account values and hypothetical expenses based on the Series actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Series 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 Series 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
01-01-05 06-30-05(1) PERIOD(2)
------------- ------------- -------------
High Yield Series - Class A
Actual $1,000.00 $1,003.18 $ 7.70
Hypothetical 1,000.00 1,017.06 7.75
High Yield Series - Class B
Actual 1,000.00 998.50 11.40
Hypothetical 1,000.00 1,013.57 11.48
High Yield Series - Class C
Actual 1,000.00 999.30 11.39
Hypothetical 1,000.00 1,013.52 11.47
(1) The actual ending account value is based on the actual total return of the
Series for the period January 1, 2005 to June 30, 2005 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period January 1, 2005 to June 30, 2005 was 0.32%, (0.15%) and (0.07%), for
Class A, B and C class shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.55%, 2.30% and
2.30% for Class A, B and C class shares, respectively, net of any waivers
and expense reductions) multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period).
25
SECURITY INCOME FUND
Schedule of Investments HIGH YIELD SERIES
June 30, 2005 (unaudited)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- ----------
CONVERTIBLE BONDS - 6.5%
AUTOMOTIVE - 0.8%
Sonic Automotive, Inc., 5.25% - 2009 $350,000 $ 339,500
----------
CONSTRUCTION MACHINERY - 1.3%
United Rentals, Inc., 1.875% - 2023 $575,000 558,469
----------
ELECTRIC UTILITIES - 2.3%
AES Corporation, 4.50% - 2005 $950,000 950,000
----------
MEDIA-CABLE - 0.8%
Mediacom Communications Corporation,
5.25% - 2006 $325,000 323,781
----------
OIL FIELD SERVICES - 0.7%
Oil States International, Inc.,
2.375% - 2025(4) $300,000 310,500
----------
TELECOMMUNICATIONS-WIRELESS - 0.6%
Nextel Communications, Inc.,
5.25% - 2010 $250,000 250,937
----------
TOTAL CONVERTIBLE BONDS
(cost $2,660,241) 2,733,187
----------
COMMON STOCK - 0.5%
REAL ESTATE INVESTMENT TRUSTS - 0.5%
Bimini Mortgage Management, Inc. 15,250 215,025
----------
TOTAL COMMON STOCK
(cost $225,975) 215,025
----------
WARRANTS - 0.0%
Core Mark Holdings Company, Inc.,
$1.00, 08-20-11*,(5) 124 1,066
----------
TOTAL WARRANTS
(cost $0) 1,066
----------
CORPORATE BONDS - 87.2%
AEROSPACE & DEFENSE - 2.6%
Esterline Technologies Corporation,
7.75% - 2013 $350,000 371,000
Sequa Corporation, 9.00% - 2009 $125,000 137,813
Vought Aircraft Industries, Inc.,
8.00% - 2011 $600,000 594,000
----------
1,102,813
----------
AIRLINES - 0.9%
AMR Commercial Lines LLC,
9.50% - 2015(4) $275,000 290,125
Pegasus Aviation Lease Securitization,
8.42% - 2030(5) $244,615 --
United Air Lines, Inc., 7.73% - 2010 $ 99,949 93,132
----------
383,257
----------
AUTOMOTIVE - 3.5%
Adesa, Inc., 7.625% - 2012 $250,000 $ 253,750
Allied Holdings, Inc., 8.625% - 2007 225,000 106,875
Briggs & Stratton Corporation,
8.875% - 2011 150,000 171,375
Goodyear Tire & Rubber Company,
9.00% - 2015(4) 300,000 294,750
Group 1 Automotive, Inc.,
8.25% - 2013 100,000 101,000
Sonic Automotive, Inc., 8.625% - 2013 400,000 404,000
TRW Automotive, Inc., 9.375% - 2013 134,000 148,405
----------
1,480,155
----------
BANKING - 0.6%
E*Trade Financial Corporation,
8.00% - 2011 200,000 210,500
FCB/NC Capital Trust I, 8.05% - 2028 50,000 54,058
----------
264,558
----------
BUILDING MATERIALS - 2.4%
Building Materials Corporation:
7.75% - 2005 209,000 208,477
8.00% - 2007 450,000 447,187
8.00% - 2008 175,000 173,250
Nortek, Inc., 8.50% - 2014 200,000 186,000
----------
1,014,914
----------
CHEMICALS - 1.1%
ISP Holdings, Inc., 10.625% - 2009 200,000 215,000
United Agri Products, 8.25% - 2011 226,000 233,910
----------
448,910
----------
CONSTRUCTION MACHINERY - 2.0%
Case New Holland, Inc.,
9.25% - 2011(4) 350,000 367,500
Navistar International Corporation:
7.50% - 2011 250,000 255,000
6.25% - 2012(4) 225,000 217,125
----------
839,625
----------
CONSUMER PRODUCTS - 1.2%
Ames True Temper, Inc.,
7.141% - 2012(2) 50,000 47,500
Del Laboratories, Inc., 8.00% - 2012 425,000 365,500
WH Holdings/ WH Capital,
9.50% - 2011 90,000 96,300
----------
509,300
----------
DIVERSIFIED MANUFACTURING - 1.3%
Bombardier, Inc., 6.75% - 2012(4) 550,000 522,500
----------
26 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments HIGH YIELD SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
ELECTRIC - 3.3%
CMS Energy Corporation,
7.50% - 2009 $ 175,000 $ 184,187
East Coast Power LLC:
6.737% - 2008 26,492 26,821
7.066% - 2012 56,347 57,689
Edison Mission Energy,
10.00% - 2008 450,000 505,125
NRG Energy, Inc., 8.00% - 2013(4) 196,000 206,780
Reliant Energy, Inc., 6.75% - 2014 425,000 415,438
----------
1,396,040
----------
ENERGY - INDEPENDENT - 3.9%
El Paso Production Holding Company,
7.75% - 2013 250,000 266,875
Houston Exploration, 7.00% - 2013 50,000 51,625
Magnum Hunter Resources, Inc.,
9.60% - 2012 532,000 590,520
Range Resources Corporation,
7.375% - 2013 175,000 186,375
TransMontaigne, Inc., 9.125% - 2010 500,000 520,000
----------
1,615,395
----------
ENERGY - INTEGRATED - 0.4%
Petrobras International Finance Company:
9.00% - 2008(1) 75,000 88,875
9.125% - 2013 75,000 85,313
----------
174,188
----------
ENTERTAINMENT - 5.0%
AMC Entertainment, Inc.,
9.50% - 2011 250,000 245,312
Blockbuster, Inc., 9.00% - 2012(4) 500,000 467,500
Cinemark USA, Inc., 9.00% - 2013 350,000 359,625
Marquee Holdings, Inc.,
0.00% - 2014(1) 1,250,000 762,500
Speedway Motorsports, Inc.,
6.75% - 2013 250,000 257,500
----------
2,092,437
----------
ENVIRONMENTAL - 1.1%
Allied Waste North America:
8.875% - 2008 150,000 157,500
7.25% - 2015(4) 200,000 193,500
Casella Waste Systems, Inc.,
9.75% - 2013 100,000 108,000
----------
459,000
----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 1.3%
American Real Estate Partners:
8.125% - 2012 200,000 206,000
7.125% - 2013(4) 350,000 343,000
----------
549,000
----------
FOOD & BEVERAGE - 5.5%
Bear Creek Corporation,
9.00% - 2013(4) $ 250,000 $ 243,750
Canandaigua Brands, Inc.,
8.625% - 2006 241,000 250,640
Dean Foods Company, 8.15% - 2007 650,000 685,750
Dole Foods Company, Inc.:
7.25% - 2010 350,000 355,250
8.875% - 2011 50,000 53,375
Land O' Lakes, Inc., 8.75% - 2011 725,000 730,438
----------
2,319,203
----------
GAMING - 4.7%
American Casino & Entertainment,
7.85% - 2012 200,000 212,000
Harrah's Operating Company, Inc.,
7.875% - 2005 525,000 532,875
MGM Mirage, Inc., 6.75% - 2012 375,000 386,250
Mandalay Resort Group, 6.50% - 2009 200,000 204,500
Mohegan Tribal Gaming, 6.375% - 2009 250,000 255,000
Park Place Entertainment,
7.875% - 2005 175,000 177,625
Station Casinos, Inc., 6.00% - 2012 200,000 203,000
----------
1,971,250
----------
HEALTH CARE - 4.5%
Alderwoods Group, Inc.,
7.75% - 2012(4) 100,000 106,125
Coventry Health Care, Inc.,
6.125% - 2015 425,000 432,437
Fisher Scientific International, Inc.,
8.00% - 2013 500,000 571,250
HCA, Inc., 6.375% - 2015 200,000 207,522
HealthSouth Corporation,
8.50% - 2008 225,000 228,938
Inverness Medical Innovations, Inc.,
8.75% - 2012 250,000 248,125
Ventas Realty LP/Cap Corporation,
7.125% - 2015(4) 100,000 104,000
----------
1,898,397
----------
INDUSTRIAL - OTHER - 3.6%
Anixter International, Inc.,
5.95% - 2015 250,000 247,737
Coleman Cable, Inc., 9.875% - 2012(4) 100,000 89,000
Corrections Corporation of America,
7.50% - 2011 50,000 52,062
Iron Mountain, Inc.:
8.25% - 2011 250,000 253,750
7.75% - 2015 25,000 25,125
Usec, Inc., 6.625% - 2006 850,000 841,500
----------
1,509,174
----------
27 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments HIGH YIELD SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
INSURANCE - LIFE - 0.2%
Genamerica Capital, Inc.,
8.525% - 2027(4) $ 75,000 $ 83,357
----------
INSURANCE - PROPERTY & CASUALTY - 1.3%
Fairfax Financial Holdings, 7.75% - 2012 550,000 522,500
----------
LODGING - 0.9%
Starwood Hotels & Resorts,
7.375% - 2007(1) 150,000 156,750
Sun International Hotels, 8.875% - 2011 200,000 214,000
----------
370,750
----------
MEDIA - CABLE - 2.8%
CSC Holdings, Inc.:
7.25% - 2008 125,000 125,312
6.75% - 2012(4) 175,000 164,500
Cablevision Systems Corporation,
7.89% - 2009(2) 500,000 501,250
Charter Communications Holdings, Inc., LLC:
8.625% - 2009 100,000 74,250
11.125% - 2011 200,000 149,500
Shaw Communications, Inc.,
7.25% - 2011 125,000 135,938
----------
1,150,750
----------
MEDIA - NONCABLE - 3.8%
DirecTV Holdings/Finance,
6.375% - 2015(4) 150,000 149,250
Intelsat, Ltd., 7.625% - 2012 1,125,000 990,000
RH Donnelley Finance Corporation:
8.875% - 2010 200,000 218,500
10.875% - 2012 125,000 145,313
USA Networks, Inc., 6.75% - 2005 75,000 75,607
----------
1,578,670
----------
METALS & MINING - 4.1%
AK Steel Corporation, 7.875% - 2009 775,000 705,250
Arch Western Finance, 6.75% - 2013 300,000 309,750
Asarco, Inc., 7.875% - 2013 100,000 85,000
Asia Aluminum Holdings, 8.00% - 2011(4) 200,000 196,500
Bulong Operations, 12.50% - 2008*, (3, 5) 75,000 --
Noble Group, Ltd., 6.625% - 2015(4) 450,000 415,456
----------
1,711,956
----------
OIL FIELD SERVICES - 3.8%
Hanover Compressor Company,
9.00% - 2014 100,000 106,500
Key Energy Services, Inc.,
8.375% - 2008 200,000 207,000
Parker Drilling Company, 8.08% - 2010(2) 325,000 338,000
Petroleum Geo-Services:
8.00% - 2006 45,000 45,900
10.00% - 2010 300,000 336,000
Seitel, Inc., 11.75% - 2011 500,000 547,500
----------
1,580,900
----------
PACKAGING - 3.9%
Ball Corporation, 6.875% - 2012 $ 500,000 $ 525,000
Owens-Brockway Glass Containers,
7.75% - 2011 50,000 53,125
Owens-Illinois, Inc., 8.10% - 2007 675,000 702,000
Solo Cup Company, 8.50% - 2014 375,000 350,625
----------
1,630,750
----------
PAPER - 1.5%
Appleton Papers, Inc., 8.125% - 2011 200,000 195,000
Sino-Forest Corporation,
9.125% - 2011(4) 375,000 409,688
----------
604,688
----------
PHARMACEUTICALS - 0.5%
AmerisourceBergen Corporation,
8.125% - 2008 200,000 217,000
----------
PIPELINES - 1.3%
Northwest Pipelines Corporation,
8.125% - 2010 100,000 108,500
Sonat, Inc., 7.625% - 2011 450,000 453,375
----------
561,875
----------
REFINING - 0.7%
Citgo Petroleum Corporation,
6.00% - 2011 100,000 99,750
Frontier Oil Corporation,
6.625% - 2011 200,000 206,000
----------
305,750
----------
RETAILERS - 0.0%
Ames Department Stores, Inc.,
10.00% - 2006*, (3, 5) 200,000 --
----------
SERVICES - 0.5%
American Eco Corporation,
9.625% - 2008*, (3, 5) 125,000 --
MasTec, Inc., 7.75% - 2008 225,000 221,063
----------
221,063
----------
SUPERMARKETS - 0.5%
Fleming Companies, Inc.,
9.875% - 2012*, (3) 100,000 10
Roundy's, Inc., 8.875% - 2012 200,000 206,000
----------
206,010
----------
TECHNOLOGY - 2.4%
Telecordia Technologies,
10.00% - 2013(4) 500,000 467,500
Worldspan LP/WS Fin Corporation,
9.518% - 2011 (2, 4) 600,000 546,000
----------
1,013,500
----------
TELECOMMUNICATIONS - WIRELESS - 1.8%
Rural Cellular Corporation,
9.75% - 2010 825,000 767,250
----------
28 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments HIGH YIELD SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
COPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS - WIRELINES - 3.9%
Exodus Communications, Inc.,
11.625% - 2010*, (3, 5) $ 147,512 $ --
LCI International, Inc.,
7.25% - 2007 1,475,000 1,430,750
Qwest Corporation, 7.875% - 2011(4) 100,000 104,250
Valor Telecom Enterprise,
7.75% - 2015(4) 100,000 98,250
-----------
1,633,250
-----------
TEXTILE - 0.9%
Invista, 9.25% - 2012(4) 250,000 273,125
Levi Strauss & Company,
7.73% - 2012(2) 100,000 94,500
-----------
367,625
-----------
TOBACCO - 0.7%
R.J. Reynolds Tobacco Holdings,
7.30% - 2015(4) 300,000 300,000
-----------
TRANSPORTATION SERVICES - 2.8%
Greenbrier Companies, Inc.,
8.375% - 2015(4) 300,000 305,250
Overseas Shipholding Group, Inc.,
8.25% - 2013 500,000 522,500
Stena AB:
9.625% - 2012 75,000 81,750
7.50% - 2013 250,000 246,250
Teekay Shipping Corporation,
8.32% - 2008 9,000 9,113
-----------
1,164,863
-----------
TOTAL CORPORATE BONDS
(cost $36,997,236) 36,542,623
-----------
REPURCHASE AGREEMENT - 3.6%
United Missouri Bank, 2.80% - dated 06-30-05,
matures 07-01-05; repurchase amount of
$1,525,119 (Collateralized by FHLMC,
4.25%, 01-15-30 with a value of
$1,555,500) 1,525,000 1,525,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $1,525,000) 1,525,000
-----------
TOTAL INVESTMENTS - 97.8%
(cost $41,408,452) 41,016,901
CASH & OTHER ASSETS, LESS LIABILITIES - 2.2% 907,595
-----------
TOTAL NET ASSETS - 100.0% $41,924,496
===========
For federal income tax purposes, the identified cost of investments owned at
June 30, 2005 was $41,200,247.
* Non-income producing security
(1) Security is a step bond. Rate indicated is rate effective at June 30, 2005.
(2) Variable rate security. Rate indicated is rate effective at June 30, 2005.
(3) Security is in default. Security is also illiquid. The total market value
of illiquid securities is $10 (cost $609,259), or 0.0% of total net assets.
(4) Security is a 144A security. The total market value of 144A securities is
$7,269,281 (cost $7,261,385), or 17.3% of total net assets.
(5) Security is fair valued by the Board of Directors. The total market value
of fair valued securities amounts to $1,066, or 0.0% of total net assets.
29 See accompanying notes.
SECURITY INCOME FUND
HIGH YIELD SERIES
(unaudited)
Statement of Assets and Liabilities
June 30, 2005
ASSETS:
Investments, at value(1) ........................................ $41,016,901
Cash ............................................................ 9,252
Receivables:
Fund shares sold ............................................. 97,649
Securities sold .............................................. 110,316
Interest ..................................................... 781,056
Dividends .................................................... 6,100
Prepaid expenses ................................................ 25,385
-----------
Total assets .................................................... 42,046,659
-----------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 48,101
Management fees .............................................. 20,504
Custodian fees ............................................... 2,764
Transfer agent and administration fees ....................... 16,223
Professional fees ............................................ 5,919
12b-1distribution plan fees .................................. 28,470
Other ........................................................ 182
-----------
Total liabilities ............................................... 122,163
-----------
NET ASSETS ...................................................... $41,924,496
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $43,115,096
Accumulated undistributed net investment income ................. 105,954
Accumulated net realized loss on sale of investments ............ (905,003)
Net unrealized appreciation in value of investments ............. (391,551)
-----------
Net assets ...................................................... $41,924,496
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,721,494
Net assets ...................................................... $33,605,864
Net asset value and redemption price per share .................. $ 12.35
===========
Maximum offering price per share (net asset
value divided by 95.25%) ..................................... $ 12.97
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 501,878
Net assets ...................................................... $ 6,174,650
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 12.30
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 173,389
Net assets ...................................................... $ 2,143,982
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 12.37
===========
(1)Investments, at cost ......................................... $41,408,452
Statement of Operations
For the Six Months Ended June 30, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 32,787
Interest ..................................................... 1,664,251
-----------
Total investment income ...................................... 1,697,038
-----------
EXPENSES:
Management fees .............................................. 129,997
Custodian fees ............................................... 8,725
Transfer agent/maintenance fees .............................. 86,794
Administration fees .......................................... 24,875
Directors' fees .............................................. 1,248
Professional fees ............................................ 6,172
Reports to shareholders ...................................... 2,733
Registration fees ............................................ 19,479
Other expenses ............................................... 2,185
12b-1 distribution plan fees - Class A ....................... 42,215
12b-1 distribution plan fees - Class B ....................... 37,235
12b-1 distribution plan fees - Class C ....................... 10,567
-----------
Total expenses ............................................... 372,225
-----------
Net investment income ........................................ 1,324,813
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................................. 465,478
-----------
Net realized gain ............................................ 465,478
-----------
Net unrealized depreciation during the period on:
Investments .................................................. (1,790,482)
-----------
Net unrealized depreciation .................................. (1,790,482)
-----------
Net loss ..................................................... (1,325,004)
-----------
Net decrease in net assets resulting from operations ......... $ (191)
===========
30 See accompanying notes.
SECURITY INCOME FUND
Statement of Changes in Net Assets HIGH YIELD SERIES
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................................ $ 1,324,813 $ 2,300,611
Net realized gain during the period on investments ............... 465,478 727,249
Net unrealized appreciation (depreciation) during the period
on investments ................................................ (1,790,482) 1,079,012
----------- ------------
Net increase (decrease) in net assets resulting from operations .. (191) 4,106,872
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ....................................................... (1,059,209) (1,746,511)
Class B ....................................................... (201,033) (439,760)
Class C ....................................................... (57,722) (101,205)
Net realized gain
Class A ....................................................... -- (45,842)
Class B ....................................................... -- (15,118)
Class C ....................................................... -- (3,316)
----------- ------------
Total distributions to shareholders .............................. (1,317,964) (2,351,752)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ....................................................... 7,759,504 17,655,634
Class B ....................................................... 281,251 2,913,685
Class C ....................................................... 247,723 563,465
Distributions reinvested
Class A ....................................................... 1,040,317 1,756,690
Class B ....................................................... 188,527 424,041
Class C ....................................................... 43,683 79,970
Cost of shares redeemed
Class A ....................................................... (7,574,451) (13,124,177)
Class B ....................................................... (2,486,496) (3,568,699)
Class C ....................................................... (261,925) (408,828)
----------- ------------
Net increase from capital share transactions ..................... (761,867) 6,291,781
----------- ------------
Net increase (decrease) in net assets ............................ (2,080,022) 8,046,901
----------- ------------
NET ASSETS:
Beginning of period .............................................. 44,004,518 35,957,617
----------- ------------
End of period .................................................... $41,924,496 $ 44,004,518
=========== ============
Accumulated undistributed net investment income at end of
period ........................................................ $ 105,954 $ 99,105
=========== ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ....................................................... 622,696 1,440,453
Class B ....................................................... 22,608 238,674
Class C ....................................................... 19,907 45,679
Shares reinvested
Class A ....................................................... 83,898 143,599
Class B ....................................................... 15,240 34,790
Class C ....................................................... 3,517 6,527
Shares redeemed
Class A ....................................................... (613,980) (1,072,501)
Class B ....................................................... (202,623) (292,701)
Class C ....................................................... (21,002) (33,593)
31 See accompanying notes.
Financial Highlights SECURITY INCOME FUND
HIGH YIELD SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS A 2005(G) 2004 2003 2002 2001(F) 2000
- ------- -------------- ------- ------- ------ ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 12.70 $ 12.17 $ 10.66 $11.68 $12.14 $13.65
------- ------- ------- ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.39 0.73 0.70 0.81 1.06 1.10
Net gain (loss) on securities (realized and unrealized) (0.35) 0.55 1.54 (1.00) (0.47) (1.50)
------- ------- ------- ------ ------ ------
Total from investment operations 0.04 1.28 2.24 (0.19) 0.59 (0.40)
------- ------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income (0.39) (0.73) (0.73) (0.83) (1.05) (1.11)
Distributions from realized gains -- -- -- -- -- --
Return of Capital -- (0.02) -- -- -- --
------- ------- ------- ------ ------ ------
Total distributions (0.39) (0.75) (0.73) (0.83) (1.05) (1.11)
------- ------- ------- ------ ------ ------
Net asset value, end of period $ 12.35 $ 12.70 $ 12.17 $10.66 $11.68 $12.14
======= ======= ======= ====== ====== ======
TOTAL RETURN(A) 0.32% 10.96% 21.65% (1.66%) 4.93% (3.03%)
------- ------- ------- ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $33,606 $33,393 $25,777 $6,009 $5,919 $6,612
------- ------- ------- ------ ------ ------
Ratios to average net assets:
Net investment income (loss) 6.28% 6.05% 6.40% 7.31% 8.80% 8.62%
Total expenses 1.55% 1.48% 1.28% 1.48% 1.09% 0.79%
Gross expenses(b) 1.55% 1.48% 1.28% 1.48% 1.42% 1.39%
Net expenses(d) 1.55% 1.48% 1.27% 1.48% 1.09% 0.79%
------- ------- ------- ------ ------ ------
Portfolio turnover rate 77% 73% 61% 80% 65% 28%
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS B 2005(G) 2004 2003 2002 2001(F) 2000
- ------- -------------- ------ ------ ------ ------- ------------
PER SHARE DATA
Net asset value, beginning of period $12.66 $12.14 $10.63 $11.65 $12.11 $13.62
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.34 0.65 0.67 0.73 0.96 1.00
Net gain (loss) on securities (realized and unrealized) (0.36) 0.53 1.48 (1.01) (0.47) (1.50)
------ ------ ------ ------ ------ ------
Total from investment operations (0.02) 1.18 2.15 (0.28) 0.49 (0.50)
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.34) (0.64) (0.64) (0.74) (0.95) (1.01)
Distributions from realized gains -- -- -- -- -- --
Return of Capital -- (0.02) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (0.34) (0.66) (0.64) (0.74) (0.95) (1.01)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.30 $12.66 $12.14 $10.63 $11.65 $12.11
====== ====== ====== ====== ====== ======
TOTAL RETURN(A) (0.15%) 10.09% 20.82% (2.40%) 4.08% (3.77%)
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $6,175 $8,437 $8,324 $4,450 $4,231 $3,914
------ ------ ------ ------ ------ ------
Ratios to average net assets:
Net investment income (loss) 5.53% 5.31% 5.92% 6.56% 7.98% 7.77%
Total expenses 2.30% 2.22% 2.08% 2.23% 1.90% 1.51%
Gross expenses(b) 2.30% 2.22% 2.08% 2.23% 2.21% 1.84%
Net expenses(d) 2.30% 2.22% 2.08% 2.23% 1.90% 1.51%
------ ------ ------ ------ ------ ------
Portfolio turnover rate 77% 73% 61% 80% 65% 28%
------ ------ ------ ------ ------ ------
32 See accompanying notes.
Financial Highlights SECURITY INCOME FUND
HIGH YIELD SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED,
ENDED JUNE 30, DECEMBER 31,
CLASS C 2005(G) 2004 2003 2002 2001(F) 2000(E)
- ------- -------------- ------ ------ ------ ------- ------------
PER SHARE DATA
Net asset value, beginning of period $12.72 $12.19 $10.67 $11.69 $12.16 $12.90
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.34 0.65 0.66 0.73 0.81 0.62
Net gain (loss) on securities (realized and unrealized) (0.35) 0.54 1.50 (1.01) (0.33) (0.69)
------ ------ ------ ------ ------ ------
Total from investment operations (0.01) 1.19 2.16 (0.28) 0.48 (0.07)
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income (0.34) (0.64) (0.64) (0.74) (0.95) (0.67)
Distributions from realized gains -- -- -- -- -- --
Return of Capital -- (0.02) -- -- -- --
------ ------ ------ ------ ------ ------
Total distributions (0.34) (0.66) (0.64) (0.74) (0.95) (0.67)
------ ------ ------ ------ ------ ------
Net asset value, end of period $12.37 $12.72 $12.19 $10.67 $11.69 $12.16
====== ====== ====== ====== ====== ======
TOTAL RETURN(A) (0.07%) 10.12% 20.82% (2.39%) 4.04% (1.24%)
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,144 $2,174 $1,857 $ 520 $ 368 $ 50
------ ------ ------ ------ ------ ------
Ratios to average net assets:
Net investment income (loss) 5.53% 5.31% 5.85% 6.60% 7.60% 8.05%
Total expenses 2.30% 2.22% 2.08% 2.24% 2.11% 1.58%
Gross expenses(b) 2.30% 2.22% 2.08% 2.24% 2.25% 2.02%
Net expenses(d) 2.30% 2.22% 2.07% 2.24% 2.11% 1.58%
------ ------ ------ ------ ------ ------
Portfolio turnover rate 77% 73% 61% 80% 65% 39%
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charge paid at time of
redemption.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction to custodian expenses.
(e) Class C shares were initially offered for sale on May 1, 2000. Percentage
amounts for the period, except for total return, have been annualized.
(f) As required, effective January 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 December 31, 2001 was to decrease net investment
income per share by less than 1/2 of a cent, increase net realized and
unrealized gains and losses by less than 1/2 of a cent and increase the
ratio of net investment income to average net assets from 0.01% to 0.18%.
Per share, ratios and supplemental data for periods prior to January 1,
2001 have not been restated to reflect this change in presentation.
(g) Unaudited figures for the six months ended June 30, 2005. Percentage
amounts for the period, except total return, have been annualized.
33 See accompanying notes.
This page left blank intentionally.
34
SECURITY INCOME FUND
INCOME OPPORTUNITY SERIES
(FOUR CORNERS CAPITAL MANAGEMENT LOGO)
SUBADVISOR,
FOUR CORNERS CAPITAL MANAGEMENT, LLC
35
SECURITY INCOME FUND
Performance Summary INCOME OPPORTUNITY SERIES
August 15, 2005 (unaudited)
PERFORMANCE
INCOME OPPORTUNITY SERIES VS.
S&P/LSTA LEVERAGED LOAN INDEX
(PERFORMANCE GRAPH)
INCOME OPPORTUNITY
03/31/04 9,525.00
06/30/04 9,639.61
09/30/04 9,728.82
12/31/04 9,896.34
03/31/05 10,024.07
06/30/05 10,092.06
S & P/ LSTA LEVERAGED LOAN INDEX
INCOME OPPORTUNITY
DATE value
- ----------------- ---------
INCEPTION 3/31/04 10,000.00
6/30/04 10,123.40
9/30/04 10,213.76
12/31/04 10,352.26
03/31/05 10,494.72
06/30/05 10,562.98
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Income Opportunity
Series on March 31, 2004 (commencement of operations), and reflects deduction of
the 4.75% sales load. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or redemption of fund shares.
PORTFOLIO COMPOSITION BY QUALITY RATING (BASED ON STANDARD AND POOR'S RATINGS)
BB 40.26%
B 46.89
CCC 1.02
Not Rated 9.33
Temporary Cash Investments 4.70
Liabilities, less cash & other assets (2.20)
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 06-30-05 1 YEAR (3-31-04)
- ---------------------- ------ ---------------
A Shares (0.66%) 0.41%
B Shares (1.73%) 0.25%
C Shares 2.28% 3.45%
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years, and 1% for Class C shares. 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
applicable taxes were deducted. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
36 See accompanying notes.
SECURITY INCOME FUND
Performance Summary INCOME OPPORTUNITY SERIES
August 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, 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 Series expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Series 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, January 1, 2005 - June 30, 2005.
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 in the table provides information about
hypothetical account values and hypothetical expenses based on the Series actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Series 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 Series 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
01-01-05 06-30-05(1) PERIOD(2)
------------- ------------- -------------
Income Opportunity Series -
Class A
Actual $1,000.00 $1,019.80 $ 7.16
Hypothetical 1,000.00 1,017.65 7.15
Income Opportunity Series -
Class B
Actual 1,000.00 1,014.00 10.89
Hypothetical 1,000.00 1,014.18 10.89
Income Opportunity Series -
Class C
Actual 1,000.00 1,014.00 10.89
Hypothetical 1,000.00 1,014.18 10.89
(1) The actual ending account value is based on the actual total return of the
Series for the period January 1, 2005 to June 30, 2005 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period January 1, 2005 to June 30, 2005 was 1.98%, 1.40% and 1.40%, for
Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.42%, 2.18% and
2.18% for Class A, B and C class shares, respectively, net of any fee
waivers and expense reductions) multiplied by the average account value
over the period, multiplied by 181/365 (to reflect the one-half year
period).
37
SECURITY INCOME FUND
Schedule of Investments INCOME OPPORTUNITY SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
SENIOR FLOATING RATE INTERESTS(1) - 97.1%
AEROSPACE & DEFENSE - 4.1%
Alion Science & Technology, Term Loan B,
5.637% - 2009 $ 997,494 $ 997,494
Dyncorp International, Term Loan B,
6.063% - 2011 1,000,000 1,007,917
IAP Worldwide Services, Inc.,
Term Loan B, 9.313% - 2012 1,000,000 976,250
K & F Industries, Inc., Term Loan B,
5.771% - 2012 950,000 960,517
-----------
3,942,178
-----------
AUTOMOTIVE - 1.7%
Metokote Corporation, Term Loan,
8.00% - 2011 1,000,000 1,000,000
NFIL Holdings Corporation:
Term Loan, 4.624% - 2010 190,476 192,262
Term Loan B, 5.336% - 2010 484,786 489,331
-----------
1,681,593
-----------
BEVERAGE & TOBACCO - 0.9%
Constellation Brands, Inc., Term Loan B,
5.145% - 2011 830,833 838,103
-----------
BROADCAST RADIO & TELEVISION - 2.8%
DirecTV Holdings, LLC, 4.736% - 2011 666,667 668,611
Panamsat Corporation, Term Loan,
5.65% - 2011 992,470 1,007,026
Raycom Media, Inc., Term Loan B,
5.125% - 2012 1,000,000 1,005,000
-----------
2,680,637
-----------
BUILDING & DEVELOPMENT - 14.4%
AMS Holdings, Term Loan,
6.24% - 2012 997,500 1,002,488
Adams Outdoor Advertising, LP, Term Loan,
5.15% - 2012 1,033,127 1,045,181
Builders First Source, Term Loan B,
5.661% - 2010 400,000 402,500
CB Richard Ellis Services, Term Loan C,
5.354% - 2010 910,613 916,304
Custom Building Products, Term Loan,
5.74% - 2011 997,500 1,001,241
General Growth Properties, Term Loan B,
5.58% - 2008 995,262 1,002,153
Headwaters, Inc., Term Loan,
5.442% - 2011 691,676 696,575
Lake Las Vegas Resort, Term Loan,
6.752% - 2009 1,913,391 1,931,568
Macerich Company:
Term Loan, 4.89% - 2006 1,000,000 998,750
Term Loan B, 4.82% - 2010 1,000,000 997,500
Maguire Properties, Inc., Term Loan B,
4.90% - 2010(2) 922,222 926,833
Masonite International Corporation,
Term Loan, 7.00% - 2013 1,000,000 997,778
South Edge, LLC, Term Loan C,
5.563% - 2009 1,000,000 1,007,500
SunCal Companies, Term Loan,
6.26% - 2010 1,000,000 995,000
-----------
13,921,371
-----------
BUSINESS EQUIPMENT & SERVICES - 2.0%
Fidelity National Information Services,
Term Loan, 4.96% - 2011 $ 997,500 $ 990,331
Western Inventory Service, Ltd.:
Term Loan, 6.484% - 2011 459,813 461,537
Term Loan B, 6.437% - 2011 521,495 523,451
-----------
1,975,319
-----------
CABLE TELEVISION - 6.1%
Century Cable, Term Loan,
8.00% - 2009 1,000,000 987,857
Charter Operating, Term Loan,
6.19% - 2010 1,000,000 986,058
Mediacomm Group, LLC, Term Loan,
1.579% - 2012(3) 1,000,000 952,500
NTL Investment Holdings, Term Loan,
6.41% - 2012 1,000,000 1,002,917
UPC Financing Partnership/Distribution,
Term Loan F, 6.60% - 2011 1,000,000 1,003,906
Young Broadcasting, Inc.,
5.638% - 2012 1,000,000 1,008,333
-----------
5,941,571
-----------
CHEMICALS & PLASTICS - 2.1%
Brenntag, Term Loan, 5.88% - 2012 1,000,000 1,010,417
Celanese:
Term Loan B, 5.74% - 2012 807,078 817,671
Term Loan C, 0.75% - 2012(2) 191,607 192,885
-----------
2,020,973
-----------
CONTAINERS & GLASS PRODUCTS - 2.7%
Graham Packaging Company,
Term Loan B, 5.758% - 2011 995,000 1,008,059
Owens-Illinois Group, Inc.,
Term Loan C, 5.11% - 2008 589,114 592,060
Solo Cup, Term Loan B,
5.403% - 2011 987,500 995,153
-----------
2,595,272
-----------
DRUGS - 1.8%
Accredo Health, Inc., Term Loan B,
5.08% - 2011 923,333 923,333
Warner Chilcott, Term Loan,
6.49% - 2012 865,339 866,421
-----------
1,789,754
-----------
ECOLOGICAL SERVICES & EQUIPMENT - 2.5%
Duratek, Inc., Term Loan,
6.574% - 2009 735,397 734,938
Envirocare, Term Loan, 6.11% - 2010 954,546 958,920
Environmental Systems Products Holdings,
Term Loan, 6.665% - 2008 684,228 695,347
-----------
2,389,205
-----------
38 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments INCOME OPPORTUNITY SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
SENIOR FLOATING RATE INTERESTS(1) (CONTINUED)
ELECTRONIC/ELECTRIC - 3.1%
Memec Group Holdings, Ltd.,
Term Loan B, 11.189% - 2010 $1,000,000 $1,005,000
Monitronics International, Inc.,
Term Loan B, 6.894% - 2009 987,469 997,343
Penn Engineering & Manufacturing
Corporation, 5.97% - 2011 1,000,000 1,005,000
----------
3,007,343
----------
EQUIPMENT LEASING - 1.0%
United Rentals:
Term Loan, 5.57% - 2011 493,750 499,552
Term Loan B, 5.12% - 2011 500,000 505,875
----------
1,005,427
----------
FINANCIAL INTERMEDIARIES - 2.9%
LNR Property Corporation:
Term Loan, 7.71% - 2008 1,000,000 998,125
Term Loan B, 6.21% - 2008 979,970 981,545
Refco Group, LLC, Term Loan,
5.314% - 2011 805,000 806,811
----------
2,786,481
----------
FOOD PRODUCTS - 3.1%
Culligan Corporation, Term Loan B,
5.71% - 2011 1,000,000 1,009,583
Golden State Foods Corporation,
Term Loan B, 4.94% - 2011 990,000 998,662
Michael Foods, Inc., Term Loan,
6.59% - 2011 1,000,000 1,021,250
----------
3,029,495
----------
FOREST PRODUCTS - 0.3%
Boise Cascade, Term Loan B,
5.196% - 2011 327,945 331,862
----------
HEALTH CARE - 3.0%
Select Medical, Term Loan B,
5.042% - 2012 997,500 998,568
U.S. Oncology, Term Loan B,
6.144% - 2011 955,219 966,563
VWR International, Term Loan B,
5.65% - 2011 915,333 921,054
----------
2,886,185
----------
HOME FURNISHINGS - 1.1%
Prestige Brands, Inc., Term Loan B,
5.37% - 2011 1,041,310 1,050,856
----------
HOTELS, MOTELS, INNS & CASINOS - 8.6%
Boyd Gaming Corporation, Term Loan B,
4.935% - 2011 $ 990,000 $ 994,207
CNL Hotels & Resorts, Term Loan,
5.684% - 2006 291,111 291,111
Opbiz, LLC:
Term Loan, 6.10% - 2010 997,692 998,939
Term Loan B, 7.10% - 2010 2,346 2,349
Penn National Gaming,
0.25% - 2012 1,000,000 1,013,393
Pinnacle Entertainment, Term Loan,
6.33% - 2010 1,000,000 1,012,500
Resort International Holdings, LLC,
Term Loan, 5.83% - 2012(2) 981,791 993,573
Seminole Tribe of Florida, Term Loan,
5.375% - 2011 1,000,000 1,010,000
Venetian Casino Resort:
Term Loan, 0.75% - 2011(2) 170,940 172,009
Term Loan B, 4.81% - 2011 829,060 836,610
Wynn Las Vegas, Term Loan,
5.475% - 2011 1,000,000 1,005,938
----------
8,330,629
----------
INDUSTRIAL EQUIPMENT - 2.1%
Invensys plc, Term Loan B,
6.881% - 2009 980,666 995,376
Rexnord Corporation, Term Loan B,
5.543% - 2011 1,000,000 1,007,083
----------
2,002,459
----------
INSURANCE - 1.0%
Conseco, Term Loan, 6.83% - 2010 958,901 967,691
----------
LEISURE - 3.1%
Metro-Goldwyn-Mayer Studios, Inc.,
5.74% - 2012 1,000,000 1,002,875
Regal Cinemas Corporation,
Term Loan B, 5.24% - 2010 957,501 965,081
WMG Acquisition Corporation,
Term Loan, 5.327% - 2011 987,095 992,647
----------
2,960,603
----------
NONFERROUS METALS & MINERALS - 2.1%
Carmeuse Lime, Inc., Term Loan,
5.125% - 2011 1,000,000 1,005,000
FRC-WPP, Term Loan, 7.08% - 2010 997,500 995,006
----------
2,000,006
----------
39 See accompanying notes.
SECURITY INCOME FUND
Schedule of Investments INCOME OPPORTUNITY SERIES
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
SENIOR FLOATING RATE INTERESTS(1) (CONTINUED)
OIL & GAS - 9.5%
ATP Oil & Gas, Term Loan,
8.693% - 2010 $ 997,500 $1,007,475
Alon USA, Inc., Term Loan B,
10.00% - 2008 1,000,000 1,025,000
El Paso, Term Loan, 5.62% - 2009 1,003,445 1,008,462
Ferrell Companies, Inc., Term Loan,
6.918% - 2011 995,000 1,014,900
Hawkeye Energy, Term Loan,
6.005% - 2012 1,000,000 960,000
Kerr McGee:
Term Loan B, 5.79% - 2011 1,000,000 1,014,722
Term Loan X, 5.55% - 2007 1,000,000 1,005,750
Semcrude LP, Term Loan,
6.035% - 2011 1,151,346 1,159,262
U.S. Shipping, Term Loan B,
4.387% - 2010(3) 991,346 999,401
----------
9,194,972
----------
PUBLISHING - 1.9%
RH Donnelley, Inc., Term Loan D,
5.145% - 2011 869,622 877,503
Transwestern Publishing Company,
Term Loan B, 5.476% - 2012 986,963 989,123
----------
1,866,626
----------
RETAILERS - 2.0%
Jean Coutu Group, Inc., Term Loan,
5.50% - 2010 992,500 1,006,147
Jostens, Inc., Term Loan B,
5.39% - 2011 970,000 982,933
----------
1,989,080
----------
SURFACE TRANSPORTATION - 1.0%
Horizon Lines Holding Corporation,
Term Loan, 5.99% - 2011 990,000 1,001,550
----------
TELECOMMUNICATIONS & CELLULAR COMMUNICATIONS - 3.1%
American Tower, Term Loan,
5.315% - 2011 1,000,000 1,002,500
MetroPCS Wireless, Inc., Term Loan,
7.688% - 2011 1,000,000 1,025,000
Telcordia Technologies, Inc., Term Loan,
6.07% - 2012 1,000,000 982,500
----------
3,010,000
----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
SENIOR FLOATING RATE INTERESTS(1) (CONTINUED)
UTILITIES - 7.1%
Covanta Energy:
Pre LC, 6.36% - 2012(2) $ 552,846 $ 556,992
Term Loan, 6.46% - 2012(2) $ 447,154 450,508
KGEN, LLC:
Term Loan, 6.115% - 2011 $ 997,500 977,550
Term Loan B, 12.49% - 2011 $1,017,090 945,894
NRG Energy, Inc., Term Loan,
4.803% - 2011 $ 997,188 1,004,043
Riverside Rocky Mountain Project,
Term Loan, 7.416% - 2011 $ 973,400 992,868
Texas Genco, Term Loan,
5.408% - 2011(3) $ 995,731 1,009,007
Vulcan Energy, Term Loan,
5.33% - 2010 $ 898,343 906,765
-----------
6,843,627
-----------
TOTAL SENIOR FLOATING RATE INTEREST
(cost $93,685,395) 94,040,868
-----------
CORPORATE BONDS - 0.4%
HEALTH CARE - 0.4%
Elan Finance plc, 7.268% - 2011 $ 500,000 430,000
-----------
TOTAL CORPORATE BONDS
(cost $434,889) 430,000
-----------
TEMPORARY CASH INVESTMENTS - 4.7%
State Street GA Money Market Fund 4,550,000 4,550,000
-----------
TOTAL TEMPORARY CASH INVESTMENTS
(cost $4,550,000) 4,550,000
-----------
TOTAL INVESTMENTS - 102.2%
(cost $98,670,284) 99,020,868
LIABILITIES, LESS CASH & OTHER ASSETS - (2.2%) (2,131,598)
-----------
TOTAL NET ASSETS - 100.0% $96,889,270
===========
For federal income tax purposes the identified cost of investments owned at June
30, 2005 was $98,752,433.
plc (public limited company)
LP (Limited Partnership)
(1) Senior loans in which the Series invests generally pay interest rates which
are periodically adjusted by reference to a base short-term, floating
lending rate plus a premium. These base lending rates are generally (I) the
lending rate offered by one or more European banks, such as the London
Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more
major United States banks, or (iii) the bank's certificate of deposit rate.
Senior floating rate interest often require prepayments from excess cash
flows or permit the borrower to repay at its election. The rate at which
the borrower repays cannot be predicted with accuracy. As a result, the
actual remaining maturity may be substantially less than the stated
maturities shown. The interest rate indicated is the rate in effect at June
30, 2005.
(2) Purchased on a delayed delivery basis.
(3) Portion purchased on a delayed delivery basis.
40 See accompanying notes.
SECURITY INCOME FUND
INCOME OPPORTUNITY SERIES
(unaudited)
Statement of Assets and Liabilities
June 30, 2005
ASSETS:
Investments, at value(1) ....................................... $ 99,020,868
Cash ........................................................... 1,193,902
Receivables:
Fund shares sold ............................................ 130,853
Interest .................................................... 564,182
Prepaid expenses ............................................... 39,350
------------
Total assets ................................................... 100,949,155
------------
LIABILITIES:
Payable for:
Securities purchased ........................................ 3,356,516
Fund shares redeemed ........................................ 318,301
Dividends payable to shareholders ........................... 40,882
Management fees ............................................. 63,803
Custodian fees .............................................. 1,334
Transfer agent and administration fees ...................... 19,791
Professional fees ........................................... 12,095
12b-1distribution plan fees ................................. 247,163
------------
Total liabilities .............................................. 4,059,885
------------
NET ASSETS ..................................................... $ 96,889,270
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $ 96,584,432
Accumulated net investment loss ................................ (73,725)
Accumulated undistributed net realized gain on sale of
investments ................................................. 27,979
Net unrealized appreciation in value of investments ............ 350,584
------------
Net assets ..................................................... $ 96,889,270
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 4,266,085
Net assets ..................................................... $ 43,118,725
Net asset value and redemption price per share ................. $ 10.11
============
Maximum offering price per share (net asset value divided
by 95.25%) .................................................. $ 10.61
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 1,958,380
Net assets ..................................................... $ 19,763,803
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred
sales charge) ............................................... $ 10.09
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 3,369,527
Net assets ..................................................... $ 34,006,742
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred
sales charge) ............................................... $ 10.09
============
(1)Investments, at cost ........................................ $ 98,670,284
Statement of Operations
For the Six Months Ended June 30, 2005
INVESTMENT INCOME:
Interest .................................................... $ 2,386,754
------------
Total investment income ..................................... 2,386,754
------------
EXPENSES:
Management fees ............................................. 353,368
Custodian fees .............................................. 20,042
Transfer agent/maintenance fees ............................. 18,703
Administration fees ......................................... 66,148
Directors' fees ............................................. 2,067
Professional fees ........................................... 30,421
Reports to shareholders ..................................... 4,735
Registration fees ........................................... 23,446
Other expenses .............................................. 3,061
12b-1 distribution plan fees - Class A ...................... 45,468
12b-1 distribution plan fees - Class B ...................... 95,370
12b-1 distribution plan fees - Class C ...................... 164,469
------------
Total expenses .............................................. 827,298
Less: Earnings credits ...................................... (1,834)
------------
Net expenses ................................................ 825,464
------------
Net investment income ....................................... 1,561,290
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ................................................. 12,993
------------
Net realized gain ........................................... 12,993
------------
Net unrealized depreciation during the period on:
Investments ................................................. (200,081)
------------
Net unrealized depreciation ................................. (200,081)
------------
Net loss ....................................................... (187,088)
------------
Net increase in net assets
resulting from operations ................................... $ 1,374,202
============
41 See accompanying notes.
SECURITY INCOME FUND
Statement of Changes in Net Assets INCOME OPPORTUNITY SERIES
SIX MONTHS ENDED
JUNE 30, 2005 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2004*
---------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .................................. $ 1,561,290 $ 1,144,740
Net realized gain during the period on investments ..... 12,993 221,601
Net unrealized appreciation (depreciation) during the
period on investments ............................... (200,081) 550,665
----------- -----------
Net increase in net assets resulting from operations ... 1,374,202 1,917,006
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................................. (731,078) (511,754)
Class B ............................................. (304,162) (328,607)
Class C ............................................. (526,008) (389,058)
Net realized gain
Class A ............................................. -- (70,515)
Class B ............................................. -- (47,426)
Class C ............................................. -- (77,762)
----------- -----------
Total distributions to shareholders .................... (1,561,248) (1,425,122)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ............................................. 19,622,077 28,706,725
Class B ............................................. 987,706 18,069,896
Class C ............................................. 7,503,163 30,187,185
Distributions reinvested
Class A ............................................. 617,880 571,331
Class B ............................................. 295,875 373,344
Class C ............................................. 475,163 446,038
Cost of shares redeemed
Class A ............................................. (4,659,178) (1,805,320)
Class B ............................................. (97,934) (11,420)
Class C ............................................. (4,208,906) (489,193)
----------- -----------
Net increase from capital share transactions ........... 20,535,846 76,048,586
----------- -----------
Net increase in net assets ............................. 20,348,800 76,540,470
----------- -----------
NET ASSETS:
Beginning of period .................................... 76,540,470 --
----------- -----------
End of period .......................................... $96,889,270 $76,540,470
=========== ===========
Accumulated undistributed net investment loss at end of
period ................................................. $ (73,725) $ (73,767)
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ............................................. 1,936,877 2,857,806
Class B ............................................. 97,550 1,805,380
Class C ............................................. 742,026 3,001,202
Shares reinvested
Class A ............................................. 61,122 56,594
Class B ............................................. 29,292 36,994
Class C ............................................. 47,043 44,186
Shares redeemed
Class A ............................................. (467,549) (178,765)
Class B ............................................. (9,707) (1,129)
Class C ............................................. (416,597) (48,333)
* For the period February 11, 2004 (date of inception) to December 31, 2004.
42 See accompanying notes.
SECURITY INCOME FUND
Statement of Cash Flows INCOME OPPORTUNITY SERIES
For the Six Months Ended June 30, 2005
SIX MONTHS ENDED
JUNE 30, 2005
(UNAUDITED)
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: ....... $ 1,374,202
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH USED IN
OPERATING ACTIVITIES:
Realized and unrealized loss on investments .............. 187,088
Amortization of discount/premium ......................... (8,510)
Proceeds from disposition of investment securities ....... 52,803,442
Purchase of investment securities ........................ (72,357,949)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in interest receivable and prepaid expenses ..... (267,591)
Increase in accrued expenses and other liabilities ....... 131,036
------------
Net cash used in operating activities ....................... (18,138,282)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares sold ................................ 28,118,033
Payments on shares redeemed .............................. (8,847,789)
Dividends paid in cash(a) ................................ (138,546)
------------
Net cash provided by financing activities ................... 19,131,698
------------
NET INCREASE IN CASH ........................................ 993,416
Cash at the beginning of the period ......................... 200,486
------------
CASH AT THE END OF THE PERIOD ............................... $ 1,193,902
============
(a) Non-cash financing activities not included herein consists of reinvestment
of dividends of $1,388,918.
43 See accompanying notes.
SECURITY INCOME FUND
Financial Highlights INCOME OPPORTUNITY SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
CLASS A 2005(F) 2004(E)
- ------- -------------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 10.11 $ 10.04
------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.19 0.22
Net gain (loss) on securities (realized
and unrealized) 0.01 0.13
------- -------
Total from investment operations 0.20 0.35
------- -------
Less distributions:
Dividends from net investment income (0.20) (0.25)
Distributions from realized gains -- (0.03)
------- -------
Total distributions (0.20) (0.28)
------- -------
Net asset value, end of period $ 10.11 $ 10.11
======= =======
TOTAL RETURN(A) 1.98% 3.46%
------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $43,119 $27,646
------- -------
Ratios to average net assets:
Net investment income (loss) 4.01% 2.92%
Total expenses 1.43% 1.43%
Gross expenses(b) 1.43% 1.43%
Net expenses(d) 1.42% 1.42%
------- -------
Portfolio turnover rate 66% 146%
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
CLASS B 2005(F) 2004(E)
- ------- -------------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 10.11 $ 10.04
------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.16 0.17
Net gain (loss) on securities (realized and
unrealized) (0.02) 0.12
------- -------
Total from investment operations 0.14 0.29
------- -------
Less distributions:
Dividends from net investment income (0.16) (0.19)
Distributions from realized gains -- (0.03)
------- -------
Total distributions (0.16) (0.22)
------- -------
Net asset value, end of period $ 10.09 $ 10.11
======= =======
TOTAL RETURN(A) 1.40% 2.87%
------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $19,764 $18,606
------- -------
Ratios to average net assets:
Net investment income (loss) 3.19% 2.20%
Total expenses 2.18% 2.17%
Gross expenses(b) 2.18% 2.17%
Net expenses(d) 2.18% 2.17%
------- -------
Portfolio turnover rate 67% 146%
44 See accompanying notes.
SECURITY INCOME FUND
Financial Highlights INCOME OPPORTUNITY SERIES
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
CLASS C 2005(F) 2004(E)
- ------- -------------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 10.11 $ 10.04
------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.16 0.16
Net gain (loss) on securities (realized
and unrealized) (0.02) 0.13
------- -------
Total from investment operations 0.14 0.29
------- -------
Less distributions:
Dividends from net investment income (0.16) (0.19)
Distributions from realized gains -- (0.03)
------- -------
Total distributions (0.16) (0.22)
------- -------
Net asset value, end of period $ 10.09 $ 10.11
======= =======
TOTAL RETURN(A) 1.40% 2.88%
------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $34,007 $30,288
------- -------
Ratios to average net assets:
Net investment income (loss) 3.19% 2.17%
Total expenses 2.18% 2.17%
Gross expenses(b) 2.18% 2.17%
Net expenses(d) 2.18% 2.17%
------- -------
Portfolio turnover rate 66% 146%
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charge paid at time of
redemption.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction to custodian expenses.
(e) The Income Opportunity Series was initially capitalized on February 11,
2004 with a net asset value of $10.00 per share. The Series commenced
operations on March 31, 2004 with a net asset value of $10.04. Percentage
amounts for the period have been annualized, except for total return.
(f) Unaudited figures for the six months ended June 30, 2005. Percentage
amounts for the period, except total return have been annualized.
45 See accompanying notes.
This page left blank intentionally.
46
SECURITY CASH FUND
(SECURITY FUNDS LOGO)
ADVISOR,
SECURITY MANAGEMENT COMPANY, LLC
47
Performance Summary SECURITY CASH FUND
August 15, 2005 (unaudited)
PERFORMANCE
PORTFOLIO COMPOSITION BY QUALITY RATINGS (BASED ON STANDARD AND POOR'S RATINGS)
AAA 14.42%
AA 21.27
A 64.06
Cash & other assets, less liabilities 0.25
AVERAGE ANNUAL RETURNS
YEARS ENDED 06-30-05 1 YEAR 5 YEARS 10 YEARS
- -------------------- ------ ------- --------
1.25% 1.68% 3.21%
The performance data above represents past performance which is not predictive
of future results. 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 applicable taxes were deducted. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Fee
waivers and/or reimbursements reduced fund expenses and in the absence of such
waivers, the performance quoted would be reduced.
48 See accompanying notes.
Performance Summary SECURITY CASH FUND
August 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
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, January 1, 2005 -June 30, 2005.
ACTUAL EXPENSES
The first line 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 in 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. 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
01-01-05 06-30-05(1) PERIOD(2)
------------- ------------- -------------
Security Cash Fund
Actual $1,000.00 $1,009.00 $4.98
Hypothetical 1,000.00 1,019.78 5.01
(1) The actual ending account value is based on the actual total return of the
Fund for the period January 1, 2005 to June 30, 2005 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
January 1, 2005 to June 30, 2005 was 0.90%.
(2) Expenses are equal to the Fund's annualized expense ratio 1.00% (net of fee
waivers and expense reductions) multiplied by the average account value
over the period, multiplied by 181/365 (to reflect the one-half year
period).
49
Schedule of Investments SECURITY CASH FUND
June 30, 2005 (unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CERTIFICATE OF DEPOSIT - DOMESTIC - 3.1%
HSBC Bank USA, 3.17%, 08-09-05 $1,300,000 $ 1,299,983
-----------
TOTAL CERTIFICATE OF DEPOSIT
(cost $1,299,983) 1,299,983
-----------
COMMERCIAL PAPER - 19.9%
BANKING - 6.9%
ING (US) Funding LLC,
3.33%, 09-01-05 1,000,000 994,265
UBS Finance (DE), Inc.,
3.09%, 07-13-05 1,925,000 1,923,017
-----------
2,917,282
-----------
BROKERAGE - 5.2%
Credit Suisse First Boston,
3.18%, 08-08-05 2,200,000 2,192,615
-----------
HOME CONSTRUCTION - 2.8%
Sherwin-Williams Company,
3.05%, 07-11-05 1,200,000 1,198,983
-----------
NON U.S. BANKING - 5.0%
Bank Of Ireland, 3.05%, 07-06-05 2,100,000 2,099,110
-----------
TOTAL COMMERCIAL PAPER
(cost $8,407,990) 8,407,990
-----------
ASSET BACKED COMMERCIAL PAPER - 32.3%
DIVERSIFIED - 6.3%
Amstel Funding Corporation,
3.10%, 07-15-05 1,671,000 1,668,986
Govco, Inc., 3.13%, 07-25-05 1,000,000 997,913
-----------
2,666,899
-----------
FINANCIAL COMPANIES - CAPTIVE - 5.2%
Edison Asset Securitization,
3.05%, 07-06-05 2,200,000 2,199,068
-----------
MISCELLANEOUS RECEIVABLES - 2.4%
Jupiter Securitization Corporation,
3.20%, 08-05-05 1,000,000 996,889
-----------
SECURITIES - 11.1%
Asset One Securitization,
3.20%, 07-27-05 1,400,000 1,396,764
Galaxy Funding, Inc.,
3.07%, 07-08-05 1,800,000 1,798,925
Perry Global Funding LLC,
3.22%, 08-15-05 1,500,000 1,493,963
-----------
4,689,652
-----------
TRADE RECEIVABLES - 7.3%
Eureka Securitization,
3.03%, 07-01-05 1,000,000 1,000,000
Old Line Funding Corporation,
3.06%, 07-07-05 2,100,000 2,098,929
-----------
3,098,929
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $13,651,437) 13,651,437
-----------
CORPORATE BONDS - 29.2%
AUTOMOTIVE - 3.8%
Toyota Motor Credit Corporation,
3.33%, 07-19-05(1) $1,610,000 $ 1,610,098
-----------
BANKING - 5.7%
Wells Fargo & Company,
3.51%, 09-29-05(1) 2,400,000 2,400,458
-----------
BROKERAGE - 10.4%
Lehman Brothers Holdings, Inc.:
3.639%, 07-01-05(1) 1,000,000 1,000,474
3.978%, 09-28-05(1) 1,000,000 1,001,234
Merrill Lynch & Company,
3.739%, 09-21-05(1) 2,400,000 2,401,788
-----------
4,403,496
-----------
FINANCIAL COMPANIES - CAPTIVE - 5.2%
International Lease Finance Corporation,
4.441%, 07-15-05(1) 2,200,000 2,200,970
-----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 4.1%
CIT Group, Inc., 3.62%, 07-29-05 1,750,000 1,750,522
-----------
TOTAL CORPORATE BONDS
(cost $12,365,544) 12,365,544
-----------
MISCELLANEOUS ASSETS - 4.7%
FUNDING AGREEMENTS - 4.7%
United of Omaha Life Insurance Company,
3.161%, 07-01-05(1) 2,000,000 2,000,000
-----------
TOTAL MISCELLANEOUS ASSETS
(cost $2,000,000) 2,000,000
-----------
U.S. GOVERNMENT SPONSORED AGENCIES - 10.6%
FEDERAL HOME LOAN BANK - 4.7%
3.00%, 01-18-06 1,000,000 999,950
3.25%, 02-28-06 1,000,000 999,950
-----------
1,999,900
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.5%
3.297%, 07-07-05(1) 1,500,000 1,500,478
-----------
SMALL BUSINESS ASSOCATION POOLS - 2.0%
#503295, 3.25%, 07-01-05(1) 144,178 144,268
#503303, 3.25%, 07-01-05(1) 111,011 111,081
#502398, 3.375%, 07-01-05(1) 44,856 45,023
#503152, 3.375%, 07-01-05(1) 185,883 185,883
#503265, 3.50%, 07-01-05(1) 140,858 140,506
#501927, 4.25%, 07-01-05(1) 198,533 200,406
-----------
827,167
-----------
STUDENT LOAN MARKETING ASSOCIATION - 0.4%
1997-4 A2, 3.844%, 07-06-05(1) 162,350 162,714
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $4,490,259) 4,490,259
-----------
TOTAL INVESTMENTS - 99.8%
(cost $42,215,213) 42,215,213
CASH & OTHER ASSETS, LESS LIABILITIES - 0.2% 107,061
-----------
TOTAL NET ASSETS - 100.0% $42,322,274
===========
50 See accompanying notes.
Schedule of Investments SECURITY CASH FUND
June 30, 2005 (unaudited)
The cost of investments owned at June 30, 2005 was the same for federal income
tax and financial statement purposes.
(1) Variable rate security. Rate indicated is rate effective at June 30, 2005.
Maturity date indicated is next interest reset date.
51 See accompanying notes.
SECURITY CASH FUND
(unaudited)
Statement of Assets and Liabilities
June 30, 2005
ASSETS:
Investments, at value(1) ........................................ $42,215,213
Cash ............................................................ 103,378
Receivables:
Fund shares sold ............................................. 90,154
Securities sold .............................................. 21,116
Interest ..................................................... 90,491
Prepaid expenses ................................................ 66,185
-----------
Total assets .................................................... 42,586,537
-----------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 204,772
Management fees .............................................. 18,202
Custodian fees ............................................... 1,898
Transfer agent and administration fees ....................... 31,954
Professional fees ............................................ 5,648
Other ........................................................ 1,789
-----------
Total liabilities ............................................... 264,263
-----------
NET ASSETS ...................................................... $42,322,274
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $42,322,274
-----------
Net assets ...................................................... $42,322,274
===========
Capital shares outstanding
(unlimited number of shares authorized) ...................... 42,322,274
Net asset value per share ....................................... $ 1.00
===========
(1)Investments, at cost ......................................... $42,215,213
Statement of Operations
For the Six Months Ended June 30, 2005
INVESTMENT INCOME:
Interest ........................................................ $671,587
--------
Total investment income ......................................... 671,587
--------
EXPENSES:
Management fees ................................................. 120,227
Custodian fees .................................................. 4,642
Transfer agent/maintenance fees ................................. 125,803
Administration fees ............................................. 23,163
Directors' fees ................................................. 12,575
Professional fees ............................................... 8,771
Reports to shareholders ......................................... 3,957
Registration fees ............................................... 22,370
Other expenses .................................................. 6,631
--------
Total expenses .................................................. 328,139
Less: Reimbursement of expenses ................................. (87,684)
--------
Net expenses .................................................... 240,455
--------
Net investment income ........................................... 431,132
--------
Net increase in net assets
resulting from operations .................................... $431,132
========
52 See accompanying notes.
Statement of Changes in Net Assets SECURITY CASH FUND
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER
(UNAUDITED) 31, 2004
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ......................... $ 431,132 $ 206,152
------------ ------------
Net increase in net assets resulting from
operations ................................. 431,132 206,152
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ......................... (431,132) (206,152)
------------ ------------
Total distributions to shareholders ........... (431,132) (206,152)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................. 25,465,963 68,153,759
Distributions reinvested ...................... 416,315 203,276
Cost of shares redeemed ....................... (32,958,025) (78,522,212)
------------ ------------
Net decrease from capital share transactions .. (7,075,747) (10,165,177)
------------ ------------
Net decrease in net assets .................... (7,075,747) (10,165,177)
------------ ------------
NET ASSETS:
Beginning of period ........................... 49,398,021 59,563,198
------------ ------------
End of period ................................. $ 42,322,274 $ 49,398,021
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ................................... 25,465,963 68,153,759
Shares reinvested ............................. 416,315 203,276
Shares redeemed ............................... (32,958,025) (78,522,212)
------------ ------------
Total capital share activity .................. (7,075,747) (10,165,177)
============ ============
53 See accompanying notes.
Financial Highlights SECURITY CASH FUND
Selected data for each share of capital stock outstanding throughout each period
SIX MONTHS
ENDED YEAR ENDED,
JUNE 30, DECEMBER 31,
CLASS A 2005(F) 2004 2003 2002 2001 2000
- ------- ---------- ------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.01 -- -- 0.01 0.03 0.05
Net gain (loss) on securities (realized
and unrealized) -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total from investment operations 0.01 -- -- 0.01 0.03 0.05
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.01) --(e) --(e) (0.01) (0.03) (0.05)
Distributions from realized gains -- -- -- -- -- --
Total distributions (0.01) -- -- (0.01) (0.03) (0.05)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN(A) 0.90% 0.40% 0.20% 0.85% 3.20% 5.56%
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $42,322 $49,398 $59,563 $69,679 $67,638 $62,472
------- ------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 1.79% 0.40% 0.21% 0.84% 3.08% 5.48%
Total expenses 1.00% 0.99% 1.00% 1.00% 1.00% 0.98%
Gross expenses(b) 1.37% 1.26% 1.14% 1.07% 1.01% 0.98%
Net expenses(d) 1.00% 0.99% 1.00% 1.00% 1.00% 0.98%
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charge paid at time of
redemption.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction to custodian expenses.
(e) Dividends from net investment income were less than $0.01 per share.
(f) Unaudited figures for the six months ended June 30, 2005. Percentage
amounts for the period, except total return, have been annualized.
54 See accompanying notes.
Notes to Financial Statements
June 30, 2005 (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Municipal Bond Fund and Security Cash Fund
(the Funds) are registered under the Investment Company Act of 1940, as amended,
as diversified open-end management investment companies. The shares of Security
Income Fund are currently issued in multiple series, with each series, in
effect, representing a separate fund. The Security Income Fund and Security
Municipal Bond Fund offer different classes and, therefore, are required to
account for each class separately and to allocate general expenses to each class
based on the net asset value of each series. 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 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 Security Income and Security
Municipal Bond Funds' securities are supplied by pricing services approved by
the Board of Directors. The Funds' officers, under the general supervision of
the Board of Directors, regularly review procedures used by, and valuations
provided by, the pricing services. Each security owned by 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, which may not necessarily represent
the last sale price. If there has been no sale on such exchange or Nasdaq on
such day, the security is valued at the closing bid price on such day.
Securities for which market quotations are not readily available are valued by a
pricing service considering securities with similar yields, quality, type of
issue, coupon, duration and rating. If there is no bid price or if the bid price
is deemed to be unsatisfactory by the Board of Directors or by the Funds'
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. If events
occur that will affect the value of a fund's portfolio securities before the NAV
has been calculated (a "significant event"), the security will generally be
priced using a fair value procedure. If 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 senior floating rate interests (loans) in which the Income Opportunity
Series invests are not listed on any securities exchange or board of trade.
Accordingly, determinations of the value of loans may be based on infrequent and
dated trades. Typically loans are valued using information provided by an
independent third party pricing service. If the pricing service cannot or does
not provide a valuation for a particular loan or such valuation is deemed
unreliable, such loan is fair valued. In determining fair value, consideration
is given to several factors, which may include, among others, one or more of the
following: the fundamental business data relating to the issuer or borrower; an
evaluation of the forces which influence the market in which these loans are
purchased and sold; type of holding; financial statements of the borrower; cost
at date of purchase; size of holding; credit worthiness and cash flow of issuer;
information as to any transactions in, or offers for, the holding; price and
extent of public trading in similar securities (or equity securities) of the
issuer/borrower, or comparable companies; coupon payments; quality, value and
saleability of collateral securing the loan; business prospects of the
issuer/borrower, including any ability to obtain money or resources from a
parent or affiliate; the portfolio manager's and/or the market's assessment of
the borrower's management; prospects for the borrower's industry, and multiples
(of earnings and/or cash flow) being paid for similar businesses in that
industry; borrower's competitive position within the industry; borrower's
ability to access additional liquidity through public and/or private markets;
and other relevant factors.
Security Cash Fund, by approval of the Board of Directors, utilizes the
amortized cost method for valuing portfolio securities, whereby all investments
are valued by reference to their acquisition cost as adjusted for amortization
of premiums or accretion of discounts, which approximates market value.
B. REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, it is the Funds' policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds 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. SENIOR FLOATING RATE INTERESTS - Senior secured corporate loans pay
interest at rates which are periodically reset by reference to a base lending
rate plus a spread. These base lending rates are generally the prime rate
offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR)
or the prime
55
Notes to Financial Statements
June 30, 2005 (unaudited)
rate offered by one or more major United States banks.
D. OPTIONS - Diversified Income Series, and Income Opportunity Series High
Yield Series 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, respectively (and the writer, the obligation to
sell or purchase) a security at a specified price, until a certain date. The
primary risks associated with the use of options are an imperfect correlation
between the change in market value of the securities held by these 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 cash premiums received for a written option are 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.
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Trade date for senior and subordinated loans purchased in the "primary market"
is considered the date on which the loan allocations are determined. Trade date
for senior and subordinated loans purchased in the "secondary market" is the
date on which the transaction is entered into. Realized gains and losses are
reported on an identified cost basis. Interest income is recognized on the
accrual basis, including the amortization of premiums and accretion of discounts
on debt securities. Interest income also includes pay-down gains and losses on
senior and subordinated loans. Each class of shares participates in investment
income, fund-level expenses and realized and unrealized gains and losses based
on the total net asset value of its shares in proportion to the total net assets
of the Fund.
F. SECURITIES PURCHASED ON A WHEN-ISSUED DELAYED DELIVERY BASIS - The Funds
may purchase and sell interests in securities on a when-issued and delayed
delivery basis, with payment and delivery scheduled for a future date. No income
accrues on such interests or securities in connection with such transactions
prior to the date the Series actually takes delivery of such interests or
securities. These transactions are subject to market fluctuations and are
subject to the risk that the value at delivery may be more or less than the
trade date purchase price. Although the Series will generally purchase these
securities with the intention of acquiring such securities, they may sell such
securities before the settlement date.
G. 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 or Series are allocated to each respective
class in proportion to the relative net assets of each class.
H. 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.
I. TAXES - The Funds intend to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute 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.
J. EARNINGS CREDITS - Under the fee schedule with the custodian, the Funds
can earn credits based on overnight custody cash balances. These credits can be
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.
K. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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. INDEMNIFICATIONS - Under the Funds' 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) as
follows:
MANAGEMENT
FEES (AS A %
OF NET ASSETS)
--------------
Security Municipal Bond Fund 0.50%
Security Income Fund:
Diversified Income Series 0.35%
High Yield Series 0.60%
Income Opportunity Series 0.80%(1)
Security Cash Fund 0.50%
(1) Management fees are payable at the rate of 0.80% of the average daily net
assets of $200 million or less, plus an additional 0.70% of the average
daily net assets of more than $200 million.
56
Notes to Financial Statements
June 30, 2005 (unaudited)
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 Municipal Bond Fund 0.09%
Security Income Fund:
Diversified Income Series 0.09%
High Yield Series 0.09%
Income Opportunity Series 0.145%
Security Cash Fund 0.09%
* The minimum annual charge for administrative fees is $25,000.
SMC is paid the following for providing transfer agent services to the
Funds:
Per account charge $5.00 - $8.00
Transaction fee $0.60 - $1.10
Minimum charge per fund $25,000
Reimbursement of certain
out-of-pocket charges Varies
SMC pays Salomon Brothers Asset Management, Inc. an annual fee equal to
..22% of the average daily net assets of Security Municipal Bond Fund for
management services provided to the fund.
SMC pays Four Corners Capital Management, LLC an annual fee equal to .50%
of the average daily net assets of Income Opportunity Fund of $75 million or
less, plus .40% of such assets of more than $75 million up to $200 million, plus
..35% of such assets of more than $200 million for management services provided
to the fund.
The investment advisory contract for Security Income Fund provides that the
total annual expenses of each series of the Fund (including management fees and
custodian fees net of earnings credits, but excluding interest, taxes, brokerage
commissions, extraordinary expenses and distribution fees paid under the Class B
and Class C distribution plans) will not exceed the level of expenses which
Security Income Fund is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are qualified for
sale. For the period ended December 31, 2004, SMC agreed to limit the total
expenses of Diversified Income Fund to an annual rate of .95% of the average
daily net asset value of Class A shares and 1.70% of Class B shares and Class C
shares. SMC also agreed to limit the total expenses of the High Yield Fund to
2.00% for Class A shares and 2.75% for Class B and Class C shares. The
investment advisory contract for Security Municipal Bond Fund provides that the
total annual expenses of the fund, exclusive of interest, taxes, Rule 12b-1
fees, brokerage fees and commissions and extraordinary expenses, will not exceed
an amount equal to an annual rate of 1.00% of the average net assets of Class A
Shares and 1.75% of the average net assets of Class B shares as calculated on a
daily basis. SMC has agreed voluntarily to limit the total expenses of Security
Municipal Bond Fund to an annual rate of 1.00% of the average daily net asset
value of Class A shares and 1.75% for Class B shares. The investment advisory
contract for Security Cash Fund provides that the total annual expenses of the
fund, exclusive of interest, taxes, brokerage fees and commissions and
extraordinary expenses, will not exceed an amount equal to an annual rate of
1.00% of the average net assets of the fund as calculated on a daily basis.
Furthermore, SMC voluntarily waived expenses to maintain a 0.10% daily yield.
Security Income and Security Municipal Bond Funds have adopted distribution
plans related to the offering of Class B shares and Security Income Fund has
adopted a distribution plan relating to the offering of Class C shares, each
such distribution plan has been adopted pursuant to Rule 12b-1 of 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 Class B and Class C shares. Class A shares of
Security Income Fund and Security Municipal Bond Fund incur Rule 12b-1
distribution fees at an annual rate of .25% of the average daily net assets of
each series.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Corporation. and the national distributor of the Funds, retained
underwriting commissions on sales of shares after allowances to brokers and
dealers in the following amounts:
SDI UNDERWRITING
COMMISSIONS
----------------
Security Municipal Bond Fund $ 182
Security Income Fund:
Diversified Series 25,214
High Yield Series 7,451
Income Opportunity Series 13,109
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its affiliates, which
include SMC and SDI.
At June 30, 2005, Security Benefit Corporation and its subsidiaries owned
over five percent of the outstanding shares of the Funds, as follows:
PERCENT OF OUTSTANDING
FUND OR SERIES SHARES OWNED
- -------------- ----------------------
Security Income Fund:
Diversified Income Series 9.59%
High Yield Series 20.03%
Income Opportunity Series 55.56%
57
Notes to Financial Statements
June 30, 2005 (unaudited)
3. LINE OF CREDIT
The Income Opportunity Series of the Security Income Fund has a $10 million
committed secured revolving line of credit with State Street Bank and Trust
Company. The Series may borrow money for temporary or emergency purposes to fund
shareholder redemptions. Borrowings under the agreement bear interest at a
variable rate per annum equal to the Bank's overnight federal funds rate as
determined by the Bank plus 0.50% per annum which rate shall change when such
federal funds rate changes. The Series did not borrow from the line during the
six monhs ended June 30, 2005.
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) for federal income
tax purposes as of June 30, 2005, were as follows:
MUNICIPAL DIVERSIFIED HIGH INCOME
BOND INCOME YIELD OPPORTUNITY
FUND SERIES SERIES SERIES
--------- ----------- ----------- -----------
Gross unrealized
appreciation $315,277 $1,164,544 $ 1,285,580 $ 521,076
Gross unrealized
depreciaton (2,785) (284,073) (1,468,926) (252,642)
-------- ---------- ----------- ---------
Net unrealized
appreciation
(depreciation) $312,492 $ 880,471 ($183,346) $ 268,434
======== ========== =========== =========
At December 31, 2004, the following funds have capital loss carryovers to
offset future realized capital gains as follows:
CAPITAL LOSS EXPIRATION
CARRYOVER YEAR
------------ ----------
Security Municipal Bond Fund $ 4,714 2012
Security Income Fund:
Diversified Income Series $ 816,702 2005
801,693 2007
3,837,647 2008
433,468 2010
291,583 2011
453,684 2012
----------
$6,634,777
==========
High Yield Series $ 170,973 2009
645,956 2010
553,553 2011
----------
$1,370,482
==========
58
Notes to Financial Statements
June 30, 2005 (unaudited)
The tax character of distributions paid during the fiscal years ended
December 31, 2004 and 2003, was the same as that reported in the Statement of
Changes in Net Assets, except as follows:
LONG-TERM
TAX-EXEMPT ORDINARY CAPITAL RETURN OF
2003 INCOME INCOME GAIN CAPITAL TOTAL
- ---- ---------- ---------- --------- --------- ----------
Security Municipal Bond Fund $718,658 $ 16,319 $137,386 -- $ 872,363
2004
Security Municipal Bond Fund 503,150 -- -- -- 503,150
Security Income Fund
Diversified Income Series -- 4,178,090 -- 7,310 4,185,400
High Yield Series -- 2,287,476 -- 64,276 2,351,752
Income Opportunity Series -- 1,425,122 -- -- 1,425,122
Note: For federal income tax purposes, short term capital gain distributions are
treated as ordinary income distributions.
As of December 31, 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:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY LONG-TERM CAPITAL AND APPRECIATION
INCOME GAIN OTHER LOSSES* (DEPRECIATION)**
------------- ------------- ------------- ----------------
Security Municipal Bond Fund $ 1,989 -- $ (4,714) $ 454,793
Security Income Fund:
Diversified Income Series -- -- (6,634,777) 1,616,847
High Yield Series -- -- (1,370,482) 1,498,035
Income Opportunity Series 23,369 -- -- 468,515
* Certain Funds had net capital loss carryovers 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, and the differences between book and tax basis bond discount
accretion.
5. INVESTMENT TRANSACTIONS
Investment transactions for the six months ended June 30, 2005 (excluding
overnight investments and short-term debt securities) were as follows:
MUNICIPAL DIVERSIFIED HIGH INCOME
BOND INCOME YIELD OPPORTUNITY
FUND SERIES SERIES SERIES
---------- ------------ ----------- -----------
Purchases $3,133,345 $26,168,132 $14,525,629 $48,151,506
Proceeds from sales 4,213,882 34,341,571 17,332,330 27,801,401
6. SUBSEQUENT EVENT
The Board of Directors for Security Municipal Bond Fund (the "Fund"), at
their August 12, 2005 meeting, approved a Plan of Liquidation with respect to
the Fund whereby the Fund will cease its investment operations, liquidate its
assets and make a final distribution to its shareholders. Shareholder approval
of the Fund's liquidation and dissolution is required before it can be
liquidated and dissolved. Shareholders of record at the close of business on
August 22, 2005 (the "Record Date") are entitled to notice of and to vote at the
Shareholder's Meeting, which is currently scheduled for October 7, 2005. SMC
expects to mail proxy materials to Record Date Shareholders on or about August
30, 2005.
59
Director's Disclosure
DIRECTOR APPROVAL OF INVESTMENT ADVISORY AGREEMENT
At an in-person meeting of the Funds' Boards of Directors held on November
18-19, 2004, called for the purpose of, among other things, voting on the
renewal of the investment advisory and sub-advisory agreements applicable to the
Funds, each Fund's Board of Directors, including the Independent Directors,
unanimously approved the continuation for a one-year period of the investment
advisory agreement between the Fund and Security Management Company, LLC
("SMC"), as well as each investment sub-advisory agreement applicable to the
Funds. In reaching this conclusion, the Directors requested and obtained from
SMC and each investment sub-adviser such information as the Directors deemed
reasonably necessary to evaluate the proposed renewal of the agreements. Each
Funds' Board of Directors carefully evaluated this information, and was advised
by legal counsel with respect to its deliberations.
In considering the proposed continuation of the investment advisory and
sub-advisory agreements, the Independent Directors evaluated a number of
considerations, including, among others, (1) the nature, extent, and quality of
the advisory services to be provided by SMC and the investment sub-advisers; (2)
the investment performance of the Funds, SMC and the various investment
sub-advisers; (3) the costs of the services to be provided and profits to be
realized by SMC and its affiliates from the relationship with the Funds; (4) the
extent to which economies of scale would be realized as the Funds grow; and (5)
whether advisory and sub-advisory fee levels reflect these economies of scale
for the benefit of the Funds' investors. Each Board of Directors also took into
account other considerations that it believed, in light of the legal advice
furnished to the Independent Directors by their independent legal counsel and
the Directors' own business judgment, to be relevant. Following its review, each
Funds' Board of Directors determined that the investment advisory agreement and
each investment sub-advisory agreement applicable to the Fund (if any) will
enable Fund shareholders to obtain high quality services at a cost that is
appropriate, reasonable, and in the best interests of shareholders. Accordingly,
the Directors, including the Independent Directors, unanimously approved the
renewal of the investment advisory and investment sub-advisory agreements based
upon the following considerations, among others:
- THE NATURE, EXTENT AND QUALITY OF THE ADVISORY SERVICES TO BE
PROVIDED. Each Board of Directors concluded that SMC and the
investment sub-advisers retained to provide portfolio management
services with respect to certain of the Funds are capable of providing
high quality services to each Fund, as indicated by the nature and
quality of services provided in the past, SMC's management
capabilities demonstrated with respect to the Funds and other mutual
funds managed by SMC, the professional qualifications and experience
of SMC's and the various sub-advisers' portfolio managers, and SMC's
investment and management oversight processes. The Directors also
determined that SMC and the sub-advisers proposed to provide
investment and related services that were of the same quality and
quantity as services provided to the Funds in the past, and that these
services are appropriate in scope and extent in light of the Funds'
operations, the competitive landscape of the investment company
business and investor needs.
- THE INVESTMENT PERFORMANCE OF THE FUNDS. With respect to each Fund,
the Directors concluded on the basis of information supplied by Lipper
that SMC and the investment sub-advisers had achieved investment
performance that was acceptable, and competitive or superior relative
to comparable funds over trailing periods. With respect to the Large
Cap Value Fund, the Independent Directors recommended changes to the
Fund's portfolio management arrangements in light of the Fund's
performance, and renewed the investment sub-advisory agreement with
respect to that Fund pending implementation of alternative portfolio
management arrangements. On the basis of the Directors' assessment of
the nature, extent and quality of advisory services to be provided or
procured by SMC, the Directors concluded that SMC is capable of
generating a level of long-term investment performance that is
appropriate in light of the Funds' investment objectives, policies and
strategies and competitive with many other investment companies.
- THE COST OF ADVISORY SERVICES PROVIDED AND THE LEVEL OF PROFITABILITY.
On the basis of each Board's review of the fees to be charged by SMC
for investment advisory and other services, and the estimated
profitability of SMC's relationship with each Fund, each Board
concluded that the level of investment advisory fees and SMC's
profitability are appropriate in light of the management fees and
overall expense ratios of comparable investment companies and the
anticipated profitability of the relationship between each Fund and
SMC and its affiliates. On the basis of comparative information
supplied by Lipper the Directors determined that the advisory fees and
estimated overall expense ratio of each Fund are consistent with, and
often below, industry medians, particularly with respect to mutual
funds of comparable size.
- WHETHER THE ADVISORY FEES REFLECT ECONOMIES OF SCALE. The Directors
concluded that the Funds' investment advisory fees appropriately
reflect the current economic environment for SMC and the competitive
nature of the mutual fund market. The Directors further determined
that the Funds have yet to achieve meaningful economies of scale,
which, therefore, cannot be reflected in the investment advisory fees.
- THE EXTENT TO WHICH ECONOMIES OF SCALE WILL BE REALIZED AS THE FUNDS
GROW. While the Funds' investment advisory fees do not reduce should
Fund assets grow meaningfully, the Directors determined that the
investment advisory fees payable by the Funds already
60
Director's Disclosure
reflect potential future economies of scale to some extent by virtue
of their competitive levels (determined with reference to industry
standards as reported by Lipper and SMC's estimated profitability at
current or foreseeable asset levels. The Directors also considered
that they will have the opportunity to periodically reexamine whether
each Fund has achieved economies of scale, and the appropriateness of
investment advisory fees payable to SMC and fees payable by SMC to the
investment sub-advisers, in the future.
- BENEFITS (SUCH AS SOFT DOLLARS) TO SMC FROM ITS RELATIONSHIP WITH THE
FUNDS (AND ANY CORRESPONDING BENEFITS TO THE FUNDS). The Directors
concluded that other benefits described by SMC and the investment
sub-advisers from their relationships with the Funds, including "soft
dollar" benefits in connection with the Funds' brokerage transactions,
are reasonable and fair, and consistent with industry practice and the
best interests of the Funds and their shareholders. In addition, the
Directors determined that the administration, transfer agency and fund
accounting fees paid by the Funds to SMC are reasonable, fair and in
the best interests of Fund shareholders in light of the nature and
quality of the services provided, the associated costs, and the
necessity of the services for the Funds' operations.
- OTHER CONSIDERATIONS: In approving the investment advisory and
sub-advisory agreements, the Directors determined that SMC has made a
substantial commitment to the recruitment and retention of high
quality personnel, and maintains the financial, compliance and
operational resources reasonably necessary to manage the Funds in a
professional manner that is consistent with the best interests of the
Funds and their shareholders. In this regard, the Directors favorably
considered the compliance track record of the Funds and SMC. The
Directors also concluded that SMC has made a significant
entrepreneurial commitment to the management and success of the Funds,
which entails a substantial financial and professional commitment,
including investment advisory fee waivers and expense limitation
arrangements with respect to several of the Funds to the benefit of
Fund shareholders.
61
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, The Martin Tractor Company, Inc.; President & Director,
(05-11-39) The Martin Tractor Company, Inc.
2004
Penny A. Lumpkin** Partner, Vivians' Gift Shop (Corporate Retail)
(08-20-39) Vice President, Palmer Companies, Inc. (Small Business and Shopping Center Development)
1993 Vice President, PLB (Real Estate Equipment Leasing)
Vice President, Town Crier (Retail)
Prior to 1999:
Vice President & Treasurer, Palmer News, Inc.
Vice President, M/S News, Inc.
Secretary, Kansas City Periodicals
Prior to 2002:
Vice President, Bellaire Shopping Center (Managing and Leasing)
Partner, Goodwin Enterprises (Retail)
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. and
(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) Senior Vice President and Chief Investment Officer, Security Benefit Corporation and
2004 (President) Security Benefit Life Insurance Company
2004 (Director) Director, Security Distributors, Inc.
Director, Vice President and Chief Investment Officer, First Security Benefit Life Insurance and
Annuity Company of New York
President & Chief Operating Officer, Allied Investment Advisors, Inc.
Principal, Vanguard Group
* 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
independent 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.
62
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, Security Benefit Life Insurance Company
Vice President
2003
Christina Fletcher Credit Analyst/Portfolio Manager, Horizon Cash Management
(07-25-72) Senior Money Market Trader, Scudder Investments
Vice President
2005
Brenda M. Harwood Assistant Vice President, Chief Compliance Officer & Treasurer, Security Management Company, LLC;
(11-03-63) Assistant Vice President, Security Benefit Life Insurance Company
Treasurer Vice President & Director, Security Distributors, Inc.
1988
Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.;
(06-05-61) Vice President, Associate General Counsel & Assistant Secretary,
Secretary Security Benefit Life Insurance Company
1987
Christopher Phalen Assistant Vice President and Portfolio Manager, Security Management
(11-9-70) Company, LLC, Security Benefit Life Insurance Company and Security
Vice President Benefit Corporation
2002
Christopher D. Swickard Assistant Secretary, Security Management Company, LLC
(10-09-65) Second Vice President & Counsel,
Assistant Secretary Security Benefit Life Insurance Company
1996
David G. Toussaint Assistant Vice President and Portfolio Manager, Security Management
(10-10-66) Company, LLC, Security Benefit Life Insurance Company and Security
Vice President Benefit Corporation
2001
* 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, 2005 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.
63
This page left blank intentionally.
64
THE SECURITY GROUP OF MUTUAL FUNDS
Security Equity Fund
- Alpha Opportunity Series
- Enhanced Index Series
- Equity Series
- Global Series
- Large Cap Growth Series
- Mid Cap Value Series
- Select 25(R) Series
- Small Cap Growth Series
- Social Awareness Series
Security Large Cap Value Fund
Security Mid Cap Growth Fund
Security Income Fund
- Diversified Income Series
- High Yield Series
- Income Opportunity Series
- 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
Michael G. Odlum
Maynard F. Oliverius
OFFICERS
John D. Cleland, Chairman of the Board
Michael G. Odlum, President
Steve M. Bowser, Vice President
Mark Lamb, Vice President
Mark Mitchell, Vice President
Christopher L. Phalen, Vice President
James P. Schier, Vice President
Cindy L. Shields, Vice President
David G. Toussaint, Vice President
Christina Fletcher, Vice President
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.
------------------
Presorted Standard
U.S. Postage
PAID
Carol Stream, IL
Permit No. 1
------------------
(SECURITY BENEFIT(SM) LOGO)
Security Distributors, Inc.
One Security Benefit Place - Topeka, Kansas 66636-0001 - securitybenefit.com
ITEM 2. CODE OF ETHICS.
Not required at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required at this time.
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) Not required at this time.
(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 MUNICIPAL BOND FUND
By: MICHAEL G. ODLUM
------------------------------------
Michael G. Odlum, President
Date: September 7, 2005
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: MICHAEL G. ODLUM
------------------------------------
Michael G. Odlum, President
Date: September 7, 2005
By: BRENDA M. HARWOOD
------------------------------------
Brenda M. Harwood, Treasurer
Date: September 7, 2005