UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01136
SECURITY EQUITY FUND
(Exact name of registrant as specified in charter)
ONE SECURITY BENEFIT PLACE, TOPEKA, KANSAS 66636-0001
(Address of principal executive offices) (Zip code)
MICHAEL G. ODLUM, PRESIDENT
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(Name and address of agent for service)
Registrant's telephone number, including area code: (785) 438-3000
Date of fiscal year end: September 30
Date of reporting period: September 30, 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.
(New York Building)
SECURITY FUNDS(SM)
ANNUAL REPORT
SEPTEMBER 30, 2005
- - 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 BENEFIT(SM) LOGO)
Security Distributors, Inc.
SECURITY EQUITY FUND
SECURITY LARGE CAP VALUE FUND
SECURITY MID CAP GROWTH FUND
SEPTEMBER 30, 2005
ANNUAL REPORT
TABLE OF CONTENTS
Security Equity Fund
Alpha Opportunity Series............................................... 2
Enhanced Index Series ................................................. 13
Equity Series ......................................................... 25
Global Series ......................................................... 35
Large Cap Growth Series................................................ 45
Mid Cap Value Series................................................... 53
Select 25(R) Series.................................................... 63
Small Cap Growth Series................................................ 71
Social Awareness Series................................................ 81
Security Large Cap Value Fund............................................. 91
Security Mid Cap Growth Fund.............................................. 101
Notes to Financial Statements............................................. 111
Report of Independent Registered Public Accounting Firm................... 121
Directors and Officers.................................................... 122
1
SECURITY EQUITY FUND
Manager's Commentary ALPHA OPPORTUNITY SERIES
November 15, 2005 (unaudited)
Advised by: (SECURITY BENEFIT(SM) LOGO) and (MAINSTREAM LOGO)
Security Management Company, LLC INVESTMENT ADVISERS
Subadvisor, Mainstream
Investment Advisers
(PHOTO OF BILL JENKINS)
Co-Portfolio Manager
(PHOTO OF MARK LAMB)
Co-Portfolio Manager
TO OUR SHAREHOLDERS:
We finished September with a strong month, a solid third quarter 2005, resulting
in a good return for the trailing twelve months ended September 30.
For the twelve-month period, the portfolio construction has been composed
primarily of long positions with small levels of cash and short equity holdings.
With the S&P 500 Index up over 12% for the twelve months, this asset mix served
us well. Our performance during the course of the year has been paced largely by
basic materials including energy, industrials and transportation. These sectors
outperformed for the period-another contributor to the good performance.
Our underlying investment theme remains essentially the same - we believe this
market will work higher. Equities remain both relatively undervalued and
absolutely under-owned. Stocks clearly offer attractive valuations versus other
investment marketplace options such as real estate and fixed income instruments.
Further, equity exposure remains low for laymen and professional investors
alike. Whether it is the resilient overall economy, good corporate profits, low
long-term interest rates or the stable dollar, the basic backdrop to our equity
environment appears attractive. Nonetheless, we remain in an environment where
most investors view the equity opportunity "glass" as at least half empty, as
opposed to more than half full.
The prevailing consensus believes equities are in a range-bound market for years
to come, and consequently, are emphasizing assets with a low correlation to
stocks. We actually take little exception with this general scenario. We,
however, believe the market is currently trading low in the projected range.
Equities could appreciate significantly and still be within the potential
trading range. In fact, our best thinking is that stocks will continue to work
higher, just as they did during the 1930's. Much like the Thirties, there is
much to worry about - but after the prior market tumble, these issues are
already discounted in equity valuations. We remain vigilant for new information
which might impact our perspective.
Sincerely,
- -------------------------------------
Bill Jenkins
Co-Portfolio Manager
- -------------------------------------
Mark Lamb
Co-Portfolio Manager
2
SECURITY EQUITY FUND
Performance Summary ALPHA OPPORTUNITY SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY ALPHA OPPORTUNITY SERIES VS. S&P 500 INDEX
ALPHA OPPORTUNITY SERIES
07/07/03 9,425.00
9/30/03 9,632.42
12/31/03 11,152.88
03/31/04 11,381.30
06/30/04 11,609.72
09/30/04 11,709.03
12/31/04 12,528.57
03/31/05 12,486.06
06/30/05 12,358.54
09/30/05 13,144.90
S&P 500 INDEX
INCEPTION 7/01/03 10,000.00
09/30/03 10,264.66
12/31/03 11,515.49
03/31/04 11,710.84
06/30/04 11,912.75
09/30/04 11,689.41
12/31/04 12,768.79
03/31/05 12,493.71
06/30/05 12,663.78
09/30/05 13,120.77
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Alpha Opportunity
Series on July 7, 2003 (date of inception), reflects deduction of the 5.75%
sales load and assumes all dividends rein- vested. The chart does not reflect
the deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 5.28%
Consumer Staples 0.60
Energy 3.50
Financials 2.24
Health Care 1.21
Industrials 26.94
Information Technology 4.70
Materials 13.36
Telecommunication Services 0.26
Exchange Traded Funds 2.11
U.S. Government Sponsored Agencies 36.36
Asset Backed Securities 1.79
Cash & other assets, less liabilities 1.65
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR SINCE INCEPTION
- --------------------- ------ ---------------
A Shares 12.26% 16.04% (7-07-03)
A Shares with sales charge 5.80% 13.01% (7-07-03)
B Shares 11.39% 15.17% (7-07-03)
B Shares with CDSC 6.39% 14.03% (7-07-03)
C Shares 11.39% 15.17% (7-07-03)
C Share with CDSC 10.39% 15.17% (7-07-03)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the deduc-
tion of taxes that a shareholder would pay on distributions or redemption of
shares. Such figures would be lower if the maximum sales charge and any appli-
cable taxes were deducted. Fee waivers reduced expenses of the Series and in the
absence of such waiver, the performance quoted would be reduced.
3 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary ALPHA OPPORTUNITY SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Alpha Opportunity
Series - Class A
Actual $1,000.00 $1,052.80 $14.92
Hypothetical 1,000.00 1,010.47 14.62
Alpha Opportunity
Series - Class B
Actual 1,000.00 1,048.30 18.74
Hypothetical 1,000.00 1,006.73 18.36
Alpha Opportunity
Series - Class C
Actual 1,000.00 1,048.30 18.74
Hypothetical 1,000.00 1,006.73 18.36
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 5.28%, 4.83% and 4.83%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (2.90%, 3.65% and
3.65% for Class A, B and C shares, respectively), net of any applicable fee
waivers or expense reimbursements, multiplied by the average account value
over the period, multiplied by 183/365 (to reflect the one-half year
period).
4
SECURITY EQUITY FUND
Schedule of Investments ALPHA OPPORTUNITY SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 60.2%
AEROSPACE & DEFENSE - 0.9%
United Technologies Corporation 4,800 $ 248,832
----------
AGRICULTURAL PRODUCTS - 0.2%
Archer-Daniels-Midland Company 2,500 61,650
----------
AIR FREIGHT & LOGISTICS - 0.3%
UTI Worldwide, Inc. 1,100 85,470
----------
AIRLINES - 1.5%
Continental Airlines, Inc. (Cl.B)* 13,000 125,580
Gol - Linhas Aereas Inteligentes S.A. ADR 1,700 55,165
Mesa Air Group, Inc.* 16,100 132,825
Southwest Airlines Company 5,000 74,250
----------
387,820
----------
APPAREL RETAIL - 0.4%
AnnTaylor Stores Corporation* 3,700 98,235
----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.3%
Polo Ralph Lauren Corporation 1,700 85,510
Unifi, Inc.* 500 1,670
----------
87,180
----------
APPLICATION SOFTWARE - 0.1%
Ultimate Software Group, Inc.* 1,500 27,630
----------
ASSET MANAGEMENT & CUSTODY BANKS - 0.7%
Affiliated Managers Group, Inc.* 2,500 181,050
----------
AUTOMOTIVE RETAIL - 1.4%
CarMax, Inc.* 11,900 372,113
----------
BUILDING PRODUCTS - 1.6%
American Standard Companies, Inc. 4,300 200,165
Armstrong Holdings, Inc.* 3,700 8,177
ElkCorp 1,700 60,809
Interline Brands, Inc.* 2,100 44,121
Simpson Manufacturing Company, Inc. 2,800 109,592
----------
422,864
----------
CASINOS & GAMING - 0.0%
Mikohn Gaming Corporation* 1,100 14,619
----------
COMMODITY CHEMICALS - 0.4%
Lyondell Chemical Company 3,300 94,446
Valhi, Inc. 500 8,990
----------
103,436
----------
COMMUNICATIONS EQUIPMENT - 0.3%
Motorola, Inc. 3,700 81,733
----------
COMPUTER HARDWARE - 0.2%
ENGlobal Corporation* 6,300 50,967
----------
CONSTRUCTION & ENGINEERING - 4.0%
Chicago Bridge & Iron Company N.V 2,800 $ 87,052
Fluor Corporation 7,000 450,660
Granite Construction, Inc. 3,900 149,136
Infrasource Services, Inc.* 4,500 65,475
Perini Corporation* 1,600 29,120
Shaw Group, Inc.* 1,100 27,126
URS Corporation* 6,600 266,574
----------
1,075,143
----------
CONSTRUCTION & FARM MACHINERY - 6.4%
Cascade Corporation 500 24,350
Caterpillar, Inc. 10,100 593,375
Federal Signal Corporation 3,900 66,651
JLG Industries, Inc. 2,400 87,816
Joy Global, Inc. 2,600 131,196
Lindsay Manufacturing Company 2,700 59,427
Manitowoc Company, Inc. 2,800 140,700
Terex Corporation* 6,700 331,181
Trinity Industries, Inc. 2,600 105,274
Wabtec Corporation 6,000 163,680
----------
1,703,650
----------
CONSTRUCTION MATERIALS - 3.3%
Cemex S.A. de C.V. ADR 1,500 78,450
Eagle Materials, Inc. 3,300 400,521
Texas Industries, Inc. 2,000 108,800
Vulcan Materials Company 3,800 281,998
----------
869,769
----------
CONSUMER ELECTRONICS - 1.5%
Harman International Industries, Inc. 3,800 388,626
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.8%
Electronic Data Systems Corporation 9,900 222,156
----------
DISTRIBUTORS - 0.3%
Beacon Roofing Supply, Inc.* 2,200 71,874
----------
DIVERSIFIED CHEMICALS - 0.6%
BASF AG ADR 2,200 165,880
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.9%
Corrections Corporation of America* 4,100 162,770
Ritchie Brothers Auctioneers, Inc. 2,000 87,980
----------
250,750
----------
DIVERSIFIED METALS & MINING - 1.1%
Alumina, Ltd. ADR 5,000 94,450
Apex Silver Mines, Ltd.* 2,000 31,420
Cameco Corporation 1,600 85,600
Stillwater Mining Company* 7,900 72,285
----------
283,755
----------
5 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments ALPHA OPPORTUNITY SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- --------
COMMON STOCKS (CONTINUED)
ELECTRICAL COMPONENTS & EQUIPMENT - 2.6%
Cooper Industries, Ltd. 3,800 $262,732
General Cable Corporation* 3,300 55,440
Regal-Beloit Corporation 4,300 139,492
Roper Industries, Inc. 2,700 106,083
Thomas & Betts Corporation* 3,800 130,758
--------
694,505
--------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.4%
TDK Corporation 1,000 71,820
Tektronix, Inc. 1,300 32,799
--------
104,619
--------
ELECTRONIC MANUFACTURING SERVICES - 0.0%
Kemet Corporation* 1,900 15,922
--------
ENVIRONMENTAL & FACILITIES SERVICES - 0.4%
Allied Waste Industries, Inc.* 9,500 80,275
TRC Companies, Inc.* 1,100 17,160
--------
97,435
--------
EXCHANGE TRADED FUNDS - 2.1%
iShares FTSE/Xinhua China 25 Index Fund* 3,800 244,036
iShares MSCI Hong Kong Index 5,700 77,406
iShares MSCI Singapore Index Fund 5,800 46,284
iShares S&P Europe 350 Index Fund 2,400 192,960
--------
560,686
--------
FOOD DISTRIBUTORS - 0.1%
Premium Standard Farms, Inc. 1,600 23,712
--------
FOOD RETAIL - 0.2%
Kroger Company* 2,200 45,298
--------
FOREST PRODUCTS - 1.6%
Louisiana-Pacific Corporation 1,300 35,997
Weyerhaeuser Company 5,500 378,125
--------
414,122
--------
HEALTH CARE EQUIPMENT - 0.8%
Foxhollow Technologies, Inc.* 4,600 219,006
--------
HEALTH CARE SERVICES - 0.1%
Res-Care, Inc.* 1,600 24,624
--------
HOMEBUILDING - 0.1%
Champion Enterprises, Inc.* 1,800 26,604
--------
HOTELS, RESORTS & CRUISE LINES - 0.4%
Gaylord Entertainment Company* 2,300 109,595
--------
INDUSTRIAL CONGLOMERATES - 0.7%
ABB, Ltd. ADR* 9,500 69,920
Walter Industries, Inc. 2,400 117,408
--------
187,328
--------
INDUSTRIAL MACHINERY - 3.1%
Flowserve Corporation* 2,100 $ 76,335
Graco, Inc. 1,900 65,132
Idex Corporation 1,200 51,060
Kennametal, Inc. 3,800 186,352
Lincoln Electric Holdings, Inc. 1,900 74,860
Portec Rail Products, Inc. 2,700 37,719
Tennant Company 5,200 213,096
Timken Company 2,000 59,260
Valmont Industries, Inc. 1,700 49,912
--------
813,726
--------
INTEGRATED OIL & GAS - 0.4%
Braskem S.A. ADR 4,700 97,384
--------
INVESTMENT BANKING & BROKERAGE - 0.1%
Charles Schwab Corporation 1,800 25,974
--------
LIFE & HEALTH INSURANCE - 0.1%
UnumProvident Corporation 1,100 22,550
MARINE - 0.2%
Kirby Corporation* 1,100 54,373
--------
OIL & GAS DRILLING - 1.1%
Transocean, Inc.* 4,600 282,026
--------
OIL & GAS EQUIPMENT & SERVICES - 2.1%
Schlumberger, Ltd. 6,500 548,470
--------
OTHER DIVERSIFIED FINANCIAL SERVICES - 0.3%
Asset Acceptance Capital Corporation* 2,800 83,916
--------
PACKAGED FOODS & MEATS - 0.1%
Gold Kist, Inc.* 1,400 27,370
--------
PAPER PACKAGING - 0.9%
Temple-Inland, Inc. 6,200 253,270
--------
PAPER PRODUCTS - 0.5%
Aracruz Cellulose S.A. ADR 2,500 101,450
Domtar, Inc. 3,800 24,396
--------
125,846
--------
PHARMACEUTICALS - 0.3%
PRA International* 2,600 78,806
--------
RAILROADS - 1.7%
Genesee & Wyoming, Inc.* 13,200 418,440
RailAmerica, Inc.* 2,100 24,990
--------
443,430
--------
REAL ESTATE INVESTMENT TRUSTS - 1.1%
Rayonier, Inc. 4,900 282,338
--------
SEMICONDUCTOR EQUIPMENT - 0.1%
Entegris, Inc.* 1,500 16,950
--------
6 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments ALPHA OPPORTUNITY SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS - 2.3%
Broadcom Corporation* 3,800 $ 178,258
Texas Instruments, Inc. 13,000 440,700
-----------
618,958
-----------
SPECIALTY CHEMICALS - 1.5%
Chemtura Corporation 4,700 58,374
Sigma-Aldrich Corporation 5,400 345,924
-----------
404,298
-----------
SPECIALTY STORES - 0.9%
OfficeMax, Inc. 1,600 50,672
Tiffany & Company 4,600 182,942
-----------
233,614
-----------
STEEL - 3.5%
Gerdau Ameristeel Corporation 3,800 19,760
Metal Management, Inc. 6,700 169,845
NN, Inc. 8,500 101,915
Nucor Corporation 4,600 271,354
Roanoke Electric Steel Corporation 2,800 56,084
Schnitzer Steel Industries, Inc. 2,500 81,425
Steel Dynamics, Inc. 6,300 213,948
Universal Stainless & Alloy Products, Inc.* 600 10,080
-----------
924,411
-----------
TECHNOLOGY DISTRIBUTORS - 0.4%
Anixter International, Inc.* 1,100 44,363
Ingram Micro, Inc.* 3,400 63,036
-----------
107,399
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.6%
GATX Corporation 10,700 423,185
Hughes Supply, Inc. 5,000 163,000
United Rentals, Inc.* 2,900 57,159
Watsco, Inc. 800 42,488
-----------
685,832
-----------
WIRELESS TELECOMMUNICATION SERVICE - 0.2%
SK Telecom Company, Ltd. ADR 3,100 67,704
-----------
TOTAL COMMON STOCKS
(cost $15,767,414) 15,977,303
-----------
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
U.S. GOVERNMENT SPONSORED AGENCIES - 36.3%
Federal Farm Credit Bank,
3.671%, 11-02-05(2) $ 675,000 $ 672,930
Federal Home Loan Bank:
3.57%, 10-26-05(2) 1,125,000 1,122,412
3.666%, 12-09-05(2) 600,000 595,790
3.724%, 12-15-05(2) 180,000 178,624
3.87%, 12-28-05(2) 225,000 222,974
Federal Home Loan Mortgage Corporation:
3.488%, 10-11-05(2) 500,000 499,600
3.519%, 10-18-05(2) 675,000 673,987
3.689%, 11-10-05(2) 200,000 199,223
3.716%, 11-22-05(2) 860,000 855,605
3.80%, 12-20-05(2) 550,000 545,508
3.928%, 12-28-05(2) 400,000 396,398
Federal National Mortgage Association:
3.472%, 10-05-05(2) 575,000 574,885
3.508%, 10-12-05(2) 275,000 274,752
3.534%, 10-19-05(2) 275,000 274,560
3.614%, 11-04-05(2) 300,000 299,019
3.696%, 11-16-05(2) 1,050,000 1,045,277
3.725%, 11-30-05(2) 700,000 695,850
3.663%, 12-07-05(2) 525,000 521,426
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $9,647,714) 9,648,820
-----------
ASSET BACKED SECURITIES - 1.8%
AUTO - 0.6%
Ford Credit Auto Owner Trust, 2002-D A4B,
3.888% - 11-25-06(1,2) 161,671 161,688
-----------
OTHER - 1.2%
Credit-Based Asset Servicing & Securitization,
2005-CB2, 3.93% - 04-25-36(1,2) 313,773 313,810
-----------
TOTAL ASSET BACKED SECURITIES
(cost $475,547) 475,498
-----------
TOTAL INVESTMENTS - 98.3%
(cost $25,890,675) 26,101,621
CASH & OTHER ASSETS, LESS LIABILITIES(2) - 1.7% 438,917
-----------
TOTAL NET ASSETS - 100.0% $26,540,538
===========
For federal income tax purposes, the identified cost of investments owned at
September 30, 2005 was $25,923,001.
* Non-income producing security
ADR (American Depositary Receipt)
(1) Variable rate security. Rate indicated is rate effective at September 30,
2005.
(2) Security is segregated as collateral for open futures contracts.
7 See accompanying notes.
SECURITY EQUITY FUND
ALPHA OPPORTUNITY SERIES
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
ASSETS:
Investments, at value(1) ......................................... $26,101,621
Cash ............................................................. 1,182,693
Receivables:
Fund shares sold .............................................. 39,375
Securities sold ............................................... 4,008,447
Interest ...................................................... 484
Dividends ..................................................... 5,672
Variation margin on futures contracts ......................... 21,250
Prepaid expenses ................................................. 19,585
-----------
Total assets ..................................................... 31,379,127
-----------
LIABILITIES:
Payable for:
Securities purchased .......................................... 4,721,322
Fund shares redeemed .......................................... 22,185
Management fees ............................................... 44,081
Custodian fees ................................................ 886
Transfer agent and administration fees ........................ 6,438
Professional fees ............................................. 12,024
12b-1 distribution plan fees .................................. 31,182
Other ......................................................... 471
-----------
Total liabilities ................................................ 4,838,589
-----------
NET ASSETS ....................................................... $26,540,538
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $24,341,300
Accumulated undistributed net realized gain on sale of
investments, short positions and futures ...................... 1,931,563
Net unrealized appreciation in value of investments and
futures ....................................................... 267,675
-----------
Net assets ....................................................... $26,540,538
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 1,182,414
Net assets ....................................................... $14,621,949
Net asset value and redemption price per share ................... $ 12.37
===========
Maximum offering price per share (net asset value divided
by 94.25%) .................................................... $ 13.12
===========
CLASS B:
Capital shares outstanding (unlimited number of shares
authorized) ................................................... 337,964
Net assets ....................................................... $ 4,105,937
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 12.15
===========
CLASS C:
Capital shares outstanding (unlimited number of shares
authorized) ................................................... 642,972
Net assets ....................................................... $ 7,812,652
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 12.15
===========
(1) Investments, at cost ........................................ $25,890,675
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 140,637
Interest ...................................................... 290,677
----------
Total investment income ....................................... 431,314
----------
EXPENSES:
Management fees ............................................... 442,005
Custodian fees ................................................ 3,102
Transfer agent/maintenance fees ............................... 27,480
Administration fees ........................................... 36,067
Directors' fees ............................................... 505
Professional fees ............................................. 21,479
Reports to shareholders ....................................... 2,738
Registration fees ............................................. 30,056
Other expenses ................................................ 994
Dividends on short sales ...................................... 7,033
12b-1 distribution plan fees - Class A ........................ 27,973
12b-1 distribution plan fees - Class B ........................ 33,614
12b-1 distribution plan fees - Class C ........................ 66,590
----------
Total expenses ................................................ 699,636
Less:
Reimbursement of expenses - Class A ........................ (8,513)
Reimbursement of expenses - Class B ........................ (2,633)
Reimbursement of expenses - Class C ........................ (4,683)
----------
Net expenses ..................................................... 683,807
----------
Net investment loss .............................................. (252,493)
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) during the period on:
Investments ................................................... 1,983,688
Securities sold short ......................................... (171,402)
Futures ....................................................... 497,788
----------
Net realized gain ............................................. 2,310,074
----------
Net unrealized appreciation
during the period on:
Investments ................................................... 33,117
Securities sold short ......................................... 109
Futures ....................................................... 111,302
----------
Net unrealized appreciation .................................. 144,528
----------
Net realized and unrealized gain .............................. 2,454,602
----------
Net increase in net assets resulting from operations .......... $2,202,109
==========
8 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets ALPHA OPPORTUNITY SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER
30, 2005 30, 2004
----------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................ $ (252,493) $ (174,094)
Net realized gain during the period on
investments, futures and securities sold
short ....................................... 2,310,074 1,473,623
Net unrealized appreciation during the period
on investments, futures and securities sold
short ....................................... 144,528 288,945
----------- -----------
Net increase in net assets resulting from
operations .................................. 2,202,109 1,588,474
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A ..................................... (604,730) (199,700)
Class B ..................................... (202,618) (101,286)
Class C ..................................... (478,033) (121,452)
----------- -----------
Total distributions to shareholders ............ (1,285,381) (422,438)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ..................................... 11,459,073 3,466,497
Class B ..................................... 1,533,972 224,035
Class C ..................................... 4,544,101 1,024,036
Distributions reinvested
Class A ..................................... 591,209 199,093
Class B ..................................... 202,336 101,286
Class C ..................................... 269,335 120,826
Cost of shares redeemed
Class A ..................................... (4,559,666) (633,085)
Class B ..................................... (107,116) (400)
Class C ..................................... (332,772) (34,197)
----------- -----------
Net increase from capital share transactions ... 13,600,472 4,468,091
----------- -----------
Net increase in net assets ..................... 14,517,200 5,634,127
----------- -----------
NET ASSETS:
Beginning of period ............................ 12,023,338 6,389,211
----------- -----------
End of period .................................. $26,540,538 $12,023,338
=========== ===========
Accumulated net investment loss at end of
period ...................................... $ -- $ (268)
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ..................................... 970,012 306,745
Class B ..................................... 130,674 19,998
Class C ..................................... 378,831 92,100
Shares reinvested
Class A ..................................... 50,401 18,034
Class B ..................................... 17,458 9,208
Class C ..................................... 23,238 10,984
Shares redeemed
Class A ..................................... (393,904) (56,279)
Class B ..................................... (9,111) (35)
Class C ..................................... (28,119) (3,051)
9 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights ALPHA OPPORTUNITY SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
--------------------------
CLASS A 2005 2004 2003(E)
- ------- ------- ------ -------
PER SHARE DATA
Net asset value, beginning of period $ 11.79 $10.21 $10.00
------- ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.10) (0.16) (0.03)
Net gain (loss) on securities (realized and unrealized) 1.50 2.33 0.24
------- ------ ------
Total from investment operations 1.40 2.17 0.21
------- ------ ------
Less distributions:
Dividends from net investment income -- -- --
Distributions from realized gains (0.82) (0.59) --
------- ------ ------
Total distributions (0.82) (0.59) --
------- ------ ------
Net asset value, end of period $ 12.37 $11.79 $10.21
======= ====== ======
TOTAL RETURN(A) 12.26% 21.68% 2.10%
------- ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $14,622 $6,556 $2,935
------- ------ ------
Ratios to average net assets:
Net investment income (loss) (0.83%) (1.48%) (1.35%)
Total expenses(b) 2.94% 3.57% 3.25%
Net expenses(d) 2.86% 2.78% 2.75%
Expenses prior to custodian earnings credits
and net of expense waivers 2.86% 2.79% 2.75%
Net expenses prior to performance fee adjustment(f) 2.78% 2.78% 2.75%
------- ------ ------
Portfolio turnover rate 1,502% 1,175% 867%
YEAR ENDED
SEPTEMBER 30,
--------------------------
CLASS B 2005 2004 2003(E)
- ------- ------- ------ -------
PER SHARE DATA
Net asset value, beginning of period $ 11.68 $10.20 $10.00
------- ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.18) (0.25) (0.05)
Net gain (loss) on securities (realized and unrealized) 1.47 2.32 0.25
------- ------ ------
Total from investment operations 1.29 2.07 0.20
------- ------ ------
Less distributions:
Dividends from net investment income -- -- --
Distributions from realized gains (0.82) (0.59) --
------- ------ ------
Total distributions (0.82) (0.59) --
------- ------ ------
Net asset value, end of period $ 12.15 $11.68 $10.20
======= ====== ======
TOTAL RETURN(A) 11.39% 20.68% 2.00%
------- ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 4,106 $2,324 $1,731
------- ------ ------
Ratios to average net assets:
Net investment income (loss) (1.60%) (2.25%) (2.11%)
Total expenses(b) 3.69% 4.29% 4.01%
Net expenses(d) 3.61% 3.53% 3.50%
Expenses prior to custodian earnings credits
and net of expense waivers 3.61% 3.53% 3.50%
Net expenses prior to performance fee adjustment(f) 3.53% 3.53% 3.50%
------- ------ ------
Portfolio turnover rate 1,502% 1,175% 867%
10 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights ALPHA OPPORTUNITY SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
--------------------------
CLASS C 2005 2004 2003(E)
- ------- ------ ------ -------
PER SHARE DATA
Net asset value, beginning of period $11.68 $10.20 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.18) (0.25) (0.05)
Net gain (loss) on securities (realized and unrealized) 1.47 2.32 0.25
------ ------ ------
Total from investment operations 1.29 2.07 0.20
------ ------ ------
Less distributions:
Dividends from net investment income -- -- --
Distributions from realized gains (0.82) (0.59) --
------ ------ ------
Total distributions (0.82) (0.59) --
------ ------ ------
Net asset value, end of period $12.15 $11.68 $10.20
====== ====== ======
TOTAL RETURN(A) 11.39% 20.68% 2.00%
------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $7,813 $3,143 $1,723
------ ------ ------
Ratios to average net assets:
Net investment income (loss) (1.58%) (2.24%) (2.11%)
Total expenses(b) 3.68% 4.30% 4.01%
Net expenses(d) 3.61% 3.53% 3.50%
Expenses prior to custodian earnings credits
and net of expense waivers 3.61% 3.53% 3.50%
Net expenses prior to performance fee adjustment(f) 3.53% 3.53% 3.50%
------ ------ ------
Portfolio turnover rate 1,502% 1,175% 867%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager, and custodian earnings credits.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements, and custodian earnings credits, as applicable.
(e) Security Alpha Opportunity Series was initially capitalized on July 7, 2003
with a net asset value of $10 per share. Percentage amounts for the period,
except total return, have been annualized.
(f) Net expenses prior to performance fee adjustment reflect ratios after
voluntary expense waivers, reimbursements, custodian earnings credits, and
before performance fee adjustments, as applicable.
11 See accompanying notes.
This page left blank intentionally.
12
SECURITY EQUITY FUND
Manager's Commentary ENHANCED INDEX SERIES
November 15, 2005 (unaudited)
(NORTHERN TRUST LOGO)
Subadvisor, Northern Trust
TO OUR SHAREHOLDERS:
The Enhanced Index Series of Security Equity Fund began operations January 29,
1999. The core portfolio is designed to outperform the Standard & Poor's 500
Stock Index while retaining similar risk characteristics to the Index. Through
the use of a proprietary multi-factor model, stocks that in our view have
above-average potential for appreciation are overweighted, while stocks that
have less than average potential are underweighted. During the one-year period
ending September 30, 2005, the portfolio was up 11.01% versus 12.25% for the S&P
500 Index. Since inception in 1999, the Series is down .36% versus 0.92% for the
benchmark.(1)
The Northern Trust Investments Quantitative Management group uses a proprietary
model to overweight or underweight stocks relative to the Index. Based on our
model, stocks are weighted using a variety of factors that our research has
shown to be predictive of future relative performance. The model's factors
include valuation, earnings, momentum and management signals characteristics.
These factor-based stock selection criteria are combined with sector, style and
company size constraints to manage the overall risk profile of the portfolio.
The model's diversified set of factors proved to be successful in selecting
stocks that outperformed the benchmark (prior to deduction of Series expenses)
during the 12 months ending September 30, 2005. Momentum was the best performing
factor in the model, but also the most volatile. Certain Valuation and Earnings
factors, such as Book Value/Price and Accruals, were also successful and more
consistent. This relative factor performance was a reversal from the prior
year's results, but the model's diversified factor set ensures the ability to
capture outperformance as conditions change. Sector and capitalization
differences were also evident. Energy and Utilities were the best performing
sectors, up 48.5% and 38.7%, respectively. The portfolio benefited from modest
overweights in these sectors (within our tightly constrained limits) as well as
good stock selection in Utilities. Small underweights in quickly moving Energy
companies such as Halliburton and Valero Energy (each with returns over 100%)
resulted in weaker stock selection in that sector. The model's stock selection
contributed most to overall performance in the Financials, Materials and
Industrials sectors. Smaller companies continued to outperform the largest for
the year, extending a multi-year trend, although companies in the middle range
of capitalization, $4 billion to $12 billion, actually had the strongest overall
performance during the last 12 months.
ECONOMIC UPDATE
The last twelve months were dominated by a strong rally in oil prices,
compounded by the impact of hurricanes Katrina and Rita, with crude oil briefly
touching $70 before ending the month of September around $66. The Federal
Reserve continued raising the federal funds rate, eight times in the last twelve
months ending on September 30th, bringing rates to 3.75%. The Fed's main
concern, as expressed in the last FOMC minutes, is the increasing risk of
inflation as energy costs keep rising. As a result, more and more market
participants expect the Fed to continue raising rates at the upcoming FOMC
meetings on November 1st and December 13th, as long as energy prices remain
high.
Sincerely,
- -------------------------------------
Enhanced Equity Team
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares. Fee waivers and/or
reimbursements reduce Fund expenses and in the absence of such waivers, the
performance quoted would be reduced.
13
SECURITY EQUITY FUND
Performance Summary ENHANCED INDEX SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY ENHANCED INDEX SERIES VS. S&P 500 INDEX
ENHANCED INDEX SERIES
01/29/99 9,425.00
03/31/99 9,443.92
06/30/99 10,103.68
09/30/99 9,462.77
12/31/99 10,954.87
3/31/00 11,231.12
6/30/00 10,878.66
9/30/00 10,754.82
12/31/00 9,846.96
03/31/01 8,617.29
06/30/01 9,097.63
09/30/01 7,714.25
12/31/01 8,521.22
03/31/02 8,521.22
06/30/02 7,339.59
09/30/02 6,052.28
12/31/02 6,523.01
03/31/03 6,292.45
06/30/03 7,224.30
09/30/03 7,387.62
12/31/03 8,281.05
03/31/04 8,405.94
06/30/04 8,511.61
09/30/04 8,290.66
12/31/04 9,030.38
03/31/05 8,828.64
06/30/05 8,895.89
09/30/05 9,203.30
S&P 500 INDEX
INCEPTION 1/29/99 10,000.00
3/31/99 10,075.52
6/30/99 10,785.58
9/30/99 10,111.95
12/31/99 11,616.46
3/31/00 11,883.45
06/30/00 11,568.33
09/30/00 11,456.43
12/31/00 10,560.83
03/31/01 9,309.30
06/30/01 9,854.43
09/30/01 8,408.85
12/31/01 9,307.93
03/31/02 9,333.23
06/30/02 8,083.12
09/30/02 6,687.10
12/31/02 7,251.86
03/31/03 7,023.47
06/30/03 8,104.60
09/30/03 8,319.10
12/31/03 9,332.84
03/31/04 9,491.17
06/30/04 9,654.81
09/30/04 9,473.80
12/31/04 10,348.59
03/31/05 10,125.65
06/30/05 10,263.49
09/30/05 10,633.86
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Enhanced Index
Series on January 29, 1999 (date of inception), reflects deduction of the 5.75%
sales load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 10.66%
Consumer Staples 9.50
Energy 10.22
Financials 18.76
Health Care 13.13
Industrials 10.58
Information Technology 15.01
Materials 2.64
Telecommunication Services 3.01
Utilities 3.88
U.S. Government Securities 0.34
Repurchase Agreement 3.10
Liabilities, less cash & other assets (0.83)
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ----------------
A Shares 11.01% (3.07%) (0.36%)(1-29-99)
A Shares with sales charge 4.59% (4.21%) (1.24%)(1-29-99)
B Shares 10.06% (3.86%) (1.15%)(1-29-99)
B Shares with CDSC 5.06% (4.25%) (1.15%)(1-29-99)
C Shares 10.04% (3.84%) (1.12%)(1-29-99)
C Shares with CDSC 9.04% (3.84%) (1.12%)(1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Series and
in the absence of such waiver, the performance quoted would be reduced.
14 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary ENHANCED INDEX SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Enhanced Index
Series - Class A
Actual $1,000.00 $1,042.40 $ 8.14
Hypothetical 1,000.00 1,017.00 8.04
Enhanced Index
Series - Class B
Actual 1,000.00 1,038.90 11.96
Hypothetical 1,000.00 1,013.26 11.81
Enhanced Index
Series - Class C
Actual 1,000.00 1,038.80 11.96
Hypothetical 1,000.00 1,013.26 11.81
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 4.24%, 3.89% and 3.88%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.59%, 2.34% and
2.34% for Class A, B and C shares, respectively), net of any applicable fee
waivers, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the one-half year period).
15
Schedule of Investments SECURITY EQUITY FUND
September 30, 2005 ENHANCED INDEX SERIES
NUMBER MARKET
OF SHARES VALUE
--------- --------
COMMON STOCKS - 97.4%
ADVERTISING - 0.1%
Omnicom Group, Inc. 200 $ 16,726
--------
AEROSPACE & DEFENSE - 2.1%
Boeing Company 1,047 71,144
Lockheed Martin Corporation 1,288 78,619
Northrop Grumman Corporation 580 31,523
Raytheon Company 1,700 64,634
Rockwell Colllins, Inc. 800 38,656
United Technologies Corporation 380 19,699
--------
304,275
--------
AGRICULTURAL PRODUCTS - 0.5%
Archer-Daniels-Midland Company 3,066 75,608
--------
AIR FREIGHT & LOGISTICS - 1.2%
FedEx Corporation 558 48,619
United Parcel Service, Inc. (Cl.B) 1,758 121,531
--------
170,150
--------
APPAREL RETAIL - 0.7%
Gap, Inc. 700 12,201
Limited Brands, Inc. 2,900 59,247
TJX Companies, Inc. 1,900 38,912
--------
110,360
--------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.2%
Jones Apparel Group, Inc. 1,000 28,500
--------
APPLICATION SOFTWARE - 0.8%
Autodesk, Inc. 200 9,288
Citrix Systems, Inc.* 2,200 55,308
Mercury Interactive Corporation* 900 35,640
Parametric Technology Corporation* 1,493 10,406
--------
110,642
--------
ASSET MANAGEMENT & CUSTODY BANKS - 0.7%
Bank of New York Company, Inc. 36 1,059
Franklin Resources, Inc. 800 67,168
Mellon Financial Corporation 1,211 38,716
--------
106,943
--------
AUTOMOTIVE RETAIL - 0.4%
AutoNation, Inc.* 2,700 53,919
--------
BIOTECHNOLOGY - 1.4%
Amgen, Inc.* 1,764 140,538
Applera Corporation - Applied Biosystems Group 700 16,268
Biogen Idec, Inc.* 1,200 47,376
--------
204,182
--------
BROADCASTING & CABLE TV - 0.9%
Comcast Corporation* 4,379 128,655
--------
BUILDING PRODUCTS - 0.4%
American Standard Companies, Inc. 400 18,620
Masco Corporation 1,504 46,143
--------
64,763
--------
COMMERCIAL PRINTING - 0.1%
R.R. Donnelley & Sons Company 300 $ 11,121
--------
COMMUNICATIONS EQUIPMENT - 2.6%
Avaya, Inc.* 1,900 19,570
Cisco Systems, Inc.* 11,102 199,059
Comverse Technology, Inc.* 800 21,016
Corning, Inc.* 600 11,598
Motorola, Inc. 1,153 25,470
Qualcomm, Inc. 958 42,870
Tellabs, Inc.* 5,900 62,068
--------
381,651
--------
COMPUTER HARDWARE - 3.2%
Apple Computer, Inc.* 1,500 80,415
Dell, Inc.* 3,384 115,733
Hewlett-Packard Company 1,908 55,714
International Business Machines Corporation 2,463 197,582
NCR Corporation* 870 27,762
--------
477,206
--------
COMPUTER STORAGE & PERIPHERALS - 0.7%
EMC Corporation* 4,110 53,183
Network Appliance, Inc.* 1,800 42,732
--------
95,915
--------
CONSTRUCTION & FARM MACHINERY - 0.4%
Paccar, Inc. 898 60,965
--------
CONSUMER FINANCE - 1.7%
American Express Company 2,023 116,201
MBNA Corporation 2,748 67,711
Providian Financial Corporation* 3,758 66,441
--------
250,353
--------
DATA PROCESSING & OUTSOURCED SERVICES - 0.9%
Automatic Data Processing, Inc. 517 22,252
Computer Sciences Corporation* 1,300 61,503
Convergys Corporation* 200 2,874
Fiserv, Inc.* 500 22,935
Sabre Holdings Corporation 1,400 28,392
--------
137,956
--------
DEPARTMENT STORES - 0.7%
Federated Department Stores, Inc. 582 38,918
J.C. Penney Company, Inc. 1,300 61,646
--------
100,564
--------
DISTILLERS & VINTNERS - 0.2%
Brown-Forman Corporation (Cl.B) 600 35,724
--------
DIVERSIFIED BANKS - 4.1%
Bank of America Corporation 6,392 269,103
Comerica, Inc. 700 41,230
U.S. Bancorp 1,434 40,267
Wachovia Corporation 2,197 104,555
Wells Fargo & Company 2,606 152,633
--------
607,788
--------
16 See accompanying notes.
Schedule of Investments SECURITY EQUITY FUND
September 30, 2005 ENHANCED INDEX SERIES
NUMBER MARKET
OF SHARES VALUE
--------- --------
COMMON STOCKS (CONTINUED)
DIVERSIFIED CHEMICALS - 0.6%
Dow Chemical Company 141 $ 5,875
E.I. du Pont de Nemours & Company 674 26,401
Eastman Chemical Company 600 28,182
Engelhard Corporation 800 22,328
--------
82,786
--------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.0%
Cendant Corporation 317 6,543
--------
DIVERSIFIED METALS & MINING - 0.3%
Phelps Dodge Corporation 300 38,979
--------
DRUG RETAIL - 0.1%
Walgreen Company 255 11,080
--------
ELECTRIC UTILITIES - 2.3%
Allegheny Energy, Inc.* 800 24,576
CenterPoint Energy, Inc. 2,600 38,662
Edison International 1,200 56,736
Entergy Corporation 646 48,011
PG&E Corporation 1,200 47,100
Progress Energy, Inc. 970 43,407
Progress Energy, Inc. - Contingent Value Obligation*(2) 400 32
Southern Company 1,761 62,973
Teco Energy, Inc. 1,200 21,624
--------
343,121
--------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.2%
Emerson Electric Company 438 31,448
--------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.0%
Symbol Technologies, Inc. 437 4,230
--------
ELECTRONIC MANUFACTURING SERVICES - 0.0%
Jabil Circuit, Inc.* 100 3,092
Molex, Inc. 100 2,668
--------
5,760
--------
ENVIRONMENTAL & FACILITIES SERVICES - 0.3%
Waste Management, Inc. 1,673 47,865
--------
FOOD RETAIL - 0.3%
Supervalu, Inc. 1,600 49,792
--------
FOOTWEAR - 0.2%
Nike, Inc. (Cl.B) 400 32,672
--------
FOREST PRODUCTS - 0.2%
Louisiana-Pacific Corporation 1,213 33,588
--------
GAS UTILITIES - 0.3%
KeySpan Corporation 900 33,102
Nicor, Inc. 200 8,406
--------
41,508
--------
GENERAL MERCHANDISE STORES - 0.6%
Dollar General Corporation 1,800 $ 33,012
Family Dollar Stores, Inc. 2,300 45,701
Target Corporation 306 15,891
--------
94,604
--------
HEALTH CARE DISTRIBUTORS - 0.0%
Cardinal Health, Inc. 82 5,202
--------
HEALTH CARE EQUIPMENT - 1.5%
Baxter International, Inc. 100 3,987
Becton, Dickinson & Company 1,299 68,107
Guidant Corporation 100 6,889
Medtronic, Inc. 1,693 90,779
PerkinElmer, Inc. 1,400 28,518
Thermo Electron Corporation* 99 3,059
Waters Corporation* 1 42
Zimmer Holdings, Inc.* 300 20,667
--------
222,048
--------
HEALTH CARE FACILITIES - 1.1%
HCA, Inc. 1,600 76,672
Manor Care, Inc. 848 32,572
Tenet Healthcare Corporation* 5,000 56,150
--------
165,394
--------
HEALTH CARE SERVICES - 0.6%
Caremark Rx, Inc.* 600 29,958
Laboratory Corporation of America Holdings* 1,000 48,710
Medco Health Soulutions, Inc.* 200 10,966
--------
89,634
--------
HOME FURNISHINGS - 0.2%
Leggett & Platt, Inc. 1,300 26,260
--------
HOME IMPROVEMENT RETAIL - 1.2%
Home Depot, Inc. 4,008 152,865
Lowe's Companies, Inc. 272 17,517
--------
170,382
--------
HOMEBUILDING - 0.4%
D.R. Horton, Inc. 300 10,866
KB Home 600 43,920
--------
54,786
--------
HOTELS, RESORTS & CRUISE LINES - 0.8%
Carnival Corporation 200 9,996
Hilton Hotels Corporation 1,300 29,016
Marriott International, Inc. 1,000 63,000
Starwood Hotels & Resorts Worldwide, Inc. 300 17,151
--------
119,163
--------
HOUSEHOLD APPLIANCES - 0.2%
Black & Decker Corporation 300 24,627
--------
17 See accompanying notes.
Schedule of Investments SECURITY EQUITY FUND
September 30, 2005 ENHANCED INDEX SERIES
NUMBER MARKET
OF SHARES VALUE
--------- --------
COMMON STOCKS (CONTINUED)
HOUSEHOLD PRODUCTS - 1.0%
Clorox Company 1,064 $ 59,095
Kimberly-Clark Corporation 1,396 83,104
--------
142,199
--------
HYPERMARKETS & SUPERCENTERS - 1.6%
Costco Wholesale Corporation 1,153 49,683
Wal-Mart Stores, Inc. 4,383 192,063
--------
241,746
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 1.0%
AES Corporation* 600 9,858
Duke Energy Corporation 1,500 43,755
TXU Corporation 800 90,304
--------
143,917
--------
INDUSTRIAL CONGLOMERATES - 4.3%
3M Company 1,127 82,677
General Electric Company 12,841 432,356
Tyco International, Ltd. 4,379 121,955
--------
636,988
--------
INDUSTRIAL GASES - 0.4%
Air Products & Chemicals, Inc. 1,000 55,140
--------
INDUSTRIAL MACHINERY - 0.6%
Ingersoll-Rand Company, Ltd. 900 34,407
Parker Hannifin Corporation 900 57,879
--------
92,286
--------
INTEGRATED OIL & GAS - 6.1%
Chevron Corporation 3,231 209,143
ConocoPhillips 1,298 90,743
Exxon Mobil Corporation(1) 9,015 572,813
Murphy Oil Corporation 400 19,948
Occidental Petroleum Corporation 100 8,543
--------
901,190
--------
INTEGRATED TELECOMMUNICATION SERVICES - 3.0%
AT&T Corporation 1,100 21,780
BellSouth Corporation 1,621 42,632
Qwest Communications International, Inc.* 2,038 8,356
SBC Communications, Inc. 5,444 130,493
Sprint Nextel Corporation 3,600 85,608
Verizon Communications, Inc. 4,730 154,624
--------
443,493
--------
INTERNET RETAIL - 0.3%
eBay, Inc.* 972 40,046
--------
INTERNET SOFTWARE & SERVICES - 0.3%
Yahoo!, Inc.* 1,084 36,683
--------
INVESTMENT BANKING & BROKERAGE - 1.8%
Bear Stearns Companies, Inc. 300 32,925
Goldman Sachs Group, Inc. 138 16,778
Lehman Brothers Holdings, Inc. 600 69,888
Merrill Lynch & Company, Inc. 725 44,479
Morgan Stanley 1,982 106,909
--------
270,979
--------
LIFE & HEALTH INSURANCE - 1.2%
AFLAC, Inc. 371 $ 16,806
Jefferson-Pilot Corporation 432 22,105
Lincoln National Corporation 26 1,352
MetLife, Inc. 1,213 60,444
Prudential Financial, Inc. 867 58,575
Torchmark Corporation 400 21,132
--------
180,414
--------
MANAGED HEALTH CARE - 1.4%
Aetna, Inc. 400 34,456
Cigna Corporation 600 70,716
Humana, Inc.* 900 43,092
UnitedHealth Group, Inc. 732 41,138
WellPoint, Inc.* 138 10,463
--------
199,865
--------
METAL & GLASS CONTAINERS - 0.2%
Ball Corporation 900 33,066
--------
MOTORCYCLE MANUFACTURERS - 0.2%
Harley-Davidson, Inc. 547 26,497
--------
MOVIES & ENTERTAINMENT - 2.5%
News Corporation 5,000 77,950
Time Warner, Inc. 3,313 59,998
Viacom, Inc. (Cl.B) 3,513 115,964
Walt Disney Company 4,733 114,207
--------
368,119
--------
MULTI-LINE INSURANCE - 1.2%
American International Group, Inc. 2,519 156,077
Hartford Financial Services Group, Inc. 200 15,434
--------
171,511
--------
MULTI-UTILITIES - 0.3%
Dominion Resources, Inc. 500 43,070
--------
OFFICE SERVICES & SUPPLIES - 0.0%
Pitney Bowes, Inc. 100 4,174
--------
OIL & GAS DRILLING - 1.0%
Nabors Industries, Ltd.* 900 64,647
Noble Corporation 800 54,768
Rowan Companies, Inc.* 800 28,392
Transocean, Inc.* 100 6,131
--------
153,938
--------
OIL & GAS EQUIPMENT & SERVICES - 0.5%
Schlumberger, Ltd. 683 57,632
Weatherford International, Ltd.* 200 13,732
--------
71,364
--------
OIL & GAS EXPLORATION & PRODUCTION - 2.2%
Anadarko Petroleum Corporation 600 57,450
Burlington Resources, Inc. 962 78,230
Devon Energy Corporation 1,200 82,368
Kerr-McGee Corporation 300 29,133
XTO Energy, Inc. 1,700 77,044
--------
324,225
--------
18 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments ENHANCED INDEX SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
OIL & GAS REFINING & MARKETING - 0.0%
Valero Energy Corporation 1 $ 105
----------
OIL & GAS STORAGE & TRANSPORTATION - 0.4%
El Paso Corporation 4,000 55,600
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.3%
Citigroup, Inc. 6,327 288,005
JP Morgan Chase & Company 4,333 147,019
Principal Financial Group, Inc. 1,092 51,728
----------
486,752
----------
PACKAGED FOODS & MEATS - 0.6%
ConAgra Foods, Inc. 700 17,325
General Mills, Inc. 1,000 48,200
McCormick & Company, Inc. 100 3,263
Sara Lee Corporation 919 17,415
Tyson Foods, Inc. 300 5,415
----------
91,618
----------
PERSONAL PRODUCTS - 1.5%
Avon Products, Inc. 200 5,400
Gillette Company 3,767 219,239
----------
224,639
----------
PHARMACEUTICALS - 7.1%
Abbott Laboratories 2,803 118,847
Bristol-Myers Squibb Company 4,487 107,957
Eli Lilly & Company 1,243 66,525
Hospira, Inc.* 1,500 61,455
Johnson & Johnson 4,647 294,062
Merck & Company, Inc. 2,776 75,535
Pfizer, Inc. 10,780 269,177
Schering-Plough Corporation 327 6,883
Wyeth 1,060 49,046
----------
1,049,487
----------
PROPERTY & CASUALTY INSURANCE - 1.7%
Ace, Ltd. 200 9,414
Allstate Corporation 1,110 61,372
Ambac Financial Group, Inc. 100 7,206
Chubb Corporation 100 8,955
Cincinnati Financial Corporation 567 23,752
MBIA, Inc. 400 24,248
Progressive Corporation 100 10,477
Safeco Corporation 400 21,352
St. Paul Travelers Companies, Inc. 1,183 53,081
XL Capital, Ltd. 400 27,212
----------
247,069
----------
PUBLISHING - 0.2%
Gannett Company, Inc. 420 28,909
----------
RAILROADS - 0.9%
Burlington Northern Santa Fe Corporation 1,324 79,175
CSX Corporation 100 4,648
Norfolk Southern Corporation 1,100 44,616
----------
128,439
----------
REAL ESTATE INVESTMENT TRUSTS - 0.5%
Equity Office Properties Trust 2,004 $ 65,551
Equity Residential 100 3,785
----------
69,336
----------
REGIONAL BANKS - 1.5%
First Horizon National Corporation 807 29,334
KeyCorp 2,100 67,725
National City Corporation 1,562 52,233
North Fork Bancorporation, Inc. 700 17,850
Regions Financial Corporation 200 6,224
SunTrust Banks, Inc. 7 486
Zions Bancorporation 600 42,726
----------
216,578
----------
RESTAURANTS - 0.7%
Darden Restaurants, Inc. 1,900 57,703
McDonald's Corporation 887 29,706
Yum! Brands, Inc. 200 9,682
----------
97,091
----------
SEMICONDUCTOR EQUIPMENT - 0.4%
KLA-Tencor Corporation 1,300 63,388
----------
SEMICONDUCTORS - 3.1%
Advanced Micro Devices, Inc.* 700 17,640
Freescale Semiconductor, Inc. (Cl.B)* 2,537 59,822
Intel Corporation 10,023 247,067
LSI Logic Corporation* 700 6,895
National Semiconductor Corporation 1,100 28,930
Texas Instruments, Inc. 2,725 92,377
----------
452,731
----------
SOFT DRINKS - 2.2%
Coca-Cola Company 3,415 147,494
Pepsi Bottling Group, Inc. 1,000 28,550
PepsiCo, Inc. 2,536 143,817
----------
319,861
----------
SPECIALIZED FINANCE - 0.2%
CIT Group, Inc. 500 22,590
----------
SPECIALTY CHEMICALS - 0.7%
International Flavors & Fragrances, Inc. 200 7,128
Rohm & Haas Company 1,400 57,582
Sigma-Aldrich Corporation 517 33,119
----------
97,829
----------
STEEL - 0.3%
Nucor Corporation 800 47,192
----------
SYSTEMS SOFTWARE - 3.0%
Microsoft Corporation 12,405 319,181
Oracle Corporation* 7,406 91,760
Symantec Corporation* 1,586 35,939
----------
446,880
----------
19 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments ENHANCED INDEX SERIES
September 30, 2005
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
THRIFTS & MORTGAGE FINANCE - 0.9%
Countrywide Financial Corporation 900 $ 29,682
Fannie Mae 221 9,905
Freddie Mac 55 3,105
Golden West Financial Corporation 100 5,939
MGIC Investment Corporation 900 57,780
Washington Mutual, Inc. 716 28,082
-----------
134,493
-----------
TIRES & RUBBER - 0.3%
Goodyear Tire & Rubber Company* 3,200 49,888
-----------
TOBACCO - 1.4%
Altria Group, Inc. 2,481 182,874
UST, Inc. 600 25,116
-----------
207,990
-----------
TOTAL COMMON STOCKS
(cost $13,362,749) 14,354,813
-----------
U.S. GOVERNMENT SECURITIES - 0.3%
U.S. Treasury Bill, 3.29%, 12-01-05(1) $ 50,000 49,734
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $49,728) 49,734
-----------
REPURCHASE AGREEMENT - 3.1%
United Missouri Bank, 3.42%, dated 09-30-05, matures
10-03-05; repurchase amount of $457,130
(Collateralized by GNMA, 5.00%, 11-16-31 with a
value of $466,568) $457,000 457,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $457,000) 457,000
-----------
TOTAL INVESTMENTS - 100.8%
(cost $13,869,477) 14,861,547
-----------
LIABILITIES, LESS CASH & OTHER ASSETS - (0.8%) (122,043)
-----------
TOTAL NET ASSETS - 100.0% $14,739,504
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $14,309,417.
* Non-income producing security
(1) Security is segregated as collateral for open futures contracts.
(2) Security is restricted. The total market value of restricted securities is
$32 (cost $190), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to September 28, 2000.
20 See accompanying notes.
SECURITY EQUITY FUND
ENHANCED INDEX SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ......................................... $14,861,547
Cash ............................................................. 340
Receivables:
Fund shares sold .............................................. 6,745
Securities sold ............................................... 138,156
Dividends ..................................................... 17,543
Variation margin on futures contracts ......................... 735
Prepaid expenses ................................................. 9,695
-----------
Total assets ..................................................... 15,034,761
-----------
LIABILITIES:
Payable for:
Securities purchased .......................................... 145,525
Fund shares redeemed .......................................... 429
Management fees ............................................... 6,084
Transfer agent and administration fees ........................ 4,516
Professional fees ............................................. 8,286
12b-1 distribution plan fees .................................. 125,190
Other ......................................................... 5,227
-----------
Total liabilities ................................................ 295,257
-----------
NET ASSETS ....................................................... $14,739,504
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $18,264,609
Undistributed net investment income .............................. 33,715
Accumulated net realized loss
on sale of investments and futures ............................ (4,550,439)
Net unrealized appreciation in value of
investments and futures ....................................... 991,619
-----------
Net assets ....................................................... $14,739,504
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 652,149
Net assets ....................................................... $ 6,248,424
Net asset value and redemption
price per share ............................................... $ 9.58
===========
Maximum offering price per share
(net asset value divided by 94 25%) ........................... $ 10.16
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 519,663
Net assets ....................................................... $ 4,718,273
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ........................................ $ 9.08
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 414,367
Net assets ....................................................... $ 3,772,807
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ........................................ $ 9.10
===========
(1) Investments, at cost ......................................... $13,869,477
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ...................................................... $ 335,890
Interest ....................................................... 6,833
----------
Total investment income ........................................ 342,723
----------
EXPENSES:
Management fees ................................................ 117,333
Custodian fees ................................................. 14,521
Transfer agent/maintenance fees ................................ 38,733
Administration fees ............................................ 28,193
Directors' fees ................................................ 365
Professional fees .............................................. 9,907
Reports to shareholders ........................................ 1,677
Registration fees .............................................. 31,278
Other expenses ................................................. 1,561
12b-1 distribution plan fees - Class A ......................... 17,297
12b-1 distribution plan fees - Class B ......................... 51,586
12b-1 distribution plan fees - Class C ......................... 35,668
----------
Total expenses ................................................. 348,119
Less: Expenses waived .......................................... (39,111)
----------
Net expenses ................................................... 309,008
----------
Net investment income .......................................... 33,715
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments .................................................... 1,284,720
Futures ........................................................ 13,476
----------
Net realized gain .............................................. 1,298,196
----------
Net unrealized appreciation during the period on:
Investments .................................................... 245,400
Futures ........................................................ 2,874
----------
Net unrealized appreciation .................................... 248,274
----------
Net realized and unrealized gain ............................... 1,546,470
----------
Net increase in net assets
resulting from operations ................................... $1,580,185
==========
21 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets ENHANCED INDEX SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) ................ $ 33,715 $ (35,469)
Net realized gain during the period on
investments and futures .................. 1,298,196 1,114,969
Net unrealized appreciation during the
period on investments and futures ........ 248,274 612,275
----------- -----------
Net increase in net assets resulting from
operations ............................... 1,580,185 1,691,775
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................. 1,413,314 1,834,103
Class B .................................. 370,568 912,388
Class C .................................. 771,325 1,337,801
Cost of shares redeemed
Class A .................................. (2,918,252) (1,977,745)
Class B .................................. (1,464,112) (1,094,636)
Class C .................................. (616,833) (1,397,756)
----------- -----------
Net decrease from capital share
transactions ............................. (2,443,990) (385,845)
----------- -----------
Net increase (decrease) in net assets ....... (863,805) 1,305,930
----------- -----------
NET ASSETS:
Beginning of period ......................... 15,603,309 14,297,379
----------- -----------
End of period ............................... $14,739,504 $15,603,309
=========== ===========
Undistributed net investment income
at end of period ......................... $ 33,715 $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................. 153,265 214,183
Class B .................................. 41,963 110,168
Class C .................................. 87,531 163,235
Shares redeemed
Class A .................................. (313,759) (230,862)
Class B .................................. (165,694) (132,909)
Class C .................................. (70,041) (169,518)
22 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights ENHANCED INDEX SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
---------------------------------------------
CLASS A 2005 2004 2003(F) 2002 2001
- ------- ------ ------ ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 8.63 $ 7.69 $ 6.30 $ 8.03 $ 11.29
Income (loss) from investment operations:
Net investment income (loss)(c) 0.06 0.02 -- (0.01) --
Net gain (loss) on securities (realized and unrealized) 0.89 0.92 1.39 (1.72) (3.17)
------ ------ ------ ------- -------
Total from investment operations 0.95 0.94 1.39 (1.73) (3.17)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.09)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (0.09)
------ ------ ------ ------- -------
Net asset value, end of period $ 9.58 $ 8.63 $ 7.69 $ 6.30 $ 8.03
====== ====== ====== ======= =======
TOTAL RETURN(A) 11.01% 12.22% 22.06% (21.54%) (28.27%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $6,248 $7,017 $6,377 $ 7,171 $ 6,699
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) 0.64% 0.19% 0.00% (0.10%) 0.02%
Total expenses(b) 1.81% 1.80% 1.83% 1.61% 1.42%
Net expenses(d) 1.56% 1.54% 1.73% 1.61% 1.42%
Expenses prior to custodian earnings credits and net of
expense waivers 1.56% 1.55% 1.73% 1.61% 1.42%
------ ------ ------ ------- -------
Portfolio turnover rate 104% 79% 60% 62% 40%
YEAR ENDED
SEPTEMBER 30,
---------------------------------------------
CLASS B 2005 2004 2003(F) 2002 2001
- ------- ------ ------ ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 8.25 $ 7.40 $ 6.11 $ 7.87 $ 11.15
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.05) (0.05) (0.07) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.84 0.90 1.34 (1.69) (3.11)
------ ------ ------ ------- -------
Total from investment operations 0.83 0.85 1.29 (1.76) (3.19)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.09)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (0.09)
------ ------ ------ ------- -------
Net asset value, end of period $ 9.08 $ 8.25 $ 7.40 $ 6.11 $ 7.87
====== ====== ====== ======= =======
TOTAL RETURN(A) 10.06% 11.49% 21.11% (22.36%) (28.81%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $4,718 $5,305 $4,929 $ 6,125 $ 7,360
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.11%) (0.56%) (0.75%) (0.84%) (0.74%)
Total expenses(b) 2.56% 2.55% 2.58% 2.35% 2.17%
Net expenses(d) 2.31% 2.29% 2.48% 2.35% 2.17%
Expenses prior to custodian earnings credits and net of
expense waivers 2.31% 2.30% 2.48% 2.35% 2.17%
------ ------ ------ ------- -------
Portfolio turnover rate 104% 79% 60% 62% 40%
23 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights ENHANCED INDEX SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
---------------------------------------------
CLASS C 2005 2004 2003(F) 2002(E) 2001
- ------- ------ ------ ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 8.27 $ 7.42 $ 6.12 $ 7.88 $ 11.16
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.05) (0.05) (0.07) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.84 0.90 1.35 (1.69) (3.11)
------ ------ ------ ------- -------
Total from investment operations 0.83 0.85 1.30 (1.76) (3.19)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.09)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (0.09)
------ ------ ------ ------- -------
Net asset value, end of period $ 9.10 $ 8.27 $ 7.42 $ 6.12 $ 7.88
====== ====== ====== ======= =======
TOTAL RETURN(A) 10.04% 11.46% 21.24% (22.34%) (28.78%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,773 $3,281 $2,991 $ 4,129 $ 4,840
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.15%) (0.56%) (0.74%) (0.85%) (0.74%)
Total expenses(b) 2.56% 2.55% 2.57% 2.35% 2.17%
Net expenses(d) 2.31% 2.29% 2.47% 2.35% 2.17%
Expenses prior to custodian earnings credits and net of
expense waivers 2.31% 2.30% 2.47% 2.35% 2.17%
------ ------ ------ ------- -------
Portfolio turnover rate 104% 79% 60% 62% 40%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager, and custodian earnings credits.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements, and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) Northern Trust became the sub-adviser for Enhanced Index Series effective
May 1, 2003. Prior to May 1, 2003, Security Management Company, LLC paid
Deutsch Asset Management, Inc. for sub-advisory services.
24 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary EQUITY SERIES
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
The Equity Series of the Security Equity Fund returned 8.20% in the period,
lagging the benchmark S&P 500 index's return of 12.25% and the fund's peer group
median return of 11.42%. Like 2004, the markets favored lower quality, higher
beta, and smaller market cap companies. In such environments, we tend to
underperform. While disappointing, we believe that our approach delivers
performance over the long-term.
Our approach to managing the Equity Series of the Security Equity Fund is based
on our investment philosophy described below.
We understand a company's growth potential over the long-term based on our
bottom up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management's ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking.
For this Series, we apply this philosophy to a broad range of both growth and
value names.
HEALTHCARE STOCKS TOP PERFORMERS
The Series' healthcare holdings were up 13% compared to 10% for the index.
Positions in WellPoint, United Healthcare, and Amgen contributed positively to
the Series. Both WellPoint and United Healthcare benefited from an operating
environment where they experienced favorable spreads between their premiums
received and the medical costs they paid. Additionally, both companies benefited
directly from consolidation in the managed care industry. WellPoint acquired
Anthem and United Healthcare acquired Oxford Health. Amgen was up over 41% as a
result of posting solid operating results and diminishing fears regarding the
reimbursement environment.
TECHNOLOGY AND UTILITIES DISAPPOINTING
Technology stocks continued their recovery following a poor 2004. Positive
results from ADC Telecom, up 80%, weren't enough to offset not owning Apple
Computer or Texas Instruments. ADC benefited from the emerging broadband build
out, while Apple had tremendous success with new product launches. Texas
Instruments benefited from an overall recovery in the semiconductor industry as
a result of improving demand trends. Both Apple and Texas Instruments didn't
meet our valuation criteria and thus aren't owned in the Series.
The utilities sector was up 39%. This follows strong performance in the prior
two years as well. Continued low interest rates have provided a solid backdrop
for utilities stocks due to their attractive dividend yields. Utility companies
have also improved their operations by lowering their risk profiles and
de-leveraging their balance sheets. The sector has benefited from the
anticipation of an improving regulatory environment as well. We feel comfortable
with our under weight position due to our belief that some of the favorable
variables will reverse themselves in the future.
2006 MARKET OUTLOOK
We are optimistic on the equity market as we look out into 2006. However, there
are several near-term concerns that need to pass. The most significant, in our
opinion, is the spending capacity of the U.S. consumer. Above average consumer
spending trends have persisted as a result of favorable monetary and fiscal
policies. These favorable policy trends are now being reversed. Additionally,
higher energy prices will weigh heavily on the consumer as we move through the
winter season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We believe that investing is a long-term pursuit that requires patience and a
consistent approach. Dollar cost averaging is a sound way to build long-term
value. We recognize there are many investment fund alternatives available today
and thank you for your business and the confidence you place in us.
Sincerely,
- -------------------------------------
Mark Mitchell
Senior Portfolio Manager
25
SECURITY EQUITY FUND
Performance Summary EQUITY SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY EQUITY SERIES VS.
S&P 500 INDEX
EQUITY SERIES
09/30/95 9,425.00
12/31/95 10,038.01
03/31/96 10,849.80
06/30/96 11,318.13
09/30/96 11,770.86
12/31/96 12,314.05
03/31/97 12,399.56
06/30/97 14,503.21
09/30/97 15,546.49
12/31/97 15,958.82
03/31/98 18,238.65
06/30/98 18,803.90
09/30/98 16,693.64
12/31/98 20,182.80
03/31/99 20,385.03
06/30/99 21,517.53
09/30/99 20,142.35
12/31/99 22,400.23
3/31/00 22,630.51
6/30/00 21,981.53
9/30/00 21,479.10
12/31/00 19,594.62
03/31/01 17,126.97
06/30/01 18,275.28
09/30/01 15,538.88
12/31/01 17,273.56
03/31/02 17,175.83
06/30/02 14,659.32
09/30/02 12,435.99
12/31/02 13,193.39
03/31/03 12,826.90
06/30/03 14,414.99
09/30/03 14,610.45
12/31/03 15,954.68
03/31/04 16,125.97
06/30/04 16,346.21
09/30/04 15,905.74
12/31/04 17,131.71
03/31/05 16,582.45
06/30/05 16,713.22
09/30/05 17,210.17
S&P 500 INDEX
9/30/95 10,000.00
12/31/95 10,602.17
3/31/96 11,170.81
6/30/96 11,671.65
9/30/96 12,032.47
12/31/96 13,036.00
3/31/97 13,385.08
6/30/97 15,722.14
9/30/97 16,901.17
12/31/97 17,387.06
3/31/98 19,812.57
6/30/98 20,467.00
9/30/98 18,430.36
12/31/98 22,353.89
3/31/99 23,470.91
6/30/99 25,125.00
9/30/99 23,555.78
12/31/99 27,060.53
3/31/00 27,682.47
06/30/00 26,948.40
09/30/00 26,687.74
12/31/00 24,601.45
03/31/01 21,686.01
06/30/01 22,955.87
09/30/01 19,588.40
12/31/01 21,682.81
03/31/02 21,741.74
06/30/02 18,829.61
09/30/02 15,577.59
12/31/02 16,893.20
03/31/03 16,361.17
06/30/03 18,879.65
09/30/03 19,379.32
12/31/03 21,740.84
03/31/04 22,109.66
06/30/04 22,490.87
09/30/04 22,069.21
12/31/04 24,107.03
03/31/05 23,587.69
06/30/05 23,908.79
09/30/05 24,771.57
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1995, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 11.33%
Consumer Staples 10.63
Energy 9.87
Financials 15.59
Health Care 14.07
Industrials 17.40
Information Technology 14.16
Materials 2.66
Telecommunication Services 0.78
Exchange Traded Funds 1.93
Commercial Paper 2.62
Liabilities, less cash & other assets (1.04)
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- ----------------
A Shares 8.20% (4.34%) 6.21% -
A Shares with sales charge 1.93% (5.47%) 5.58% -
B Shares 7.35% (5.14%) 5.38% -
B Shares with CDSC 2.35% (5.53%) 5.38% -
C Shares 7.32% (5.12%) N/A (3.44%)(1-29-99)
C Shares with CDSC 6.32% (5.12%) N/A (3.44%)(1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
26 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary EQUITY SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Equity Series - Class A
Actual $1,000.00 $1,037.90 $ 6.64
Hypothetical 1,000.00 1,018.45 6.58
Equity Series - Class B
Actual 1,000.00 1,035.50 10.46
Hypothetical 1,000.00 1,014.71 10.35
Equity Series - Class C
Actual 1,000.00 1,035.30 10.46
Hypothetical 1,000.00 1,014.71 10.35
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 3.79%, 3.55% and 3.53%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.30%, 2.05% and
2.05% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
27
Schedule of Investments SECURITY EQUITY FUND
September 30, 2005 EQUITY SERIES
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 98.4%
AEROSPACE & DEFENSE - 5.4%
General Dynamics Corporation 89,000 $10,639,950
L-3 Communications Holdings, Inc. 42,000 3,320,940
United Technologies Corporation 170,400 8,833,536
-----------
22,794,426
-----------
AIR FREIGHT & LOGISTICS - 2.2%
FedEx Corporation 107,700 9,383,901
-----------
AIRLINES - 1.2%
Southwest Airlines Company 331,200 4,918,320
-----------
ALUMINUM - 0.8%
Alcoa, Inc. 145,000 3,540,900
-----------
BIOTECHNOLOGY - 1.0%
Amgen, Inc.* 53,900 4,294,213
-----------
BROADCASTING & CABLE TV - 1.1%
Univision Communications, Inc.* 182,200 4,833,766
-----------
COMMUNICATIONS EQUIPMENT - 3.2%
ADC Telecommunications, Inc.* 224,657 5,135,659
Cisco Systems, Inc.* 469,400 8,416,342
-----------
13,552,001
-----------
COMPUTER HARDWARE - 0.8%
Dell, Inc.* 95,000 3,249,000
-----------
CONSTRUCTION & ENGINEERING - 1.3%
Shaw Group, Inc.* 219,800 5,420,268
-----------
CONSUMER FINANCE - 2.4%
American Express Company 178,900 10,276,016
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.6%
First Data Corporation 270,200 10,808,000
-----------
DIVERSIFIED BANKS - 2.2%
Wells Fargo & Company 160,000 9,371,200
-----------
DRUG RETAIL - 2.6%
CVS Corporation 371,600 10,780,116
-----------
EXCHANGE TRADED FUNDS - 1.9%
iShares S&P 500 Index Fund 66,300 8,144,955
-----------
GENERAL MERCHANDISE STORES - 0.7%
Target Corporation(1) 56,900 2,954,817
-----------
HEALTH CARE EQUIPMENT - 3.8%
Medtronic, Inc. 162,400 8,707,888
Zimmer Holdings, Inc.* 105,700 7,281,673
-----------
15,989,561
-----------
HEALTH CARE SERVICES - 0.6%
Medco Health Soulutions, Inc.* 44,600 2,445,418
-----------
HOME IMPROVEMENT RETAIL - 2.5%
Home Depot, Inc. 273,100 10,416,034
-----------
HOTELS, RESORTS & CRUISE LINES - 2.1%
Carnival Corporation 173,000 8,646,540
-----------
HOUSEHOLD PRODUCTS - 2.1%
Procter & Gamble Company 151,550 $ 9,011,163
-----------
HYPERMARKETS & SUPERCENTERS - 4.5%
Costco Wholesale Corporation 196,000 8,445,640
Wal-Mart Stores, Inc. 240,200 10,525,564
-----------
18,971,204
-----------
INDUSTRIAL CONGLOMERATES - 7.3%
3M Company 53,000 3,888,080
General Electric Company 552,800 18,612,776
Tyco International, Ltd. 295,500 8,229,675
-----------
30,730,531
-----------
INDUSTRIAL GASES - 1.8%
Praxair, Inc. 160,000 7,668,800
-----------
INTEGRATED OIL & GAS - 5.2%
Chevron Corporation 120,000 7,767,600
Exxon Mobil Corporation 221,100 14,048,694
-----------
21,816,294
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.8%
Verizon Communications, Inc. 100,000 3,269,000
-----------
INTERNET RETAIL - 0.8%
eBay, Inc.* 83,000 3,419,600
-----------
IT CONSULTING & OTHER SERVICES - 1.0%
Unisys Corporation* 664,300 4,410,952
-----------
MANAGED HEALTH CARE - 4.5%
UnitedHealth Group, Inc. 117,800 6,620,360
WellPoint, Inc.* 163,600 12,404,152
-----------
19,024,512
-----------
MOVIES & ENTERTAINMENT - 4.1%
Time Warner, Inc. 460,000 8,330,600
Viacom, Inc. (Cl.B) 275,000 9,077,750
-----------
17,408,350
-----------
MULTI-LINE INSURANCE - 4.2%
American International Group, Inc. 282,500 17,503,700
-----------
OIL & GAS EQUIPMENT & SERVICES - 3.3%
BJ Services Company 128,200 4,613,918
Halliburton Company 133,500 9,147,420
-----------
13,761,338
-----------
OIL & GAS EXPLORATION & PRODUCTION - 1.4%
Anadarko Petroleum Corporation(1) 62,500 5,984,375
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 4.7%
Citigroup, Inc. 329,600 15,003,392
JP Morgan Chase & Company 143,800 4,879,134
-----------
19,882,526
-----------
PHARMACEUTICALS - 4.2%
Abbott Laboratories 130,000 5,512,000
Johnson & Johnson 189,000 11,959,920
-----------
17,471,920
-----------
28 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments EQUITY SERIES
September 30, 2005
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- ------------
COMMON STOCKS (CONTINUED)
PROPERTY & CASUALTY INSURANCE - 2.1%
Berkshire Hathaway, Inc.* 105 $ 8,610,000
------------
SEMICONDUCTORS - 2.9%
Analog Devices, Inc. 106,300 3,947,982
Intel Corporation 326,800 8,055,620
------------
12,003,602
------------
SOFT DRINKS - 1.4%
PepsiCo, Inc. 105,500 5,982,905
------------
SYSTEMS SOFTWARE - 3.7%
Microsoft Corporation 606,200 15,597,526
------------
TOTAL COMMON STOCKS
(cost $331,539,715) 414,347,750
------------
COMMERCIAL PAPER - 1.0%
BANKING - 0.2%
UBS Finance (DE), Inc.,
3.63%, 10-11-05 $1,000,000 998,992
------------
FINANCIAL - OTHER - 0.8%
Countrywide Financial:
3.82%, 10-03-05 $1,100,000 1,099,761
3.81%, 10-19-05 $2,000,000 1,996,190
------------
3,095,951
------------
TOTAL COMMERCIAL PAPER
(cost $4,094,943) 4,094,943
------------
ASSET BACKED COMMERCIAL PAPER - 1.6%
FINANCIAL COMPANIES - MISCELLANEOUS
RECEIVABLES - 0.6%
Jupiter Securitization Corporation:
3.68%, 10-07-05 $1,000,000 999,387
3.65%, 10-13-05 $1,500,000 1,498,175
------------
2,497,562
------------
FINANCIAL COMPANIES - SECURITIES - 0.6%
Asset One Secuitization:
3.73%, 10-05-05 $1,000,000 999,586
3.76%, 10-17-05 $1,670,000 1,667,209
------------
2,666,795
------------
FINANCIAL COMPANIES - TRADE RECEIVABLES - 0.4%
Sheffield Receivables Corporation,
3.65%, 10-06-05 $1,800,000 1,799,087
------------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $6,963,444) 6,963,444
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 3.42%, dated 09-30-05, matures
10-03-05; repurchase amount of $344,098
(Collateralized by U.S. Treasury Notes, 2.75%,
06-30-06 with a value of $246,391 and FHLMC,
4.50%, 04-15-25 with a value of $104,489) $344,000 $ 344,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $344,000) 344,000
------------
TOTAL INVESTMENTS - 101.1%
(cost $342,942,102) 425,750,137
LIABILITIES, LESS CASH & OTHER ASSETS - (1.1%) (4,802,139)
------------
TOTAL NET ASSETS - 100.0% $420,947,998
============
The identified cost of investments owned at September 30, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
(1) Security is segregated as collateral for open written option contracts.
29 See accompanying notes.
SECURITY EQUITY FUND
EQUITY SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ........................................ $425,750,137
Cash ............................................................ 434
Receivables:
Fund shares sold ............................................. 54,620
Dividends .................................................... 201,014
Prepaid expenses ................................................ 18,328
------------
Total assets .................................................... 426,024,533
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 4,158,230
Fund shares redeemed ......................................... 134,583
Written options, at value, (premiums received $240,933) ...... 205,130
Management fees .............................................. 260,006
Custodian fees ............................................... 8,400
Transfer agent and administration fees ....................... 68,825
Professional fees ............................................ 46,151
12b-1 distribution plan fees ................................. 170,196
Other ........................................................ 25,014
------------
Total liabilities ............................................... 5,076,535
------------
NET ASSETS ...................................................... $420,947,998
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $331,366,878
Undistributed net investment income ............................. 2,106,508
Undistributed net realized gain on sale of investments .......... 4,630,774
Net unrealized appreciation in value of investments and written
options ...................................................... 82,843,838
------------
Net assets ...................................................... $420,947,998
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 56,998,310
Net assets ...................................................... $375,280,069
Net asset value and redemption price per share .................. $ 6.58
============
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 6.98
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 6,850,793
Net assets ...................................................... $ 39,962,172
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 5.83
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 926,129
Net assets ...................................................... $ 5,705,757
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 6.16
============
(1)Investments, at cost ......................................... $342,942,102
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 7,913,663
Interest ...................................................... 258,603
-----------
Total investment income ....................................... 8,172,266
-----------
EXPENSES:
Management fees ............................................... 3,269,838
Custodian fees ................................................ 24,941
Transfer agent/maintenance fees ............................... 706,363
Administration fees ........................................... 393,786
Directors' fees ............................................... 8,616
Professional fees ............................................. 74,786
Reports to shareholders ....................................... 46,982
Registration fees ............................................. 47,633
Other expenses ................................................ 22,329
12b-1 distribution plan fees - Class A ........................ 963,101
12b-1 distribution plan fees - Class B ........................ 446,972
12b-1 distribution plan fees - Class C ........................ 60,411
-----------
Total expenses ................................................ 6,065,758
-----------
Net investment income ......................................... 2,106,508
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments ................................................... 5,986,078
-----------
Net realized gain ............................................. 5,986,078
-----------
Net unrealized appreciation during the period on:
Investments ................................................... 26,690,714
Options written ............................................... 35,803
-----------
Net unrealized appreciation ................................... 26,726,517
-----------
Net realized and unrealized gain .............................. 32,712,595
-----------
Net increase in net assets resulting from operations .......... $34,819,103
===========
30 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets EQUITY SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) .................. $ 2,106,508 $ (100,598)
Net realized gain during the period on
investments ................................ 5,986,078 53,906,512
Net unrealized appreciation (depreciation)
during the period on investments and options
written .................................... 26,726,517 (10,398,098)
------------ -------------
Net increase in net assets resulting from
operations ................................. 34,819,103 43,407,816
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A .................................... -- (684,512)
Class B .................................... -- --
Class C .................................... -- --
Net realized gain
Class A .................................... (26,380,459) --
Class B .................................... (3,538,521) --
Class C .................................... (441,254) --
------------ -------------
Total distributions to shareholders ........... (30,360,234) (684,512)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................... 27,211,499 34,438,875
Class B .................................... 7,524,651 8,956,642
Class C .................................... 1,434,117 2,153,270
Distributions reinvested
Class A .................................... 24,060,300 627,027
Class B .................................... 3,490,102 --
Class C .................................... 436,627 --
Cost of shares redeemed
Class A .................................... (71,972,519) (111,058,761)
Class B .................................... (20,528,055) (26,061,410)
Class C .................................... (2,480,994) (3,010,496)
------------ -------------
Net decrease from capital share transactions .. (30,824,272) (93,954,853)
------------ -------------
Net decrease in net assets .................... (26,365,403) (51,231,549)
------------ -------------
NET ASSETS:
Beginning of period ........................... 447,313,401 498,544,950
------------ -------------
End of period ................................. $420,947,998 $ 447,313,401
============ =============
Undistributed net investment income at end of
period ..................................... $ 2,106,508 $ --
============ =============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................... 4,214,004 5,383,103
Class B .................................... 1,306,540 1,534,595
Class C .................................... 233,732 351,499
Shares reinvested
Class A .................................... 3,673,328 97,974
Class B .................................... 597,620 --
Class C .................................... 70,881 --
Shares redeemed
Class A .................................... (11,058,402) (17,251,738)
Class B .................................... (3,529,552) (4,466,840)
Class C .................................... (406,368) (491,760)
31 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights EQUITY SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------------
CLASS A 2005 2004 2003 2002(E,G) 2001
- ------- -------- -------- -------- --------- --------
PER SHARE DATA
Net asset value, beginning of period $ 6.50 $ 5.98 $ 5.09 $ 6.36 $ 10.26
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.04 0.01 0.01 0.01 --
Net gain (loss) on securities (realized
and unrealized) 0.49 0.52 0.88 (1.28) (2.49)
-------- -------- -------- -------- --------
Total from investment operations 0.53 0.53 0.89 (1.27) (2.49)
Less distributions:
Dividends from net investment income -- (0.01) -- -- --
Distributions from realized gains (0.45) -- -- -- (1.40)
Return of capital -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total distributions (0.45) (0.01) -- -- (1.41)
-------- -------- -------- -------- --------
Net asset value, end of period $ 6.58 $ 6.50 $ 5.98 $ 5.09 $ 6.36
======== ======== ======== ======== ========
TOTAL RETURN(A) 8.20% 8.87% 17.49% (19.97%) (27.66%)
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $375,280 $391,384 $430,161 $412,791 $563,553
Ratios to average net assets:
Net investment income (loss) 0.57% 0.08% 0.23% 0.13% 0.03%
Total expenses(b) 1.30% 1.28% 1.25% 1.11% 1.02%
Net expenses(d) 1.30% 1.28% 1.25% 1.11% 1.02%
-------- -------- -------- -------- --------
Portfolio turnover rate 32% 28% 54% 30% 23%
YEAR ENDED
SEPTEMBER 30,
----------------------------------------------------
CLASS B 2005 2004 2003 2002(E,G) 2001
- ------- ------- ------- -------- --------- -------
PER SHARE DATA
Net asset value, beginning of period $ 5.85 $ 5.41 $ 4.64 $ 5.86 $ 9.65
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.04) (0.03) (0.05) (0.07)
Net gain (loss) on securities (realized
and unrealized) 0.44 0.48 0.80 (1.17) (2.31)
------- ------- ------- ------- -------
Total from investment operations 0.43 0.44 0.77 (1.22) (2.38)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.45) -- -- -- (1.40)
Return of capital -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total distributions (0.45) -- -- -- (1.41)
------- ------- ------- ------- -------
Net asset value, end of period $ 5.83 $ 5.85 $ 5.41 $ 4.64 $ 5.86
======= ======= ======= ======= =======
TOTAL RETURN(A) 7.35% 8.13% 16.59% (20.82%) (28.34%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $39,962 $49,600 $61,733 $66,267 $96,067
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.16%) (0.67%) (0.52%) (0.78%) (0.97%)
Total expenses(b) 2.05% 2.03% 2.00% 2.02% 2.02%
Net expenses(d) 2.05% 2.03% 2.00% 2.02% 2.02%
Portfolio turnover rate 32% 28% 54% 30% 23%
32 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights EQUITY SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
CLASS C 2005 2004 2003 2002(E,F,G) 2001
- ------- ------ ------ ------ ----------- -------
PER SHARE DATA
Net asset value, beginning of period $ 6.16 $ 5.69 $ 4.88 $ 6.16 $ 10.07
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.04) (0.03) (0.05) (0.07)
Net gain (loss) on securities (realized and unrealized) 0.46 0.51 0.84 (1.23) (2.43)
------ ------ ------ ------- -------
Total from investment operations 0.45 0.47 0.81 (1.28) (2.50)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.45) -- -- -- (1.40)
Return of capital -- -- -- -- (0.01)
------ ------ ------ ------- -------
Total distributions (0.45) -- -- -- (1.41)
------ ------ ------ ------- -------
Net asset value, end of period $ 6.16 $ 6.16 $ 5.69 $ 4.88 $ 6.16
====== ====== ====== ======= =======
TOTAL RETURN(A) 7.32% 8.26% 16.60% (20.78%) (28.35%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,706 $6,329 $6,651 $ 4,979 $ 4,230
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.18%) (0.67%) (0.52%) (0.76%) (0.97%)
Total expenses(b) 2.05% 2.03% 2.00% 2.02% 2.02%
Net expenses(d) 2.05% 2.03% 2.00% 2.02% 2.02%
------ ------ ------ ------- -------
Portfolio turnover rate 32% 28% 54% 30% 23%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for the Equity Series exclude the historical
financial highlights of the Total Return Series Class A, B and C shares.
The assets of the Total Return Series were acquired by the Equity Series on
August 27, 2002.
(f) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(g) Effective May 1, 2002 the fee structure for Equity Series changed. Per
share information reflects this change.
33 See accompanying notes.
This page left blank intentionally.
34
SECURITY EQUITY FUND
Manager's Commentary GLOBAL SERIES
November 15, 2005 (unaudited)
(OPPENHEIMERFUNDS(R) LOGO)
Subadvisor, OppenheimerFunds, Inc.
(PHOTO OF WILLIAM L. WILBY)
Co-Portfolio Manager
(PHOTO OF RAJEEV BHAMAN)
Co-Portfolio Manager
TO OUR SHAREHOLDERS:
The Global Series of Security Equity Fund outperformed its benchmark, the Morgan
Stanley Capital International, Inc. (MSCI) World Index(1) over the 12 months
ended September 30, 2005. The Global Series of the Security Equity Fund returned
25.41% versus the benchmark, which returned 18.93%.
The most significant features of the economic environment of the past year were
a substantial increase in energy prices, a sustained increase in the Fed Funds
rate and a consequent flattening of the Treasury yield curve. There was a sharp
deterioration in the value of the US dollar in the first three months of the
period followed by an appreciation in the subsequent nine months that returned
the dollar to prior levels. This was a challenging environment for stocks in
general, barring those of energy companies and energy expor ting countries. Of
the major markets, the U.S. performed the worst while Europe and Japan had
fairly good performances during the period.
We are finding opportunities across the world to invest the Series' assets in a
variety of industries. It is important to note that the kinds of businesses in
which the Series' assets are invested have changed very little. What tends to
change is the price at which they are available. We are most interested when
there has been a price decline for short-term reasons and the long term
opportunity remains significant. In this sense we think of ourselves as
contrarians.
The Global Team's investment themes of mass affluence, new technologies,
restructuring and aging provide a number of opportunities. The luxury goods
industry is a business that fits into the mass affluence theme, which is seen as
offering long-term growth opportunities. Included in the portfolio are shares in
LVMH Moet Hennessey Louis Vuitton, the spirits and fine leather goods firm. The
company offers leading brands in each of its categories, including one of the
world's most important champagne houses (the company owns Dom Perignon). The
company is focused on improving its efficiency of capital. Other luxury good
firms in the Series are Tiffany & Co. and Coach, Inc.
We also have a preference for the area of mobile telecommunications, where the
roll out of third generation (3G) mobile telephones, which allows for much
faster rates of data transfer and hence the increase in music, video, gaming and
location based services, should generate new revenue opportunities for service
providers and equipment suppliers alike. We have invested the Series assets in
companies that should benefit from this trend including Vodafone, SK Telecom,
and Ericsson (Telefonaktiebolaget LM Ericsson).
We are also finding first rate opportunities in the health care sector including
pharmaceuticals. New drugs to treat unmet needs in cancer and diabetes, vaccines
to prevent the flu and new antibiotics should drive higher than average profit
growth in this industry for the foreseeable future. Roche and Sanofi-Aventis are
leading companies held in the Series that are driving such innovation.
The Global Team's investment decision-making doesn't focus on predicting
stock-market levels or even short-term economic trends. Rather we try to look
through them for secular longer-term growth opportunities that are available at
reasonable prices. We look to buy stocks with strong growth over an investment
horizon of three to five years and continue to see such opportunities.
Sincerely,
- -------------------------------------
William L. Wilby
Co-Portfolio Manager
- -------------------------------------
Rajeev Bhaman
Co-Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares. Investment in international
securities entail greater risks than investment in domestic securities.
35
SECURITY EQUITY FUND
Performance Summary GLOBAL SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY GLOBAL SERIES VS. MORGAN STANLEY
CAPITAL INTERNATIONAL WORLD INDEX
GLOBAL SERIES
09/30/05 9,425.00
12/31/95 9,763.04
03/31/96 10,388.30
06/30/96 10,951.04
09/30/96 11,093.96
12/31/96 11,428.99
03/31/97 11,704.39
06/30/97 12,884.66
09/30/97 13,337.10
12/31/97 12,218.63
03/31/98 14,088.38
06/30/98 13,784.00
09/30/98 12,207.76
12/31/98 14,564.87
03/31/99 14,834.59
06/30/99 16,148.01
09/30/99 16,406.00
12/31/99 22,549.99
3/31/00 25,568.59
6/30/00 24,634.87
9/30/00 24,123.24
12/31/00 23,239.27
03/31/01 19,901.29
06/30/01 21,309.25
09/30/01 17,465.04
12/31/01 20,170.23
03/31/02 20,454.98
06/30/02 18,524.97
09/30/02 15,012.98
12/31/02 15,297.73
03/31/03 14,016.33
06/30/03 16,927.17
09/30/03 18,477.51
12/31/03 21,657.29
03/31/04 22,543.19
06/30/04 22,258.44
09/30/04 22,036.96
12/31/04 25,548.95
03/31/05 24,647.23
06/30/05 25,359.12
09/30/05 27,637.17
MSCI WORLD INDEX
9/30/95 10,000.00
12/31/95 10,487.07
3/31/96 10,926.80
06/30/96 11,255.17
09/30/96 11,417.79
12/31/96 11,954.39
03/31/97 12,001.87
06/30/97 13,822.29
09/30/97 14,231.89
12/31/97 13,894.92
03/31/98 15,899.14
06/30/98 16,236.43
09/30/98 14,304.17
12/31/98 17,339.86
03/31/99 17,972.84
06/30/99 18,847.06
09/30/99 18,582.21
12/31/99 21,734.03
03/31/00 21,970.15
06/30/00 21,206.06
09/30/00 20,156.01
12/31/00 18,923.75
03/31/01 16,505.81
06/30/01 16,964.35
09/30/01 14,537.49
12/31/01 15,797.23
03/31/02 15,864.37
06/30/02 14,436.91
09/30/02 11,794.34
12/31/02 12,707.49
03/31/03 12,079.07
06/30/03 14,161.92
09/30/03 14,860.33
12/31/03 16,979.54
03/31/04 17,423.55
06/30/04 17,574.55
09/30/04 17,399.17
12/31/04 19,477.97
03/31/05 19,264.16
06/30/05 19,344.51
09/30/05 20,694.20
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Global Series on
September 30, 1995, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 16.76%
Consumer Staples 6.33
Energy 8.25
Financials 16.13
Health Care 13.77
Industrials 8.24
Information Technology 19.07
Materials 0.97
Telecommunication Services 7.95
Utilities 1.10
Repurchase Agreement 1.88
Liabilities, less cash & other assets (0.45)
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- ---------------
A Shares 25.41% 2.76% 11.36% --
A Shares with sales charge 18.20% 1.55% 10.70% --
B Shares 24.67% 2.30% 10.78% --
B Shares with CDSC 19.67% 1.93% 10.78% --
C Shares 24.51% 1.97% N/A 8.85% (1-29-99)
C Shares with CDSC 23.51% 1.97% N/A 8.85% (1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Series and
in the absence of such waiver, the performance quoted would be reduced.
36 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary GLOBAL SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Global Series - Class A
Actual $1,000.00 $1,121.30 $ 9.25
Hypothetical 1,000.00 1,016.26 8.79
Global Series - Class B
Actual 1,000.00 1,118.70 12.11
Hypothetical 1,000.00 1,013.56 11.51
Global Series - Class C
Actual 1,000.00 1,117.50 13.22
Hypothetical 1,000.00 1,012.52 12.56
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 12.13%, 11.87% and
11.75%, for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.74%, 2.28% and
2.49% for Class A, B and C shares, respectively), net of earnings credits,
multiplied by the average account value over the period, multiplied by
183/365 (to reflect the one-half year period).
37
SECURITY EQUITY FUND
Schedule of Investments GLOBAL SERIES
September 30, 2005
NUMBER
OF SHARES MARKET VALUE
--------- ------------
COMMON STOCKS - 97.5%
AUSTRALIA - 0.6%
Australia & New Zealand Banking
Group, Ltd. 22,180 $ 405,886
Macquarie Airports 215,502 538,960
-----------
944,846
-----------
BERMUDA - 0.9%
Ace, Ltd. 30,240 1,423,397
-----------
BRAZIL - 1.6%
Companhia de Bebidas das
Americas ADR 26,657 991,107
Empresa Brasileira de Aeronautica
S.A. ADR 44,568 1,720,325
-----------
2,711,432
-----------
CANADA - 2.2%
Husky Energy, Inc. 50,180 2,787,202
Manulife Financial Corporation 15,773 841,227
-----------
3,628,429
-----------
FINLAND - 0.5%
Fortum Oyj 29,600 593,885
Neste Oil Oyj* 5,325 197,237
-----------
791,122
-----------
FRANCE - 7.8%
Essilor International S.A. 8,190 677,949
European Aeronautic Defence & Space Company 49,100 1,740,193
France Telecom S.A. 42,265 1,212,577
JC Decaux S.A.* 23,530 519,025
LVMH Moet Hennessy Louis Vuitton S.A. 22,450 1,850,267
Sanofi-Aventis 32,325 2,669,963
Societe Generale 13,180 1,503,503
Technip S.A. 32,640 1,930,911
Total S.A. 3,115 849,903
-----------
12,954,291
-----------
GERMANY - 2.9%
Allianz AG 12,766 1,722,992
SAP AG 9,761 1,686,348
Siemens AG 18,427 1,419,079
-----------
4,828,419
-----------
HONG KONG - 2.3%
HSBC Holdings plc 94,276 1,531,483
Hong Kong & China Gas
Company, Ltd. 375,400 773,154
Hutchison Whampoa, Ltd. 66,082 682,621
Television Broadcasts, Ltd. 140,991 861,151
-----------
3,848,409
-----------
INDIA - 3.0%
Hindustan Lever, Ltd. 264,500 1,090,520
ICICI Bank, Ltd. ADR 32,550 919,538
Infosys Technologies, Ltd. 35,987 2,061,572
Zee Telefilms, Ltd. 229,600 902,734
-----------
4,974,364
-----------
IRELAND - 0.5%
Anglo Irish Bank Corporation plc 60,313 $ 818,811
-----------
ITALY - 0.5%
Eni SpA 27,789 824,973
-----------
JAPAN - 10.2%
Canon, Inc. 10,000 540,017
Chugai Pharmaceutical Company, Ltd. 35,900 684,698
Credit Saison Company, Ltd.** 22,400 982,707
Fanuc, Ltd. 5,900 477,135
Hoya Corporation 41,600 1,381,597
JGC Corporation 23,000 420,429
KDDI Corporation 357 2,012,774
Keyence Corporation 3,200 804,546
Murata Manufacturing Company, Ltd. 23,600 1,316,020
Nidec Corporation 7,800 463,815
Nintendo Company, Ltd. 3,600 419,892
Resona Holdings, Inc.* 284 732,316
Shionogi & Company, Ltd. 89,000 1,211,338
Shiseido Company, Ltd. 47,000 677,373
Sony Corporation 45,900 1,508,232
Square Enix Corporation, Ltd. 18,300 506,206
Takeda Pharmaceutical Company, Ltd. 7,000 416,861
Toyota Motor Corporation 31,400 1,438,400
Trend Micro, Inc. 16,000 506,012
Yahoo Japan Corporation 304 356,182
-----------
16,856,550
-----------
KOREA - 2.6%
Hyundai Heavy Industries Company, Ltd. 14,599 1,085,313
Samsung Electronics Company, Ltd. 2,945 1,658,948
SK Telecom Company, Ltd. 2,040 395,754
SK Telecom Company, Ltd. ADR 55,200 1,205,568
-----------
4,345,583
-----------
MEXICO - 1.8%
Fomento Economico Mexicano
S.A. de C.V. 133,500 932,812
Grupo Modelo S.A. de C.V. (Cl.C) 184,000 595,204
Grupo Televisa S.A. ADR 19,964 1,431,619
-----------
2,959,635
-----------
NETHERLANDS - 1.1%
Koninklijke (Royal) Philips
Electronics N.V. 69,600 1,848,809
-----------
NORWAY - 0.5%
Tandberg ASA 65,400 873,544
-----------
PANAMA - 0.6%
Carnival Corporation 19,200 959,616
-----------
PORTUGAL - 0.3%
Energias de Portugal S.A. 165,782 462,082
-----------
38 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments GLOBAL SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
SINGAPORE - 0.5%
Singapore Press Holdings, Ltd. 276,848 $ 755,933
------------
SPAIN - 0.5%
Industria de Diseno Textil S.A 29,400 862,555
------------
SWEDEN - 5.1%
Hennes & Mauritz AB (CI.B) 84,800 3,024,392
Investor AB (CI.B)** 37,511 583,033
Telefonaktiebolaget LM Ericsson (CI.B) 1,350,800 4,930,881
------------
8,538,306
------------
SWITZERLAND - 2.8%
Credit Suisse Group 37,308 1,651,536
Novartis AG 19,006 963,955
Roche Holding AG 14,549 2,020,944
------------
4,636,435
------------
TAIWAN - 0.6%
Taiwan Semiconductor Manufacturing
Company, Ltd. ADR 117,236 963,683
------------
UNITED KINGDOM - 12.0%
3i Group plc** 51,156 708,834
BP plc ADR 24,067 1,705,147
Cadbury Schweppes plc 156,304 1,577,506
DSG International plc 280,883 746,463
GUS plc 37,710 568,060
Pearson plc 79,080 919,405
Peninsular & Oriental Steam Navigation
Company 116,953 689,141
Prudential plc 119,608 1,084,854
Reckitt Benckiser plc 93,532 2,845,945
Royal Bank of Scotland Group plc 85,549 2,428,099
Smith & Nephew plc 124,986 1,048,803
Vodafone Group plc 1,963,710 5,106,165
WPP Group plc 51,320 522,021
------------
19,950,443
------------
UNITED STATES - 36.1%
3M Company 14,000 1,027,040
Adobe Systems, Inc. 29,500 880,575
Advanced Micro Devices, Inc.* 110,400 2,782,080
Affymetrix, Inc.* 18,200 841,386
Altera Corporation* 19,600 374,556
Altria Group, Inc. 6,200 457,002
Amazon.com, Inc.* 13,100 593,430
American Express Company 27,500 1,579,600
Amgen, Inc.* 21,400 1,704,938
Amylin Pharmaceuticals, Inc.* 7,400 257,446
Berkshire Hathaway, Inc. (CI.B)* 340 928,540
Boeing Company 13,200 896,940
Boston Scientific Corporation* 32,200 752,514
Burlington Resources, Inc. 20,500 1,667,060
Cadence Design Systems, Inc.* 41,664 673,290
Chevron Corporation 21,866 1,415,386
Circuit City Stores, Inc. 6,671 114,474
Cisco Systems, Inc.* 52,000 $ 932,360
Citigroup, Inc. 9,366 426,340
Coach, Inc.* 27,800 871,808
Corning, Inc.* 104,800 2,025,784
Cree, Inc.* 32,300 808,146
eBay, Inc.* 53,600 2,208,320
Emerson Electric Company 15,000 1,077,000
Everest Re Group, Ltd. 6,000 587,400
Express Scripts, Inc.* 15,200 945,440
Eyetech Pharmaceuticals, Inc.* 24,400 438,224
Gap, Inc. 24,300 423,549
Genentech, Inc.* 12,200 1,027,362
Genzyme Corporation* 11,700 838,188
Gilead Sciences, Inc.* 32,800 1,599,328
Gillette Company 22,900 1,332,780
GlobalSantaFe Corporation 35,300 1,610,386
International Business Machines Corporation 15,667 1,256,807
International Game Technology 35,500 958,500
International Rectifier Corporation* 15,100 680,708
Intuit, Inc.* 16,500 739,365
JP Morgan Chase & Company 36,069 1,223,821
Juniper Networks, Inc.* 20,500 487,695
Lockheed Martin Corporation 12,600 769,104
Medtronic, Inc. 6,700 359,254
Microsoft Corporation 89,900 2,313,127
Morgan Stanley 32,600 1,758,444
Nektar Therapeutics*(1,2) 10,308 139,777
Northern Trust Corporation 32,600 1,647,930
Northrop Grumman Corporation 14,000 760,900
Novell, Inc.* 124,700 929,015
Pfizer, Inc. 30,638 765,031
Qualcomm, Inc. 32,340 1,447,215
Quest Diagnostics, Inc. 25,600 1,293,824
Raytheon Company 27,100 1,030,342
Silicon Laboratories, Inc.* 7,400 224,886
Sirius Satellite Radio, Inc.* 301,500 1,974,825
Starbucks Corporation* 15,600 781,560
Sun Microsystems, Inc.* 163,200 639,744
Tiffany & Company 11,300 449,401
Transocean, Inc.* 37,500 2,299,125
Wyeth 17,200 795,844
------------
59,824,916
------------
TOTAL COMMON STOCKS
(cost $122,165,069) 161,586,583
============
39 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments GLOBAL SERIES
September 30, 2005
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- ------------
PREFERRED STOCKS - 1.1%
BRAZIL - 0.6%
Contax Participacoes S.A.* 59,839 $ 37,150
Tele Norte Leste Participacoes S.A 59,839 987,715
------------
1,024,865
------------
GERMANY - 0.5%
Porsche AG 1,078 828,558
------------
TOTAL PREFERRED STOCKS
(cost $1,449,610) 1,853,423
------------
REPURCHASE AGREEMENT - 1.9%
State Street Bank, 1.60%, dated 09-30-05, matures
10-03-05; repurchase amount of $3,117,612
(Collateralized by FNMA, 2.18%, 01-30-06 with a
value of $3,183,288) $3,117,196 3,117,196
------------
TOTAL REPURCHASE AGREEMENT
(cost $3,117,196) 3,117,196
------------
TOTAL INVESTMENTS - 100.5%
(cost $126,731,875) 166,557,202
LIABILITIES, LESS CASH & OTHER ASSETS - (0.5%) (747,193)
------------
TOTAL NET ASSETS - 100.0% $165,810,009
============
INVESTMENT CONCENTRATION
At September 30, 2005, Global Series' investment concentration by industry was
as follows:
Aerospace & Defense .................................................. 1.1%
Air Freight & Logistics .............................................. 3.1%
Automobiles .......................................................... 1.4%
Beverages ............................................................ 2.5%
Biotechnology ........................................................ 3.6%
Capital Markets ...................................................... 2.1%
Commercial Banks ..................................................... 2.0%
Commercial Services & Supplies ....................................... 0.3%
Communications Equipment ............................................. 5.2%
Computers & Peripherals .............................................. 1.1%
Construction & Engineering ........................................... 0.3%
Consumer Finance ..................................................... 1.5%
Diversified Financial Services ....................................... 6.4%
Diversified Telecommunications ....................................... 3.9%
Electric Utilities ................................................... 0.3%
Electrical Equipment ................................................. 0.6%
Electronic Equipment & Instruments ................................... 1.6%
Energy Equipment & Services .......................................... 1.2%
Gas Utilities ........................................................ 0.5%
Health Care Equipment & Services ..................................... 2.5%
Health Care Providers & Services ..................................... 1.4%
Hotels, Restaurants & Leisure Products ............................... 1.6%
Household Durables ................................................... 3.5%
Household Products ................................................... 2.4%
Industrial Conglomerates ............................................. 1.5%
Insurance ............................................................ 4.0%
Internet & Catalog Retail ............................................ 0.4%
Internet Software & Services ......................................... 2.4%
IT Services .......................................................... 1.2%
Leisure Equipment & Products ......................................... 0.3%
Machinery ............................................................ 0.9%
Marine ............................................................... 0.4%
Media ................................................................ 4.8%
Multiline Retail ..................................................... 0.3%
Multi-Utilities ...................................................... 0.4%
Oil, Gas & Consumable Fuels .......................................... 7.1%
Paper & Forest Products .............................................. 1.0%
Personal Products .................................................... 1.2%
Pharmaceuticals ...................................................... 6.3%
Semiconductors & Semiconductor Equipment ............................. 3.4%
Software ............................................................. 4.1%
Specialty Retail ..................................................... 0.3%
Textiles, Apparel & Luxury Goods ..................................... 4.2%
Tobacco .............................................................. 0.3%
Wireless Telecommunications .......................................... 4.0%
Repurchase agreement ................................................. 1.9%
Liabilities, less cash & other assets ................................ (0.5%)
-----
100.0%
=====
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $128,133,113.
* Non-income producing security
** Passive Foreign Investment Company
ADR (American Depositary Receipt)
plc (public limited company)
(1) Security is restricted. The total market value of restricted securities is
$139,777 (cost $116,996), or 0.1% of total net assets. The acquisition date
was August 5, 2004.
(2) Security is fair valued by the Board of Directors. The total market value
of fair valued securities amounts to $139,777, or 0.1% of total net assets.
40 See accompanying notes.
SECURITY EQUITY FUND
GLOBAL SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ....................................... $166,557,202
Cash denominated in a foreign currency,
at value(2) ................................................. 246,143
Receivables:
Fund shares sold ............................................ 215,994
Securities sold ............................................. 523,038
Dividends ................................................... 164,774
Foreign taxes recoverable ...................................... 17,796
Prepaid expenses ............................................... 13,821
------------
Total assets ................................................... 167,738,768
------------
LIABILITIES:
Cash overdraft ................................................. 49,378
Payable for:
Securities purchased ........................................ 1,383,181
Fund shares redeemed ........................................ 99,776
Management fees ............................................. 134,741
Custodian fees .............................................. 9,135
Transfer agent and administration fees ...................... 39,457
Professional fees ........................................... 17,070
12b-1 distribution plan fees ................................ 191,026
Other ....................................................... 4,995
------------
Total liabilities .............................................. 1,928,759
------------
NET ASSETS ..................................................... $165,810,009
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $131,949,285
Accumulated net investment loss ................................ (772,826)
Accumulated net realized loss on sale of investments
and foreign currency transactions ........................... (5,193,006)
Net unrealized appreciation in value of investments
and translation of assets and liabilities in
foreign currency ............................................ 39,826,556
------------
Net assets ..................................................... $165,810,009
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 7,324,856
Net assets ..................................................... $127,969,869
Net asset value and redemption price
per share ................................................... $ 17.47
============
Maximum offering price per share (net asset value
divided by 94.25%) .......................................... $ 18.54
============
CLASS B:
Capital shares outstanding (unlimited number
of shares authorized) ....................................... 1,799,188
Net assets ..................................................... $ 28,998,914
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ...................................... $ 16.12
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 537,186
Net assets ..................................................... $ 8,841,226
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ...................................... $ 16.46
============
(1)Investments, at cost ........................................ $126,731,875
(2)Cash denominated in a foreign currency,
at cost ..................................................... 247,123
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax $200,862) .......... $ 2,333,625
Interest ..................................................... 60,840
-----------
Total investment income ...................................... 2,394,465
-----------
EXPENSES:
Management fees .............................................. 1,507,835
Custodian fees ............................................... 93,055
Transfer agent/maintenance fees .............................. 292,700
Administration fees .......................................... 234,824
Directors' fees .............................................. 3,317
Professional fees ............................................ 37,102
Reports to shareholders ...................................... 21,237
Registration fees ............................................ 39,317
Other expenses ............................................... 6,876
12b-1 distribution plan fees - Class A ....................... 284,032
12b-1 distribution plan fees - Class B ....................... 259,687
12b-1 distribution plan fees - Class C ....................... 82,902
-----------
Total expenses ............................................... 2,862,884
Less: Earnings credits ....................................... (1,687)
-----------
Net expenses ................................................. 2,861,197
-----------
Net investment loss .......................................... (466,732)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments .................................................. 13,172,873
Foreign currency transactions ................................ (69,564)
-----------
Net realized gain ............................................ 13,103,309
-----------
Net unrealized appreciation (depreciation)
during the period on:
Investments .................................................. 20,729,218
Translation of assets and liabilities in
foreign currencies ........................................ (2,459)
-----------
Net unrealized appreciation .................................. 20,726,759
-----------
Net realized and unrealized gain ............................. 33,830,068
-----------
Net increase in net assets
resulting from operations ................................. $33,363,336
===========
41 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets GLOBAL SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss ......................... $ (466,732) $ (487,547)
Net realized gain during the period on
investments and foreign currency
transactions ............................. 13,103,309 4,015,387
Net unrealized appreciation during the period
on investments and translation of assets
and liabilities in foreign currencies .... 20,726,759 13,434,399
------------ ------------
Net increase in net assets resulting from
operations ............................... 33,363,336 16,962,239
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................. 31,692,774 62,153,125
Class B .................................. 3,283,116 13,008,655
Class C .................................. 1,610,608 2,011,154
Issuance of shares in connection with
International
Series merger (Note 8)
Class A .................................. -- 4,450,969
Class B .................................. -- 2,248,383
Class C .................................. -- 2,646,183
Cost of shares redeemed
Class A .................................. (27,395,260) (22,537,310)
Class B .................................. (8,996,589) (7,327,595)
Class C .................................. (2,115,442) (3,745,740)
------------ ------------
Net increase (decrease) from capital share
transactions ............................. (1,920,793) 52,907,824
------------ ------------
Net increase in net assets .................. 31,442,543 69,870,063
------------ ------------
NET ASSETS:
Beginning of period ......................... 134,367,466 64,497,403
------------ ------------
End of period ............................... $165,810,009 $134,367,466
============ ============
Accumulated net investment loss at end
of period ................................ $ (772,826) $ (315,022)
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................. 2,004,496 4,739,362
Class B .................................. 225,028 1,072,788
Class C .................................. 107,909 162,899
Shares issued in connection with
International Series merger
Class A .................................. -- 366,909
Class B .................................. -- 198,022
Class C .................................. -- 228,231
Shares redeemed
Class A .................................. (1,748,721) (1,693,741)
Class B .................................. (618,877) (584,090)
Class C .................................. (142,443) (296,232)
42 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights GLOBAL SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------------
CLASS A 2005 2004(H) 2003 2002(E,G) 2001
- ------- -------- ------- ------- --------- -------
PER SHARE DATA
Net asset value, beginning of period $ 13.93 $ 11.68 $ 9.49 $ 11.04 $ 18.86
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.02) (0.03) (0.03) (0.05) (0.08)
Net gain (loss) on securities (realized and unrealized) 3.56 2.28 2.22 (1.50) (4.33)
-------- ------- ------- ------- -------
Total from investment operations 3.54 2.25 2.19 (1.55) (4.41)
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (3.41)
-------- ------- ------- ------- -------
Total distributions -- -- -- -- (3.41)
-------- ------- ------- ------- -------
Net asset value, end of period $ 17.47 $ 13.93 $ 11.68 $ 9.49 $ 11.04
======== ======= ======= ======= =======
TOTAL RETURN(A) 25.41% 19.26% 23.08% (14.04%) (27.60%)
-------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $127,970 $98,450 $42,711 $50,893 $48,089
-------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.14%) (0.20%) (0.26%) (0.46%) (0.57%)
Total expenses(b) 1.73% 1.79% 2.00% 1.85% 1.90%
Net expenses(d) 1.73% 1.79% 2.00% 1.85% 1.90%
Expenses prior to custodian earnings credits and net
of expense waivers 1.73% 1.79% 2.00% 1.85% 1.90%
-------- ------- ------- ------- -------
Portfolio turnover rate 31% 25% 62% 36% 38%
YEAR ENDED
SEPTEMBER 30,
----------------------------------------------------
CLASS B 2005(I) 2004(H) 2003 2002(E,G) 2001
- ------- ------- ------- ------- --------- -------
PER SHARE DATA
Net asset value, beginning of period $ 12.93 $ 10.93 $ 8.89 $ 10.38 $ 18.00
Income (loss) from investment operations:
Net investment income (loss)(c) (0.12) (0.13) (0.04) (0.10) (0.14)
Net gain (loss) on securities (realized and unrealized) 3.31 2.13 2.08 (1.39) (4.07)
------- ------- ------- ------- -------
Total from investment operations 3.19 2.00 2.04 (1.49) (4.21)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (3.41)
------- ------- ------- ------- -------
Total distributions -- -- -- -- (3.41)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.12 $ 12.93 $ 10.93 $ 8.89 $ 10.38
======= ======= ======= ======= =======
TOTAL RETURN(A) 24.67% 18.30% 22.95% (14.35%) (27.86%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $28,999 $28,360 $16,461 $19,021 $23,533
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.80%) (1.00%) (0.42%) (0.89%) (1.07%)
Total expenses(b) 2.38% 2.54% 2.18% 2.28% 2.39%
Net expenses(d) 2.38% 2.54% 2.18% 2.28% 2.39%
Expenses prior to custodian earnings credits and net
of expense waivers 2.38% 2.54% 2.18% 2.28% 2.39%
------- ------- ------- ------- -------
Portfolio turnover rate 31% 25% 62% 36% 38%
------- ------- ------- ------- -------
43 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights GLOBAL SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
----------------------------------------------------
CLASS C 2005 2004(H) 2003 2002(E,F,G) 2001
- ------- ------ ------- ------ ----------- -------
PER SHARE DATA
Net asset value, beginning of period $13.22 $11.17 $ 9.14 $ 10.72 $ 18.55
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.13) (0.09) (0.15) (0.21)
Net gain (loss) on securities (realized and unrealized) 3.37 2.18 2.12 (1.43) (4.21)
------ ------ ------ ------- -------
Total from investment operations 3.24 2.05 2.03 (1.58) (4.42)
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (3.41)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (3.41)
------ ------ ------ ------- -------
Net asset value, end of period $16.46 $13.22 $11.17 $ 9.14 $ 10.72
====== ====== ====== ======= =======
TOTAL RETURN(A) 24.51% 18.35% 22.21% (14.74%) (28.20%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,841 $7,557 $5,326 $ 4,076 $ 3,569
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.90%) (1.02%) (0.96%) (1.33%) (1.57%)
Total expenses(b) 2.48% 2.54% 2.77% 2.74% 2.91%
Net expenses(d) 2.48% 2.54% 2.77% 2.74% 2.91%
Expenses prior to custodian earnings credits and
net of expense waivers 2.48% 2.54% 2.77% 2.74% 2.91%
------ ------ ------ ------- -------
Portfolio turnover rate 31% 25% 62% 36% 38%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) As required, effective October 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended September 30, 2002, was to increase net investment
income per share by less than 1/2 of a cent, decrease net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase the ratio of net investment income to average net assets from
0.06% to 0.07%. Per share, ratios and supplemental data for periods prior
to October 1, 2001 have not been restated to reflect this change in
presentation.
(f) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(g) Effective May 1, 2002 the fee structure for Global Series changed. Per
share information reflects this change.
(h) The financial highlights for the Global Series exclude the historical
financial highlights of the International Series Class A, B and C shares.
The assets of the International Series were acquired by the Global Series
on October 3, 2003.
(i) Effective August 25, 2005, Class B shares ceased charging 12b-1 fees in
accordance with the NASD sales cap regulations. Per share information
reflects this change.
44 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary LARGE CAP GROWTH SERIES
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
The Security Large Cap Growth Series of the Security Equity Fund returned 5.12%
in the period, lagging the benchmark Russell 1000 Growth index's return of
11.66% and the Series' peer group median return of 12.23%. The last few years,
the market favored lower quality, higher beta stocks. In such environments, we
tend to under perform. While disappointing, we believe that our approach
delivers performance over the long-term.
Our approach to managing the Security Large Cap Growth Series is based on our
investment philosophy described below.
We understand a company's growth potential over the long-term based on our
bottom up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking.
For this Series, we apply this philosophy to a broad range of growth companies.
TECHNOLOGY AND CONSUMER STAPLES STOCKS ARE TOP PERFORMERS
The Series' technology holdings were up 15% compared to 13% for the index.
Positions in ADC Telecom and Qualcomm contributed positively to the Series. ADC
Telecom, up over 80%, benefited from the continued broadband infrastructure
build out. Qualcomm, up 28%, experienced solid wireless technology demand
leading to strong operating results.
Within consumer staples, CVS and PepsiCo were up 39% and 19%, respectively. CVS
benefited from continued execution in their core business and good progress in
the integration of Eckard, an acquisition completed in July 2004. PepsiCo was
positively impacted by strong growth in their international markets and solid
execution within their diversified business model encompassing both beverages
and snacks.
HEALTH CARE AND CONSUMER DISCRETIONARY DISAPPOINTING
Health care, as a sector overall, underperformed the index. Boston Scientific
and Pfizer both had a negative impact on the Series. Boston Scientific was down
over 24% as a result of concerns regarding their long-term growth prospects and
declining market share in the drug eluting stent market in the U.S.. Pfizer was
down over 10% due in part to less visible growth prospects driven by patent
expirations and regulatory scrutiny.
2006 MARKET OUTLOOK
We are optimistic on the equity market as we look out into 2006. However, there
are several near-term concerns that need to pass. The most significant, in our
opinion, is the spending capacity of the U.S. consumer. Above average consumer
spending trends have persisted as a result of favorable monetary and fiscal
policies. These favorable policy trends are now being reversed. Additionally,
higher energy prices will weigh heavily on the consumer as we move through the
winter season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We believe that investing is a long-term pursuit that requires patience and a
consistent approach. Dollar cost averaging is a sound way to build long-term
value. We recognize there are many investment fund alternatives available today
and thank you for your business and the confidence you place in us.
Sincerely,
- -------------------------------------
Mark Mitchell
Senior Portfolio Manager
45
SECURITY EQUITY FUND
Performance Summary LARGE CAP GROWTH SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY LARGE CAP GROWTH SERIES VS. RUSSELL 1000 GROWTH INDEX
LARGE CAP GROWTH SERIES
05/1/00 9,425.00
6/30/00 9,641.85
9/30/00 9,151.74
12/31/00 7,558.91
03/31/01 6,314.80
06/30/01 6,767.20
09/30/01 5,655.04
12/31/01 6,380.77
03/31/02 6,164.00
06/30/02 5,023.56
09/30/02 4,335.53
12/31/02 4,646.56
03/31/03 4,618.28
06/30/03 5,221.49
09/30/03 5,296.89
12/31/03 5,739.87
03/31/04 5,739.87
06/30/04 5,824.69
09/30/04 5,523.09
12/31/04 5,890.67
03/31/05 5,541.94
06/30/05 5,655.04
09/30/05 5,805.84
RUSSELL 1000 GROWTH INDEX
INCEPTION 5/01/00 10,000.00
06/30/00 10,215.80
09/30/00 9,665.85
12/31/00 7,603.20
03/31/01 6,014.12
06/30/01 6,520.45
09/30/01 5,254.83
12/31/01 6,050.69
03/31/02 5,894.05
06/30/02 4,793.50
09/30/02 4,072.29
12/31/02 4,363.25
03/31/03 4,316.46
06/30/03 4,933.91
09/30/03 5,127.23
12/31/03 5,661.58
03/31/04 5,705.90
06/30/04 5,816.42
09/30/04 5,512.78
12/31/04 6,018.40
03/31/05 5,772.65
06/30/05 5,915.09
09/30/05 6,152.47
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Large Cap Growth
Series on May 1, 2000 (date of inception), reflects deduction of the 5.75% sales
load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 13.93%
Consumer Staples 10.32
Energy 3.38
Financials 9.17
Health Care 14.99
Industrials 19.20
Information Technology 21.64
Exchange Traded Funds 2.94
Commercial Paper 3.55
Cash & other assets, less liabilities 0.88
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ---------------
A Shares 5.12% (8.70%) (8.55%)(5-1-00)
A Shares with sales charge (0.97%) (9.77%) (9.55%)(5-1-00)
B Shares 4.25% (9.40%) (9.31%)(5-1-00)
B Shares with CDSC (0.75%) (9.77%) (9.31%)(5-1-00)
C Shares 4.41% (9.31%) (9.22%)(5-1-00)
C Shares with CDSC 3.41% (9.31%) (9.22%)(5-1-00)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Series and
in the absence of such waiver, the performance quoted would be reduced.
46 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary LARGE CAP GROWTH SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Large Cap Growth
Series - Class A
Actual $1,000.00 $1,047.60 $11.60
Hypothetical 1,000.00 1,013.66 11.41
Large Cap Growth
Series - Class B
Actual 1,000.00 1,044.30 15.48
Hypothetical 1,000.00 1,009.87 15.22
Large Cap Growth
Series - Class C
Actual 1,000.00 1,044.10 15.39
Hypothetical 1,000.00 1,009.87 15.13
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 4.76%, 4.43% and 4.41%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (2.26%, 3.02% and
3.02% for Class A, B and C shares, respectively), net of any applicable fee
waivers, reimbursed expenses or earnings credits, multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
47
SECURITY EQUITY FUND
Schedule of Investments LARGE CAP GROWTH SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 95.6%
AEROSPACE & DEFENSE - 4.1%
General Dynamics Corporation 2,400 $ 286,920
United Technologies Corporation 5,600 290,304
----------
577,224
----------
AIR FREIGHT & LOGISTICS - 3.4%
FedEx Corporation 5,400 470,502
----------
AIRLINES - 1.4%
Southwest Airlines Company 12,800 190,080
----------
BIOTECHNOLOGY - 1.4%
Amgen, Inc.* 2,500 199,175
----------
BROADCASTING & CABLE TV - 3.7%
Univision Communications, Inc.* 19,400 514,682
----------
COMMUNICATIONS EQUIPMENT - 8.4%
3Com Corporation* 35,000 142,800
ADC Telecommunications, Inc.* 14,157 323,632
Cisco Systems, Inc.* 20,100 360,393
Qualcomm, Inc. 8,000 358,000
----------
1,184,825
----------
COMPUTER HARDWARE - 1.0%
Dell, Inc.* 4,200 143,640
----------
CONSUMER FINANCE - 2.8%
American Express Company 6,800 390,592
----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.3%
First Data Corporation 11,700 468,000
----------
DRUG RETAIL - 3.5%
CVS Corporation 17,100 496,071
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.1%
Power-One, Inc.* 27,400 151,796
----------
EXCHANGE TRADED FUNDS - 2.9%
iShares Russell 1000 Growth Index Fund 8,300 413,091
----------
GENERAL MERCHANDISE STORES - 0.9%
Target Corporation 2,500 129,825
----------
HEALTH CARE EQUIPMENT - 6.4%
Medtronic, Inc. 9,000 482,580
Zimmer Holdings, Inc.* 6,100 420,229
----------
902,809
----------
HEALTH CARE SERVICES - 2.2%
Covance, Inc.* 6,400 307,136
----------
HOME IMPROVEMENT RETAIL - 2.7%
Home Depot, Inc. 10,000 381,400
----------
HOTELS, RESORTS & CRUISE LINES - 3.0%
Carnival Corporation 8,500 424,830
----------
HOUSEHOLD PRODUCTS - 2.2%
Procter & Gamble Company 5,200 309,192
----------
HYPERMARKETS & SUPERCENTERS - 3.0%
Wal-Mart Stores, Inc. 9,700 425,054
----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
INDUSTRIAL CONGLOMERATES - 5.4%
3M Company 1,800 $ 132,048
General Electric Company 18,600 626,262
-----------
758,310
-----------
INTERNET RETAIL - 0.7%
eBay, Inc.* 2,400 98,880
-----------
MANAGED HEALTH CARE - 2.0%
UnitedHealth Group, Inc. 5,000 281,000
-----------
MOVIES & ENTERTAINMENT - 2.9%
Viacom, Inc. (Cl.B) 12,400 409,324
-----------
MULTI-LINE INSURANCE - 4.3%
American International Group, Inc. 9,800 607,208
-----------
OIL & GAS EQUIPMENT & SERVICES - 3.4%
BJ Services Company 13,200 475,068
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.1%
Citigroup, Inc. 6,400 291,328
-----------
PHARMACEUTICALS - 3.0%
Johnson & Johnson 6,600 417,648
-----------
SEMICONDUCTORS - 5.0%
Analog Devices, Inc. 6,700 248,838
Applied Micro Circuits Corporation* 47,200 141,600
Intel Corporation 12,900 317,985
-----------
708,423
-----------
SOFT DRINKS - 1.6%
PepsiCo, Inc. 3,900 221,169
-----------
SYSTEMS SOFTWARE - 3.8%
Microsoft Corporation 20,900 537,757
-----------
TRADING COMPANIES & DISTRIBUTORS - 0.7%
W.W. Grainger, Inc. 1,500 94,380
-----------
TRUCKING - 3.3%
J.B. Hunt Transport Services, Inc. 24,100 458,141
-----------
TOTAL COMMON STOCKS
(cost $12,500,517) 13,438,560
-----------
COMMERCIAL PAPER - 3.5%
FINANCIAL - OTHER - 3.5%
Countrywide Financial,
3.85%, 10-06-05 $500,000 499,733
-----------
TOTAL COMMERCIAL PAPER
(cost $499,733) 499,733
-----------
TOTAL INVESTMENTS - 99.1%
(cost $13,000,250) 13,938,293
CASH & OTHER ASSETS, LESS LIABILITIES - 0.9% 122,829
-----------
TOTAL NET ASSETS - 100.0% $14,061,122
===========
For federal income tax purposes the indentified cost of investments owned at
September 30, 2005 was $13,076,402.
* Non-income producing security
48 See accompanying notes.
SECURITY EQUITY FUND
LARGE CAP GROWTH SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value (1) ....................................... $ 13,938,293
Cash ............................................................ 372,549
Receivables:
Fund shares sold ............................................. 20,506
Dividends .................................................... 6,546
Prepaid expenses ................................................ 14,824
------------
Total assets .................................................... 14,352,718
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 161,441
Fund shares redeemed ......................................... 12,032
Management fees .............................................. 8,666
Transfer agent and administration fees ....................... 6,807
Professional fees ............................................ 8,581
12b-1 distribution plan fees ................................. 90,588
Reimbursement due to advisor ................................. 2,626
Other ........................................................ 855
------------
Total liabilities ............................................... 291,596
------------
NET ASSETS ...................................................... $ 14,061,122
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $ 15,511,601
Accumulated net realized loss
on sale of investments ....................................... (2,388,522)
Net unrealized appreciation in value
of investments ............................................... 938,043
------------
Net assets ...................................................... $ 14,061,122
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,340,489
Net assets ...................................................... $ 8,260,907
Net asset value and redemption price
per share .................................................... $ 6.16
============
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 6.54
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 450,115
Net assets ...................................................... $ 2,653,394
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 5.89
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 531,423
Net assets ...................................................... $ 3,146,821
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 5.92
============
(1) Investments, at cost ........................................ $ 13,000,250
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ....................................................... $ 204,677
Interest ........................................................ 6,208
---------
Total investment income ......................................... 210,885
---------
EXPENSES:
Management fees ................................................. 140,504
Custodian fees .................................................. 4,718
Transfer agent/maintenance fees ................................. 106,193
Administration fees ............................................. 24,949
Directors' fees ................................................. 190
Professional fees ............................................... 10,653
Reports to shareholders ......................................... 2,496
Registration fees ............................................... 34,087
Other expenses .................................................. 1,965
12b-1 distribution plan fees - Class A .......................... 19,341
12b-1 distribution plan fees - Class B .......................... 31,297
12b-1 distribution plan fees - Class C .......................... 31,842
---------
Total expenses .................................................. 408,235
Less:
Expenses waived .............................................. (35,126)
Earnings credits ............................................. (1,371)
Reimbursement of expenses - Class A .......................... (4,677)
Reimbursement of expenses - Class B .......................... (1,921)
Reimbursement of expenses - Class C .......................... (1,654)
---------
Net expenses .................................................... 363,486
---------
Net investment loss ............................................. (152,601)
---------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments ..................................................... 292,724
---------
Net realized gain ............................................... 292,724
---------
Net unrealized appreciation
during the period on: Investments ............................... 499,904
---------
Net unrealized appreciation ..................................... 499,904
---------
Net realized and unrealized gain ................................ 792,628
---------
Net increase in net assets
resulting from operations .................................... $ 640,027
=========
49 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets LARGE CAP GROWTH SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss .................................. $ (152,601) $ (289,297)
Net realized gain during the period on investments ... 292,724 1,338,820
Net unrealized appreciation (depreciation) during
the period on investments ......................... 499,904 (146,746)
----------- -----------
Net increase in net assets resulting from operations.. 640,027 902,777
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ........................................... 5,885,757 11,629,566
Class B ........................................... 943,562 2,089,630
Class C ........................................... 935,616 906,174
Cost of shares redeemed
Class A ........................................... (9,484,442) (16,966,073)
Class B ........................................... (1,955,914) (5,250,568)
Class C ........................................... (1,005,819) (1,376,326)
----------- -----------
Net decrease from capital share transactions ......... (4,681,240) (8,967,597)
----------- -----------
Net increase (decrease) in net assets ................ (4,041,213) (8,064,820)
----------- -----------
NET ASSETS:
Beginning of period .................................. 18,102,335 26,167,155
----------- -----------
End of period ........................................ $14,061,122 $18,102,335
=========== ===========
Accumulated undistributed net investment loss at end
of period ......................................... $ -- $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ........................................... 973,824 1,956,772
Class B ........................................... 162,302 358,069
Class C ........................................... 160,117 153,643
Shares redeemed
Class A ........................................... (1,588,369) (2,880,964)
Class B ........................................... (342,470) (930,168)
Class C ........................................... (173,001) (235,580)
50 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights LARGE CAP GROWTH SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
CLASS A 2005 2004 2003 2002 2001
- ------- ------ ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 5.86 $ 5.62 $ 4.60 $ 6.00 $ 9.71
------ ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.05) (0.05) (0.04) (0.05) (0.08)
Net gain (loss) on securities (realized and unrealized) 0.35 0.29 1.06 (1.35) (3.63)
------ ------- ------- ------- -------
Total from investment operations 0.30 0.24 1.02 (1.40) (3.71)
------ ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------- ------- ------- -------
Total distributions -- -- -- -- --
------ ------- ------- ------- -------
Net asset value, end of period $ 6.16 $ 5.86 $ 5.62 $ 4.60 $ 6.00
====== ======= ======= ======= =======
TOTAL RETURN(A) 5.12% 4.27% 22.17% (23.33%) (38.21%)
------ ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,261 $11,455 $16,179 $ 9,243 $ 2,436
------ ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.76%) (0.81%) (0.71%) (1.00%) (1.10%)
Total expenses(b) 2.57% 2.00% 1.83% 1.99% 2.15%
Net expenses(d) 2.25% 1.83% 1.83% 1.99% 1.99%
Expenses prior to custodian earnings credits and net of
expense waivers 2.26% 1.84% 1.83% 1.99% 2.00%
------ ------- ------- ------- -------
Portfolio turnover rate 59% 44% 39% 12% 6%
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
CLASS B 2005 2004 2003 2002 2001
- ------- ------ ------ ------ ------- --------
PER SHARE DATA
Net asset value, beginning of period $ 5.65 $ 5.45 $ 4.50 $ 5.92 $ 9.65
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.09) (0.09) (0.07) (0.11) (0.14)
Net gain (loss) on securities (realized and unrealized) 0.33 0.29 1.02 (1.31) (3.59)
------ ------ ------ ------- -------
Total from investment operations 0.24 0.20 0.95 (1.42) (3.73)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
Total distributions -- -- -- -- --
------ ------ ------ ------- -------
Net asset value, end of period $ 5.89 $ 5.65 $ 5.45 $ 4.50 $ 5.92
====== ====== ====== ======= =======
TOTAL RETURN(A) 4.25% 3.67% 21.11% (23.99%) (38.65%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,653 $3,559 $6,557 $ 1,949 $ 1,955
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (1.45%) (1.55%) (1.49%) (1.88%) (1.85%)
Total expenses(b) 3.32% 2.72% 2.59% 2.82% 2.92%
Net expenses(d) 3.00% 2.56% 2.59% 2.82% 2.75%
Expenses prior to custodian earnings credits and net of
expense waivers 3.01% 2.56% 2.59% 2.82% 2.75%
------ ------ ------ ------- -------
Portfolio turnover rate 59% 44% 39% 12% 6%
51 See accompanying notes.
SECURITY EQUITY FUND
LARGE CAP GROWTH SERIES
Financial Highlights
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
CLASS C 2005 2004 2003 2002(E) 2001
- ------- ------ ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 5.67 $ 5.48 $ 4.52 $ 5.93 $ 9.65
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.09) (0.09) (0.07) (0.11) (0.13)
Net gain (loss) on securities (realized and unrealized) 0.34 0.28 1.03 (1.30) (3.59)
------ ------ ------ ------- -------
Total from investment operations 0.25 0.19 0.96 (1.41) (3.72)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------ ------ ------- -------
Total distributions -- -- -- -- --
------ ------ ------ ------- -------
Net asset value, end of period $ 5.92 $ 5.67 $ 5.48 $ 4.52 $ 5.93
====== ====== ====== ======= =======
TOTAL RETURN(A) 4.41% 3.47% 21.24% (23.78%) (38.55%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,147 $3,088 $3,432 $ 2,547 $ 2,577
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (1.52%) (1.58%) (1.44%) (1.88%) (1.85%)
Total expenses(b) 3.32% 2.77% 2.58% 2.82% 2.92%
Net expenses(d) 3.00% 2.61% 2.58% 2.82% 2.75%
Expenses prior to custodian earnings credits and net of
expense waivers 3.01% 2.61% 2.58% 2.82% 2.75%
------ ------ ------ ------- -------
Portfolio turnover rate 59% 44% 39% 12% 6%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
52 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary MID CAP VALUE SERIES
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
The Mid Cap Value Series of the Security Equity Fund turned in a solid year
performing better than the benchmark, Russell 2500 Value Index. The Series
gained 27.77% vs. a return of 21.31% for the index and 20.36% for the Series'
peer group median.
Our approach with the Mid Cap Value Series is to seek appreciable securities of
companies that are able to grow and/or reinvest in increasingly profitable
ventures and hold them over 3-5 years to capture the better part of the
improvements in profitability. We are focused on investing in securities when we
find opportunities, with our individual position sizes reflecting the magnitude
and the confidence in the opportunity. For this Series, we target securities
generally priced at or below a market multiple that are able to increase their
return on capital over time.
INDUSTRIAL, ENERGY AND MATERIAL STOCKS ARE TOP PERFORMERS
The industrial sector drove performance with the Series average industrial
holdings gaining more than 55%, more than twice what peer stocks accomplished in
the benchmark. Stocks contributing to this performance include Shaw Group,
Quanta Services, Capstone Turbine and Mastec. All of these companies benefited
from infrastructure projects incentivized in the energy bill as well as from all
of the reconstruction work that was generated during the hurricane season.
A heavy weighting in energy names also served the Series well as the sector on
average gained 65%. McDermott International led the group in gaining 143% from
an increase in infrastructure projects, reconstruction work from the hurricanes,
and a favorable settlement on the asbestos front.
KFx also had a sizable move as the company continues to make substantive
progress in commercializing its clean coal technology. For Williams Cos., the
market responded to their drilling initiative in the Rockies, their efforts to
increase proven reserves in 3,000 drilling locations, and potential to spin-off
their mid-stream assets into a MLP.
Holdings in the materials sector also aided the Series' performance. Favorable
energy fundamentals boosted the outlook for coal. Arch Coal and Consol Energy
gained 91% and 121%, respectively.
TECHNOLOGY AND HEALTH CARE WERE HIT HARD
Technology holdings in the Series declined 4% during the last 12 months. Merix
Corporation declined 45% following difficulty in integrating acquired Data
Circuit Systems and their entering the competitive quick turns microprocessor
business. Avanex, which lost 53%, also had difficulty with acquired businesses.
Avanex underestimated the cash draw for severance in Europe when integrating
Corning and Alcatel's fiber optics business and they expected a faster rebound
in demand from RBOC's. The Series continues to own both of these positions.
Health care stocks also provided disappointment. Millenium Pharmaceuticals
declined 38% as the company's two primary drugs (Integrilin and Velcade)
experienced emergence of stronger competitive products in a rapidly maturing
market. This position has been sold by the Series. Hooper Holmes, the medical
exam company, declined 11% due to a lower than expected sales growth and the
failure to complete a long-touted strategic acquisition, which eventually lead
to the departure of the CEO. Given the Series' leading market position, solid
balance sheet and cash flow, the Series continues to maintain the position.
OUTLOOK FOR 2006
The stock market has been surprisingly buoyant the past year given rising energy
prices and restrictive Fed policies. Logic would tend to suggest that an
unusually conservative positioning would be prudent. However, companies with
high earnings stability and visibility currently have high valuations suggesting
that the market has already priced in this outlook. In addition, the out
performance of value stocks over the last few years may also reflect this
conservative tendency in the market. Given this view, the Series is under weight
in traditionally stable sectors such as finance, consumer discretionary, and
consumer staples.
With the significant move in the energy sector, the Series has been trimming
exposure slightly. At present, we are tending to find that the most compelling
opportunities lie in the industrial and technology sectors of the market.
Specifically, we like companies in the water, wastewater, telecomm equipment and
highway development industries. In addition, many of the new commitments have
also tended to be in larger mid-cap companies.
On behalf of Security Management Company, thank you for trusting your funds with
us. We are excited to see what opportunities present themselves over the balance
of the year.
Sincerely,
- -------------------------------------
James P. Schier
Senior Portfolio Manager
53
SECURITY EQUITY FUND
Performance Commentary MID CAP VALUE SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY MID CAP VALUE FUND VS. S&P MIDCAP 400/BARRA VALUE INDEX & RUSSELL
2500 VALUE INDEX
MID CAP VALUE SERIES
05/01/97 9,425.00
06/30/97 10,386.43
09/30/97 12,205.47
12/31/97 12,202.23
03/31/98 13,982.73
06/30/98 13,915.00
09/30/98 11,679.70
12/31/98 14,172.13
03/31/99 13,968.14
06/30/99 16,872.51
09/30/99 16,124.56
12/31/99 17,264.18
3/31/00 19,149.76
6/30/00 18,997.70
9/30/00 21,035.34
12/31/00 21,872.71
03/31/01 22,618.49
06/30/01 24,688.89
09/30/01 20,080.59
12/31/01 24,342.16
03/31/02 26,771.85
06/30/02 24,635.98
09/30/02 19,098.54
12/31/02 20,725.87
03/31/03 20,228.63
06/30/03 25,732.17
09/30/03 27,664.63
12/31/03 31,468.20
03/31/04 33,864.25
06/30/04 34,754.22
09/30/04 34,742.81
12/31/04 37,275.78
03/31/05 37,195.91
06/30/05 38,222.79
09/30/05 41,463.17
S&P MIDCAP 400/BARRA VALUE
INCEPTION 5/01/97 10,000.00
06/30/97 10,925.23
09/30/97 12,471.40
12/31/97 13,146.38
03/31/98 14,440.15
06/30/98 13,842.25
09/30/98 11,932.74
12/31/98 13,761.77
03/31/99 12,653.42
06/30/99 14,543.13
09/30/99 13,126.61
12/31/99 14,081.67
03/31/00 14,964.64
06/30/00 14,567.38
09/30/00 16,467.23
12/31/00 18,001.12
03/31/01 17,381.57
06/30/01 19,360.83
09/30/01 16,839.62
12/31/01 19,286.99
03/31/02 21,200.92
06/30/02 19,956.18
09/30/02 16,268.59
12/31/02 17,337.54
03/31/03 16,331.37
06/30/03 19,462.62
09/30/03 20,862.99
12/31/03 24,305.58
03/31/04 25,646.95
06/30/04 25,966.12
09/30/04 25,763.46
12/31/04 28,917.69
03/31/05 28,712.67
06/30/05 30,108.91
09/30/05 31,737.23
RUSSELL 2500 VALUE INDEX
INCEPTION 5/01/97 10,000.00
06/30/97 11,200.83
09/30/97 12,594.49
12/31/97 12,952.70
03/31/98 14,188.46
06/30/98 13,681.09
09/30/98 11,427.77
12/31/98 12,705.04
03/31/99 11,687.40
06/30/99 13,558.89
09/30/99 12,386.34
12/31/99 12,892.04
03/31/00 13,494.60
06/30/00 13,413.75
09/30/00 14,336.43
12/31/00 15,571.76
03/31/01 15,264.14
06/30/01 16,787.57
09/30/01 14,698.15
12/31/01 17,088.66
03/31/02 18,542.23
06/30/02 17,895.20
09/30/02 14,608.72
12/31/02 15,401.82
03/31/03 14,666.86
06/30/03 17,788.08
09/30/03 19,169.13
12/31/03 22,319.49
03/31/04 23,698.49
06/30/04 23,817.52
09/30/04 23,877.08
12/31/04 27,134.02
03/31/05 26,556.13
06/30/05 27,969.20
09/30/05 28,963.85
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Mid Cap Value
Series on May 1, 1997 (date of inception), reflects deduction of the 5.75% sales
load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares. Effective February 1, 2005, the Mid Cap Value Series
changed its benchmark index to the Russell 2500 Value Index. The Investment
Adviser has determined that the Russell 2500 Value Index is a more appropriate
index than the S&P MidCap 400/Barra Value Index, which is created by Standard &
Poor's and Barra by dividing the S&P MidCap 400 Index equally between growth and
value based upon a price-to-book value calculation, because the Russell 2500
Value Index more closely reflects the types of securities in which the Series
invests and thus provides shareholders with a more appropriate benchmark against
which to compare the Series' performance.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ---------------
A Shares 27.77% 16.11% 20.21% (5-1-97)
A Shares with sales charge 20.41% 14.74% 19.37% (5-1-97)
B Shares 26.83% 15.14% 19.17% (5-1-97)
B Shares with CDSC 21.83% 14.91% 19.17% (5-1-97)
C Shares 26.80% 15.15% 17.69% (1-29-99)
C Shares with CDSC 25.80% 15.15% 17.69% (1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 4.63%
Consumer Staples 6.16
Energy 13.87
Financials 12.28
Health Care 4.60
Industrials 28.22
Information Technology 14.00
Materials 6.27
Telecommunication Services 0.69
Utilities 6.71
Exchange Traded Funds 1.73
Commercial Paper 0.74
Asset Backed Securities 0.78
Repurchase Agreement 0.05
Liabilities, less cash & other assets (0.73)
------
Total Net Assets 100.00
======
54
SECURITY EQUITY FUND
Performance Summary MID CAP VALUE SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Mid Cap Value
Series - Class A
Actual $1,000.00 $1,114.70 $ 7.37
Hypothetical 1,000.00 1,018.00 7.03
Mid Cap Value
Series - Class B
Actual 1,000.00 1,110.60 11.32
Hypothetical 1,000.00 1,014.26 10.81
Mid Cap Value
Series - Class C
Actual 1,000.00 1,110.30 11.32
Hypothetical 1,000.00 1,014.26 10.81
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 11.47%, 11.06% and
11.03%, for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.39%, 2.14% and
2.14% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
55
SECURITY EQUITY FUND
Schedule of Investments MID CAP VALUE SERIES
September 30, 2005
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
CONVERTIBLE BOND - 0.3%
PHARMACEUTICALS - 0.3%
Ligand Pharmaceuticals, Inc.,
6.00% - 2007(2) $1,250,000 $ 1,778,125
-----------
TOTAL CONVERTIBLE BOND
(cost $1,250,000) 1,778,125
-----------
PREFERRED STOCKS - 0.3%
DIVERSIFIED METALS & MINING - 0.1%
Arch Coal, Inc. 4,600 751,870
-----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.2%
ThermoEnergy Corporation PIPES(3, 4, 5, 6) 1,745,000 1,209,285
-----------
TOTAL PREFERRED STOCKS
(cost $1,876,500) 1,961,155
-----------
COMMON STOCKS - 98.4%
AEROSPACE & DEFENSE - 2.3%
Curtiss-Wright Corporation 80,000 4,936,800
Orbital Sciences Corporation* 627,500 7,843,750
-----------
12,780,550
-----------
AGRICULTURAL PRODUCTS - 2.8%
Archer-Daniels-Midland Company 420,000 10,357,200
Corn Products International, Inc. 255,000 5,143,350
-----------
15,500,550
-----------
AIR FREIGHT & LOGISTICS - 0.2%
AirNet Systems, Inc.* 168,000 798,000
Stonepath Group, Inc.* 480,000 484,800
-----------
1,282,800
-----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.7%
Kellwood Company 155,000 4,006,750
-----------
APPLICATION SOFTWARE - 1.2%
Epiq Systems, Inc.* 200,500 4,374,910
Plato Learning, Inc.* 285,000 2,168,850
-----------
6,543,760
-----------
BUILDING PRODUCTS - 0.1%
Aaon, Inc.* 19,650 361,167
-----------
COAL & CONSUMABLE FUELS - 2.9%
Arch Coal, Inc. 185,100 12,494,250
Consol Energy, Inc. 54,300 4,141,461
-----------
16,635,711
-----------
COMMUNICATIONS EQUIPMENT - 3.5%
3Com Corporation* 3,200,000 13,056,000
Avanex Corporation* 4,166,000 4,041,020
Oplink Communications, Inc.* 1,575,900 2,395,368
-----------
19,492,388
-----------
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
COMPUTER STORAGE & PERIPHERALS - 1.2%
Hutchinson Technology, Inc.* 260,000 $ 6,791,200
-----------
CONSTRUCTION & ENGINEERING - 13.8%
Dycom Industries, Inc.* 220,000 4,448,400
Granite Construction, Inc. 138,900 5,311,536
MasTec, Inc.*(1) 641,000 6,986,900
McDermott International, Inc.* 515,000 18,854,150
Quanta Services, Inc.* 1,000,000 12,760,000
Shaw Group, Inc.* 1,190,000 29,345,400
-----------
77,706,386
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.1%
Computer Sciences Corporation* 250,000 11,827,500
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 1.7%
FTI Consulting, Inc.* 374,000 9,447,240
-----------
DIVERSIFIED METALS & MINING - 3.7%
Inco, Ltd.*(1) 300,000 14,205,000
Usec, Inc.(1) 580,000 6,472,800
-----------
20,677,800
-----------
ELECTRIC UTILITIES - 6.3%
Cinergy Corporation(1) 130,000 5,773,300
Great Plains Energy, Inc. 140,000 4,187,400
KFx, Inc.* 1,480,000 25,337,600
-----------
35,298,300
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 2.4%
Electric City Corporation*(4) 1,518,000 1,305,480
Power-One, Inc.* 1,365,000 7,562,100
Preformed Line Products Company 1,900 89,680
Thomas & Betts Corporation* 140,000 4,817,400
-----------
13,774,660
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 2.5%
Maxwell Technologies, Inc.*(4) 493,500 6,968,220
Merix Corporation* 828,600 4,640,160
Powell Industries, Inc.* 117,300 2,567,697
-----------
14,176,077
-----------
EXCHANGE TRADED FUNDS - 1.7%
iShares Russell 2000 Value Index Fund 57,000 3,758,010
iShares S&P MidCap 400/Barra Value Index Fund 86,000 6,020,000
-----------
9,778,010
-----------
FOOTWEAR - 0.3%
Brown Shoe Company, Inc. 54,700 1,805,100
-----------
GAS UTILITIES - 0.5%
Southern Union Company* 100,000 2,577,000
-----------
56 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments MID CAP VALUE SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
HEALTH CARE FACILITIES - 3.0%
Community Health Systems, Inc.* 130,000 $ 5,045,300
Triad Hospitals, Inc.* 155,000 7,016,850
Universal Health Services, Inc. (Cl.B.) 100,000 4,763,000
-----------
16,825,150
-----------
HEALTH CARE SERVICES - 1.0%
Hooper Holmes, Inc. 1,076,900 4,232,217
NDCHealth Corporation(1) 62,600 1,184,392
-----------
5,416,609
-----------
HOUSEWARES & SPECIALTIES - 0.3%
Newell Rubbermaid, Inc. 82,000 1,857,300
-----------
INDUSTRIAL CONGLOMERATES - 1.2%
Alleghany Corporation* 15,300 4,681,800
Hydrogen Corporation LLC(4,6) 547,442 2,189,765
-----------
6,871,565
-----------
INDUSTRIAL MACHINERY - 0.6%
Capstone Turbine Corporation* 147,100 522,205
Quixote Corporation 123,300 2,637,387
Valmont Industries, Inc. 12,900 378,744
-----------
3,538,336
-----------
INSURANCE BROKERS - 0.3%
Hub International, Ltd. 64,000 1,451,520
-----------
INTEGRATED OIL & GAS - 2.0%
Murphy Oil Corporation 232,000 11,569,840
-----------
INTEGRATED TELECOMMUNICATION SERVICE - 0.3%
Global Crossing, Ltd.* 101,900 1,498,949
-----------
IT CONSULTING & OTHER SERVICES - 0.3%
Keane, Inc.* 154,000 1,760,220
-----------
MARINE - 0.7%
Frontline, Ltd. 87,000 3,838,440
-----------
MULTI-LINE INSURANCE - 0.9%
American Financial Group, Inc.(1) 155,000 5,259,150
-----------
OIL & GAS DRILLING - 1.9%
Grey Wolf, Inc.* 839,000 7,072,770
Nabors Industries, Ltd.*(1) 53,000 3,806,990
-----------
10,879,760
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.6%
Key Energy Services, Inc.* 620,000 9,188,400
-----------
OIL & GAS EXPLORATION & PRODUCTION - 1.8%
Pioneer Natural Resources Company 188,869 10,372,686
-----------
OIL & GAS STORAGE & TRANSPORTATION - 3.5%
Williams Companies, Inc. 785,000 19,664,250
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 0.7%
First Marblehead Corporation 154,000 3,911,600
-----------
PACKAGED FOODS & MEATS - 3.4%
Hain Celestial Group, Inc.* 110,000 2,134,000
Hormel Foods Corporation(1) 300,000 9,897,000
Tyson Foods, Inc. 400,000 7,220,000
-----------
19,251,000
-----------
PAPER PACKAGING - 1.5%
Bemis Company, Inc. 160,000 $ 3,952,000
Sonoco Products Company 174,000 4,751,940
-----------
8,703,940
-----------
PHARMACEUTICALS - 0.3%
Hollis-Eden Pharmaceuticals, Inc.*(1) 192,403 1,229,455
Ligand Pharmaceuticals, Inc. (Cl.B)* 72,200 731,855
-----------
1,961,310
-----------
PROPERTY & CASUALTY INSURANCE - 4.8%
First American Corporation 238,500 10,892,295
North Pointe Holdings Corporation* 259,300 3,228,285
United America Indemnity, Ltd.* 117,000 2,146,950
W.R. Berkley Corporation 270,000 10,659,600
-----------
26,927,130
-----------
REAL ESTATE INVESTMENT TRUSTS - 3.1%
Bimini Mortgage Management, Inc. 645,300 7,291,890
HomeBanc Corporation 434,400 3,353,568
MortgageIT Holdings, Inc. 490,000 6,967,800
-----------
17,613,258
-----------
REGIONAL BANKS - 2.1%
Corus Bankshares, Inc. 13,600 745,688
Mercantile Bankshares Corporation 67,000 3,609,960
Wilmington Trust Corporation 97,900 3,568,455
Zions Bancorporation 53,000 3,774,130
-----------
11,698,233
-----------
REINSURANCE - 0.4%
Renaissancere Holdings, Ltd. 56,900 2,488,237
-----------
Semiconductor Equipment - 1.4%
Ultratech, Inc.* 523,900 8,167,601
-----------
SEMICONDUCTORS - 1.8%
Applied Micro Circuits Corporation* 760,000 2,280,000
IXYS Corporation* 604,100 6,379,296
Stats ChipPAC, Ltd. ADR* 261,000 1,639,080
-----------
10,298,376
-----------
SPECIALTY CHEMICALS - 0.9%
H.B. Fuller Company 100,000 3,108,000
Material Sciences Corporation* 85,700 1,291,499
Minerals Technologies, Inc. 15,000 858,150
-----------
5,257,649
-----------
SPECIALTY STORES - 1.6%
Bombay Company, Inc.* 990,000 4,365,900
Borders Group, Inc. 200,000 4,434,000
-----------
8,799,900
-----------
TIRES & RUBBER - 1.7%
Bandag, Inc. 225,000 9,643,500
-----------
57 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments MID CAP VALUE SERIES
September 30, 2005
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- ------------
COMMON STOCKS (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS - 4.2%
Hughes Supply, Inc. 380,000 $ 12,388,000
United Rentals, Inc.* 567,000 11,175,570
------------
23,563,570
------------
TRUCKING - 0.8%
SCS Transportation, Inc.* 11,000 172,810
Werner Enterprises, Inc. 250,000 4,322,500
------------
4,495,310
------------
WIRELESS TELECOMMUNICATION SERVICES - 0.4%
Wireless Facilities, Inc.* 411,400 2,386,120
------------
TOTAL COMMON STOCKS
(cost $408,079,505) 555,621,858
------------
WARRANTS - 0.1%
Electric City Corporation, $0.40,
03-19-09(4, 5) 442,750 172,648
ThermoEnergy Corporation, $1.50,
07-14-08(3, 4, 5, 6) 1,745,000 257,736
------------
TOTAL WARRANTS
(cost $862,064) 430,384
------------
COMMERCIAL PAPER - 0.7%
FINANCIAL COMPANIES - CAPTIVE - 0.3%
General Electric Capital Corporation
3.75%, 10-03-05 $1,300,000 1,299,729
------------
FINANCIAL - OTHER - 0.2%
Countrywide Financial,
3.82%, 10-03-05 $1,300,000 1,299,718
------------
NON U.S. BANKING - 0.2%
Danske Corporation,
3.74%, 10-17-05 $1,600,000 1,597,341
------------
TOTAL COMMERCIAL PAPER
(cost $4,196,788) 4,196,788
------------
ASSET BACKED COMMERCIAL PAPER - 0.8%
SECURITIES - 0.5%
Asset One Securitization:
3.80%, 10-03-05 $1,500,000 1,499,683
3.76%, 10-06-05 $1,500,000 1,499,217
------------
2,998,900
------------
TRADE RECEIVABLES - 0.3%
Sheffield Receivables Corporation,
3.75%, 10-12-05 $1,400,000 1,398,396
------------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $4,397,296) 4,397,296
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 3.42%, dated
09-30-05 matures 10-03-05;
repurchase amount of $336,096
(Collateralized by FHLMC, 4.50%,
04-15-25 with a value of $342,721) $336,000 $ 336,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $336,000) 336,000
------------
TOTAL INVESTMENTS - 100.7%
(cost $420,998,153) 568,721,606
LIABILITIES, LESS CASH & OTHER ASSETS - (0.7%) (4,139,713)
------------
TOTAL NET ASSETS - 100.0% $564,581,893
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $421,232,131.
* Non-income producing security
ADR (American Depositary Receipt)
PIPES-Private Investment in Public Equity - is the term used for stock issued by
a company in the secondary market as a means of raising capital more quickly and
less expensively than through registration on a secondary public offering.
(1) Security is segregated as collateral for open written option contracts.
(2) Security is a 144A security. The total market value of 144A securities is
$1,778,125 (cost $1,250,000), or 0.3% of total net assets.
(3) Security is restricted. The total market value of restricted securities is
$1,467,022 (cost $2,094,000), or 0.3% of total net assets. The acquisition
date was July 14, 2005.
(4) Security is illiquid. The total market value of illiquid securities is
$12,103,135 (cost $13,845,459), or 2.1% of total net assets.
(5) Security is fair valued by the Board of Directors. The total market value
of fair valued securities is $1,639,670 (cost $2,508,564), or 0.3% of total
net assets.
(6) Affiliated Company; the Series owns 5% or more of the outstanding voting
securities of the portfolio company. The total value of affiliated
securities amounted to $3,656,787 (cost $4,537,018), or 0.7% of total net
assets. See Note 10.
58 See accompanying notes.
SECURITY EQUITY FUND
MID CAP VALUE SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments in unaffiliated issues, at value(1) ................. $565,064,819
Investments in affiliated issues, at value(1) ................... 3,656,787
Cash ............................................................ 43,386
Receivables:
Fund shares sold ............................................. 1,876,019
Securities sold .............................................. 10,300
Interest ..................................................... 28,125
Dividends .................................................... 687,205
Prepaid expenses ................................................ 37,077
------------
Total assets .................................................... 571,403,718
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 3,671,830
Fund shares redeemed ......................................... 471,264
Written options, at value
(premiums received $1,657,744) ............................ 1,544,195
Management fees .............................................. 376,261
Custodian fees ............................................... 6,751
Transfer agent and administration fees ....................... 90,373
Professional fees ............................................ 25,908
12b-1 distribution plan fees ................................. 621,388
Other ........................................................ 13,855
------------
Total liabilities ............................................... 6,821,825
------------
NET ASSETS ...................................................... $564,581,893
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $390,130,432
Undistributed net realized gain on sale of investments and
options written .............................................. 26,614,459
Net unrealized appreciation in value of investments and options
written ...................................................... 147,837,002
------------
Net assets ...................................................... $564,581,893
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 10,265,191
Net assets ...................................................... $373,031,056
Net asset value and redemption price per share .................. $ 36.34
============
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 38.56
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,921,823
Net assets ...................................................... $ 97,663,957
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 33.43
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,758,711
Net assets ...................................................... $ 93,886,880
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 34.03
============
(1)Investments, at cost ......................................... $420,998,153
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends from securities of unaffiliated issuers ........... $ 5,941,885
Interest .................................................... 581,784
------------
Total investment income ..................................... 6,523,669
------------
EXPENSES:
Management fees ............................................. 3,877,595
Custodian fees .............................................. 26,142
Transfer agent/maintenance fees ............................. 704,473
Administration fees ......................................... 409,096
Directors' fees ............................................. 9,805
Professional fees ........................................... 56,262
Reports to shareholders ..................................... 59,356
Registration fees ........................................... 65,508
Other expenses .............................................. 15,951
12b-1 distribution plan fees - Class A ...................... 728,432
12b-1 distribution plan fees - Class B ...................... 870,427
12b-1 distribution plan fees - Class C ...................... 719,762
------------
Total expenses .............................................. 7,542,809
------------
Net investment loss ......................................... (1,019,140)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investment transactions of unaffiliated issuers ............. 26,425,578
Options written ............................................. 1,364,191
------------
Net realized gain ........................................... 27,789,769
------------
Net unrealized appreciation during the period on:
Investment transactions of unaffiliated issuers ............. 82,040,921
Investment transactions of affiliated issuers ............... (880,231)
Options written ............................................. 409,492
------------
Net unrealized appreciation ................................. 81,570,182
------------
Net realized and unrealized gain ............................ 109,359,951
------------
Net increase in net assets resulting from operations ........ $108,340,811
============
59 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets MID CAP VALUE SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ................................ $ (1,019,140) $ (1,798,025)
Net realized gain during the period on investments
and options written ............................. 27,789,769 29,936,556
Net unrealized appreciation during the period on
investments and options written ................. 81,570,182 29,361,262
------------ ------------
Net increase in net assets resulting from operations 108,340,811 57,499,793
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A ......................................... (17,531,136) (1,473,564)
Class B ......................................... (6,133,150) (633,167)
Class C ......................................... (4,546,382) (407,446)
------------ ------------
Total distributions to shareholders ................ (28,210,668) (2,514,177)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ......................................... 161,215,930 132,501,639
Class B ......................................... 17,972,042 19,430,639
Class C ......................................... 36,990,088 21,596,162
Distributions reinvested
Class A ......................................... 16,302,449 1,356,918
Class B ......................................... 5,863,417 610,765
Class C ......................................... 4,260,542 381,240
Cost of shares redeemed
Class A ......................................... (73,348,101) (65,062,200)
Class B ......................................... (15,202,832) (12,576,287)
Class C ......................................... (14,043,393) (9,550,640)
------------ ------------
Net increase from capital share transactions ....... 140,010,142 88,688,236
------------ ------------
Net increase in net assets ......................... 220,140,285 143,673,852
------------ ------------
NET ASSETS:
Beginning of period ................................ 344,441,608 200,767,756
------------ ------------
End of period ...................................... $564,581,893 $344,441,608
============ ============
Accumulated net investment income at end of
period .......................................... $ -- $ --
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ......................................... 4,912,125 4,668,091
Class B ......................................... 597,004 736,445
Class C ......................................... 1,196,717 801,556
Shares reinvested
Class A ......................................... 505,033 50,089
Class B ......................................... 196,298 24,065
Class C ......................................... 140,103 14,771
Shares redeemed
Class A ......................................... (2,235,399) (2,285,236)
Class B ......................................... (503,071) (475,742)
Class C ......................................... (454,764) (351,589)
60 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights MID CAP VALUE SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------------
CLASS A 2005 2004 2003 2002 2001
- ------- -------- -------- -------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 30.45 $ 24.48 $ 16.90 $ 18.04 $ 20.75
-------- -------- -------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.01 (0.09) (0.07) (0.04) --
Net gain (loss) on securities (realized and unrealized) 8.16 6.32 7.65 (0.78) (0.90)
-------- -------- -------- ------- -------
Total from investment operations 8.17 6.23 7.58 (0.82) (0.90)
-------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (2.28) (0.26) -- (0.21) (1.81)
-------- -------- -------- ------- -------
Return of capital -- -- -- (0.11) --
Total distributions (2.28) (0.26) -- (0.32) (1.81)
-------- -------- -------- ------- -------
Net asset value, end of period $ 36.34 $ 30.45 $ 24.48 $ 16.90 $ 18.04
======== ======== ======== ======= =======
TOTAL RETURN(A) 27.77% 25.59% 44.85% (4.89%) (4.54%)
-------- -------- -------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $373,031 $215,659 $113,822 $68,544 $50,541
-------- -------- -------- ------- -------
Ratios to average net assets:
Net investment income (loss) 0.04% (0.31%) (0.33%) (0.20%) 0.01%
Total expenses(b) 1.41% 1.48% 1.65% 1.45% 1.30%
Net expenses(d) 1.41% 1.48% 1.65% 1.45% 1.30%
-------- -------- -------- ------- -------
Portfolio turnover rate 19% 45% 52% 51% 55%
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------------
CLASS B 2005 2004 2003 2002 2001
- ------- -------- -------- -------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 28.37 $ 22.99 $ 15.99 $ 17.26 $ 20.11
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.22) (0.28) (0.20) (0.21) (0.19)
Net gain (loss) on securities (realized and unrealized) 7.56 5.92 7.20 (0.74) (0.85)
------- ------- ------- ------- -------
Total from investment operations 7.34 5.64 7.00 (0.95) (1.04)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (2.28) (0.26) -- (0.21) (1.81)
Return of capital -- -- -- (0.11) --
------- ------- ------- ------- -------
Total distributions (2.28) (0.26) -- (0.32) (1.81)
------- ------- ------- ------- -------
Net asset value, end of period $ 33.43 $ 28.37 $ 22.99 $ 15.99 $ 17.26
======= ======= ======= ======= =======
TOTAL RETURN(A) 26.83% 24.67% 43.78% (5.88%) (5.45%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $97,664 $74,650 $53,947 $37,136 $26,967
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.72%) (1.07%) (1.08%) (1.09%) (0.98%)
Total expenses(b) 2.16% 2.23% 2.40% 2.34% 2.30%
Net expenses(d) 2.16% 2.23% 2.40% 2.34% 2.30%
------- ------- ------- ------- -------
Portfolio turnover rate 19% 45% 52% 51% 55%
61 See accompanying notes
SECURITY EQUITY FUND
Financial Highlights MID CAP VALUE SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------------
CLASS A 2005 2004 2003 2002(E) 2001
- ------- -------- -------- -------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 28.85 $ 23.37 $ 16.26 $ 17.53 $20.39
------- ------- ------- ------- ------
Income (loss) from investment operations:
Net investment income (loss)c (0.21) (0.29) (0.21) (0.21) (0.19)
Net gain (loss) on securities (realized and unrealized) 7.67 6.03 7.32 (0.74) (0.86)
------- ------- ------- ------- ------
Total from investment operations 7.46 5.74 7.11 (0.95) (1.05)
------- ------- ------- ------- ------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (2.28) (0.26) -- (0.21) (1.81)
Return of capital -- -- -- (0.11) --
------- ------- ------- ------- ------
Total distributions (2.28) (0.26) -- (0.32) (1.81)
------- ------- ------- ------- ------
Net asset value, end of period $ 34.03 $ 28.85 $ 23.37 $ 16.26 $17.53
======= ======= ======= ======= ======
TOTAL RETURN(A) 26.80% 24.70% 43.73% (5.79%) (5.42%)
------- ------- ------- ------- ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $93,887 $54,133 $32,999 $18,785 $6,976
------- ------- ------- ------- ------
Ratios to average net assets:
Net investment income (loss) (0.71%) (1.06%) (1.08%) (1.06%) (0.98%)
Total expenses(b) 2.16% 2.23% 2.40% 2.35% 2.30%
Net expenses(d) 2.16% 2.23% 2.40% 2.35% 2.30%
------- ------- ------- ------- ------
Portfolio turnover rate 19% 45% 52% 51% 55%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
62 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary SELECT 25(R) SERIES
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
The Select 25 Series of the Security Equity Fund returned 19.85% in the period,
beating the benchmark Russell 1000 Growth index's return of 11.66% and out
performing the Series' peer group median return of 12.23%. Strong stock
selection and sector positioning drove excellent results in fiscal 2005.
Our approach to managing the Select 25 Series is based on our investment
philosophy described below.
We understand a company's growth potential over the long-term based on our
bottom up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management's ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking.
This philosophy is applied to a broad range of growth names. Each of our
Research analysts recommend their favorite names based on this analysis. We then
narrow the list down to our favorite 25-30 names that get included in the
portfolio.
ENERGY AND INDUSTRIAL STOCKS ARE TOP PERFORMERS
The Series' energy holdings were up 86% compared to 65% for the index. The
sector benefited significantly as a result of the increase in the price of crude
oil. Positions in Williams Companies and KFx contributed positively to the
Series. Williams, up 110%, benefited from rising oil prices. KFx appreciated
122% as a result of progress being made in the commercialization of the
company's proprietary clean coal technology.
The industrial sector was up over 35% for the Series versus up 8% for the
benchmark. Shaw Group and L-3 Communications were the major drivers within the
sector. Shaw Group was up 106% as a result of continued world wide economic
growth and the corresponding demand for their infrastructure related services.
L-3 Communications was up 19%, benefiting from continued strong defense related
spending.
CONSUMER DISCRETIONARY AND HEALTH CARE SECTORS DISAPPOINT
Both the consumer discretionary and consumer staples sectors underperformed
their respective benchmark. Harley Davidson, down 16%, and Wal-Mart down 17%,
impacted the Series negatively. Harley Davidson was down as a result of the
company lowering their 2005 production schedule and general concerns of a
slowdown in consumer spending. Also, Wal-Mart was negatively impacted by
consumer slowdown fears as well as questions about their long-term growth
prospects.
Health care, as a sector overall, underperformed the index. Strong performance
by Amgen was partially offset by the negative impact of Boston Scientific. Amgen
was up over 41% as a result of posting solid operating results and diminishing
fears regarding the reimbursement environment. Boston Scientific was down over
24% as a result of concerns regarding their long-term growth prospects and
declining market share in the drug eluting stent market in the U.S.
2006 MARKET OUTLOOK
We are optimistic on the equity market as we look out into 2006. However, there
are several near-term concerns that need to pass. The most significant, in our
opinion, is the spending capacity of the U.S. consumer. Above average consumer
spending trends have persisted as a result of favorable monetary and fiscal
policies. These favorable policy trends are now being reversed. Additionally,
higher energy prices will weigh heavily on the consumer as we move through the
winter season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We believe that investing is a long-term pursuit that requires patience and a
consistent approach. Dollar cost averaging is a sound way to build long-term
value. We recognize there are many investment fund alternatives available today
and thank you for your business and the confidence you place in us.
Sincerely,
- -------------------------------------
Mark Mitchell
Senior Portfolio Manager
63
SECURITY EQUITY FUND
Performance Summary SELECT 25(R) SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY SELECT 25(R) SERIES VS. S&P 500 INDEX & RUSSELL 1000 GROWTH INDEX
SELECT 25 SERIES
01/29/99 9,425.00
03/31/99 9,802.07
06/30/99 9,915.17
09/30/99 9,924.60
12/31/99 11,734.21
3/31/00 11,573.99
6/30/00 11,065.03
9/30/00 10,688.03
12/31/00 9,660.70
03/31/01 8,228.09
06/30/01 8,793.59
09/30/01 7,144.20
12/31/01 8,605.09
03/31/02 8,539.11
06/30/02 7,002.83
09/30/02 6,145.15
12/31/02 6,343.07
03/31/03 6,173.42
06/30/03 6,776.63
09/30/03 6,852.03
12/31/03 7,417.53
03/31/04 7,719.13
06/30/04 7,775.68
09/30/04 7,360.98
12/31/04 8,228.09
03/31/05 7,954.76
06/30/05 8,049.01
09/30/05 8,821.87
RUSSELL 1000 GROWTH INDEX
INCEPTION 1/29/99 10,000.00
3/31/99 10,045.92
6/30/99 10,432.68
9/30/99 10,049.99
12/31/99 12,577.25
3/31/00 13,473.82
06/30/00 13,109.39
09/30/00 12,403.67
12/31/00 9,756.78
03/31/01 7,717.61
06/30/01 8,367.35
09/30/01 6,743.24
12/31/01 7,764.53
03/31/02 7,563.52
06/30/02 6,151.25
09/30/02 5,225.76
12/31/02 5,599.12
03/31/03 5,539.08
06/30/03 6,331.43
09/30/03 6,579.50
12/31/03 7,265.20
03/31/04 7,322.08
06/30/04 7,463.91
09/30/04 7,074.26
12/31/04 7,723.10
03/31/05 7,407.74
06/30/05 7,590.52
09/30/05 7,895.14
S&P 500 INDEX
INCEPTION 1/29/99 10,000.00
3/31/99 10,075.52
6/30/99 10,785.58
9/30/99 10,111.95
12/31/99 11,616.46
3/31/00 11,883.45
06/30/00 11,568.33
09/30/00 11,456.43
12/31/00 10,560.83
03/31/01 9,309.30
06/30/01 9,854.43
09/30/01 8,408.85
12/31/01 9,307.93
03/31/02 9,333.23
06/30/02 8,083.12
09/30/02 6,687.10
12/31/02 7,251.86
03/31/03 7,023.47
06/30/03 8,104.60
09/30/03 8,319.10
12/31/03 9,332.84
03/31/04 9,491.17
06/30/04 9,654.81
09/30/04 9,473.80
12/31/04 10,348.59
03/31/05 10,125.65
06/30/05 10,263.49
09/30/05 10,633.86
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Select 25(R) Series
on January 29, 1999 (date of inception), reflects deduction of the 5.75% sales
load and assumes all dividends are reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares. Effective February 1, 2005, the Select 25(R) Series
changed its benchmark to the Russell 1000 Growth Index. The Investment Manager
has determined that the Russell 1000 Growth Index is a more appropriate index
than the S&P 500 Index, which is a capitalization-weighted index composed of 500
selected common stocks that represent the broad domestic economy and is a widely
recognized unmanaged index of market performance, because the Russell 1000
Growth Index more closely reflects the types of securities in which the Series
invests and thus provides shareholders with a more appropriate benchmark against
which to compare the Series' performance.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- -----------------
A Shares 19.85% (3.77%) (0.99%) (1-29-99)
A Shares with sales charge 12.91% (4.90%) (1.86%) (1-29-99)
B Shares 18.93% (4.48%) (1.70%) (1-29-99)
B Shares with CDSC 13.93% (4.87%) (1.70%) (1-29-99)
C Shares 18.88% (4.51%) (1.67%) (1-29-99)
C Shares with CDSC 17.88% (4.51%) (1.67%) (1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the deduc-
tion of taxes that a shareholder would pay on distributions or redemption of
shares. Such figures would be lower if the maximum sales charge and any appli-
cable taxes were deducted.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 12.98%
Consumer Staples 5.28
Energy 16.56
Financials 7.97
Health Care 10.99
Industrials 20.59
Information Technology 14.67
Materials 4.12
Utilities 6.65
Cash & other assets, less liabilities 0.19
------
Total Net Assets 100.00
======
64 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary SELECT 25(R) SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Select 25(R) Series - Class A
Actual $1,000.00 $1,109.00 $ 8.93
Hypothetical 1,000.00 1,016.50 8.54
Select 25(R) Series - Class B
Actual 1,000.00 1,104.00 12.87
Hypothetical 1,000.00 1,012.76 12.31
Select 25(R) Series - Class C
Actual 1,000.00 1,103.70 12.87
Hypothetical 1,000.00 1,012.76 12.31
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 10.90%, 10.40% and
10.37%, for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.69%, 2.44% and
2.44% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
65
SECURITY EQUITY FUND
Schedule of Investments SELECT 25(R) SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 99.8%
AEROSPACE & DEFENSE - 5.2%
L-3 Communications Holdings, Inc. 13,800 $ 1,091,166
-----------
AIR FREIGHT & LOGISTICS - 5.3%
FedEx Corporation 12,800 1,115,264
-----------
BIOTECHNOLOGY - 2.7%
Amgen, Inc.* 7,000 557,690
-----------
BROADCASTING & CABLE TV - 2.4%
Univision Communications, Inc.* 19,000 504,070
-----------
COMMUNICATIONS EQUIPMENT - 9.8%
3Com Corporation* 123,000 501,840
ADC Telecommunications, Inc.* 38,328 876,178
Cisco Systems, Inc.* 38,000 681,340
-----------
2,059,358
-----------
CONSTRUCTION & ENGINEERING - 8.0%
Shaw Group, Inc.* 68,000 1,676,880
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.7%
First Data Corporation 19,300 772,000
-----------
ELECTRIC UTILITIES - 6.7%
KFx, Inc.* 81,300 1,391,856
-----------
HEALTH CARE EQUIPMENT - 4.3%
Medtronic, Inc. 16,600 890,092
-----------
HOME IMPROVEMENT RETAIL - 2.5%
Home Depot, Inc. 13,800 526,332
-----------
HOTELS, RESORTS & CRUISE LINES - 4.3%
Carnival Corporation 18,000 899,640
-----------
HYPERMARKETS & SUPERCENTERS - 3.1%
Wal-Mart Stores, Inc. 15,000 657,300
-----------
INDUSTRIAL GASES - 4.1%
Praxair, Inc. 18,000 862,740
-----------
MOVIES & ENTERTAINMENT - 3.8%
Viacom, Inc. (Cl.B) 23,900 788,939
-----------
MULTI-LINE INSURANCE - 4.0%
American International Group, Inc. 13,500 836,460
-----------
OIL & GAS EQUIPMENT & SERVICES - 8.2%
BJ Services Company 48,000 1,727,520
-----------
OIL & GAS STORAGE & TRANSPORTATION - 8.3%
Williams Companies, Inc. 69,500 1,740,975
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 4.0%
Citigroup, Inc. 18,300 833,016
-----------
PHARMACEUTICALS - 4.1%
Johnson & Johnson 13,500 854,280
-----------
SEMICONDUCTOR EQUIPMENT - 1.2%
Mindspeed Technologies, Inc.* 100,000 241,000
-----------
SOFT DRINKS - 2.1%
PepsiCo, Inc. 7,900 448,009
-----------
TRUCKING - 2.0%
J.B. Hunt Transport Services, Inc. 22,500 $ 427,725
-----------
TOTAL COMMON STOCKS
(cost $16,175,802) 20,902,312
-----------
TOTAL INVESTMENTS - 99.8%
(cost $16,175,802) 20,902,312
CASH & OTHER ASSETS, LESS LIABILITIES - 0.2% 38,618
-----------
TOTAL NET ASSETS - 100.0% $20,940,930
===========
The identified cost of investments owned at September 30, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
66 See accompanying notes.
SECURITY EQUITY FUND
SELECT 25(R) SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ....................................... $ 20,902,312
Cash ........................................................... 91,224
Receivables:
Fund shares sold ............................................ 4,826
Dividends ................................................... 6,360
Prepaid expenses ............................................... 9,944
------------
Total assets ................................................... 21,014,666
------------
LIABILITIES:
Payable for:
Fund shares redeemed ........................................ 16,973
Management fees ............................................. 12,636
Custodian fees .............................................. 1,600
Transfer agent and administration fees ...................... 5,513
Professional fees ........................................... 8,606
12b-1 distribution plan fees ................................ 27,044
Other ....................................................... 1,364
------------
Total liabilities .............................................. 73,736
------------
NET ASSETS ..................................................... $ 20,940,930
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $ 27,674,023
Accumulated net realized loss
on sale of investments ...................................... (11,459,603)
Net unrealized appreciation in value
of investments .............................................. 4,726,510
------------
Net assets ..................................................... $ 20,940,930
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 952,480
Net assets ..................................................... $ 8,911,920
Net asset value and redemption price per share ................. $ 9.36
============
Maximum offering price per share
(net asset value divided by 94.25%) ......................... $ 9.93
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 785,052
Net assets ..................................................... $ 7,000,438
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ...................................... $ 8.92
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ..................... 562,231
Net assets ..................................................... $ 5,028,572
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ...................................... $ 8.94
============
(1)Investments, at cost ........................................ $ 16,175,802
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 185,577
Interest ...................................................... 5,800
----------
Total investment income ....................................... 191,377
----------
EXPENSES:
Management fees ............................................... 162,619
Custodian fees ................................................ 5,205
Transfer agent/maintenance fees ............................... 67,806
Administration fees ........................................... 24,997
Directors' fees ............................................... 404
Professional fees ............................................. 11,049
Reports to shareholders ....................................... 2,507
Registration fees ............................................. 31,519
Other expenses ................................................ 2,198
12b-1 distribution plan fees - Class A ........................ 22,723
12b-1 distribution plan fees - Class B ........................ 72,047
12b-1 distribution plan fees - Class C ........................ 53,888
----------
Total expenses ................................................ 456,962
----------
Net investment loss ........................................... (265,585)
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments ................................................... 544,010
----------
Net realized gain ............................................. 544,010
----------
Net unrealized appreciation during the period on:
Investments ................................................... 3,480,799
----------
Net unrealized appreciation ................................... 3,480,799
----------
Net realized and unrealized gain .............................. 4,024,809
----------
Net increase in net assets
resulting from operations .................................. $3,759,224
==========
67 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets SELECT 25(R) SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ........................................ $ (265,585) $ (296,848)
Net realized gain during the period on investments ......... 544,010 369,019
Net unrealized appreciation during the period on
investments ............................................. 3,480,799 1,699,912
----------- -----------
Net increase in net assets resulting from operations ....... 3,759,224 1,772,083
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Capital share transactions:
Proceeds from sale of shares
Class A ................................................. 1,492,556 1,637,921
Class B ................................................. 666,322 715,600
Class C ................................................. 610,317 833,037
Cost of shares redeemed
Class A ................................................. (3,447,276) (3,579,210)
Class B ................................................. (2,219,476) (2,158,912)
Class C ................................................. (2,348,235) (1,616,683)
----------- -----------
Net decrease from capital share transactions ............... (5,245,792) (4,168,247)
----------- -----------
Net decrease in net assets ................................. (1,486,568) (2,396,164)
----------- -----------
NET ASSETS:
Beginning of period ........................................ 22,427,498 24,823,662
----------- -----------
End of period .............................................. $20,940,930 $22,427,498
=========== ===========
Accumulated net investment income at end of period ......... $ -- $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ................................................. 174,623 204,861
Class B ................................................. 82,316 93,954
Class C ................................................. 73,575 108,652
Shares redeemed
Class A ................................................. (403,526) (452,794)
Class B ................................................. (274,915) (282,274)
Class C ................................................. (291,186) (210,959)
68 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SELECT 25(R) SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
CLASS A 2005 2004 2003 2002 2001
- ------- ------ ------ ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 7.81 $ 7.27 $ 6.52 $ 7.58 $ 11.34
------ ------ ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.07) (0.06) (0.05) (0.07) (0.06)
Net gain (loss) on securities (realized
and unrealized) 1.62 0.60 0.80 (0.99) (3.70)
------ ------ ------- ------- -------
Total from investment operations 1.55 0.54 0.75 (1.06) (3.76)
------ ------ ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------ ------- ------- -------
Total distributions -- -- -- -- --
------ ------ ------- ------- -------
Net asset value, end of period $ 9.36 $ 7.81 $ 7.27 $ 6.52 $ 7.58
====== ====== ======= ======= =======
TOTAL RETURN(A) 19.85% 7.43% 11.50% (13.98%) (33.16%)
------ ------ ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,912 $9,228 $10,396 $11,933 $14,347
------ ------ ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.79%) (0.75%) (0.70%) (0.81%) (0.60%)
Total expenses(b) 1.67% 1.56% 1.63% 1.46% 1.39%
Net expenses(d) 1.67% 1.56% 1.63% 1.46% 1.39%
------ ------ ------- ------- -------
Portfolio turnover rate 13% 44% 54% 33% 44%
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
CLASS B 2005 2004 2003 2002 2001
- ------- ------ ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 7.50 $ 7.04 $ 6.36 $ 7.44 $ 11.22
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.11) (0.10) (0.13) (0.13)
Net gain (loss) on securities (realized
and unrealized) 1.55 0.57 0.78 (0.95) (3.65)
------ ------ ------ ------- -------
Total from investment operations 1.42 0.46 0.68 (1.08) (3.78)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------ ------ ------- -------
Total distributions -- -- -- -- --
------ ------ ------ ------- -------
Net asset value, end of period $ 8.92 $ 7.50 $ 7.04 $ 6.36 $ 7.44
====== ====== ====== ======= =======
TOTAL RETURN(A) 18.93% 6.53% 10.69% (14.52%) (33.69%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $7,000 $7,333 $8,203 $ 8,566 $11,519
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (1.54%) (1.50%) (1.45%) (1.56%) (1.35%)
Total expenses(b) 2.42% 2.31% 2.38% 2.21% 2.14%
Net expenses(d) 2.42% 2.31% 2.38% 2.21% 2.14%
------ ------ ------ ------- -------
Portfolio turnover rate 13% 44% 54% 33% 44%
69 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SELECT 25(R) SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
CLASS C 2005 2004 2003 2002(E) 2001
- ------- ------ ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 7.52 $ 7.06 $ 6.38 $ 7.47 $ 11.26
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.13) (0.11) (0.10) (0.13) (0.13)
Net gain (loss) on securities (realized
and unrealized) 1.55 0.57 0.78 (0.96) (3.66)
------ ------ ------ ------- -------
Total from investment operations 1.42 0.46 0.68 (1.09) (3.79)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------ ------ ------- -------
Total distributions -- -- -- -- --
------ ------ ------ ------- -------
Net asset value, end of period $ 8.94 $ 7.52 $ 7.06 $ 6.38 $ 7.47
====== ====== ====== ======= =======
TOTAL RETURN(A) 18.88% 6.52% 10.66% (14.59%) (33.66%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,029 $5,866 $6,225 $ 3,954 $ 4,531
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (1.54%) (1.50%) (1.44%) (1.56%) (1.35%)
Total expenses(b) 2.42% 2.31% 2.37% 2.21% 2.14%
Net expenses(d) 2.42% 2.31% 2.37% 2.21% 2.14%
------ ------ ------ ------- -------
Portfolio turnover rate 13% 44% 54% 33% 44%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
70 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary SMALL CAP GROWTH SERIES
November 15, 2004 (unaudited)
(RS INVESTMENTS LOGO)
Subadvisor, RS Investments
(PHOTO OF BILL WOLFENDEN)
Portfolio Manager
TO OUR SHAREHOLDERS:
The Security Small Cap Growth Series of the Security Equity Fund was up 20.21%
in the last fiscal year, outpacing the 17.97% rise in the benchmark Russell 2000
Growth Index. The period was characterized by a reasonably favorable backdrop
for small cap stocks. However, rising interest rates and increasing energy
prices combined to keep a lid on enthusiasm for many segments of the small cap
market. For much of 2005, the broad energy sector fueled much of the returns of
the index. Conversely, many small companies leveraged to the consumer came under
pressure as investors grew concerned over how rising rates and higher energy
prices might put a crimp in discretionary consumer spending.
We recognized some of the best gains in the portfolio from the broad technology
sector. Over the period, we were overweighted in technology, with slightly under
24% of the portfolio's assets in this sector. This overweighting is a function
of attractive companies available at good prices rather than a call on any one
technology theme or industry. Good stock selection helped drive positive returns
in the past year. Payment processor Optimal Group, Inc. produced solid operating
results. SiRF Technology Holdings produces chips that power Global Positioning
Services (GPS) and other location devices for various markets including, car
navigation systems, portable PCs, cellular phones, entertainment systems,
hand-held devices. The company has benefited from strength in the mobile phone
and PDA markets. Security software provider Safenet, Inc., and Synplicity, Inc,
which produces software that goes into complex production design processes, also
produced good results in the period.
Companies that fall into the consumer discretionary sector, constituted about
24% of the portfolio over the trailing 12 months. Early in the fiscal year
period, we enjoyed strong returns from long held retailers Guitar Center, Inc.,
and Joseph A. Bank Clothiers, Inc. As we progressed through 2005, we reduced
exposure in these and other retail related positions, which helped relative
returns. We are currently generally underweight to direct consumer exposure, but
maintain exposure to a number of internet advertising and commerce related
companies, and several "business service" companies that have unique and
sustainable growth opportunities.
Health care was the only real source of disappointment in the Series. A limited
number of positions including America Service Group, a provider of health care
and pharmacy services for institutional and government entities, and
Atherogenics, a leader in drug development for inflammatory diseases, dragged
down portfolio returns. Elsewhere in health care we enjoyed success with a broad
range of health care service providers, medical device companies, and
biotechnology positions.
Overall, we are pleased with the Series' results for the trailing year, and
remain singularly committed to pursuing the Fund objective in the year ahead.
Sincerely,
- -------------------------------------
Bill Wolfenden
Portfolio Manager
71
SECURITY EQUITY FUND
Performance Summary SMALL CAP GROWTH SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY SMALL CAP GROWTH SERIES VS. RUSSELL 2000 GROWTH INDEX
SMALL CAP GROWTH SERIES
10/15/97 9,425.00
12/31/97 9,063.07
03/31/98 10,128.75
06/30/98 9,921.28
09/30/98 8,204.86
12/31/98 10,006.15
03/31/99 10,015.58
06/30/99 10,572.01
09/30/99 12,241.27
12/31/99 18,728.39
3/31/00 23,780.70
6/30/00 20,741.57
9/30/00 21,370.69
12/31/00 16,926.61
03/31/01 12,356.95
06/30/01 13,572.73
09/30/01 10,271.26
12/31/01 12,042.52
03/31/02 11,665.21
06/30/02 10,428.47
09/30/02 8,258.93
12/31/02 8,751.53
03/31/03 8,248.45
06/30/03 10,522.80
09/30/03 12,189.26
12/31/03 13,572.73
03/31/04 14,453.12
06/30/04 14,222.55
09/30/04 13,740.43
12/31/04 15,763.23
03/31/05 14,757.07
06/30/05 15,658.42
09/30/05 16,517.86
RUSSELL 2000 GROWTH INDEX
INCEPTION 10/15/97 10,000.00
12/31/97 9,180.81
03/31/98 10,271.66
06/30/98 9,680.76
09/30/98 7,516.68
12/31/98 9,294.11
03/31/99 9,137.79
06/30/99 10,485.49
09/30/99 9,970.23
12/31/99 13,299.60
03/31/00 14,534.92
06/30/00 13,462.59
09/30/00 12,927.63
12/31/00 10,315.79
03/31/01 8,747.02
06/30/01 10,319.67
09/30/01 7,421.14
12/31/01 9,363.46
03/31/02 9,179.82
06/30/02 7,739.04
09/30/02 6,073.63
12/31/02 6,529.39
03/31/03 6,275.55
06/30/03 7,790.90
09/30/03 8,606.49
12/31/03 9,698.35
03/31/04 10,240.11
06/30/04 10,249.93
09/30/04 9,633.73
12/31/04 11,085.85
03/31/05 10,329.58
06/30/05 10,688.99
09/30/05 11,363.97
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Small Cap Growth
Series on October 15, 1997 (date of inception), reflects deduction of the 5.75%
sales load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 12.55%
Consumer Staples 1.40
Energy 7.20
Financials 6.03
Health Care 23.79
Industrials 11.68
Information Technology 31.74
Cash & other assets, less liabilities 5.61
------
Total Net Assets 100.00
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ---------------
A Shares 20.21% (5.02%) 7.30%(10-15-97)
A Shares with sales charge 13.30% (6.14%) 6.51%(10-15-97)
B Shares 19.28% (5.77%) 6.32%(10-15-97)
B Shares with CDSC 14.28% (6.15%) 6.32%(10-15-97)
C Shares 19.33% (5.79%) 6.10%(1-29-99)
C Shares with CDSC 18.33% (5.79%) 6.10%(1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Series and
in the absence of such waiver, the performance quoted would be reduced.
72 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary SMALL CAP GROWTH SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Small Cap Growth
Series - Class A
Actual $1,000.00 $1,119.30 $11.48
Hypothetical 1,000.00 1,014.16 10.96
Small Cap Growth
Series - Class B
Actual 1,000.00 1,114.50 15.48
Hypothetical 1,000.00 1,010.37 14.72
Small Cap Growth
Series - Class C
Actual 1,000.00 1.115.50 15.49
Hypothetical 1,000.00 1,010.37 14.72
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 11.93%, 11.45% and
11.55%, for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (2.16%, 2.92% and
2.92% for Class A, B and C shares, respectively), net of any earnings
credits, multiplied by the average account value over the period,
multiplied by 183/365 (to reflect the one-half year period).
73
SECURITY EQUITY FUND
Schedule of Investments SMALL CAP GROWTH SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 94.4%
AEROSPACE & DEFENSE - 3.0%
Ceradyne, Inc.* 7,060 $ 258,961
DRS Technologies, Inc. 9,350 461,516
Mercury Computer Systems, Inc.* 13,700 359,625
----------
1,080,102
----------
AGRICULTURAL PRODUCTS - 1.4%
Central Garden & Pet Company* 10,970 496,393
----------
APPAREL RETAIL - 1.1%
Jos. A. Bank Clothiers, Inc.* 8,797 380,206
----------
APPLICATION SOFTWARE - 7.4%
Bottomline Technolgies, Inc.* 26,410 398,527
Concur Technologies, Inc.* 13,100 162,047
Epicor Software Corporation* 30,620 398,060
SafeNet, Inc.* 11,840 429,910
Sonic Solutions* 17,150 368,725
Synplicity, Inc.* 45,550 301,085
Ultimate Software Group, Inc.* 6,500 119,730
Witness Systems, Inc.* 21,200 442,868
----------
2,620,952
----------
BIOTECHNOLOGY - 2.1%
Alexion Pharmaceuticals, Inc.* 8,350 231,128
Illumina, Inc.* 14,480 185,489
Rigel Pharmaceuticals, Inc.* 13,410 318,756
----------
735,373
----------
BUILDING PRODUCTS - 0.9%
Drew Industries, Inc.* 11,880 306,623
----------
CASINOS & GAMING - 3.7%
Century Casinos, Inc.* 39,630 281,769
Mikohn Gaming Corporation* 22,510 299,158
Scientific Games Corporation* 23,050 714,550
----------
1,295,477
----------
COMPUTER STORAGE & PERIPHERALS - 1.2%
M-Systems Flash Disk Pioneers, Ltd.* 13,600 406,912
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.6%
TNS, Inc.* 8,100 196,425
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 3.0%
FirstService Corporation* 22,460 515,457
McGrath Rentcorp 19,010 538,553
----------
1,054,010
----------
EDUCATION SERVICES - 2.3%
Laureate Education, Inc.* 10,320 505,370
Universal Technical Institute, Inc.* 8,510 303,041
----------
808,411
----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 1.7%
Optimal Group, Inc.* 28,710 593,723
----------
ELECTRONIC MANUFACTURING SERVICES - 1.3%
RadiSys Corporation* 23,820 462,108
----------
ENVIRONMENTAL & FACILITIES SERVICES - 1.2%
Rollins, Inc. 22,440 $ 438,029
----------
HEALTH CARE EQUIPMENT - 6.9%
Encore Medical Corporation* 72,140 339,058
I-Flow Corporation* 20,330 278,724
Intermagnetics General Corporation* 7,380 206,197
Iris International, Inc.* 11,200 206,528
SonoSite, Inc.* 7,950 235,956
Spectranetics Corporation* 37,710 354,851
Symmetry Medical, Inc.* 14,720 348,864
Syneron Medical, Ltd.* 12,720 464,789
----------
2,434,967
----------
HEALTH CARE FACILITIES - 1.2%
Five Star Quality Care, Inc.* 50,910 351,279
Genomic Health, Inc.* 5,200 60,060
----------
411,339
----------
HEALTH CARE SERVICES - 8.4%
AMN Healthcare Services, Inc.* 27,700 428,519
Amedisys, Inc.* 7,320 285,480
Chemed Corporation 8,270 358,422
LabOne, Inc.* 11,150 485,025
Lifeline Systems, Inc.* 13,310 444,953
Matria Healthcare, Inc.* 9,780 369,195
Merge Technologies, Inc.* 21,210 362,479
Providence Service Corporation* 8,170 249,920
----------
2,983,993
----------
HEALTH CARE SUPPLIES - 2.2%
Orthovita, Inc.* 64,080 274,262
PolyMedica Corporation 14,902 520,676
----------
794,938
----------
HOME FURNISHINGS - 0.6%
Design Within Reach, Inc.* 25,420 229,543
----------
HOME IMPROVEMENT RETAIL - 0.7%
Building Materials Holding Corporation 2,570 239,498
----------
HOTELS, RESORTS & CRUISE LINES - 1.3%
Steiner Leisure, Ltd.* 13,690 465,049
----------
HOUSEWARES & SPECIALTIES - 1.2%
Jarden Corporation* 10,715 440,065
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 0.9%
Barrett Business Services, Inc.* 14,020 320,357
----------
INDUSTRIAL MACHINERY - 0.8%
Axsys Technologies, Inc.* 14,750 289,248
----------
74 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments SMALL CAP GROWTH SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES - 13.8%
aQuantive, Inc.* 9,720 $ 195,664
CyberSource Corporation* 51,440 338,475
Digitas, Inc.* 45,010 511,314
Equinix, Inc.* 10,930 455,234
InfoSpace, Inc.* 18,010 429,899
j2 Global Communications, Inc.* 12,930 522,631
Keynote Systems, Inc.* 38,800 503,624
Marchex, Inc. (Cl.B)* 26,630 440,993
Online Resources Corporation* 48,850 516,833
Openwave Systems, Inc.* 12,710 228,526
RADVision, Ltd.* 23,340 319,058
ValueClick, Inc.* 23,770 406,229
----------
4,868,480
----------
OIL & GAS DRILLING - 3.1%
Grey Wolf, Inc.* 38,160 321,689
Patterson-UTI Energy, Inc. 11,150 402,292
Unit Corporation* 6,890 380,879
----------
1,104,860
----------
OIL & GAS EQUIPMENT & SERVICES - 4.1%
Hydril* 4,260 292,406
Maverick Tube Corporation* 13,360 400,800
Oil States International, Inc.* 10,400 377,624
Superior Energy Services, Inc.* 15,930 367,824
----------
1,438,654
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 1.2%
Portfolio Recovery Associates, Inc.* 9,790 422,732
----------
PHARMACEUTICALS - 3.0%
AtheroGenics, Inc.* 15,090 241,893
First Horizon Pharmaceutical Corporation* 21,490 427,006
Salix Pharmaceuticals, Ltd.* 17,710 376,338
----------
1,045,237
----------
PHOTOGRAPHIC PRODUCTS - 0.6%
Presstek, Inc.* 17,100 221,958
----------
PROPERTY & CASUALTY INSURANCE - 1.3%
Tower Group, Inc. 29,420 444,830
----------
REAL ESTATE INVESTMENT TRUSTS - 1.2%
KKR Financial Corporation 19,910 442,798
----------
REGIONAL BANKS - 2.3%
Boston Private Financial Holdings, Inc. 11,440 303,618
PrivateBancorp, Inc. 11,300 387,364
Western Alliance Bancorp* 4,600 129,260
----------
820,242
----------
RESTAURANTS - 1.0%
Caribou Coffee Company, Inc.* 8,900 101,015
Cosi, Inc.* 25,970 255,025
----------
356,040
----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
SEMICONDUCTOR EQUIPMENT - 1.7%
Advanced Analogic Technologies, Inc.* 21,370 $ 239,130
Ultratech, Inc.* 22,720 354,205
-----------
593,335
-----------
SEMICONDUCTORS - 3.3%
Microsemi Corporation* 12,540 320,272
O2Micro International, Ltd.* 18,870 297,014
SRS Labs, Inc.* 48,590 312,920
Volterra Semiconductor Corporation* 18,060 221,596
-----------
1,151,802
-----------
SYSTEMS SOFTWARE - 0.9%
WebSideStory, Inc.* 18,290 324,099
-----------
TRUCKING - 1.8%
Old Dominion Freight Line, Inc.* 7,390 247,491
Vitran Corporation, Inc.* 24,060 390,253
-----------
637,744
-----------
TOTAL COMMON STOCKS
(cost $26,700,568) 33,356,552
-----------
REPURCHASE AGREEMENT - 8.5%
United Missouri Bank, 3.42%, dated 09-30-05,
matures 10-03-05; repurchase amount of
$3,001,855 (Collateralized by U.S. Treasury
Notes, 4.375%, 05-15-07 with a value
of 3,061,693) $3,001,000 3,001,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $3,001,000) 3,001,000
-----------
TOTAL INVESTMENTS - 102.9%
(cost $29,701,568) 36,357,552
LIABILITIES, LESS CASH & OTHER ASSETS - (2.9%) (1,017,872)
-----------
TOTAL NET ASSETS - 100.0% $35,339,680
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $29,832,465.
* Non-income producing security
75 See accompanying notes.
SECURITY EQUITY FUND
SMALL CAP GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2005
ASSETS:
Investments, at value(1) ........................................ $36,357,552
Receivables:
Fund shares sold ............................................. 17,826
Securities sold .............................................. 90,204
Dividends .................................................... 386
Prepaid expenses ................................................ 8,723
-----------
Total assets .................................................... 36,474,691
-----------
LIABILITIES:
Cash overdraft .................................................. 90
Payable for:
Securities purchased ......................................... 1,051,389
Fund shares redeemed ......................................... 11,433
Management fees .............................................. 28,736
Custodian fees ............................................... 6,800
Transfer agent and administration fees ....................... 11,374
Professional fees ............................................ 8,826
12b-1 distribution plan fees ................................. 14,973
Other ........................................................ 1,390
-----------
Total liabilities ............................................... 1,135,011
-----------
NET ASSETS ...................................................... $35,339,680
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $32,740,061
Accumulated net realized loss on sale of investments ............ (4,056,365)
Net unrealized appreciation in value of investments ............. 6,655,984
-----------
Net assets ...................................................... $35,339,680
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,436,305
Net assets ...................................................... $22,636,777
Net asset value and redemption price per share .................. $ 15.76
===========
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 16.72
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 567,199
Net assets ...................................................... $ 8,283,013
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 14.60
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 297,072
Net assets ...................................................... $ 4,419,890
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 14.88
===========
(1)Investments, at cost ......................................... $29,701,568
STATEMENT OF OPERATIONS
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 92,526
Interest ..................................................... 62,908
-----------
Total investment income ...................................... 155,434
-----------
EXPENSES:
Management fees .............................................. 360,626
Custodian fees ............................................... 21,120
Transfer agent/maintenance fees .............................. 197,146
Administration fees .......................................... 34,600
Directors' fees .............................................. 852
Professional fees ............................................ 12,328
Reports to shareholders ...................................... 5,447
Registration fees ............................................ 33,376
Other expenses ............................................... 2,454
12b-1 distribution plan fees - Class A ....................... 56,467
12b-1 distribution plan fees - Class B ....................... 92,560
12b-1 distribution plan fees - Class C ....................... 42,197
-----------
Total expenses ............................................... 859,173
Less: Earnings credits ....................................... (245)
-----------
Net expenses ................................................. 858,928
-----------
Net investment loss .......................................... (703,494)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments .................................................. 4,851,401
-----------
Net realized gain ............................................ 4,851,401
-----------
Net unrealized appreciation during the period on:
Investments .................................................. 1,920,648
-----------
Net unrealized appreciation .................................. 1,920,648
-----------
Net realized and unrealized gain ............................. 6,772,049
-----------
Net increase in net assets resulting from operations ......... $ 6,068,555
===========
76 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets SMALL CAP GROWTH SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ...................................... $ (703,494) $ (673,012)
Net realized gain during the period on investments ....... 4,851,401 4,201,550
Net unrealized appreciation (depreciation) during the
period on investments ................................. 1,920,648 (49,010)
------------ -----------
Net increase in net assets resulting from operations ..... 6,068,555 3,479,528
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ............................................... 8,144,188 12,131,835
Class B ............................................... 1,848,399 4,066,427
Class C ............................................... 1,278,043 2,162,637
Cost of shares redeemed
Class A ............................................... (10,786,990) (7,250,354)
Class B ............................................... (4,281,215) (2,615,904)
Class C ............................................... (1,752,947) (1,929,569)
------------ -----------
Net increase (decrease) from capital share transactions .. (5,550,522) 6,565,072
------------ -----------
Net increase in net assets ............................... 518,033 10,044,600
------------ -----------
NET ASSETS:
Beginning of period ...................................... 34,821,647 24,777,047
------------ -----------
End of period ............................................ $ 35,339,680 $34,821,647
============ ===========
Accumulated net investment income at end of period ....... $ -- $ --
============ ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ............................................... 560,063 956,806
Class B ............................................... 138,265 342,362
Class C ............................................... 91,558 172,645
Shares redeemed
Class A ............................................... (759,381) (559,729)
Class B ............................................... (324,239) (214,052)
Class C ............................................... (128,106) (155,932)
77 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SMALL CAP GROWTH SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
CLASS A 2005 2004 2003 2002(F) 2001
- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 13.11 $ 11.63 $ 7.88 $ 9.80 $ 22.08
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.24) (0.25) (0.18) (0.20) (0.18)
Net gain (loss) on securities (realized and unrealized) 2.89 1.73 3.93 (1.72) (10.78)
------- ------- ------- ------- -------
Total from investment operations 2.65 1.48 3.75 (1.92) (10.96)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (1.32)
------- ------- ------- ------- -------
Total distributions -- -- -- -- (1.32)
------- ------- ------- ------- -------
Net asset value, end of period $ 15.76 $ 13.11 $ 11.63 $ 7.88 $ 9.80
======= ======= ======= ======= =======
TOTAL RETURN(A) 20.21% 12.73% 47.59% (19.59%) (51.94%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $22,637 $21,443 $14,406 $ 8,350 $17,235
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (1.67%) (1.95%) (2.01%) (1.93%) (1.32%)
Total expenses(b) 2.10% 2.09% 2.51% 2.14% 1.91%
Net expenses(d) 2.10% 2.09% 2.25% 2.14% 1.91%
Expenses prior to custodian earnings credits
and net of expense waivers 2.10% 2.09% 2.25% 2.14% 1.91%
------- ------- ------- ------- -------
Portfolio turnover rate 134% 157% 206% 302% 394%
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------
CLASS B 2005 2004 2003 2002(F) 2001
- ------- ------ ------ ------ ------- -------
CLASS B
PER SHARE DATA
Net asset value, beginning of period $12.24 $10.94 $ 7.47 $ 9.37 $ 21.34
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.33) (0.33) (0.24) (0.26) (0.28)
Net gain (loss) on securities (realized and unrealized) 2.69 1.63 3.71 (1.64) (10.37)
------ ------ ------ ------- -------
Total from investment operations 2.36 1.30 3.47 (1.90) (10.65)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (1.32)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (1.32)
------ ------ ------ ------- -------
Net asset value, end of period $14.60 $12.24 $10.94 $ 7.47 $ 9.37
====== ====== ====== ======= =======
TOTAL RETURN(A) 19.28% 11.88% 46.45% (20.28%) (52.31%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,283 $9,218 $6,838 $ 4,292 $ 6,173
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (2.41%) (2.69%) (2.76%) (2.69%) (2.07%)
Total expenses(b) 2.85% 2.84% 3.23% 2.90% 2.67%
Net expenses(d) 2.85% 2.83% 3.00% 2.90% 2.67%
Expenses prior to custodian earnings credits
and net of expense waivers 2.85% 2.84% 3.00% 2.90% 2.67%
------ ------ ------ ------- -------
Portfolio turnover rate 134% 157% 206% 302% 394%
78 See accompanying notes.
Financial Highlights SECURITY EQUITY FUND
SMALL CAP GROWTH SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
CLASS C SEPTEMBER 30,
- ------- ----------------------------------------------
2005 2004 2003 2002(E,F) 2001
------ ------ ------ --------- -------
PER SHARE DATA
Net asset value, beginning of period $12.47 $11.15 $ 7.61 $ 9.53 $ 21.74
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.33) (0.33) (0.24) (0.26) (0.28)
Net gain (loss) on securities (realized and unrealized) 2.74 1.65 3.78 (1.66) (10.61)
------ ------ ------ ------- -------
Total from investment operations 2.41 1.32 3.54 (1.92) (10.89)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (1.32)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (1.32)
Net asset value, end of period $14.88 $12.47 $11.15 $ 7.61 $ 9.53
====== ====== ====== ======= =======
TOTAL RETURN(A) 19.33% 11.84% 46.52% (20.15%) (52.46%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $4,420 $4,160 $3,533 $ 2,164 $ 2,339
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (2.42%) (2.69%) (2.76%) (2.69%) (2.09%)
Total expenses(b) 2.85% 2.83% 3.23% 2.91% 2.68%
Net expenses(d) 2.85% 2.82% 3.00% 2.91% 2.68%
Expenses prior to custodian earnings credits
and net of expense waivers 2.85% 2.83% 3.00% 2.91% 2.68%
------ ------ ------ ------- -------
Portfolio turnover rate 134% 157% 206% 302% 394%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) RS Investments, Inc. became the sub-adviser of Small Cap Growth Series
effective September 3, 2002. Prior to September 3, 2002, Security
Management Company, LLC paid Strong Capital Management, Inc. for
sub-advisory services.
79 See accompanying notes.
This page left intentionally blank.
80
SECURITY EQUITY FUND
Manager's Commentary SOCIAL AWARENESS SERIES
November 15, 2005 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
The Social Awareness Series of the Security Equity Fund returned 8.32% in the
period, lagging the benchmark, S&P 500 index's return of 12.25% and the Series'
Mark Mitchell peer group median return of 11.42%. For comparison purposes,
Senior Portfolio Manager the DSI 400 index was up 9.69% for the same period. The
under performance was driven primarily by our not participating in the
substantial energy and utility sectors' strong performance. The Series' social
screening criteria limits the types of energy and utility companies we're able
to own.
Our approach to managing the Security Social Awareness Series is based on our
investment philosophy described below.
We understand a company's growth potential over the long-term based on our
bottom up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking."
Once we determine that companies meet our investment criteria, we review them to
ensure they meet our social criteria as well. We employ this philosophy to a
universe of value and growth companies.
INDUSTRIAL AND CONSUMER STAPLES STOCKS ARE TOP PERFORMERS
In the industrial sector, Shaw Group appreciated over 105% as a result of
continued world wide economic growth and the corresponding demand for their
infrastructure related services.
Within consumer staples, CVS and PepsiCo were up 39% and 19% respectively. CVS
benefited from continued execution in their core business and good progress in
the integration of Eckard, an acquisition completed in July 2004. PepsiCo was
positively impacted by strong growth in their international markets and solid
execution within their diversified business model encompassing both beverages
and snacks.
ENERGY AND FINANCIALS DISAPPOINTING
The energy sector was up over 48% for the period driven by rapidly increasing
commodity prices. Many energy related companies have environmental concerns that
don't meet our social screening criteria. These limitations are not in place in
the S&P 500, the benchmark, or the core peer group we use for comparison
purposes.
Financials, as a sector overall, underperformed the index. Marsh McLennan and
AIG both had a negative impact on the Series. Marsh was down over 42% as a
result of bid rigging improprieties and controversy over their practice of
receiving contingent commissions from their insurance suppliers. AIG impacted
the Series negatively due to concerns over accounting related issues and the
departure of their long tenured CEO. We believe both of these issues are
short-term in nature and are confident in the competitive advantage AIG enjoys.
2006 MARKET OUTLOOK
We are optimistic on the equity market as we look out into 2006. However, there
are several near-term concerns that need to pass. The most significant, in our
opinion, is the spending capacity of the U.S. consumer. Above average consumer
spending trends have persisted as a result of favorable monetary and fiscal
policies. These favorable policy trends are now being reversed. Additionally,
higher energy prices will weigh heavily on the consumer as we move through the
winter season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We believe that investing is a long-term pursuit that requires patience and a
consistent approach. Dollar cost averaging is a sound way to build long-term
value. We recognize there are many investment fund alternatives available today
and thank you for your business and the confidence you place in us.
Sincerely,
- -------------------------------------
Mark Mitchell
Senior Portfolio Manager
81
SECURITY EQUITY FUND
Performance Summary SOCIAL AWARENESS SERIES
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY SOCIAL AWARENESS SERIES VS. DOMINI SOCIAL 400 INDEX & S&P 500 INDEX
SOCIAL AWARENESS SERIES
11/01/96 9,425.00
12/31/96 9,440.95
03/31/97 9,007.54
06/30/97 10,433.42
09/30/97 11,300.25
12/31/97 11,543.52
03/31/98 13,047.83
06/30/98 13,337.36
09/30/98 12,191.82
12/31/98 15,056.73
03/31/99 15,472.31
06/30/99 16,444.12
09/30/99 15,376.41
12/31/99 17,395.06
3/31/00 18,355.32
6/30/00 17,784.35
9/30/00 16,895.46
12/31/00 15,224.03
03/31/01 13,437.64
06/30/01 14,026.49
09/30/01 11,876.20
12/31/01 13,232.53
03/31/02 13,192.84
06/30/02 11,465.99
09/30/02 9,758.99
12/31/02 10,480.17
03/31/03 10,189.05
06/30/03 11,545.39
09/30/03 11,803.42
12/31/03 12,822.33
03/31/04 12,888.49
06/30/04 13,047.28
09/30/04 12,398.88
12/31/04 13,351.63
03/31/05 12,762.78
06/30/05 13,047.28
09/30/05 13,431.02
DOMINI SOCIAL 400 INDEX
INCEPTION 11/01/96 10,000.00
12/31/96 10,553.42
3/31/97 10,912.97
6/30/97 12,857.55
9/30/97 13,937.09
12/31/97 14,590.67
3/31/98 16,693.50
6/30/98 17,352.54
9/30/98 15,687.26
12/31/98 19,631.95
3/31/99 20,652.83
6/30/99 22,054.81
9/30/99 20,722.25
12/31/99 24,442.96
3/31/00 25,223.63
06/30/00 23,868.27
09/30/00 22,758.31
12/31/00 20,947.73
03/31/01 18,427.12
06/30/01 19,421.49
09/30/01 16,665.94
12/31/01 18,415.79
03/31/02 18,453.04
06/30/02 16,227.21
09/30/02 13,469.96
12/31/02 14,715.09
03/31/03 14,219.65
06/30/03 16,406.57
09/30/03 16,969.49
12/31/03 18,905.61
03/31/04 19,704.28
06/30/04 20,156.64
09/30/04 19,447.42
12/31/04 21,292.50
03/31/05 20,313.03
06/30/05 20,632.80
09/30/05 21,331.00
S&P 500
INCEPTION 11/1/96 10,000.00
12/31/96 10,543.03
3/31/97 10,825.35
6/30/97 12,715.48
9/30/97 13,669.03
12/31/97 14,062.00
3/31/98 16,023.66
6/30/98 16,552.94
9/30/98 14,905.78
12/31/98 18,078.99
3/31/99 18,982.39
6/30/99 20,320.16
9/30/99 19,051.03
12/31/99 21,885.54
3/31/00 22,388.55
06/30/00 21,794.86
09/30/00 21,584.04
12/31/00 19,896.73
03/31/01 17,538.83
06/30/01 18,565.85
09/30/01 15,842.36
12/31/01 17,536.24
03/31/02 17,583.90
06/30/02 15,228.68
09/30/02 12,598.57
12/31/02 13,662.59
03/31/03 13,232.30
06/30/03 15,269.15
09/30/03 15,673.27
12/31/03 17,583.18
03/31/04 17,881.46
06/30/04 18,189.77
09/30/04 17,848.74
12/31/04 19,496.86
03/31/05 19,076.84
06/30/05 19,336.53
09/30/05 20,034.31
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Social Awareness
Series on November 1, 1996 (date of inception), reflects deduction of the
5.75% sales load and assumes all dividends reinvested. The chart does not
reflect the deduction of taxes that a shareholder would pay on distributions
or the redemption of fund shares. Effective February 1, 2005, the Social
Awareness Series changed its benchmark to the S&P 500 because, among other
reasons, the Domini Social 400 is not as widely utilized and reported an
index as the S&P 500, performance attribution analysis of the Domini Social
400 is no longer available to the Series and the change to the S&P 500 allows
shareholders to compare the Series' performance to that of a broader measure
of the stock markets overall performance as compared to the Domini 400.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ----------------
A Shares 8.32% (4.49%) 4.06% (11-1-96)
A Shares with sales charge 2.11% (5.61%) 3.36% (11-1-96)
B Shares 7.56% (5.28%) 3.15% (11-1-96)
B Shares with CDSC 2.56% (5.66%) 3.15% (11-1-96)
C Shares 7.50% (5.27%) (3.16%) (1-29-99)
C Shares with CDSC 6.50% (5.27%) (3.16%) (1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Series will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted. Fee waivers reduced expenses of the Series and
in the absence of such waiver, the performance quoted would be reduced.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 14.91%
Consumer Staples 13.27
Energy 3.39
Financials 11.65
Health Care 19.16
Industrials 13.28
Information Technology 18.79
Materials 2.13
Telecommunication Services 2.26
Repurchase Agreement 2.76
Liabilities, less cash & other assets (1.60)
------
Total Net Assets 100.00
======
82 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary SOCIAL AWARENESS SERIES
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Social Awareness
Series - Class A
Actual $1,000.00 $1,052.40 $ 9.21
Hypothetical 1,000.00 1,016.01 9.05
Social Awareness
Series - Class B
Actual 1,000.00 1,048.90 13.05
Hypothetical 1,000.00 1,012.27 12.81
Social Awareness
Series - Class C
Actual 1,000.00 1,048.40 13.04
Hypothetical 1,000.00 1,012.27 12.81
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 5.24%, 4.89% and 4.84%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.79%, 2.54% and
2.54% for Class A, B and C shares, respectively), net of any applicable fee
waivers multiplied by the average account value over the period, multiplied
by 183/365 (to reflect the one-half year period).
83
SECURITY EQUITY FUND
Schedule of Investments SOCIAL AWARENESS SERIES
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 98.8%
AIR FREIGHT & LOGISTICS - 3.4%
FedEx Corporation 6,400 $ 557,632
-----------
AIRLINES - 2.0%
Southwest Airlines Company 21,800 323,730
-----------
BIOTECHNOLOGY - 1.5%
Amgen, Inc.* 3,200 254,944
-----------
BROADCASTING & CABLE TV - 3.7%
Comcast Corporation* 3,737 109,793
Univision Communications, Inc.* 18,800 498,764
-----------
608,557
-----------
COMMUNICATIONS EQUIPMENT - 5.3%
ADC Telecommunications, Inc.* 17,685 404,279
Cisco Systems, Inc.* 26,700 478,731
-----------
883,010
-----------
COMPUTER HARDWARE - 0.9%
Dell, Inc.* 4,300 147,060
-----------
CONSTRUCTION & ENGINEERING - 2.7%
Shaw Group, Inc.* 18,500 456,210
-----------
CONSUMER FINANCE - 2.8%
American Express Company 8,150 468,136
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.6%
First Data Corporation 10,850 434,000
-----------
DIVERSIFIED BANKS - 3.0%
Wells Fargo & Company 8,600 503,702
-----------
DRUG RETAIL - 3.2%
CVS Corporation 18,200 527,982
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.6%
Power-One, Inc.* 49,000 271,460
-----------
GENERAL MERCHANDISE STORES - 1.4%
Target Corporation 4,500 233,685
-----------
HEALTH CARE EQUIPMENT - 7.9%
Fisher Scientific International, Inc.* 5,500 341,275
Medtronic, Inc. 9,600 514,752
Zimmer Holdings, Inc.* 6,600 454,674
-----------
1,310,701
-----------
HEALTH CARE SERVICES - 2.0%
Covance, Inc.* 7,000 335,930
-----------
HOME IMPROVEMENT RETAIL - 3.2%
Home Depot, Inc. 13,800 526,332
-----------
HOUSEHOLD PRODUCTS - 3.2%
Procter & Gamble Company 9,000 535,140
-----------
HYPERMARKETS & SUPERCENTERS - 2.1%
Costco Wholesale Corporation 8,000 344,720
-----------
INDUSTRIAL CONGLOMERATES - 1.5%
3M Company 3,500 $ 256,760
-----------
INDUSTRIAL GASES - 2.1%
Praxair, Inc. 7,400 354,682
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 2.3%
Verizon Communications, Inc. 11,500 375,935
-----------
INTERNET RETAIL - 0.7%
eBay, Inc.* 3,000 123,600
-----------
IT CONSULTING & OTHER SERVICES - 1.1%
Unisys Corporation* 26,700 177,288
-----------
MANAGED HEALTH CARE - 4.8%
UnitedHealth Group, Inc. 6,200 348,440
WellPoint, Inc.* 6,000 454,920
-----------
803,360
-----------
MOVIES & ENTERTAINMENT - 5.9%
Time Warner, Inc. 29,000 525,190
Viacom, Inc. (Cl.B) 14,000 462,140
-----------
987,330
-----------
MULTI-LINE INSURANCE - 4.4%
American International Group, Inc. 11,854 734,474
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.7%
BJ Services Company 8,000 287,920
-----------
OIL & GAS EXPLORATION & PRODUCTION - 0.3%
Anadarko Petroleum Corporation 500 47,875
-----------
OIL & GAS STORAGE & TRANSPORTATION - 1.4%
Williams Companies, Inc. 9,100 227,955
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 1.4%
JP Morgan Chase & Company 6,800 230,724
-----------
PHARMACEUTICALS - 2.9%
Johnson & Johnson 7,604 481,181
-----------
SEMICONDUCTORS - 4.8%
Analog Devices, Inc. 8,600 319,404
Intel Corporation 19,500 480,675
-----------
800,079
-----------
SOFT DRINKS - 4.8%
Coca-Cola Company 9,300 401,667
PepsiCo, Inc. 7,000 396,970
-----------
798,637
-----------
SYSTEMS SOFTWARE - 4.1%
Microsoft Corporation 26,500 681,845
-----------
TRUCKING - 2.1%
J.B. Hunt Transport Services, Inc. 18,000 342,180
-----------
TOTAL COMMON STOCKS
(cost $16,477,999) 16,434,756
-----------
84 See accompanying notes.
SECURITY EQUITY FUND
Schedule of Investments SOCIAL AWARENESS SERIES
September 30, 2005
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
REPURCHASE AGREEMENT - 2.8%
United Missouri Bank, 3.42%, dated 09-30-05,
matures 10-03-05; repurchase amount of
$459,131 (Collateralized by FHLMC,
4.00%, 12-01-09 with a value of
$468,180) $459,000 $ 459,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $459,000) 459,000
-----------
TOTAL INVESTMENTS - 101.6%
(cost $16,936,999) 16,893,756
LIABILITIES, LESS CASH & OTHER ASSETS - (1.6%) (268,160)
-----------
TOTAL NET ASSETS - 100.0% $16,625,596
===========
The identified cost of investments owned at September 30, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
85 See accompanying notes.
SECURITY EQUITY FUND
SOCIAL AWARENESS SERIES
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ......................................... $16,893,756
Cash ............................................................. 738
Receivables:
Fund shares sold .............................................. 18,846
Dividends ..................................................... 4,971
Prepaid expenses ................................................. 9,854
-----------
Total assets ..................................................... 16,928,165
-----------
LIABILITIES:
Payable for:
Securities purchased .......................................... 263,137
Fund shares redeemed .......................................... 6,300
Management fees ............................................... 10,272
Custodian fees ................................................ 1,400
Transfer agent and administration fees ........................ 4,814
Professional fees ............................................. 8,458
12b-1 distribution plan fees .................................. 7,106
Other ......................................................... 1,082
-----------
Total liabilities ................................................ 302,569
-----------
NET ASSETS ....................................................... $16,625,596
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $18,220,270
Accumulated net realized loss
on sale of investments ........................................ (1,551,431)
Net unrealized depreciation in value
of investments ................................................ (43,243)
-----------
Net assets ....................................................... $16,625,596
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 528,373
Net assets ....................................................... $10,724,719
Net asset value and redemption price per share ................... $ 20.30
===========
Maximum offering price per share
(net asset value divided by 94.25%) ........................... $ 21.54
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 230,064
Net assets ....................................................... $ 4,290,117
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ........................................ $ 18.65
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 84,453
Net assets ....................................................... $ 1,610,760
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ........................................ $ 19.07
===========
(1) Investments, at cost ......................................... $16,936,999
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 311,860
Interest ...................................................... 32,473
----------
Total investment income ....................................... 344,333
----------
EXPENSES:
Management fees ............................................... 169,887
Custodian fees ................................................ 4,568
Transfer agent/maintenance fees ............................... 54,638
Administration fees ........................................... 25,287
Directors' fees ............................................... 333
Professional fees ............................................. 11,574
Reports to shareholders ....................................... 1,407
Registration fees ............................................. 35,210
Other expenses ................................................ 1,892
12b-1 distribution plan fees - Class A ........................ 25,917
12b-1 distribution plan fees - Class B ........................ 50,242
12b-1 distribution plan fees - Class C ........................ 15,978
----------
Total expenses ................................................ 396,933
Less: Expenses waived ......................................... (42,472)
----------
Net expenses .................................................. 354,461
----------
Net investment income ......................................... (10,128)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss during the period on:
Investments ................................................... (90,090)
----------
Net realized loss ............................................. (90,090)
----------
Net unrealized appreciation during the period on:
Investments ................................................... 1,425,092
----------
Net unrealized appreciation ................................... 1,425,092
----------
Net realized and unrealized gain .............................. 1,335,002
----------
Net increase in net assets
resulting from operations .................................. $1,324,874
==========
86 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets SOCIAL AWARENESS SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ........................................... $ (10,128) $ (155,216)
Net realized gain (loss) during the period on investments ..... (90,090) 798,923
Net unrealized appreciation during the period on investments .. 1,425,092 188,654
----------- -----------
Net increase in net assets resulting from operations .......... 1,324,874 832,361
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................................... 2,732,571 2,812,864
Class B .................................................... 383,674 544,989
Class C .................................................... 446,322 321,631
Cost of shares redeemed
Class A .................................................... (2,543,663) (2,826,052)
Class B .................................................... (2,114,208) (1,343,364)
Class C .................................................... (564,810) (326,581)
----------- -----------
Net decrease from capital share transactions .................. (1,660,114) (816,513)
----------- -----------
Net increase (decrease) in net assets ......................... (335,240) 15,848
----------- -----------
NET ASSETS:
Beginning of period ........................................... 16,960,836 16,944,988
----------- -----------
End of period ................................................. $16,625,596 $16,960,836
=========== ===========
Accumulated net investment income at end of period ............... $ -- $ --
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................................... 139,285 146,627
Class B .................................................... 21,066 30,639
Class C .................................................... 24,090 17,701
Shares redeemed
Class A .................................................... (128,966) (146,827)
Class B .................................................... (116,183) (75,487)
Class C .................................................... (30,640) (17,726)
87 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SOCIAL AWARENESS SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
---------------------------------------------
CLASS A 2005 2004 2003 2002 2001
- ------- ------- ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 18.74 $17.84 $14.75 $ 17.95 $ 26.04
------- ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.04 (0.10) (0.13) (0.11) (0.07)
Net gain (loss) on securities (realized and unrealized) 1.52 1.00 3.22 (3.09) (7.55)
------- ------ ------ ------- -------
Total from investment operations 1.56 0.90 3.09 (3.20) (7.62)
------- ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.47)
------- ------ ------ ------- -------
Total distributions -- -- -- -- (0.47)
------- ------ ------ ------- -------
Net asset value, end of period $ 20.30 $18.74 $17.84 $ 14.75 $ 17.95
======= ====== ====== ======= =======
TOTAL RETURN(A) 8.32% 5.04% 20.95% (17.83%) (29.71%)
------- ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $10,725 $9,708 $9,243 $ 7,355 $10,909
------- ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) 0.20% (0.55%) (0.76%) (0.58%) (0.30%)
Total expenses(b) 2.04% 1.93% 2.05% 1.66% 1.43%
Net expenses(d) 1.79% 1.76% 2.05% 1.66% 1.43%
Expenses prior to custodian earnings credits
and net of expense waivers 1.79% 1.77% 2.05% 1.66% 1.43%
------- ------ ------ ------- -------
Portfolio turnover rate 42% 28% 26% 3% 17%
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------
CLASS B 2005 2004 2003 2002 2001
- ------- ------ ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $17.34 $16.63 $13.85 $ 17.01 $ 24.96
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.08) (0.23) (0.24) (0.26) (0.28)
Net gain (loss) on securities (realized and unrealized) 1.39 0.94 3.02 (2.90) (7.20)
------ ------ ------ ------- -------
Total from investment operations 1.31 0.71 2.78 (3.16) (7.48)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.47)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (0.47)
------ ------ ------ ------- -------
Net asset value, end of period $18.65 $17.34 $16.63 $ 13.85 $ 17.01
====== ====== ====== ======= =======
TOTAL RETURN(A) 7.56% 4.27% 20.07% (18.58%) (30.44%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $4,290 $5,639 $6,153 $ 5,999 $ 8,969
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.44%) (1.30%) (1.51%) (1.49%) (1.31%)
Total expenses(b) 2.79% 2.68% 2.80% 2.57% 2.43%
Net expenses(d) 2.54% 2.51% 2.80% 2.57% 2.43%
Expenses prior to custodian earnings credits
and net of expense waivers 2.54% 2.52% 2.80% 2.57% 2.43%
------ ----- - ------ ------ -------
Portfolio turnover rate 42% 28% 26% 3% 17%
88 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SOCIAL AWARENESS SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
--------------------------------------------
CLASS C 2005 2004 2003 2002(E) 2001
- ------- ------ ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $17.74 $17.01 $14.17 $ 17.40 $ 25.50
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.10) (0.24) (0.24) (0.26) (0.28)
Net gain (loss) on securities (realized and unrealized) 1.43 0.97 3.08 (2.97) (7.35)
------ ------ ------ ------- -------
Total from investment operations 1.33 0.73 2.84 (3.23) (7.63)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- (0.47)
------ ------ ------ ------- -------
Total distributions -- -- -- -- (0.47)
------ ------ ------ ------- -------
Net asset value, end of period $19.07 $17.74 $17.01 $ 14.17 $ 17.40
====== ====== ====== ======= =======
TOTAL RETURN(A) 7.50% 4.29% 20.04% (18.56%) (30.39%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $1,611 $1,614 $1,548 $ 1,123 $ 1,126
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.51%) (1.30%) (1.51%) (1.48%) (1.33%)
Total expenses(b) 2.79% 2.68% 2.80% 2.57% 2.45%
Net expenses(d) 2.54% 2.51% 2.80% 2.57% 2.45%
Expenses prior to custodian earnings credits
and net of expense waivers 2.54% 2.52% 2.80% 2.57% 2.45%
------ ------ ------ ------- -------
Portfolio turnover rate 42% 28% 26% 3% 17%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
89 See accompanying notes.
This page left blank intentionally.
90
SECURITY
Manager's Commentary LARGE CAP VALUE FUND
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Security Management assumed fund management responsibilities on June 30, 2005,
thus this is my first annual letter for Security Large Cap Value Fund.
Security Large Cap Value Fund returned 18.74% in the period, beating the
benchmark Russell 1000 Value index's return of 16.68% and the Fund's peer group
median return of 12.51%. The S&P 500/Barra Value index's return for the same
period was 12.87%.
The following comments are based on results for the three months ending 9/30/05.
The Fund was up 8.31% compared to up 3.88% for the Russell 1000 Value index for
the three month period ending 9/30/05.
Our approach to managing Security Large Cap Value Fund is based on our
investment philosophy described below.
We understand a company's growth potential over the longterm based on our bottom
up fundamental investment process. We invest today based on future potential. We
concentrate our investments in companies that have or can create sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long-term, and we take advantage of investor
uncertainty and short-term thinking.
For this Fund, we apply this philosophy to a broad range of value names.
INDUSTRIALS AND ENERGY STOCKS ARE TOP PERFORMERS IN LAST 3 MONTHS
The Fund's industrial holdings were up 13% compared to 4% for the index.
McDermott appreciated 74%, driven by a favorable legacy asbestos litigation
ruling and strong demand for their energy infrastructure construction related
services. Shaw Group was up 15% as a result of strong demand for their
infrastructure construction related services.
Energy stocks did extremely well in the 3rd quarter as a result of continued
commodity price increases. Specifically, our energy sector return of 27% bested
the index return of 18%. These strong results were do in part to owning
Halliburton, up 44%, Sasol, up 43%, and Williams, up 32%.
MATERIALS DISAPPOINT OVER LAST THREE MONTHS
Rohm and Haas was down 11% and Dow Chemical declined by 6% in the quarter. Both
companies were negatively impacted by rising raw material input costs as a
result of higher energy prices. Gulf hurricanes caused, production related
outages as well.
OVERVIEW OF FIRST 9 MONTHS PERFORMANCE BY PREVIOUS MANAGER
The following comments from Dreyfus cover the results prior to the manager
change on June 30, 2005.
The portfolio outperformed the index, S&P BARRA Value, in the consumer staples,
utilities, industrials, information technology and financials sectors. The
portfolio lagged the benchmark in the materials, energy, health care, consumer
discretionary, and telecommunication services sectors.
Within consumer staples, shares of grocer Safeway rose over 14% on improved
year-over-year sales growth and better-than-expected earnings. Aiding the
Energy sector were Exxon Mobil and ConocoPhillips. Exxon Mobil, which is not
held in the benchmark, advanced over 13% and was the most significant
contributor. The company produced record 4th Quarter 2004 earnings, which
translated to a 1st Quarter 2005 earnings nearly 30% higher than street
estimates and drove a 20% surge in the stock price. Shares weakened during the
second quarter, but Exxon was still a top performer in 1st half 2005.
ConocoPhillips performed well during the period because of higher energy prices,
improved refining margins, and a solid 1st quarter earnings report released in
late April. Within consumer discretionary, Advance Auto Parts continues to take
market share, drive traffic in newly remodeled stores, grow new stores, and
expand margins. They have grown earnings well over 20% year over year. And
despite losing two CEO's in the space of 15 months, Boeing benefited from the
combination of increased commercial airline orders and military hardware sales,
and is expected to raise revenues over the previous year.
Within industrials, Tyco negatively impacted the sector from a slight downward
revision in guidance for 2005 earnings and free cash flow. While this is
negative news, the thesis for owning the stock remains. Tyco is well positioned
for accelerating top line growth, steady margin expansion and significant share
repurchases. Clear Channel Communications has embarked on a major program to
reduce advertising inventory. This should ultimately make for a much healthier
radio industry. Unfortunately, weak current demand has muted impact of lower
supply and helped to hinder the consumer discretionary sector. Within materials,
International Paper was a poor performer, as demand for industrial packaging
materials and printing paper fell off. IBM fell short of 1st quarter earnings
expectations by 5 cents, citing soft economic conditions, while concurrently
announcing that the company will begin to expense equity compensation options.
2006 MARKET OUTLOOK
We are constructive on the equity market as we look out into 2006. However,
there are several near-term concerns that need to pass. The most significant, in
our opinion, is the spending capacity of the U.S. consumer. Above average
consumer spending trends have persisted as a result of favorable monetary and
fiscal policies. These favorable policy trends are now being reversed.
Additionally, higher energy prices will weigh heavily on the consumer as we move
through the winter heating season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We believe that investing is a long-term pursuit that requires patience and a
consistent approach. Dollar cost averaging is a sound way to build long-term
value. We recognize there are many investment fund alternatives available today
and thank you for your business and the confidence you place in us.
Sincerely,
- -------------------------------------
Mark Mitchell
Senior Protfolio Manager
91
SECURITY
Performance Summary LARGE CAP VALUE FUND
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY LARGE CAP VALUE FUND VS. S&P BARRA VALUE INDEX & RUSSELL 1000 VALUE
INDEX
LARGE CAP VALUE INVESTMENT
09/30/05 9,425.00
12/31/95 9,808.67
03/31/96 10,475.40
06/30/96 10,888.85
09/30/96 11,287.99
12/31/96 11,643.31
03/31/97 11,614.39
06/30/97 13,223.53
09/30/97 15,273.22
12/31/97 15,332.61
03/31/98 16,578.66
06/30/98 16,035.27
09/30/98 14,059.33
12/31/98 15,285.09
03/31/99 15,285.09
06/30/99 17,481.23
09/30/99 15,746.28
12/31/99 15,668.64
3/31/00 14,736.25
6/30/00 13,940.31
9/30/00 14,599.80
12/31/00 14,533.59
3/31/01 13,547.87
6/30/01 14,098.04
9/30/01 12,310.00
12/31/01 13,721.79
03/31/02 13,560.63
06/30/02 12,087.15
09/30/02 9,784.84
12/31/02 10,406.46
03/31/03 9,876.93
06/30/03 11,350.41
09/30/03 11,764.83
12/31/03 13,243.55
03/31/04 13,658.85
06/30/04 13,497.35
09/30/04 13,174.33
12/31/04 14,581.75
03/31/05 14,420.24
06/30/05 14,443.32
09/30/05 15,643.08
S&P 500 - BARRA VALUE INDEX
9/30/95 10,000.00
12/31/95 10,646.79
3/31/96 11,327.20
6/30/96 11,559.77
9/30/96 11,864.49
12/31/96 12,989.86
3/31/97 13,219.76
6/30/97 15,132.25
9/30/97 16,518.53
12/31/97 16,883.52
3/31/98 18,833.62
6/30/98 18,929.96
9/30/98 16,486.20
12/31/98 19,359.74
3/31/99 19,911.75
6/30/99 22,061.14
9/30/99 20,027.90
12/31/99 21,823.47
3/31/00 21,874.96
06/30/00 20,934.82
09/30/00 22,781.78
12/31/00 23,153.57
03/31/01 21,640.82
06/30/01 22,594.14
09/30/01 18,932.52
12/31/01 20,440.79
03/31/02 20,710.51
06/30/02 18,505.28
09/30/02 14,719.22
12/31/02 16,174.35
03/31/03 15,283.67
06/30/03 18,162.76
09/30/03 18,624.30
12/31/03 21,318.06
03/31/04 22,032.62
06/30/04 22,207.19
09/30/04 22,436.73
12/31/04 24,665.68
03/31/05 24,065.77
06/30/05 24,689.42
09/30/05 25,539.00
RUSSELL 1000 VALUE INDEX
9/30/95 10,000.00
12/31/95 10,663.08
3/31/96 11,267.69
6/30/96 11,461.05
9/30/96 11,794.67
12/31/96 12,971.15
3/31/97 13,303.37
6/30/97 15,264.93
9/30/97 16,784.60
12/31/97 17,534.98
3/31/98 19,578.43
6/30/98 19,666.46
9/30/98 17,389.43
12/31/98 20,277.01
3/31/99 20,568.16
6/30/99 22,886.86
9/30/99 20,645.47
12/31/99 21,768.32
3/31/00 21,872.29
06/30/00 20,847.22
09/30/00 22,486.40
12/31/00 23,296.25
03/31/01 21,932.15
06/30/01 23,002.23
09/30/01 20,482.32
12/31/01 21,993.03
03/31/02 22,892.51
06/30/02 20,942.53
09/30/02 17,010.95
12/31/02 18,579.63
03/31/03 17,675.93
06/30/03 20,729.68
09/30/03 21,157.36
12/31/03 24,159.40
03/31/04 24,889.75
06/30/04 25,109.03
09/30/04 25,495.66
12/31/04 28,142.60
03/31/05 28,165.38
06/30/05 28,636.63
09/30/05 29,748.26
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Large Cap Value
Fund on September 30, 1995, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares. Effective July 1, 2005, the Security Large Cap Value Fund changed its
benchmark to the Russell 1000 Value Index. The Investment Manager has determined
that the Russell 1000 Value Index is a more appropriate index because the
Russell 1000 Value Index more closely reflects the types of securities in which
the Fund invests and thus provides shareholders with a more appropriate
benchmark against which to compare the Fund's performance.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- -----------------
A Shares 18.74% 1.39% 5.25% --
A Shares with sales charge 11.88% 0.20% 4.63% --
B Shares 17.71% 0.54% 4.41% --
B Shares with CDSC 12.71% 0.15% 4.41% --
C Shares 17.57% 0.53% N/A (0.35%)(1-29-99)
C Shares with CDSC 16.57% 0.53% N/A (0.35%)(1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of Fund shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 8.81%
Consumer Staples 10.53
Energy 16.33
Financials 11.27
Health Care 6.96
Industrials 17.14
Information Technology 6.35
Materials 5.10
Telecommunication Services 1.90
Utilities 8.04
Exchange Traded Funds 4.83
Commercial Paper 2.12
Cash & other assets, less liabilities 0.62
------
Total Net Assets 100.00
======
92 See accompanying notes.
SECURITY
Performance Summary LARGE CAP VALUE FUND
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Large Cap Value Fund
- - Class A
Actual $1,000.00 $1,084.80 $ 8.52
Hypothetical 1,000.00 1,016.80 8.24
Large Cap Value Fund
- - Class B
Actual 1,000.00 1,081.40 12.42
Hypothetical 1,000.00 1,013.06 12.01
Large Cap Value Fund
- - Class C
Actual 1,000.00 1,079.90 12.41
Hypothetical 1,000.00 1,013.06 12.01
(1) The actual ending account value is based on the actual total return of the
Fund for the period from April 1, 2005 to September 30, 2005 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Fund expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period from April 1, 2005 to September 30, 2005 was 8.48%, 8.14% and 7.99%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.63%, 2.38% and
2.38% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
93
Schedule of Investments SECURITY
September 30, 2005 LARGE CAP VALUE FUND
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 97.2%
AEROSPACE & DEFENSE - 1.9%
United Technologies Corporation 20,500 $ 1,062,720
-----------
AGRICULTURAL PRODUCTS - 2.2%
Archer-Daniels-Midland Company 51,400 1,267,524
-----------
BROADCASTING & CABLE TV - 2.0%
Clear Channel Communications, Inc. 34,700 1,141,283
-----------
COMMUNICATIONS EQUIPMENT - 2.0%
3Com Corporation* 283,400 1,156,272
-----------
COMPUTER HARDWARE - 2.3%
Hewlett-Packard Company 44,600 1,302,320
-----------
CONSTRUCTION & ENGINEERING - 5.5%
McDermott International, Inc.* 46,000 1,684,060
Shaw Group, Inc.* 57,100 1,408,086
-----------
3,092,146
-----------
DIVERSIFIED CHEMICALS - 3.4%
Dow Chemical Company 23,800 991,746
E.I. du Pont de Nemours & Company 24,100 943,997
-----------
1,935,743
-----------
DRUG RETAIL - 2.8%
CVS Corporation 54,800 1,589,748
-----------
ELECTRIC UTILITIES - 8.1%
Edison International(3) 26,400 1,248,192
Entergy Corporation 14,200 1,055,344
Exelon Corporation 21,200 1,132,928
PG&E Corporation 28,600 1,122,550
-----------
4,559,014
-----------
EXCHANGE TRADED FUNDS - 4.8%
iShares Russell 1000 Value Index Fund 20,000 1,377,200
iShares S&P 500/Barra Value Index Fund 21,200 1,359,556
-----------
2,736,756
-----------
HEALTH CARE EQUIPMENT - 2.9%
Fisher Scientific International, Inc.* 26,700 1,656,735
-----------
HEALTH CARE SERVICES - 1.1%
Medco Health Soulutions, Inc.* 11,500 630,545
-----------
HYPERMARKETS & SUPERCENTERS - 2.0%
Costco Wholesale Corporation 26,000 1,120,340
-----------
INDUSTRIAL CONGLOMERATES - 5.5%
General Electric Company 47,400 1,595,958
Tyco International, Ltd. 54,800 1,526,180
-----------
3,122,138
-----------
INTEGRATED OIL & GAS - 7.8%
Chevron Corporation 20,300 1,314,019
ConocoPhillips 19,100 1,335,281
Exxon Mobil Corporation 27,600 1,753,704
-----------
4,403,004
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 1.0%
Sprint Nextel Corporation 23,100 $ 549,318
-----------
IT CONSULTING & OTHER SERVICES - 2.0%
Unisys Corporation* 171,600 1,139,424
-----------
MANAGED HEALTH CARE - 2.9%
WellPoint, Inc.* 21,900 1,660,458
-----------
MOVIES & ENTERTAINMENT - 6.8%
News Corporation 65,900 1,027,381
Time Warner, Inc. 96,000 1,738,560
Viacom, Inc. (Cl.B) 32,900 1,086,029
-----------
3,851,970
-----------
MULTI-LINE INSURANCE - 4.1%
American International Group, Inc. 37,200 2,304,912
-----------
OIL & GAS EQUIPMENT & SERVICES - 2.7%
Halliburton Company 22,400 1,534,848
-----------
OIL & GAS REFINING & MARKETING - 3.3%
Sasol, Ltd. ADR 48,600 1,880,334
-----------
OIL & GAS STORAGE & TRANSPORTATION - 2.5%
Williams Companies, Inc. 57,500 1,440,375
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 4.3%
Citigroup, Inc. 31,100 1,415,672
First Marblehead Corporation 600 15,240
JP Morgan Chase & Company 29,900 1,014,507
-----------
2,445,419
-----------
PACKAGED FOODS & MEATS - 1.9%
Tyson Foods, Inc. 59,600 1,075,780
-----------
PROPERTY & CASUALTY INSURANCE - 2.9%
Berkshire Hathaway, Inc.* 20 1,640,000
-----------
RAILROADS - 2.1%
Union Pacific Corporation 16,500 1,183,050
-----------
SPECIALTY CHEMICALS - 1.7%
Rohm & Haas Company 23,200 954,216
-----------
TOBACCO - 1.6%
Altria Group, Inc. 12,400 914,004
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.2%
Hughes Supply, Inc. 38,500 1,255,100
-----------
WIRELESS TELECOMMUNICATION SERVICE - 0.9%
Alltel Corporation 8,100 527,391
-----------
TOTAL COMMON STOCKS
(cost $50,047,708) 55,132,887
-----------
94 See accompanying notes.
Schedule of Investments SECURITY
September 30, 2005 LARGE CAP VALUE FUND
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE BONDS - 0.0%
SERVICES - 0.0%
American Eco Corporation,
9.625% - 2008 (*1,2) $ 125,000 $ --
-----------
TOTAL CORPORATE BONDS
(cost $125,000) --
-----------
COMMERCIAL PAPER - 2.1%
FINANCIAL - OTHER - 2.1%
Countrywide Financial,
3.82%, 10-03-05 1,200,000 1,199,740
-----------
TOTAL COMMERCIAL PAPER
(cost $1,199,740) 1,199,740
-----------
REPURCHASE AGREEMENT - 0.7%
United Missouri Bank, 3.42%, dated 09-30-05,
matures 10-03-05; repurchase amount of
$379,108 (Collateralized by U.S. Treasury
Notes, 2.75%, 06-30-06 with a value of
$387,044) 379,000 379,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $379,000) 379,000
-----------
TOTAL INVESTMENTS - 100.0%
(cost $51,751,448) 56,711,627
LIABILITIES, LESS CASH AND OTHER ASSETS - 0.0% (17,650)
-----------
TOTAL NET ASSETS - 100.0% $56,693,977
===========
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $51,806,172.
* Non-income producing security
ADR (American Depositary Receipt)
(1) Security is in default due to bankruptcy.
(2) Security is fair valued by the Board of Directors and is illiquid. The
total market value of fair valued and illiquid securities amounts to $0 or
0.0% of total assets.
(3) Security is segregated as collateral for open written option contracts.
95 See accompanying notes.
SECURITY
LARGE CAP VALUE FUND
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ........................................ $56,711,627
Cash ............................................................ 185
Receivables:
Fund shares sold ............................................. 16,840
Securities sold .............................................. 558,995
Dividends .................................................... 73,999
Prepaid expenses ................................................ 18,625
-----------
Total assets .................................................... 57,380,271
-----------
LIABILITIES:
Payable for:
Securities purchased ......................................... 552,432
Fund shares redeemed ......................................... 25,489
Written options, at value (premiums received $23,375) ........ 19,800
Management fees .............................................. 29,655
Custodian fees ............................................... 4,400
Transfer agent and administration fees ....................... 13,993
Professional fees ............................................ 15,407
12b-1 distribution plan fees ................................. 18,176
Other ........................................................ 6,942
-----------
Total liabilities ............................................... 686,294
-----------
NET ASSETS ...................................................... $56,693,977
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $59,340,522
Undistributed net investment income ............................. 226,795
Accumulated net realized loss on sale of investments ............ (7,837,094)
Net unrealized appreciation in value of investments and written
options ...................................................... 4,963,754
-----------
Net assets ...................................................... $56,693,977
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 6,681,410
Net assets ...................................................... $45,294,554
Net asset value and redemption price per share .................. $ 6.78
===========
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 7.19
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,332,357
Net assets ...................................................... $ 8,500,160
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 6.38
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 446,434
Net assets ...................................................... $ 2,899,263
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 6.49
===========
(1) Investments, at cost ........................................ $51,751,448
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends ...................................................... $1,188,029
Interest ....................................................... 30,521
----------
Total investment income ........................................... 1,218,550
----------
EXPENSES:
Management fees ................................................ 406,869
Custodian fees ................................................. 15,619
Transfer agent/maintenance fees ................................ 182,423
Administration fees ............................................ 51,685
Directors' fees ................................................ 24,961
Professional fees .............................................. 20,605
Reports to shareholders ........................................ 9,269
Registration fees .............................................. 40,068
Other expenses ................................................. 10,040
12b-1 distribution plan fees - Class A ......................... 110,174
12b-1 distribution plan fees - Class B ......................... 93,770
12b-1 distribution plan fees - Class C ......................... 26,538
----------
Total expenses ................................................. 992,021
----------
Net investment income .......................................... 226,529
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments .................................................... 6,823,643
----------
Net realized gain .............................................. 6,823,643
----------
Net unrealized appreciation during the period on:
Investments .................................................... 2,426,944
Options written ................................................ 3,575
----------
Net unrealized appreciation .................................... 2,430,519
----------
Net realized and unrealized gain ............................... 9,254,162
----------
Net increase in net assets resulting from operations ........... $9,480,691
==========
96 See accompanying notes.
SECURITY
Statement of Changes in Net Assets LARGE CAP VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
------------------ ------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ................................. $ 226,529 $ 3,750
Net realized gain during the period on investments .... 6,823,643 5,850,836
Net unrealized appreciation during the period on
investments and options written .................... 2,430,519 1,248,889
------------ ------------
Net increase in net assets resulting from operations .. 9,480,691 7,103,475
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................................ -- (112,367)
Class B ............................................ -- --
Class C ............................................ -- --
------------ ------------
Total distributions to shareholders ................... -- (112,367)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ............................................ 6,416,077 9,899,761
Class B ............................................ 1,294,323 4,542,029
Class C ............................................ 1,300,122 1,821,834
Distributions reinvested
Class A ............................................ -- 105,691
Class B ............................................ -- --
Class C ............................................ -- --
Cost of shares redeemed
Class A ............................................ (11,718,072) (18,334,145)
Class B ............................................ (4,481,711) (7,295,608)
Class C ............................................ (1,393,049) (1,609,840)
------------ ------------
Net decrease from capital share transactions .......... (8,582,310) (10,870,278)
------------ ------------
Net increase (decrease) in net assets ................. 898,381 (3,879,170)
------------ ------------
NET ASSETS:
Beginning of period ................................... 55,795,596 59,674,766
------------ ------------
End of period ......................................... $ 56,693,977 $ 55,795,596
============ ============
Undistributed net investment income at end of period .. $ 226,795 $ 56,499
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ...........................................
Class A ............................................ 1,026,323 1,736,330
Class B ............................................ 220,087 832,794
Class C ............................................ 213,510 324,573
Shares reinvested
Class A ............................................ -- 18,840
Class B ............................................ -- --
Class C ............................................ -- --
Shares redeemed
Class A ............................................ (1,883,545) (3,197,972)
Class B ............................................ (763,775) (1,357,469)
Class C ............................................ (231,421) (290,056)
97 See accompanying notes.
SECURITY
Financial Highlights LARGE CAP VALUE FUND
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
CLASS A 2005(I) 2004 2003 2002(F,H) 2001(E)
- ------- ------- ------- ------- --------- -------
PER SHARE DATA
Net asset value, beginning of period $ 5.71 $ 5.11 $ 4.25 $ 5.37 $ 6.42
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.03 0.01 0.02 0.01 0.03
Net gain (loss) on securities (realized
and unrealized) 1.04 0.60 0.84 (1.10) (1.03)
------- ------- ------- ------- -------
Total from investment operations 1.07 0.61 0.86 (1.09) (1.00)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- (0.01) -- (0.03) (0.05)
Distributions from realized gains -- -- -- -- --
------- ------- ------- ------- -------
Total distributions -- (0.01) -- (0.03) (0.05)
------- ------- ------- ------- -------
Net asset value, end of period $ 6.78 $ 5.71 $ 5.11 $ 4.25 $ 5.37
======= ======= ======= ======= =======
TOTAL RETURN (A) 18.74% 11.98% 20.24% (20.51%) (15.68%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $45,295 $43,071 $45,858 $32,997 $45,006
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 0.56% 0.19% 0.41% 0.20% 0.49%
Total expenses(b) 1.61% 1.52% 1.45% 1.37% 1.32%
Net expenses(d) 1.61% 1.52% 1.45% 1.37% 1.32%
------- ------- ------- ------- -------
Portfolio turnover rate 110% 75% 76% 68% 180%
YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
CLASS B 2005(I) 2004 2003 2002(F,H) 2001(E)
- ------- ------- ------- ------- --------- -------
Per Share Data
Net asset value, beginning of period $ 5.42 $ 4.87 $ 4.08 $ 5.18 $ 6.21
------ ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.03) (0.02) (0.04) (0.03)
Net gain (loss) on securities (realized
and unrealized) 0.97 0.58 0.81 (1.06) (1.00)
------ ------- ------- ------- -------
Total from investment operations 0.96 0.55 0.79 (1.10) (1.03)
------ ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------- ------- ------- -------
Total distributions -- -- -- -- --
------ ------- ------- ------- -------
Net asset value, end of period $ 6.38 $ 5.42 $ 4.87 $ 4.08 $ 5.18
====== ======= ======= ======= =======
TOTAL RETURN(A) 17.71% 11.29% 19.36% (21.24%) (16.59%)
------ ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $8,500 $10,164 $11,687 $ 4,905 $ 5,657
------ ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.16%) (0.57%) (0.42%) (0.71%) (0.51%)
Total expenses(b) 2.36% 2.27% 2.20% 2.27% 2.32%
Net expenses(d) 2.36% 2.27% 2.20% 2.27% 2.32%
------ ------- ------- ------- -------
Portfolio turnover rate 110% 75% 76% 68% 180%
98 See accompanying notes.
SECURITY
Financial Highlights LARGE CAP VALUE FUND
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
Class C 2005(I) 2004 2003 2002(F,G,H) 2001(E)
- ------- ------- ------ ------ ----------- -------
PER SHARE DATA
Net asset value, beginning of period $ 5.52 $ 4.96 $ 4.16 $ 5.28 $ 6.32
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.01) (0.03) (0.02) (0.04) (0.03)
Net gain (loss) on securities (realized
and unrealized) 0.98 0.59 0.82 (1.08) (1.01)
------ ------ ------ ------- -------
Total from investment operations 0.97 0.56 0.80 (1.12) (1.04)
------ ------ ------ ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains -- -- -- -- --
------ ------ ------ ------- -------
Total distributions -- -- -- -- --
------ ------ ------ ------- -------
Net asset value, end of period $ 6.49 $ 5.52 $ 4.96 $ 4.16 $ 5.28
====== ====== ====== ======= =======
TOTAL RETURN(A) 17.57% 11.29% 19.23% (21.21%) (16.46%)
------ ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $2,899 $2,561 $2,130 $ 1,510 $ 904
------ ------ ------ ------- -------
Ratios to average net assets:
Net investment income (loss) (0.18%) (0.57%) (0.33%) (0.72%) (0.55%)
Total expenses(b) 2.36% 2.28% 2.20% 2.25% 2.33%
Net expenses(d) 2.36% 2.28% 2.20% 2.25% 2.33%
------ ------ ------ ------- -------
Portfolio turnover rate 110% 75% 76% 68% 180%
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements, and custodian earnings credits, as applicable.
(e) The Dreyfus Corporation became sub-adviser of Security Large Cap Value Fund
effective January 1, 2001. Prior to January 1, 2001, advisory services were
provided by Security Management Company, LLC (SMC).
(f) As required, effective October 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended September 30, 2002, was to increase net investment
income per share by less than 1/2 of a cent, decrease net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase the ratio of net investment income to average net assets from
0.06% to 0.07%. Per share, ratios and supplemental data for periods prior
to October 1, 2001 have not been restated to reflect this change in
presentation.
(g) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(h) Effective May 1, 2002 the fee structure for Security Large Cap Value Fund
changed. Per share information reflects this change.
(i) Security Management Company, LLC (SMC) became the advisor of Security Large
Cap Value Fund effective June 30, 2005. Prior to June 30, 2005, SMC paid
Dreyfus Corporation for sub-advisory services.
99 See accompanying notes.
This page left blank intentionally.
100
SECURITY
Manager's Commentary MID CAP GROWTH FUND
November 15, 2005 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
For the year ended September 30 2005, the Security Mid Cap Growth Fund performed
better than its benchmark, the Russell 2500 Growth index. The Fund gained 21.76%
vs. a return of 21.01% for the index and 21.11% for the Fund's peer group
median.
Our approach with the Security Mid Cap Growth Fund is to seek securities of
companies who are able to grow and/or reinvest in increasingly profitable
ventures and hold them over 3-5 years to capture the best part of the
improvements in profits or profitability. We are focused on investing in
securities when we find opportunities, with our individual position sizes
reflecting the magnitude and the confidence in the opportunity. For this Fund,
we target securities of companies that appear likely to generate above average
profitability at prices that, as of yet, do not reflect that potential.
ENERGY, FINANCIALS, AND CONSUMER STAPLES LED RETURNS
The Security Mid Cap Growth Fund benefited significantly from a significant
weighting in energy as well as stock selection within that industry. Emerging
energy technology companies, KFx and Rentech gained 122% and 181% respectively,
as both companies made significant progress towards commercializing their
technologies during the year. The strength in energy prices lifted all stocks in
the sector; even the more mature companies did well. Enron Oil and Gas, a North
American natural gas producer, gained 128%, as they did not hedge their
production, allowing them to gain full advantage of the economics of higher
commodity prices.
Stock selection was positive in the finance sector as well. Northern Trust, a
trust bank, advanced 26% as the company is less affected by rising interest
rates.
The Fund also had success in the consumer staples sector. Hormel, a sizeable new
position, gained 10% in the last several weeks of the year. Hormel has been
gaining market share and bolstering margins by providing consumers with higher
value added, table ready meats.
HEALTH CARE, CONSUMER DISCRETIONARY, AND MATERIALS WERE HIT HARD
The Fund's exposure in the biotechnology industry negatively impacted the health
care sector performance. Ligand Pharmaceuticals, a sizable position in the fund,
declined 30% due to a delay in filing their financials. As a consequence the
punishment was very swift and we are left with the stock at a very interesting
valuation level.
Ligand remains one of the few biotechs with numerous product opportunities and
is also very close to attaining profitability. At current prices, we are quite
content to continue holding the stock.
Fred's, a dollar retailer in the Southeast declined 30% due to higher energy
prices pressuring the company's low-income consumer base despite the company's
merchandising and efficiency efforts.
Pactiv, the consumer specialty packaging company that produces the Baggies and
Hefty product lines, was not able to pass along the escalating resin and
plastics prices that occurred due to higher energy prices. The margin pressure
was reflected in disappointing earnings and a 25% decline in the stock. Pactiv,
a company who we believe should recover from the higher resin costs and grow due
to offering new products, continues to be held in the Fund.
OUTLOOK FOR 2006
The stock market has been surprisingly buoyant the past year given rising energy
prices and restrictive Fed policies. Logic would tend to suggest that an
unusually conservative positioning would be prudent. However, companies with
high earnings stability and visibility currently have high valuations suggesting
that the market has already priced in this outlook. In addition, the out
performance of value stocks over the last few years may also reflect this
conservative tendency in the market. Given this view, the Fund is under weight
in traditionally stable sectors such as finance, consumer discretionary, and
consumer staples.
With the significant move in the energy sector, the Fund has been trimming
exposure slightly. At present, we are tending to find that the most compelling
opportunities lie in the industrial and technology sectors of the market.
Specifically, we like companies in the water, wastewater, telecomm equipment and
highway development industries. In addition, many of the new commitments have
also tended to be in larger mid-cap companies.
On behalf of Security Management Company, thank you for trusting your funds with
us. We are excited to see what opportunities present themselves over the balance
of the year.
Sincerely,
- -------------------------------------
James P. Schier
Senior Portfolio Manager
101
SECURITY
Performance Summary MID CAP GROWTH FUND
November 15, 2005 (unaudited)
PERFORMANCE
SECURITY MID CAP GROWTH FUND VS.
S&P MIDCAP 400/BARRA GROWTH INDEX &
RUSSELL 2500 GROWTH INDEX
MID CAP GROWTH FUND
09/30/95 9,425.00
12/31/95 9,159.62
03/31/96 9,805.41
06/30/96 10,609.34
09/30/96 10,872.93
12/31/96 10,810.65
03/31/97 9,959.42
06/30/97 11,363.96
09/30/97 13,108.98
12/31/97 12,737.28
03/31/98 14,057.52
06/30/98 13,772.47
09/30/98 11,477.06
12/31/98 14,869.96
03/31/99 14,832.26
06/30/99 17,244.63
09/30/99 17,320.01
12/31/99 23,742.64
3/31/00 28,404.98
6/30/00 26,857.40
9/30/00 29,932.97
12/31/00 27,642.91
03/31/01 22,821.22
06/30/01 25,439.33
09/30/01 18,501.33
12/31/01 23,604.41
03/31/02 24,196.72
06/30/02 19,897.03
09/30/02 15,421.84
12/31/02 17,089.07
03/31/03 16,891.64
06/30/03 21,761.69
09/30/03 23,779.91
12/31/03 26,658.95
03/31/04 28,157.67
06/30/04 28,089.55
09/30/04 25,023.99
12/31/04 29,215.60
03/31/05 27,047.91
06/30/05 28,300.35
09/30/05 30,468.04
S&P MIDCAP 400/BARRA GROWTH
INCEPTION 9/30/95 10,000.00
12/31/95 9,791.47
3/31/96 10,504.51
6/30/96 10,798.73
9/30/96 11,231.60
12/31/96 11,594.19
3/31/97 11,284.41
6/30/97 13,327.20
9/30/97 15,722.93
12/31/97 15,102.19
3/31/98 16,946.01
6/30/98 16,907.58
9/30/98 14,342.33
12/31/98 20,364.95
3/31/99 19,218.19
6/30/99 21,798.46
9/30/99 20,282.70
12/31/99 25,940.12
3/31/00 30,857.51
06/30/00 29,815.61
09/30/00 33,204.36
12/31/00 28,314.95
03/31/01 23,175.54
06/30/01 26,778.26
09/30/01 21,380.94
12/31/01 26,057.55
03/31/02 26,957.06
06/30/02 23,449.25
09/30/02 20,035.82
12/31/02 21,062.99
03/31/03 20,427.77
06/30/03 23,699.35
09/30/03 25,123.62
12/31/03 27,587.71
03/31/04 28,852.01
06/30/04 29,072.71
09/30/04 28,078.99
12/31/04 31,459.04
03/31/05 31,434.43
06/30/05 32,584.12
09/30/05 34,010.96
RUSSELL 2500 GROWTH INDEX
9/30/95 10,000.00
12/31/95 10,175.12
3/31/96 10,886.98
6/30/96 11,444.42
9/30/96 11,601.99
12/31/96 11,710.82
3/31/97 10,773.85
6/30/97 12,525.95
9/30/97 14,609.82
12/31/97 13,440.03
3/31/98 14,936.33
6/30/98 14,207.58
9/30/98 11,052.81
12/31/98 13,854.79
3/31/99 13,709.52
6/30/99 16,013.40
9/30/99 15,458.40
12/31/99 21,544.29
3/31/00 24,805.68
06/30/00 23,093.40
09/30/00 22,414.17
12/31/00 18,078.38
03/31/01 14,479.08
06/30/01 17,557.61
09/30/01 12,804.57
12/31/01 16,119.98
03/31/02 15,644.90
06/30/02 13,043.19
09/30/02 10,557.52
12/31/02 11,431.66
03/31/03 11,066.07
06/30/03 13,580.43
09/30/03 14,933.16
12/31/03 16,725.27
03/31/04 17,646.29
06/30/04 17,670.46
09/30/04 16,679.27
12/31/04 19,166.30
03/31/05 18,337.21
06/30/05 18,990.77
09/30/05 20,184.61
$10,000 Over Ten Years
This chart assumes a $10,000 investment in Class A shares of Security Mid Cap
Growth Fund on September 30, 1995, reflects deduction of the 5.75% sales load
and assumes all dividends rein- vested. The chart does not reflect the deduction
of taxes that a shareholder would pay on distributions or the redemption of fund
shares. Effective February 1, 2005, the Security Mid Cap Growth Fund changed its
benchmark index to the Russell 2500 Growth Index. The Investment Adviser has
determined that the Russell 2500 Growth Index is a more appropriate index than
the S&P MidCap 400/Barra Growth Index, which is created by Standard and Poor's
and Barra by dividing the S&P MidCap 400 Index equally between growth and value
based upon a price to book value calculation, because the Russell 2500 Growth
Index more closely reflects the types of securities in which the Series invests
and thus provides shareholders with a more appropriate benchmark against which
to compare the Fund's performance.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-05 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- ---------------
A Shares 21.76% 0.36% 12.45% --
A Shares with sales charge 14.78% (0.82%) 11.79% --
B Shares 20.95% (0.48%) 11.57% --
B Shares with CDSC 15.95% (0.88%) 11.57% --
C Shares 20.83% (0.43%) N/A 9.75%(1-29-99)
C Shares with CDSC 19.83% (0.43%) N/A 9.75%(1-29-99)
The performance data above represents past performance that is not predictive of
future results. The investment return and principal value of an investment in
the Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front-end sales charge of 5.75% for Class A shares or
the contingent deferred sales charge of 5% for Class B shares and 1% for Class C
shares, as applicable, except where noted. The figures do not reflect the
deduction of taxes that a shareholder would pay on distributions or redemption
of shares. Such figures would be lower if the maximum sales charge and any
applicable taxes were deducted.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 8.51%
Consumer Staples 1.57
Energy 15.12
Financials 3.25
Health Care 10.94
Industrials 20.43
Information Technology 23.83
Materials 3.65
Utilities 7.91
Exchange Traded Funds 4.52
Warrants 0.20
Commercial Paper 0.66
Liabilities, less cash & other assets (0.59)
------
Total Net Assets 100.00
======
102 See accompanying notes.
SECURITY
Performance Summary MID CAP GROWTH FUND
November 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, April 1, 2005 - September 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
04-01-05 09-30-05(1) PERIOD(2)
------------- ------------- -------------
Mid Cap Growth Fund
- - Class A
Actual $1,000.00 $1,126.40 $ 7.46
Hypothetical 1,000.00 1,017.95 7.08
Mid Cap Growth Fund
- - Class B
Actual 1,000.00 1,121.90 11.44
Hypothetical 1,000.00 1,014.21 10.86
Mid Cap Growth Fund
- - Class C
Actual 1,000.00 1,122.30 11.44
Hypothetical 1,000.00 1,014.21 10.86
(1) The actual ending account value is based on the actual total return of the
Fund for the period from April 1, 2005 to September 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 from April 1, 2005 to September 30, 2005 was 12.64%, 12.19% and
12.23%, for Class A, B and C shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.40%, 2.15% and
2.15% for Class A, B and C shares, respectively) multiplied by the average
account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
103
SECURITY
Schedule of Investments MID CAP GROWTH FUND
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 99.5%
APPAREL RETAIL - 0.5%
Maidenform Brands, Inc.* 87,500 $ 1,203,125
-----------
APPLICATION SOFTWARE - 2.3%
Tibco Software, Inc.* 289,600 2,421,056
Tyler Technologies, Inc.* 325,000 2,691,000
-----------
5,112,056
-----------
ASSET MANAGEMENT & CUSTODY BANKS - 2.3%
Northern Trust Corporation 104,000 5,257,200
-----------
BIOTECHNOLOGY - 4.7%
Cell Genesys, Inc.* 47,600 260,848
Charles River Laboratories International, Inc.* 34,000 1,483,080
Human Genome Sciences, Inc.* 159,800 2,171,682
Incyte Corporation* 255,000 1,198,500
Kosan Biosciences, Inc.* 169,100 1,229,357
Novavax, Inc.* 99,000 173,250
SciClone Pharmaceuticals, Inc.* 339,367 1,914,030
Strategic Diagnostics, Inc.* 206,300 845,830
Vasogen, Inc.* 285,925 603,302
ZymoGenetics, Inc.* 55,900 922,350
-----------
10,802,229
-----------
BROADCASTING & CABLE TV - 0.1%
WorldSpace, Inc.* 20,400 287,436
-----------
CASINOS & GAMING - 1.8%
GTECH Holdings Corporation 130,000 4,167,800
-----------
COMMUNICATIONS EQUIPMENT - 6.8%
ADC Telecommunications, Inc.* 171,428 3,918,844
Adtran, Inc. 136,600 4,302,900
Extreme Networks, Inc.* 250,000 1,112,500
Finisar Corporation* 1,565,900 2,145,283
Harris Corporation(1) 45,000 1,881,000
Symmetricom, Inc.* 276,000 2,136,240
-----------
15,496,767
-----------
COMPUTER STORAGE & PERIPHERALS - 1.3%
Mobility Electronics, Inc.* 127,300 1,357,018
M-Systems Flash Disk Pioneers, Ltd.* 50,000 1,496,000
-----------
2,853,018
-----------
CONSTRUCTION & ENGINEERING - 3.9%
Insituform Technologies, Inc.* 152,400 2,634,996
Shaw Group, Inc.* 253,700 6,256,242
-----------
8,891,238
-----------
CONSTRUCTION MATERIALS - 1.6%
Headwaters, Inc.* 100,000 3,740,000
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 1.1%
Hewitt Associates, Inc.* 36,000 982,080
Per-Se Technologies, Inc.* 74,100 1,530,906
-----------
2,512,986
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 2.1%
ChoicePoint, Inc.* 47,000 $ 2,028,990
Equifax, Inc. 41,390 1,446,167
Navigant Consulting, Inc.* 64,800 1,241,568
-----------
4,716,725
-----------
ELECTRIC UTILITIES - 7.9%
KFx, Inc.*(1) 1,050,000 17,976,000
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 7.5%
Electric City Corporation*(3) 1,068,000 918,480
Millennium Cell, Inc.* 141,500 288,660
Plug Power, Inc.* 504,000 3,427,200
Power-One, Inc.* 1,220,000 6,758,800
Roper Industries, Inc. 92,000 3,614,680
UQM Technologies, Inc.*(3) 477,816 1,968,602
-----------
16,976,422
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 2.9%
Aeroflex, Inc.* 180,000 1,684,800
Identix, Inc.* 59,400 279,180
Maxwell Technologies, Inc.*(3) 322,700 4,556,524
-----------
6,520,504
-----------
EXCHANGE TRADED FUNDS - 4.5%
iShares Russell 2000 Growth Index Fund 42,000 2,889,180
iShares S&P MidCap 400/ Barra Growth Index Fund 66,000 4,769,820
S & P MidCap 400 Depositary Receipts 20,000 2,617,600
-----------
10,276,600
-----------
GENERAL MERCHANDISE STORES - 1.2%
Fred's, Inc. 218,300 2,730,933
-----------
HEALTH CARE FACILITIES - 2.3%
LifePoint Hospitals, Inc.* 12,900 564,117
U.S. Physical Therapy, Inc.* 97,000 1,761,520
United Surgical Partners International, Inc.* 75,000 2,933,250
-----------
5,258,887
-----------
HEALTH CARE SERVICES - 1.6%
NDCHealth Corporation(1) 59,400 1,123,848
Providence Service Corporation* 78,900 2,413,551
-----------
3,537,399
-----------
HEALTH CARE SUPPLIES - 0.7%
Orthovita, Inc.* 375,000 1,605,000
-----------
HOME FURNISHINGS - 0.4%
Kirkland's, Inc.* 118,825 904,258
-----------
INDUSTRIAL CONGLOMERATES - 0.4%
Hydrogen Corporation, LLC(3) 233,722 934,886
-----------
INDUSTRIAL MACHINERY - 0.3%
Tennant Company 17,100 700,758
-----------
104
SECURITY
Schedule of Investments MID CAP GROWTH FUND
September 30, 2005
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES - 0.1%
Corillian Corporation* 37,633 $ 120,425
-----------
IT CONSULTING & OTHER SERVICES - 2.4%
Acxiom Corporation 175,000 3,276,000
Keane, Inc.* 182,000 2,080,260
-----------
5,356,260
-----------
METAL & GLASS CONTAINERS - 2.0%
Pactiv Corporation* 260,000 4,555,200
-----------
MOVIES & ENTERTAINMENT - 1.1%
Lions Gate Entertainment Corporation* 254,000 2,423,160
-----------
OIL & GAS DRILLING - 1.7%
Ensco International, Inc. 82,300 3,834,357
-----------
OIL & GAS EQUIPMENT & SERVICES - 2.2%
BJ Services Company(1) 86,000 3,095,140
Superior Energy Services, Inc.* 80,000 1,847,200
-----------
4,942,340
-----------
OIL & GAS EXPLORATION & PRODUCTION - 7.5%
EOG Resources, Inc.(1) 66,000 4,943,400
Pioneer Natural Resources Company 68,000 3,734,560
Rentech, Inc.*(3) 1,850,000 4,680,500
Syntroleum Corporation* 254,450 3,704,792
-----------
17,063,252
-----------
OIL & GAS REFINING & MARKETING - 1.6%
Western Gas Resources, Inc. 72,900 3,734,667
-----------
OIL & GAS STORAGE & TRANSPORTATION - 2.1%
Williams Companies, Inc. 190,000 4,759,500
-----------
PACKAGED FOODS & MEATS - 1.6%
Hormel Foods Corporation(1) 108,000 3,562,920
-----------
PHARMACEUTICALS - 1.6%
Hollis-Eden Pharmaceuticals, Inc.* 257,744 1,646,984
Ligand Pharmaceuticals, Inc. (Cl.B)* 196,900 1,995,877
-----------
3,642,861
-----------
PUBLISHING - 1.9%
E.W. Scripps Company(1) 86,000 4,297,420
-----------
RAILROADS - 0.5%
Kansas City Southern* 47,400 1,104,894
-----------
REGIONAL BANKS - 0.9%
Boston Private Financial Holdings, Inc. 80,000 2,123,200
-----------
SEMICONDUCTOR EQUIPMENT - 1.2%
Mindspeed Technologies, Inc.* 1,150,000 2,771,500
-----------
SEMICONDUCTORS - 4.5%
Applied Micro Circuits Corporation* 750,000 2,250,000
hi/fn, Inc.* 152,800 848,040
Intersil Corporation 116,000 2,526,480
IXYS Corporation* 429,200 4,532,352
-----------
10,156,872
-----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- ------------
COMMON STOCKS (CONTINUED)
SPECIALTY STORES - 1.5%
Hibbett Sporting Goods, Inc.* 75,000 $ 1,668,750
Tractor Supply Company* 36,000 1,643,400
------------
3,312,150
------------
SYSTEMS SOFTWARE - 1.4%
BEA Systems, Inc.* 360,000 3,232,800
------------
TRADING COMPANIES & DISTRIBUTORS - 1.9%
MSC Industrial Direct Company, Inc. 130,000 4,312,100
------------
TRUCKING - 3.6%
J.B. Hunt Transport Services, Inc. 240,000 4,562,400
Old Dominion Freight Line, Inc.* 100,000 3,349,000
Universal Truckload Services, Inc.* 18,300 340,014
------------
8,251,414
------------
TOTAL COMMON STOCKS
(cost $168,012,049) 226,019,519
------------
PREFERRED STOCK - 0.2%
ENVIRONMENTAL & FACILITIES SERVICES - 0.2%
ThermoEnergy Corporation PIPES(2, 3, 4) 745,000 516,285
------------
TOTAL PREFERRED STOCK
(cost $702,947) 516,285
------------
WARRANTS - 0.2%
Bioject Medical Technologies, Inc.,
$11.00, 05-23-06 5,625 --
Electric City Corporation,
$0.40, 03-19-09(3) 311,500 121,468
Hollis-Eden Pharmaceuticals, Inc.,
$15.45, 06-19-07 8,143 2,317
Orthovita, Inc., $4.00, 06-26-08 75,000 102,779
Syntroleum Corporation,
$7.60, 05-26-08 14,100 113,787
ThermoEnergy Corporation,
$1.50, 07-14-08(2, 3, 4) 745,000 110,037
------------
450,388
------------
TOTAL WARRANTS
(cost $670,177) 450,388
------------
COMMERCIAL PAPER - 0.7%
FINANCIAL - OTHER - 0.7%
Countrywide Financial,
3.82%, 10-03-05 $1,500,000 1,499,675
------------
TOTAL COMMERCIAL PAPER
(cost $1,499,675) 1,499,675
------------
105 See accompanying notes.
SECURITY
Schedule of Investments MID CAP GROWTH FUND
September 30, 2005
PRINCIPAL MARKET
AMOUNT VALUE
--------- ------------
REPURCHASE AGREEMENT - 0.2%
United Missouri Bank, 3.42%, dated 09-30-05, matures
10-03-05; repurchase amount of $340,097
(Collateralized by FHLMC, 4.50%, 04-15-25 with a
value of $346,800) $340,000 $ 340,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $340,000) 340,000
------------
TOTAL INVESTMENTS - 100.8%
(cost $171,224,848) 228,825,867
LIABILITIES, LESS CASH & OTHER ASSETS - (0.8%) (1,704,744)
------------
TOTAL NET ASSETS - 100.0% $227,121,123
============
For federal income tax purposes the identified cost of investments owned at
September 30, 2005 was $172,117,387.
* Non-income producing security
PIPES-Private Investment in Public Equity - is the term used for stock issued by
a company in the secondary market as a means of raising capital more quickly
and less expensively than through registration in a secondary public offering.
(1) Security is segregated as collateral for open written option contracts.
(2) Security is restricted. The total market value of restricted securities is
$626,322 (cost $894,000), or 0.3% of total net assets. The acquisition date
is July 14, 2005.
(3) Security is illiquid. The total market value of illiquid securities is
$13,806,782 (cost $13,047,990), or 6.1% of total net assets.
(4) Security is fair valued by the Board of Directors. The total market value
is $626,322 (cost $894,000), or 0.3'% of total net assets.
106
SECURITY
MID CAP GROWTH FUND
Statement of Assets and Liabilities
September 30, 2005
ASSETS:
Investments, at value(1) ........................................ $228,825,867
Cash ............................................................ 52,330
Receivables:
Fund shares sold ............................................. 203,656
Securities sold .............................................. 1,296,049
Dividends .................................................... 44,279
Prepaid expenses ................................................ 21,278
------------
Total assets .................................................... 230,443,459
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 1,925,297
Fund shares redeemed ......................................... 125,512
Written options, at value (premiums received, $494,043) ...... 793,155
Management fees .............................................. 137,672
Custodian fees ............................................... 6,000
Transfer agent and administration fees ....................... 44,356
Professional fees ............................................ 22,749
12b-1 distribution plan fees ................................. 251,494
Other ........................................................ 16,101
------------
Total liabilities ............................................... 3,322,336
------------
NET ASSETS ...................................................... $227,121,123
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $161,371,866
Accumulated undistributed net realized gain on sale of
investments and options written .............................. 8,447,350
Net unrealized appreciation in value of investments and options
written ...................................................... 57,301,907
------------
Net assets ...................................................... $227,121,123
============
CLASS A:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 14,519,896
Net assets ...................................................... $183,675,762
Net asset value and redemption price per share .................. $ 12.65
============
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 13.42
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,497,282
Net assets ...................................................... $ 27,115,121
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 10.86
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,378,833
Net assets ...................................................... $ 16,330,240
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 11.84
============
(1)Investments, at cost ......................................... $171,224,848
Statement of Operations
For the Year Ended September 30, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 1,030,040
Interest ..................................................... 162,301
-----------
Total investment income ...................................... 1,192,341
-----------
EXPENSES:
Management fees .............................................. 1,573,215
Custodian fees ............................................... 18,313
Transfer agent/maintenance fees .............................. 513,590
Administration fees .......................................... 191,162
Directors' fees .............................................. 23,806
Professional fees ............................................ 40,977
Reports to shareholders ...................................... 25,337
Registration fees ............................................ 54,414
Other expenses ............................................... 15,766
12b-1 distribution plan fees - Class A ....................... 416,925
12b-1 distribution plan fees - Class B ....................... 273,522
12b-1 distribution plan fees - Class C ....................... 156,399
-----------
Total expenses ............................................... 3,303,426
-----------
Net investment loss .......................................... (2,111,085)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................................. 12,751,966
Options written .............................................. 191,195
-----------
Net realized gain ............................................ 12,943,161
-----------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................. 30,757,937
Options written .............................................. (385,703)
-----------
Net unrealized appreciation .................................. 30,372,234
-----------
Net gain ..................................................... 43,315,395
-----------
Net increase in net assets resulting from operations ......... $41,204,310
===========
107 See accompanying notes.
SECURITY
Statement of Changes in Net Assets MID CAP GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss ......................... $ (2,111,085) $ (2,662,895)
Net realized gain during the period on
investments and options written .......... 12,943,161 15,609,370
Net unrealized appreciation (depreciation)
during the period on investments and
options written .......................... 30,372,234 (2,850,662)
------------ ------------
Net increase in net assets resulting from
operations ............................... 41,204,310 10,095,813
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A .................................. (9,955,799) (5,436,898)
Class B .................................. (2,023,316) (1,171,101)
Class C .................................. (1,044,883) (553,046)
------------ ------------
Total distributions to shareholders ......... (13,023,998) (7,161,045)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................. 39,688,683 56,721,885
Class B .................................. 4,639,146 7,305,168
Class C .................................. 3,851,285 6,528,566
Distributions reinvested
Class A .................................. 9,564,132 5,189,647
Class B .................................. 1,981,156 1,150,087
Class C .................................. 955,741 519,780
Issuance of shares in connection with
Technology Series merger (Note 9)
Class A .................................. -- 7,786,451
Class B .................................. -- 1,764,789
Class C .................................. -- 2,411,529
Cost of shares redeemed
Class A .................................. (38,532,269) (56,580,537)
Class B .................................. (9,060,461) (10,368,864)
Class C .................................. (5,198,188) (6,258,847)
------------ ------------
Net increase from capital share
transactions ............................. 7,889,225 16,169,654
------------ ------------
Net increase in net assets .................. 36,069,537 19,104,422
------------ ------------
NET ASSETS:
Beginning of period ......................... 191,051,586 171,947,164
------------ ------------
End of period ............................... $227,121,123 $191,051,586
============ ============
Undistributed net investment income at
end of period ............................ $ -- $ --
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................. 3,433,535 4,917,993
Class B .................................. 459,016 723,937
Class C .................................. 352,361 615,289
Shares reinvested
Class A .................................. 797,012 458,045
Class B .................................. 191,231 115,703
Class C .................................. 84,579 48,173
Shares issued in connection with Technology
Series merger
Class A .................................. -- 694,178
Class B .................................. -- 177,910
Class C .................................. -- 225,079
Shares redeemed
Class A .................................. (3,301,939) (4,857,485)
Class B .................................. (917,791) (1,016,474)
Class C .................................. (473,376) (563,683)
108 See accompanying notes.
SECURITY
Financial Highlights MID CAP GROWTH FUND
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
---------------------------------------------------
CLASS A 2005 2004(G) 2003 2002(F) 2001
- ------- -------- -------- -------- ------- --------
PER SHARE DATA
Net asset value, beginning of period $ 11.02 $ 10.84 $ 7.03 $ 8.48 $ 15.28
-------- -------- -------- ------- --------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.10) (0.13) (0.10) (0.09) (0.07)
Net gain (loss) on securities (realized and unrealized) 2.46 0.71 3.91 (1.30) (5.38)
-------- -------- -------- ------- --------
Total from investment operations 2.36 0.58 3.81 (1.39) (5.45)
-------- -------- -------- ------- --------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.73) (0.40) -- (0.06) (1.35)
-------- -------- -------- ------- --------
Total distributions (0.73) (0.40) -- (0.06) (1.35)
-------- -------- -------- ------- --------
Net asset value, end of period $ 12.65 $ 11.02 $ 10.84 $ 7.03 $ 8.48
======== ======== ======== ======= ========
TOTAL RETURN(A) 21.76% 5.23% 54.20% (16.64%) (38.19%)
-------- -------- -------- ------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $183,676 $149,715 $134,208 $90,948 $131,498
-------- -------- -------- ------- --------
Ratios to average net assets:
Net investment income (loss) (0.85%) (1.11%) (1.14%) (0.92%) (0.64%)
Total expenses(b) 1.42% 1.41% 1.41% 1.20% 1.09%
Net expenses(d) 1.42% 1.41% 1.41% 1.20% 1.09%
-------- -------- -------- ------- --------
Portfolio turnover rate 31% 50% 57% 47% 48%
YEAR ENDED
SEPTEMBER 30,
-----------------------------------------------
CLASS B 2005 2004(G) 2003 2002(F) 2001
- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 9.61 $ 9.57 $ 6.26 $ 7.62 $ 14.02
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.16) (0.19) (0.15) (0.16) (0.17)
Net gain (loss) on securities (realized and unrealized) 2.14 0.63 3.46 (1.14) (4.88)
------- ------- ------- ------- -------
Total from investment operations 1.98 0.44 3.31 (1.30) (5.05)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.73) (0.40) -- (0.06) (1.35)
------- ------- ------- ------- -------
Total distributions (0.73) (0.40) -- (0.06) (1.35)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.86 $ 9.61 $ 9.57 $ 6.26 $ 7.62
======= ======= ======= ======= =======
TOTAL RETURN(A) 20.95% 4.44% 52.88% (17.35%) (38.83%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $27,115 $26,578 $26,459 $17,502 $28,580
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (1.61%) (1.86%) (1.89%) (1.84%) (1.64%)
Total expenses(b) 2.17% 2.16% 2.16% 2.11% 2.09%
Net expenses(d) 2.17% 2.16% 2.16% 2.11% 2.09%
------- ------- ------- ------- -------
Portfolio turnover rate 31% 50% 57% 47% 48%
109 See accompanying notes.
SECURITY
Financial Highlights MID CAP GROWTH FUND
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
SEPTEMBER 30,
------------------------------------------------
CLASS C 2005 2004(G) 2003 2002(F) 2001
- ------- ------- -------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 10.43 $ 10.34 $ 6.76 $ 8.22 $ 14.99
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) (0.18) (0.21) (0.16) (0.16) (0.18)
Net gain (loss) on securities (realized and unrealized) 2.32 0.70 3.74 (1.24) (5.24)
------- ------- ------- ------- -------
Total from investment operations 2.14 0.49 3.58 (1.40) (5.42)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from realized gains (0.73) (0.40) -- (0.06) (1.35)
------- ------- ------- ------- -------
Total distributions (0.73) (0.40) -- (0.06) (1.35)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.84 $ 10.43 $ 10.34 $ 6.76 $ 8.22
======= ======= ======= ======= =======
TOTAL RETURN(A) 20.83% 4.59% 52.96% (17.30%) (38.78%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $16,330 $14,759 $11,279 $ 5,883 $ 4,194
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (1.60%) (1.86%) (1.89%) (1.85%) (1.66%)
Total expenses(b) 2.17% 2.16% 2.16% 2.12% 2.09%
Net expenses(d) 2.17% 2.16% 2.16% 2.12% 2.09%
------- ------- ------- ------- -------
Portfolio turnover rate 31% 50% 57% 47% 48%
(a) Total return information does not reflect deduction of any salescharges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(e) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(f) Effective May 1, 2002 the fee structure for Security Mid Cap Growth Fund
changed. Per share information reflects this change.
(g) The financial highlights for the Mid Cap Growth Fund exclude the historical
financial highlights of the Technology Series Class A, B and C shares. The
assets of the Technology Series were acquired by the Mid Cap Growth Fund on
October 3, 2003.
110 See accompanying notes.
Notes to Financial Statements
September 30, 2005
1. SIGNIFICANT ACCOUNTING POLICIES
Security Large Cap Value, Equity and Mid Cap Growth Funds (the Funds) are
registered under the Investment Company Act of 1940, as amended, as open-end
management investment companies. The shares of Security Equity Fund are
currently issued in multiple Series, with each Series, in effect, representing a
separate fund. The Equity Fund accounts for the assets of each Series
separately. Class "A" shares are generally sold with a sales charge at the time
of purchase. Class "A" shares are not subject to a sales charge when they are
redeemed, except for purchases of $1 million or more. Class "A" shares sold
without a front-end sales charge are subject to a contingent deferred sales
charge if redeemed within one year of purchase. Class "B" shares are offered
without a front-end sales charge but incur additional class-specific expenses.
Class B shares are typically subject to a contingent deferred sales charge for
six years and automatically convert to Class A shares after eight years. Class
"C" shares are offered without a front-end sales charge but incur additional
class-specific expenses. Redemptions of Class "C" shares within one year of
acquisition incur a contingent deferred sales charge. The following is a summary
of the significant accounting policies followed by the Funds in the preparation
of their financial statements.
A. SECURITY VALUATION - Valuations of the Funds' or Series' securities are
supplied by pricing services approved by the Board of Directors. The Funds'
officers, under the general super vision of the Board of Directors, regularly
review procedures used by, and valuations provided by, the pricing services.
Each security owned by the Funds or Series that is listed on a securities
exchange is valued at its last sale price on that exchange on the date as of
which assets are valued. In the event that no sale occurred on the valuation
date, the bid price for the security will be used. Where the security is listed
on more than one exchange, the Funds or Series will use the price of that
exchange that it generally considers to be the principal exchange on which the
stock is traded. Securities listed on the Nasdaq Stock Market, Inc. ("Nasdaq")
will be valued at the Nasdaq Official Closing Price. Securities for which market
quotations are not readily available are valued by a pricing service considering
securities with similar yields, quality, type of issue, coupon, duration and
rating. If there is no bid price or if the bid price is deemed to be
unsatisfactory by the Board of Directors or by the Funds' or Series' 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 or series' 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 or series' NAV per share. Some of the factors
which may be considered by the Board of Directors in determining fair value are
fundamental analytical data relating to the investment; the nature and duration
of any restrictions on disposition; trading in similar securities of the same
issuer or comparable companies; information from broker-dealers; and an
evaluation of the forces that influence the market in which the securities are
purchased and sold. The Funds or Series generally will value short-term debt
securities at prices based on market quotations for such securities or
securities of similar type, yield, quality and duration, except those securities
purchased with 60 days or less to maturity are valued on the basis of amortized
cost which approximates market value.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange, if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the close of business. If a
"significant event" has occured the Valuation Committee will determine the
current value of such foreign securities by taking into consideration certain
factors which may include those discussed above, as well as the following
factors, among others: the value of the securities traded on other foreign
markets, ADR trading, closed-end fund trading, foreign currency exchange
activity, and the trading prices of financial products that are tied to foreign
securities such as WEBS(R). In addition, the Board of Directors has authorized
the Valuation Committee and Administrator to use prices and other information
supplied by IDC's Fair Value Information Service in valuing such securities.
Investments in foreign securities may involve risks not present in domestic
investments. Since foreign securities may be denominated in a foreign currency
and involve settlement and pay interest or dividends in foreign currencies,
changes in the relationship of these foreign currencies to the U.S. dollar can
significantly affect the value of the investments and earnings of the Funds or
Series. Foreign investments may also subject the Series/Fund to foreign
government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which could affect the market and/or
credit risk of the investments.
B. REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, it is the Funds' or Series' policy that their custodian take
possession of the underlying collateral and that the fair value of the
collateral exceed the principal amount of the repurchase transaction, including
accrued interest, at all times. If the seller defaults, and the fair value of
the collateral declines, realization of the collateral by the Funds may be
delayed or limited.
C. FOREIGN CURRENCY TRANSACTIONS - The accounting records of the Funds or
Series are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, dividend and
interest income, and certain expenses are translated at the rates of exchange
prevailing on the respective dates of such transactions.
The Funds or Series do not isolate that portion of the results of
operations resulting from changes in the foreign exchange rates on investments
from the fluctuations arising from changes in the market prices of securities
held. Such fluctuations are
111
Notes to Financial Statements
September 30, 2005
included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the value of portfolio securities and
other assets and liabilities at the end of the reporting period, resulting from
changes in the exchange rates.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Global Series of the
Security Equity Fund may enter into forward foreign exchange contracts in order
to manage foreign currency risk from purchase or sale of securities denominated
in foreign currency. The Series may also enter into such contracts to manage
changes in foreign currency exchange rates on portfolio positions. These
contracts are marked to market daily, by recognizing the difference between the
contract exchange rate and the current market rate as unrealized gains or
losses. Realized gains or losses are recognized when contracts are settled and
are reflected in the Statement of Operations. These contracts involve market
risk in excess of the amount reflected in the Statement of Assets and
Liabilities. The face or contract amount in U.S. dollars reflects the total
exposure these funds have in that particular currency contract. Losses may arise
due to changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
E. FUTURES - The Funds or Series may utilize futures contracts to a limited
extent, with the objectives of maintaining full exposure to the underlying stock
market, enhancing returns, maintaining liquidity, and minimizing transaction
costs. The Funds or Series, may purchase futures contracts to immediately
position incoming cash in the market, thereby simulating a fully invested
position in the underlying index while maintaining a cash balance for liquidity.
In the event of redemptions, the Funds or Series, may pay departing
shareholders from its cash balances and reduce their futures positions
accordingly. Returns may be enhanced by purchasing futures contracts instead of
the underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks contained in the indexes and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Upon entering into a futures
contract, the Funds or Series are required to deposit and maintain as collateral
either cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Cash deposits are shown as restricted cash on
the Statement of Assets and Liabilities; securities held as collateral are noted
in the Schedule of Investments. Subsequent changes in the value of the contract
are recorded as unrealized gains or losses. Variation margin is paid or received
in cash daily by the Funds or Series. The Funds or Series realize a gain or loss
when the contract is closed or expires.
F. OPTIONS PURCHASED AND WRITTEN - The Funds or 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 (and the
writer the obligation to sell or purchase), respectively, a security at a
specified price, until a certain date. Options may be used to hedge the Funds'
or Series' portfolio, to increase returns or to maintain exposure to the equity
markets. The primary risks associated with the use of options are an imperfect
correlation between the change in market value of the securities held by the
Fund or Series and the price of the option, the possibility of an illiquid
market, and the inability of the counterparty to meet the terms of the contract.
The premium received for a written option is recorded as an asset with an equal
liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated or exercised, at which
time realized gains and losses are recognized.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Realized gains and losses are reported on an identified cost basis. Dividend
income less foreign taxes withheld (if any) plus foreign taxes recoverable (if
any) is recorded on the ex-dividend date. Interest income is recognized on the
accrual basis including the amortization of premiums and accretion of discounts
on debt securities.
H. EXPENSES - Expenses that are directly related to one of the Funds or
Series are charged directly to that Fund or Series. Other operating expenses are
allocated to the Funds or Series 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.
I. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
J. TAXES - The Fund or Series intend to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of their taxable net income and net realized gains sufficient to
relieve them from all, or substantially all, federal income, excise and state
income taxes. Therefore, no provision for federal or state income tax is
required.
K. EARNINGS CREDITS - Under the fee schedule with the custodian, the Funds
or Series may earn credits based on overnight custody cash balances. These
credits are utilized to reduce related custodial expenses. The custodian fees
disclosed in the Statement of Operations are before the reduction in expense
from the related earnings credits.
L. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and
112
Notes to Financial Statements
September 30, 2005
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
M. SHORT SALES - Certain Funds or Series may make short sales "against the
box," in which the Fund or Series enters into a short sale of a security it
owns. At no time will more than 15% of the value of the Funds' or Series' net
assets be in deposits on short sales against the box. Funds or Series may also
make short sales that are not against the box. In a short sale that is not
against the box, a Fund or Series sells a security which it does not own, in
anticipation of a decline in the market value of the security. To complete the
sale, the Fund or Series must borrow the security generally from the broker
through which the short sale is made in order to make delivery to the buyer. The
Fund or Series must replace the security borrowed by purchasing it at the market
price at the time of replacement. The Fund or Series is said to have a "short
position" in securities sold until it delivers them to the broker. For financial
statement purposes, an amount equal to the settlement amount is included in the
Statement of Assets and Liabilities as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
value of the short position. Subsequent fluctuations in the market prices of
securities sold, but not yet purchased, may require purchasing the securities at
prices which differ from the market value reflected on the Statement of Assets
and Liabilities. The Funds are liable for any dividends or interest payable on
securities while those securities are in a short position. As collateral for its
short positions, the Funds are required under the Investment Company Act of 1940
to maintain segregated assets consisting of cash, cash equivalents or liquid
securities. These segregated assets are valued consistent with Note 1a above.
These segregated assets are required to be adjusted daily to reflect changes in
the market value of the securities sold short. As of September 30, 2005, none of
the Funds or Series had open short sales positions.
N. INDEMNIFICATIONS - Under the Funds' or Series' organizational documents,
its Officers and Directors are indemnified against certain liabilities arising
out of the performance of their duties to the Funds or Series. In addition, in
the normal course of business, the Funds or Series enter into contracts that
provide general indemnification to other parties. The Funds' or Series' maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Funds or Series that have not yet occurred, and may
not occur. However, the Funds or Series have not had prior claims or losses
pursuant to these contracts and expect the risk of loss to be remote.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC or
Investment Manager) as indicated below. SMC has voluntarily agreed to waive a
portion of the management fee for selected Funds or Series, as indicated.
Waivers may be terminated at any time.
MANAGEMENT
MANAGEMENT FEE WAIVERS
FEES (AS A % (AS A % OF
OF NET ASSETS) OF NET ASSETS)
-------------- --------------
Security Equity Fund:
Alpha Opportunity Series* 2.08%(1) N/A
Enhanced Index Series 0.75% 0.25%
Equity Series 0.75% N/A
Global Series 1.00% N/A
Large Cap Growth Series 1.00% 0.25%
Mid Cap Value Series 0.86%(2) N/A
Select 25(R) Series 0.75% N/A
Small Cap Growth Series 1.00% N/A
Social Awareness Series 1.00% 0.25%
Security Large Cap Value Fund 0.65%(3) N/A
Security Mid Cap Growth Fund 0.75% N/A
* Alpha Opportunity Series' management fee is a "fulcrum-type" performance
fee that varies on a monthly basis depending on the Series' investment
performance (calculated by reference to its Class A shares) against the
investment record of the S&P 500 Index over a rolling twelve months period.
Please see discussion below.
(1) SMC receives a management fee from the Alpha Opportunity Series that
consists of two components. The first component is an annual base fee equal
to 2.00% of Alpha Opportunity Series average daily net assets. The second
component is a base fee adjustment that either increases or decreases the
base fee, depending on how Alpha Opportunity Series (calculated by
reference to its Class A shares) performed relative to the S&P 500 Index
over the prior 12-month period (the "Measuring Period"). SMC will receive
the base fee of 2.00% without adjustment if the performance of Alpha
Opportunity Series (calculated by reference to its Class A shares) matches
the performance of the S&P 500 Index. The maximum base fee adjustment at
each calculation period is 0.75% up or down in the event that Alpha
Opportunity Series outperforms or underperforms the S&P 500 Index by 15% or
more. SMC calculates the base fee adjustment each month based upon Alpha
Opportunity Series' performance relative to the S&P 500 Index during the
Measuring Period ending on the last day of the month. If Alpha Opportunity
Series outperforms the S&P 500 Index over the Measuring Period, the base
fee is adjusted upward. The upward adjustment is equal to the amount by
which Alpha Opportunity Series' performance exceeds that of the S&P 500
Index divided by 15 and multiplied by the average daily net assets of Alpha
Opportunity Series during the Measuring Period to determine the base fee
adjustment for the month. If Alpha Opportunity Series underperforms the
Index, the base fee is adjusted downward on the same basis. SMC will
determine the dollar amount of any performance adjustment each month by
multiplying the adjustment percentage by the average daily net assets of
the Alpha Opportunity Series during the Measuring Period and dividing that
number by the number of days in the Measuring
113
Notes to Financial Statements
September 30, 2005
Period and then multiplying that amount by the number of days in the current
month.
(2) Management fees are payable at an annual rate of 1.00% of the average daily
net assets of $200 million or less, plus an additional annual rate of 0.75%
of the average daily net assets of the Series in excess of $200 million.
(3) Prior to June 30, 2005, management fees were payable to SMC at an annual
rate of 0.75% of the average daily net assets. Effective June 30, 2005,
management fees were payable at an annual rate of 0.65% of the average
daily net assets.
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, compliance and pricing
functions for each Fund or Series. For these services, the Investment Manager
receives the following:
ADMINISTRATIVE FEES
(AS A % OF NET ASSETS)*
-----------------------
Security Equity Fund:
Alpha Opportunity Series 0.145%
Enhanced Index Series 0.09%
Equity Series 0.09%
Global Series 0.045% + greater of
0.10% or $60,000
Large Cap Growth Series 0.09%
Mid Cap Value Series 0.09%
Select 25 Series 0.09%
Small Cap Growth Series 0.09%
Social Awareness Series 0.09%
Security Large Cap Value Fund 0.09%
Security Mid Cap Growth Fund 0.09%
* The minimum annual charge for administrative fees is $25,000 for each
Series or Fund. The Fund or Series may also be charged for various out of
pocket charges.
SMC is paid the following for providing transfer agent services to the
Funds:
Annual per account charge $5.00 - $8.00
Transaction fee $0.60 - $1.10
Annual minimum charge
(per Series or Fund) $25,000
Certain out-of-pocket charges Varies
For the period from October 1, 2004 through June 29, 2005, SMC paid the
Dreyfus Corporation an annual fee equal to .15% (which reflects waiver of .10%)
of the average daily closing value of the combined net assets of Security Large
Cap Value Fund and another fund managed by SMC, Series B of SBL Fund, computed
on a daily basis. Beginning June 30, 2005, SMC furnished investment advisory
services to Security Large Cap Value Fund.
SMC pays OppenheimerFunds, Inc. an annual fee equal to a percentage of the
average daily closing value of the combined average daily net assets of Global
Series and another fund managed by SMC, Series D of SBL Fund, computed on a
daily basis as follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $300 Million ................................... .35%
$300 Million to $750 Million.......................... .30%
$750 Million or more.................................. .25%
SMC pays RS Investments an annual fee equal to a percentage of the average
daily closing value of the combined net assets of Small Cap Growth Series and
another fund managed by SMC, Series X of SBL Fund, computed on a daily basis as
follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $100 Million..................................... .55%
$100 Million to $400 Million........................... .50%
Over $400 Million...................................... .45%
SMC pays Northern Trust an annual fee equal to a percentage of the average
daily closing value of the combined net assets of Enhanced Index Series and
Series H of SBL Fund, computed on a daily basis as follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $100 Million ................................... .20%
$100 Million to $300 Million.......................... .15%
$300 Million or more.................................. .13%
SMC pays Mainstream Investment Advisers, LLC an annual fee equal to 2.50%
of that portion of the Alpha Opportunity Series' assets managed by Mainstream.
The sub-advisory fee will be adjusted upward or downward, depending on how that
portion of Alpha Opportunity Series' assets performed relative to the S&P 500
Index. The pro rata adjustment will be determined based upon the investment
performance of that portion of Alpha Opportunity Series' assets managed by
Mainstream relative to the investment record of the S&P 500 Index. The amount of
any upward adjustment in the Base Fee will be equal to 1.50% (a) multiplied by
the number of percentage points by which the investment performance of the Alpha
Opportunity Series assets managed by Mainstream exceeds the investment record of
the S&P 500 Index (b) divided by .30, up to a maximum of 4.00% or a minimum of
1.00% in annual sub-advisory fees (assuming the Series' average daily net assets
remain constant during the period).
During its first 12 months of operations, the Investment Manager paid
Mainstream the base fee of 2.50% without any adjustment for performance.
Performance adjustments began on August 1, 2004 based upon the performance
during the 12 months ended July 1, 2004 of that portion of Alpha Opportunity
Series assets managed by Mainstream. Thereafter, the Investment Manager
calculates the performance adjustment at the end of each calendar month based
upon the investment performance of the assets managed by Mainstream during the
twelve-month period ending on the last day of the prior month compared to the
investment record of the S&P 500 Index during the same period.
The Alpha Opportunity Series assets are reallocated between Mainstream and
the Investment Manager on a monthly basis to approximately 60% and 40%,
respectively.
SMC has agreed to limit the total expenses for each class of the Enhanced
Index and Select 25 Series to 1.75%, and Social Awareness, Mid Cap Value, Small
Cap Growth and Large Cap Growth Series to 2.00%, exclusive of interest, taxes,
114
Notes to Financial Statements
September 30, 2005
extraordinary expenses, brokerage fees and commissions and 12b-1 fees for the
aforementioned Series. SMC has agreed to limit the total expenses excluding
management and 12b-1 fees of Alpha Opportunity to 0.50%. The expense limits
other than those for Enhanced Index and Select 25 Series are voluntary limits
that may be terminated at any time without notice to shareholders.
The Funds have adopted Distribution Plans related to the offering of Class
A, Class B and Class C shares pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The plans provide for payments at an annual rate of 1.00%
of the average daily net assets of each Fund's or Series' Class B, Class C
shares, and 0.25% of the average daily net assets of each Fund's or Series'
Class A shares. Effective August 25, 2005, Global Series ceased accruing 12b-1
fees on Class B shares in accordance with the NASD sales cap regulations.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Corporation and the distributor of the Funds or Series, received net
underwriting commissions on sales of Class A shares after allowances to brokers
and dealers as follows:
SDI
UNDERWRITING
COMMISSIONS
------------
Security Equity Fund:
Alpha Opportunity Series $ 28,839
Enhanced Index Series 1,131
Equity Series 38,893
Global Series 95,682
Large Cap Growth Series 5,818
Mid Cap Value Series 326,109
Select 25(R) Series 3,525
Small Cap Growth Series 14,808
Social Awareness Series 6,511
Security Large Cap Value Fund 8,100
Security Mid Cap Growth Fund 61,326
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 September 30, 2005, Security Benefit Corporation and its subsidiaries
owned over five percent of the outstanding shares of the Funds or Series, as
follows:
PERCENT OF OUTSTANDING
FUND OR SERIES SHARES OWNED
- -------------- ----------------------
Security Equity Fund:
Alpha Opportunity Series 39.09%
Enhanced Index Series 21.45%
Equity Series 13.88%
Global Series 8.96%
Large Cap Growth Series 40.09%
Select 25(R) Series 9.88%
Small Cap Growth Series 20.19%
Social Awareness Series 9.50%
Security Large Cap Value Fund 28.17%
Security Mid Cap Growth Fund 7.91%
3. UNREALIZED APPRECIATION/DEPRECIATION
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) on investments at September 30, 2005, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
Security Equity Fund:
Alpha Opportunity Series $ 326,118 $ (147,498) $ 178,620
Enhanced Index Series 981,682 (429,551) 552,131
Equity Series 96,894,348 (14,086,313) 82,808,035
Global Series 40,286,272 (1,862,183) 38,424,089
Large Cap Growth Series 1,244,415 (382,524) 861,891
Mid Cap Value Series 165,169,079 (17,679,605) 147,489,474
Select 25(R) Series 5,663,295 (936,785) 4,726,510
Small Cap Growth Series 7,149,321 (624,234) 6,525,087
Social Awareness Series 2,188,850 (2,232,093) (43,243)
Security Large Cap Value Fund 6,276,358 (1,370,903) 4,905,455
Security Mid Cap Growth Fund 70,733,333 (14,024,854) 56,708,479
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended September 30, 2005, (excluding
all short-term investments) were as follows:
PROCEEDS
PURCHASES FROM SALES
------------ ------------
Security Equity Fund:
Alpha Opportunity Series $181,102,422 $173,451,928
Enhanced Index Series 15,996,510 18,427,437
Equity Series 136,254,330 193,223,490
Global Series 45,216,191 46,348,800
Large Cap Growth Series 8,100,757 13,080,229
Mid Cap Value Series 205,598,582 83,611,650
Select 25(R) Series 2,736,981 7,504,937
Small Cap Growth Series 44,586,400 49,669,709
Social Awareness Series 6,695,730 7,803,708
Security Large Cap Value Fund 60,506,644 69,630,058
Security Mid Cap Growth Fund 63,126,974 69,677,320
5. OPEN FUTURES CONTRACTS
Open futures contracts for Alpha Opportunity Series and Enhanced Index
Series as of September 30, 2005, were as follows:
ALPHA OPPORTUNITY SERIES ENHANCED INDEX SERIES
S&P 500 Index Futures S&P 500 E-Mini Futures
------------------------ ----------------------
POSITION Long Long
NUMBER OF CONTRACTS 34 6
EXPIRATION DATE 12-16-2005 12-16-2005
CONTRACT AMOUNT $10,434,821 $370,726
MARKET VALUE $10,491,550 $370,275
UNREALIZED GAIN (LOSS) $56,729 $(451)
115
Notes to Financial Statements
September 30, 2005
6. OPTIONS WRITTEN
The following options written were outstanding for Equity Series at
September 30, 2005:
EQUITY SERIES CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
Anadarko Petroleum Corporation 10-21-05 $95.00 625 $193,750
Target Corporation 10-21-05 55.00 569 11,380
----- --------
Total call options outstanding
(premiums received, $240,933) 1,194 $205,130
===== ========
Transactions in options written for Equity Series for the year ended September
30, 2005, were as follows:
EQUITY SERIES CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at September 30, 2004 -- $ --
Opened 1,194 240,933
----- --------
Balance at September 30, 2005 1,194 $240,933
===== ========
The following options written were outstanding for Mid Cap Value Series at
September 30, 2005:
MID CAP VALUE SERIES CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ----------
Cinergy Corporation 01-20-06 $45.00 835 $ 87,675
Hollis-Eden Pharmaceuticals, Inc. 12-16-05 12.50 947 4,735
Inco Ltd. 10-21-05 40.00 600 450,000
Inco Ltd. 01-20-06 45.00 600 282,000
Mastec, Inc. 01-20-06 12.50 1,440 64,800
Nabors Industries, Ltd. 12-16-05 65.00 530 503,500
NDCHealth Corporation 02-17-06 20.00 102 1,020
Usec, Inc. 10-21-05 17.50 1,450 14,500
----- ----------
Total call options outstanding
(premiums received, $1,134,237) 6,504 $1,408,230
===== ==========
MID CAP VALUE SERIES PUT OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
Frontline, Ltd. 11-18-05 $35.00 507 $ 7,605
Phelps Dodge Corporation 10-21-05 85.00 310 1,550
Power-One, Inc. 10-21-05 5.00 1,153 11,530
Usec, Inc. 01-20-06 10.00 2,096 115,280
----- --------
Total put options outstanding
(premiums received, $523,507) 4,066 $135,965
===== ========
Transactions in options written for Mid Cap Value Series for the year ended
September 30, 2005, were as follows:
MID CAP VALUE SERIES CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at September 30, 2004 250 $ 144,246
Opened 14,785 2,776,164
Bought Back (192) (110,781)
Expired (6,022) (1,072,671)
Exercised (2,317) (602,721)
------ -----------
Balance at September 30, 2005 6,504 $ 1,134,237
====== ===========
MID CAP VALUE SERIES PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at September 30, 2004 2,015 $ 219,161
Opened 11,126 929,607
Expired (6,656) (429,401)
Exercised (2,419) (195,860)
------ ---------
Balance at September 30, 2005 4,066 $ 523,507
====== =========
The following options written were outstanding for Security Large Cap Value
Fund at September 30, 2005:
SECURITY LARGE CAP VALUE FUND
CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
Edison International 10-21-05 $47.50 264 $19,800
--- -------
Total call options outstanding
(premiums received, $23,375) 264 $19,800
=== =======
Transactions in options written for Security Large Cap Value Fund for the year
ended September 30, 2005 were as follows:
SECURITY LARGE CAP VALUE FUND CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -------
Balance at September 30, 2004 -- $ --
Opened 264 23,375
--- ------
Balance at September 30, 2005 264 $23,375
=== =======
The following options written were outstanding for Security Mid Cap Growth
Fund at September 30, 2005:
SECURITY MID CAP GROWTH FUND
CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
BJ Services Company 01-20-06 $30.00 400 $284,000
EOG Resources, Inc. 10-21-05 65.00 260 262,600
Harris Corporation 11-18-05 37.50 450 202,500
KFx, Inc. 12-16-05 20.00 349 36,645
NDCHealth Corporation 02-17-06 20.00 96 960
----- --------
Total call options outstanding
(premiums received, $412,720) 1,555 $786,705
===== ========
116
Notes to Financial Statements
September 30, 2005
6. OPTIONS WRITTEN (CONTINUED)
SECURITY MID CAP GROWTH FUND
PUT OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ------
Cell Genesys, Inc. 10-21-05 $ 5.00 1,206 $6,030
Kansas City Southern 12-16-05 20.00 21 420
----- ------
Total put options outstanding
(premiums received, $81,323) 1,227 $6,450
===== ======
Transactions in options written for Security Mid Cap Growth Fund for the year
ended September 30, 2005, were as follows:
SECURITY MID CAP GROWTH FUND CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at September 30, 2004 1,058 $ 217,053
Opened 4,397 863,617
Expired (890) (159,906)
Exercised (3,010) (508,044)
------ ---------
Balance at September 30, 2005 1,555 $ 412,720
====== =========
SECURITY MID CAP GROWTH FUND PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at September 30, 2004 2,789 $ 248,993
Opened 2,047 177,259
Expired (500) (31,289)
Exercised (3,109) (313,640)
------ ---------
Balance at September 30, 2005 1,227 $ 81,323
====== =========
117
Notes to Financial Statements
September 30, 2005
7. FEDERAL TAX MATTERS
The tax character of distributions paid during the fiscal years ended
September 30, 2005 and 2004, was the same as that reported in the Statement of
Changes in Net Assets, except as follows:
ORDINARY CAPITAL
INCOME GAIN TOTAL
---------- -------- ----------
2005
Alpha Opportunity Series $1,099,071 $186,310 $1,285,381
2004
Alpha Opportunity Series 341,942 80,496 422,438
Equity Series 607,081 77,431 684,512
Note: For federal income tax purposes, short term capital gain distributions are
treated as ordinary income distributions.
As of September 30, 2005 the components of distributable earnings on a tax basis
were:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY LONG-TERM CAPITAL AND APPRECIATION DISTRIBUTABLE
INCOME GAIN OTHER LOSSES* (DEPRECIATION)** EARNINGS
------------- ------------- ------------- ---------------- -------------
Security Equity Fund:
Alpha Opportunity Series $1,709,969 $ 310,649 $ -- $ 178,620 $ 2,199,238
Enhanced Index Series 33,715 -- (4,110,950) 552,130 (3,525,105)
Equity Series 2,106,508 4,630,774 -- 82,843,838 89,581,120
Global Series -- -- (4,564,594) 38,425,318 33,860,724
Large Cap Growth Series -- -- (2,312,370) 861,891 (1,450,479)
Mid Cap Value Series -- 26,848,438 -- 147,603,023 174,451,461
Select 25 Series -- -- (11,459,603) 4,726,510 (6,733,093)
Small Cap Growth Series -- -- (3,925,468) 6,525,087 2,599,619
Social Awareness Series -- -- (1,551,431) (43,243) (1,594,674)
Security Large Cap Value Fund 226,795 -- (7,782,370) 4,909,030 (2,646,545)
Security Mid Cap Growth Fund -- 12,192,009 (2,852,119) 56,409,367 65,749,257
* Certain Funds had net capital loss carryovers and deferred post October
losses as identified elsewhere in the Notes.
** The differences between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of wash sale
losses, the differences between book and tax basis passive foreign
investment companies and bond discount accretion.
As of September 30, 2005, the accumulated net realized loss on sales of
investments for federal income tax purposes which are available to offset future
taxable gains and post-October losses that are deferred to the first day of the
next fiscal year are as follows:
118
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
CAPITAL LOSS DEFERRED POST-
CARRY OVERS EXPIRES IN OCTOBER LOSSES
------------ ---------- ---------------
Security Equity Fund:
Enhanced Index Series $ 58,582 2010 $ --
1,591,954 2011
2,460,414 2012
----------
4,110,950
Global Series 1,094,503 2009 67,499
908,640 2010
96,592 2011
2,397,360 2012
----------
4,497,095
Large Cap Growth Series 268,343 2010 --
1,736,216 2011
307,811 2012
----------
2,312,370
Select 25(R) Series 2,083,530 2009 --
3,363,943 2010
2,960,418 2011
3,051,712 2012
----------
11,459,603
SmallCap Growth Series 3,925,468 2010 --
Social Awareness Series 309,787 2009 52,255
132,011 2010
1,018,739 2011
38,639 2012
----------
1,499,176
Security Large Cap Value Fund 7,782,370 2011 --
Security Mid Cap Growth Fund 2,268,140 2009 --
567,035 2010
16,944 2011
----------
2,852,119
The Security Equity Fund - Global Series obtained approximately $2,885,458
of capital losses (included above) from its merger with Security Equity Fund -
International Series (see Note 8), which may be applied against realized net
taxable capital gains in future years or until September 30, 2010, subject to
certain limitations imposed by Section 382 of the Internal Revenue Code.
Security Mid Cap Growth fund obtained approximately $3,419,154 of capital
losses (included above) from its merger with Security Equity Fund - Technology
Series (see Note 9), which may be applied against realized net taxable capital
gains in future years or until September 30, 2011, subject to certain
limitations imposed by Section 382 of the Internal Revenue Code.
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent book/tax
differences. These differences are primarily due to post-October losses, losses
deferred due to wash sales, foreign currency gains and losses, and the
"mark-to-market" of certain passive foreign investment companies (PFICs) for tax
purposes. To the extent these differences are permanent, reclassifications are
made to the appropriate equity accounts in the period that the differences
arise.
On the Statements of Assets and Liabilities, the following adjustments were
made for permanent tax differences:
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
GAIN/(LOSS) INCOME PAID-IN-CAPITAL
------------ -------------- ---------------
Security Equity Fund:
Alpha Opportunity Series $(252,761) $ 252,761 $ --
Global Series 6,732 8,928 (15,660)
Large Cap Growth Series -- 152,601 (152,601)
Mid Cap Value Series (885,138) 1,019,140 (134,002)
Select 25(R) Series -- 265,585 (265,585)
Small Cap Growth Series -- 703,494 (703,494)
Social Awareness Series -- 10,128 (10,128)
Security Large Cap Value Fund 54,589 (56,233) 1,644
Security Mid Cap Growth FUnd -- 2,111,085 (2,111,085)
8. ACQUISITION OF SECURITY EQUITY FUND - INTERNATIONAL SERIES
Pursuant to a plan of reorganization approved by Security Equity Fund
International Series shareholders, Security Equity Fund Global Series acquired
all the net assets of International Series, which totalled $9,345,535 on the
closing date of the reorganization, October 3, 2003. In exchange for the assets
of International Series 793,162 shares of Global Series were distributed to
International shareholders of record as of immediately after the closing date.
This exchange qualified as a tax-free reorganization under Section 368(a)(1)(c)
of the Internal Revenue Code. International Series net assets included $432,828
of unrealized appreciation, $3,042 of accumulated net investment income and
$3,019,816 of accumulated realized loss on sale of investments. The aggregate
net assets of Global Series immediately before the acquisition totalled
$68,353,149. Following the acquisition, the combined net assets of Global Series
totalled $77,698,684.
9. ACQUISITION OF SECURITY EQUITY FUND-TECHNOLOGY SERIES
Pursuant to a plan of reorganization approved by Security Equity Fund
Technology Series shareholders, Security Mid Cap Growth Fund acquired all the
net assets of Technology Series, which totalled $11,962,769 on the closing date
of the reorganization October 3, 2003. In exchange for the assets of Technology
Series 1,097,167 shares of Mid Cap Growth Fund were distributed to Technology
shareholders of record as of immediately after the closing date. This exchange
qualified as a tax-free reorganization under Section 368(a)(1)(c) of the
Internal Revenue Code. Technology Series net assets included $1,703,882 of
unrealized appreciation, $3,694 of accumulated net investment loss and
$7,442,356 of accumulated realized loss on sale of investments. The aggregate
net assets of Mid Cap Growth Fund immediately before the acquisition totalled
$178,458,228. Following the acquisition, the combined net assets of Mid Cap
Growth Fund totalled $190,420,997.
119
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
10. AFFILIATED TRANSACTIONS*
Investments representing 5% or more of the outstanding voting securities of
a portfolio company of a fund result in that portfolio company being considered
an affiliated company of such fund, as defined in the 1940 Act. The aggregate
market value of all securities of affiliated companies held in the Mid Cap Value
Series of the Security Equity Fund as of September 30, 2005 amounted to
$3,656,787 which represents 0.65% of net assets. There were no affiliated
companies held in any other Fund or Series. Transactions in the Security Mid Cap
Value Series during the year ended September 30, 2005 in which the portfolio
company is an "affiliated person" are as follows:
THERMOENERGY THERMOENERGY
HYDROGEN CORPORATION CORPORATION
CORPORATION, LLC PIPES WARRANTS
---------------- ------------ ------------
SEPTEMBER 30, 2004
Balance
Shares -- -- --
Cost $ -- $ -- $ --
Gross Additions
Shares 547,442 1,745,000 1,745,000
Cost $2,443,018 $1,646,500 $ 447,500
Gross Reductions
Shares -- -- --
Cost $ -- $ -- $ --
SEPTEMBER 30, 2005
Balance
Shares 547,442 1,745,000 1,745,000
Cost $2,443,018 $1,646,500 $ 447,500
Realized Gain/(Loss) -- -- --
Investment Income -- -- --
* As a result of the Security Mid Cap Values Series' beneficial ownership of
the common stock of these portfolio companies, applicable regulations
require that the Series state that it may be deemed an affiliate of the
respective portfolio company. The Series disclaims that the "affiliated
persons" are affiliates of the Distributor, Advisor, Series or any other
client of the Advisor.
11. SUBSEQUENT EVENT
At a meeting held on November 18, 2005, the Board of Directors of the
Security Equity Fund (the "Fund") approved a plan of reorganization for the
Security Equity Fund, Large Cap Growth Series and Social Awareness Series. Under
the proposed plan of reorganization, all the assets and liabilities of the Large
Cap Growth Series and Social Awareness Series would be merged into the Security
Equity Fund Select 25 Series on approximately May 1, 2006. The plan of
reorganization is contingent upon the approval of shareholders of record in
Security Large Cap Growth Series and Social Awareness Series as of February 21,
2006.
120
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
SECURITY LARGE CAP VALUE FUND, SECURITY EQUITY FUND AND SECURITY MID CAP GROWTH
FUND
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Security Equity Fund (comprised of Alpha
Opportunity, Enhanced Index, Equity, Global, Large Cap Growth, Mid Cap Value,
Select 25(R), Small Cap Growth and Social Awareness Series), Security Large Cap
Value Fund and Security Mid Cap Growth Fund (the Funds) as of September 30,
2005, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of September 30, 2005, by correspondence with the custodians
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective entities/series constituting the Funds at September 30, 2005,
and the results of their operations for the year then ended, changes in their
net assets for each of the two years in the period then ended, and their
financial highlights for the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
November 11, 2005
except for Note 11, as to which the date is
November 18, 2005
121
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
(05-11-39) Tractor Company, Inc.; President & Director, The
2004 Martin Tractor Company, Inc.
Penny A. Lumpkin** Partner, Vivians' Gift Shop (Corporate Retail)
(08-20-39) Vice President, Palmer Companies, Inc. (Small
1993 Business and Shopping Center Development)
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,
(12-18-43) Stormont-Vail HealthCare
1998
John D. Cleland* Retired. Prior to January 1, 2003, Senior Vice
(05-01-36) President, Security Benefit Group, Inc. &
1991 (Director) Security Benefit Life Insurance Company
2000 (Chairman of the Board)
Michael G. Odlum* President & Managing Member Representative,
(01-12-52) Security Management Company, LLC
2004 (President) Senior Vice President and Chief Investment
2004 (Director) Officer, Security Corporation and
Security Benefit Life Insurance Company
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 Fund's Investment Manager and/or the parent of the
Investment Manager.
** These directors serve on the Funds' joint audit committee, the purpose of
which is to meet with the independent auditors, to review the work of the
auditors, and to oversee the handling by Security Management Company, LLC
of the accounting function for the Fund.
*** Each director oversees 34 Security Fund portfolios and serves until the
next annual meeting, or until a successor has been duly elected and
qualified.
122
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,
(02-11-60) Security Management Company, LLC;
Vice President Vice President, Security Benefit Life Insurance
2003 Company
Christina Fletcher Vice President & Portfolio Manager, Security
(07-25-72) Management Company, LLC
Vice President Credit Analyst/Portfolio Manager, Horizon Cash
2005 Management
Senior Money Market Trader, Scudder Investments
Brenda M. Harwood Assistant Vice President, Chief Compliance
(11-03-63) Officer & Treasurer, Security Management Company,
Treasurer LLC;
1988 Assistant Vice President, Security Benefit Life
Insurance Company
Vice President & Director, Security Distributors,
Inc.
Richard J. King Vice President & Head of Fixed Income, Security
(03-59) Management Company, LLC;
Vice President Partner, Head of Portfolio Management, INVESCO
2005
Mark Lamb Vice President, Security Management Company, LLC,
(02-03-60) Vice President, Security Benefit Life Insurance
Vice President Company
2003
Amy J. Lee Secretary, Security Management Company, LLC &
(06-05-61) Security Distributors, Inc.;
Secretary Vice President, Associate General Counsel &
1987 Assistant Secretary,
Security Benefit Life Insurance Company
Mark Mitchell Vice President & Portfolio Manager, Security
(08-24-64) Management Company, LLC
Vice President
2003
Christopher Phalen Vice President & Portfolio Manager, Security
(11-9-70) Management Company, LLC;
Vice President Vice President, Security Benefit Life Insurance
2002 Company
James P. Schier Vice President & Senior Portfolio Manager,
(12-28-57) Security Management Company, LLC;
Vice President Vice President, Security Benefit Life Insurance
1998 Company
Cindy L. Shields Vice President & Head of Equity Asset Management,
(06-05-67) Security Management Company, LLC,
Vice President Vice President, Security Benefit Life Insurance
1988 Company
Christopher D. Swickard Assistant Secretary, Security Management Company,
(10-09-65) LLC;
Assistant Secretary Company Second Vice President & Counsel,
1996 Security Benefit Life Insurance
David G. Toussaint Assistant Vice President & Portfolio Manager,
(10-10-66) Security Management Company, LLC;
Vice President Assistant Vice President, Security Benefit Lfe
2001 Insurance Company
* Officers serve until the next annual meeting or until a successor has been
duly elected and qualified.
123
TAX INFORMATION (unaudited)
In accordance with the provisions of the Internal Revenue Code, the percentage
of ordinary dividends (including short-term capital gains) attributable to the
fiscal year ended September 30, 2005, which qualify for the dividends received
deduction for corporate shareholders is 100% for the Mid Cap Value Series and 4%
for the Alpha Opportunity Series.
For the fiscal year ended September 30, 2005, certain dividends paid by the
Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs
and Growth Tax Relief Reconciliation Act of 2003. The percentage of ordinary
income distributions for the fiscal year ended September 30, 2005, taxed at the
maximum rate of 15% is 100% for the Mid Cap Value Series and 5% for the Alpha
Opportunity Series.
OTHER INFORMATION
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.
124
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 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
Christina Fletcher, Vice President
Richard J. King, Vice President
Mark Lamb, Vice President
Mark Mitchell, Vice President
James P. Schier, Vice President
Cindy L. Shields, 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.
------------------
(SECURITY BENEFIT(SM) LOGO) Presorted Standard
Security Distribution, Inc. U.S. Postage
PAID
Carol Stream, IL
Permit No. 1
------------------
One Security Benefit Place - Topeka, Kansas 66636-0001 - securitybenefit.com
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to its principal
executive officer and principal financial officer. A copy of the Registrant's
code of ethics is filed herewith as Exhibit 10(a)(1). No amendments were made to
the provisions of the code of ethics during the period covered by this report.
No implicit or explicit waivers to the provisions of the code of ethics were
granted during the period covered by this report. The Registrant hereby
undertakes to provide any person without charge, upon request, a copy of its
Code by calling the Registrant at 1-800-888-2461.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Directors has determined that Maynard Oliverius, a
member of the Audit Committee of the Board, is an audit committee financial
expert. Mr. Oliverius is "independent" for purposes of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provided by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods, were $122,000 in 2004
and $129,000 in 2005.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for
assurance and related services by the Auditor that are reasonably related
to the performance of the audit of the Registrant's financial statements
and are not reported under paragraph (a) of this Item 4 were $3,000 in
2004 and $3,000 in 2005. These services consisted of a review of the
Registrant's semi-annual financial statements.These services consisted of
a review of the Registrant's semi-annual financial statements.
The aggregate fees billed in the Reporting Periods for assurance and
related services by the Auditor to the Registrant's investment adviser
(not including any sub-investment adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing services
to the Registrant ("Service Affiliates") which required pre-approval by
the Audit Committee were $18,000 in 2004 and $17,000 in 2005, which
related to the review of the transfer agent function.(1)
----------
(1)Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the information here
represents only fees for pre-approved non-audit services rendered after
May 6, 2003, to Service Affiliates.
(c) Tax Fees. The aggregate fees billed to the Registrant in the Reporting
Periods for professional services rendered by the Auditor for tax
compliance, tax advice and tax planning ("Tax Services") were $42,000 in
2004 and $23,000 in 2005. These services consisted of (i) review (in
2003)or preparation (in 2004)of U.S. federal, state, local and excise tax
returns; (ii) U.S. federal, state and local tax planning, advice and
assistance regarding statutory, regulatory or administrative developments,
(iii) tax advice regarding tax qualification matters and/or
treatment of various financial instruments held or proposed to be acquired
or held, and (iv) determination of Passive Foreign Investment Companies.
The aggregate fees billed in the Reporting Periods for Tax Services by the
Auditor to Service Affiliates which required pre-approval by the Audit
Committee were $0 in 2004 and $0 in 2005.(2)
----------
(2)Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve Tax Services. Therefore, the information here represents
only fees for pre-approved Tax Services rendered after May 6, 2003, to
Service Affiliates.
(d) All Other Fees. The aggregate fees billed to the Registrant in the
Reporting Periods for products and services provided by the Auditor, other
than the services reported in paragraphs (a) through (c) of this Item,
were $0 in 2004 and $0 in 2005.
The aggregate fees billed in the Reporting Periods for Non-Audit Services
by the Auditor to Service Affiliates, other than the services reported in
paragraphs (b) through (d) of this Item, which required pre-approval by
the Audit Committee were $0 in 2004 and $0 in 2005.(3)
----------
(3)Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve these services. Therefore, the information here represents
only fees for pre-approved services rendered after May 6, 2003, to Service
Affiliates.
(e) (1) Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of the auditor's engagements for audit and
non-audit services to the Registrant. Pre-approval considerations
include whether the proposed services are compatible with
maintaining the auditor's independence as specified in applicable
rules.
(e) (2) Percentage of Non-Audit Services Approved under (c)(7)(i)(C). The
percentage of the services described in each of (b) through (d) of
this Item 4 (only those that relate to the Registrant) that were
approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X was 0%, 0% and 0%, respectively.
(f) Not applicable.
(g) Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for
services rendered to the Registrant, and rendered to Service Affiliates,
for the Reporting Periods were $63,000 in 2004 and $43,000 in 2005.
(h) Auditor Independence. The Registrant's Audit Committee was provided with
information relating to the provision of non-audit services by Ernst &
Young, LLP to the Registrant (and its affiliates) that were not
pre-approved by the Audit Committee so that a determination could be made
whether the provision of such services is compatible with maintaining
Ernst & Young, LLP's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. 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 11. 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 12. EXHIBITS.
(a) (1) Code of Ethics pursuant to Item 2 above.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 and required by Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and required by Rule 30a-2(a) under the Investment Company Act of 1940,
are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
security equity fund
By: MICHAEL G. ODLUM
-------------------------------------
Michael G. Odlum, President
Date: December 9, 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: December 9, 2005
By: BRENDA M. HARWOOD
-------------------------------------
Brenda M. Harwood, Treasurer
Date: December 9, 2005