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, 2006
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.
(GRAPHIC)
(SECURITY FUNDS(SM) LOGO)
ANNUAL REPORT
SEPTEMBER 30, 2006
- - SECURITY EQUITY FUND
- ALPHA OPPORTUNITY SERIES
- EQUITY SERIES
- GLOBAL SERIES
- MID CAP VALUE SERIES
- SELECT 25 SERIES
- SMALL CAP GROWTH 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, 2006
ANNUAL REPORT
TABLE OF CONTENTS
Security Equity Fund
Alpha Opportunity Series............................................... 2
Equity Series.......................................................... 14
Global Series.......................................................... 25
Mid Cap Value Series................................................... 36
Select 25 Series....................................................... 48
Small Cap Growth Series................................................ 58
Security Large Cap Value Fund............................................. 70
Security Mid Cap Growth Fund.............................................. 81
Notes to Financial Statements............................................. 91
Report of Independent Registered Public Accounting Firm................... 101
Special Shareholders' Meeting............................................. 102
Directors and Officers.................................................... 103
1
SECURITY EQUITY FUND
Managers' Commentary ALPHA OPPORTUNITY SERIES
November 15, 2006 (unaudited)
Advised by: (SECURITY BENEFIT(SM) LOGO) and (MAINSTREAM LOGO)
Security Management Company, LLC Subadviser, Mainstream
Investment Advisers
(PHOTO OF BILL JENKINS) (PHOTO OF MARK LAMB)
Bill Jenkins Mark Lamb
Co-Portfolio Manager Co-Portfolio Manager
TO OUR SHAREHOLDERS:
A strong first half of 2006 offset by a weak third quarter resulted in the
Security Equity Fund Alpha Opportunity Series returning 7.39%(1) for the
12-month period ended September 30, 2006, lagging the 10.79% return for the S&P
500 Index. Although we are disappointed that the Series' return trailed its S&P
500 benchmark, we believe our investment approach delivers significant long-term
value. This has been demonstrated by the Series' cumulative total return of
49.77% since its July 7, 2003 inception, which exceeded the S&P 500 Total Return
by 8.77%.
As long-term investors, we understand that there will be short-term variances in
performance. 2006 was a volatile year that saw our portfolio's performance vary
greatly. In the first half of the year, performance was positively influenced by
our weightings in the basic materials, energy, industrial and transportation
sectors. Unfortunately, their strong momentum reversed in the second half of the
year, with all three recording negative returns in the final six months. For
much of the trailing 12-month period, the portfolio construction had been
composed primarily of long positions with moderate levels of cash and short
equity positions. With the S&P 500 up almost 11% for the 12 months, the cash and
short equity positions detracted from returns, particularly in the last half of
the year.
Despite this near-term adverse experience, our underlying investment theme
remains essentially the same - we believe that global demand for
infrastructure-related products will continue to be strong. Long term, we see
demand growth for energy as unrelenting globally because excess supplies of oil
are marginal. In the near term, energy prices should firm with recently
announced OPEC production cuts and a lack of selling pressure from investment
managers heavily leveraged to energy. Basic material stocks also suffered as
investors feared slowing global economic growth. In this sector, growth near the
double digits in developing economies should continue to fuel demand for
materials and the industrial products to convert them into infrastructure
projects.
We increased our short positions late in the year. This was in response to
strength in the defensive sectors of the market which we viewed as vulnerable
given their recent strength. Regional bank stocks within the finance sector seem
particularly vulnerable, and we have concentrated our short positions in that
industry. The elevated valuation of these stocks, coupled with their poor
fundamental outlook, makes them particularly vulnerable as we enter the first
earnings season of the new fiscal year.
Looking forward, we are optimistic about the outlook for stocks and our theme
sectors of energy, materials, industrials and transportation. We believe that
these sectors have been set up to produce a strong start in this new fiscal
year. However, should the market dictate that we consider a different scenario,
be assured we will alter course accordingly.
Finally, we remain resolutely focused on creating long-term economic value for
our clients. Though this year was disappointing, we view the weakness as a
temporary interruption in a positive multi-year trend for stocks in general and
our strategy in particular.
Sincerely,
Bill Jenkins, Co-Portfolio Manager
Mark Lamb, Co-Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares. Fee waivers and/or
reimbursements reduce Fund expenses and in the absence of such waivers, the
performance quoted would be reduced.
2
SECURITY EQUITY FUND
Performance Summary ALPHA OPPORTUNITY SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY ALPHA OPPORTUNITY SERIES VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
ALPHA OPPORTUNITY SERIES
7/7/03 9,425.00
9/30/03 9,632.35
12/31/03 11,152.80
3/31/04 11,381.22
6/30/04 11,609.63
9/30/04 11,708.95
12/31/04 12,528.47
3/31/05 12,485.97
6/30/05 12,358.45
9/30/05 13,144.80
12/31/05 13,423.47
3/31/06 14,727.73
6/30/06 14,358.38
9/30/06 14,116.00
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
12/31/05 13,393.36
03/31/06 13,956.34
06/30/06 13,755.26
09/30/06 14,535.53
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Alpha Opportunity
Series on July 7, 2003 (date of inception), reflects deduction of the 5.75%
sales load and assumes all dividends reinvested. The chart does not reflect the
deduction of taxes that a shareholder would pay on distributions or the
redemption of fund shares. The S&P 500 Index 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.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 YEAR SINCE INCEPTION
- --------------------- ------ ---------------
A Shares 7.39% 13.31% (7-07-03)
A Shares with sales charge 1.25% 11.25% (7-07-03)
B Shares 6.56% 12.45% (7-07-03)
B Shares with CDSC 1.66% 11.73% (7-07-03)
C Shares 6.56% 12.45% (7-07-03)
C Shares with CDSC 5.58% 12.45% (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
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 and/or reimbursements reduced
expenses of the Series and in the absence of such waiver, the performance quoted
would be reduced.
PORTFOLIO COMPOSITION BY SECTOR AS OF 9-30-06*
Consumer Discretionary (0.36%)
Consumer Staples 2.80
Energy 6.85
Financials (8.56)
Health Care (0.90)
Industrials 22.68
Information Technology 7.84
Materials 13.22
Telecommunication Services 2.14
Utilities 0.04
Exchange Traded Funds (0.62)
U.S. Government Sponsored Agencies 40.51
Asset Backed Securities 0.02
Cash & other assets, less liabilities 14.34
------
Total net assets 100.00%
======
* Securities sold short are netted with long positions in common stocks in
the appropriate sectors.
3 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary ALPHA OPPORTUNITY SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID
VALUE VALUE DURING
04-01-06 09-30-06(1) PERIOD(2)
--------- ----------- ---------
Alpha Opportunity
Series - Class A
Actual $1,000.00 $ 958.50 $14.83
Hypothetical 1,000.00 1,009.93 15.22
Alpha Opportunity
Series - Class B
Actual 1,000.00 954.30 18.47
Hypothetical 1,000.00 1,006.17 18.96
Alpha Opportunity
Series - Class C
Actual 1,000.00 954.30 18.47
Hypothetical 1,000.00 1,006.17 18.96
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was (4.15%), (4.57%) and
(4.57%), for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (3.02%, 3.77% and
3.77% for Class A, B and C shares, respectively), net of any applicable fee
waivers or earnings credits, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
4
Schedule of Investments Security Equity Fund - Alpha Opportunity Series
September 30, 2006
SHARES VALUE
------ -----------
COMMON STOCK - 58.3%
AEROSPACE & DEFENSE - 0.3%
Northrop Grumman Corporation 700 $ 47,649
Raytheon Company 700 33,607
-----------
81,256
-----------
AGRICULTURAL PRODUCTS - 2.2%
Archer-Daniels-Midland Company 6,200 234,856
Bunge, Ltd. 3,900 226,005
Cresud S.A. ADR 16,500 224,400
-----------
685,261
-----------
AIRLINES - 2.0%
Alaska Air Group, Inc. * 4,900 186,396
Republic Airways Holdings, Inc. * 10,244 158,987
Southwest Airlines Company 17,400 289,884
-----------
635,267
-----------
ALUMINUM - 0.4%
Alcan, Inc. 3,500 139,545
-----------
AUTO PARTS & EQUIPMENT - 0.3%
Sauer-Danfoss, Inc. 3,700 88,726
-----------
BROADCASTING & CABLE TV -0.3%
DIRECTV Group, Inc. * 3,400 66,912
Shaw Communications, Inc. (CI.B) 800 24,016
-----------
90,928
-----------
COAL & CONSUMABLE FUELS - 0.7%
Cameco Corporation 6,100 223,077
-----------
COMMODITY CHEMICALS - 0.3%
Lyondell Chemical Company 2,300 58,351
Nova Chemicals Corporation 1,000 30,710
-----------
89,061
-----------
COMMUNICATIONS EQUIPMENT - 3.0%
Black Box Corporation 600 23,352
CommScope, Inc. * (1) 27,200 893,792
-----------
917,144
-----------
COMPUTER HARDWARE - 0.1%
Sun Microsystems, Inc. * 6,700 33,299
-----------
CONSTRUCTION & ENGINEERING - 5.2%
Chicago Bridge & Iron Company N.V. 6,200 149,172
EMCOR Group, Inc. * 4,500 246,780
Infrasource Services, Inc. * 6,200 108,810
Insituform Technologies, Inc. * 12,700 308,356
Michael Baker Corporation * 5,000 101,800
Quanta Services, Inc. * 8,400 141,624
Washington Group International, Inc. 9,300 547,398
-----------
1,603,940
-----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS - 2.6%
AGCO Corporation * 9,600 243,360
Bucyrus International, Inc. 3,500 148,470
SHARES VALUE
------ -----------
COMMON STOCK (CONTINUED)
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (CONTINUED)
Cummins, Inc. 800 $ 95,384
Lindsay Manufacturing Company 5,300 152,375
Manitowoc Company, Inc. 3,700 165,723
-----------
805,312
-----------
DISTILLERS & VINTNERS - 0.0%
MGP Ingredients, Inc. 600 12,762
-----------
DIVERSIFIED METALS & MINING - 5.4%
Anglo American pic ADR 6,100 128,710
BHP Billiton, Ltd. ADR 1,300 49,244
Brush Engineered Materials, Inc. * 10,900 271,083
Eurozinc Mining Corporation * 4,900 12,054
Freeport-McMoRan Copper & Gold, Inc. (CI.B) 6,000 319,560
Peru Copper, Inc. * 37,900 153,116
Phelps Dodge Corporation 3,000 254,100
Rio Tinto plc ADR 1,200 227,556
Southern Copper Corporation 700 64,750
Teck Cominco, Ltd. (CI.B) 1,200 74,988
Titanium Metals Corporation * 4,200 106,176
-----------
1,661,337
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 4.7%
American Superconductor Corporation * 15,500 143,530
Emerson Electric Company (1) 7,200 603,792
General Cable Corporation * 12,200 466,162
Lamson & Sessions Company * 4,200 100,044
Regal-Beloit Corporation 3,300 143,550
-----------
1,457,078
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.7%
Littelfuse, Inc. * 5,900 204,730
-----------
ELECTRONIC MANUFACTURING SERVICES - 0.4%
Benchmark Electronics, Inc. * 4,700 126,336
-----------
ENVIRONMENTAL & FACILITIES SERVICES - 1.1%
Layne Christensen Company * 11,400 325,698
-----------
EXCHANGE TRADED FUNDS - 1.6%
Euro Currency Trust 1,300 165,217
iShares MSCI Australia Index Fund 5,300 112,307
PowerShares DB Commodity Index Tracking Fund * 4,000 95,600
Streettracks Gold Trust * 2,200 130,768
-----------
503,892
-----------
FERTILIZERS & AGRICULTURAL CHEMICALS - 1.7%
CF Industries Holdings, Inc. 4,200 71,694
The accompanying notes are an integral part of the financial statements.
5
Schedule of Investments Security Equity Fund - Alpha Opportunity Series
September 30, 2006 - continued
SHARES VALUE
------ -----------
COMMON STOCK (CONTINUED)
FERTILIZERS & AGRICULTURAL CHEMICALS (CONTINUED)
Monsanto Company 400 $ 18,804
Mosaic Company * 24,500 414,050
Terra Industries, Inc. * 4,100 31,611
-----------
536,159
-----------
FOOD RETAIL - 0.6%
Safeway, Inc. 6,400 194,240
-----------
HEAVY ELECTRICAL EQUIPMENT - 1.7%
ABB, Ltd. ADR 40,300 531,154
-----------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS - 0.0%
Dynegy, Inc. * 2,100 11,634
-----------
INDUSTRIAL CONGLOMERATES - 2.0%
McDermott International, Inc. * (1) 15,150 633,270
-----------
INDUSTRIAL GASES - 0.7%
Air Products & Chemicals, Inc. 3,300 219,021
-----------
INDUSTRIAL MACHINERY - 2.0%
Dynamic Materials Corporation 1,000 32,420
Timken Company 8,300 247,174
Valmont Industries, Inc. 6,800 355,300
-----------
634,894
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.2%
XO Holdings, Inc. * 11,600 56,608
-----------
INTERNET SOFTWARE & SERVICES - 0.8%
Valueclick, Inc. * 12,600 233,604
-----------
MARINE - 1.5%
American Commercial Lines, Inc. * 7,900 469,655
-----------
OIL & GAS EQUIPMENT & SERVICES - 2.6%
Cameron International Corporation * (1) 11,800 570,058
Input/Output, Inc. * 5,100 50,643
National Oilwell Varco, Inc. * 3,000 175,650
-----------
796,351
-----------
OIL & GAS EXPLORATION & PRODUCTION - 3.6%
Devon Energy Corporation (1) 13,700 865,155
Kodiak Oil & Gas Corporation * 6,400 22,336
McMoRan Exploration Company * 12,300 218,202
-----------
1,105,693
-----------
PAPER PACKAGING - 1.3%
Packaging Corporation of America 5,000 116,000
Sonoco Products Company 8,300 279,212
-----------
395,212
-----------
PAPER PRODUCTS - 1.5%
Aracruz Celulose S.A. ADR 1,300 64,701
SHARES VALUE
------ -----------
COMMON STOCK (CONTINUED)
PAPER PRODUCTS (CONTINUED)
Votorantim Celulose e Papel S.A. ADR 23,800 $ 403,172
-----------
467,873
-----------
PRECIOUS METALS & MINERALS - 0.2%
Silver Standard Resources, Inc. * 2,300 50,784
-----------
SEMICONDUCTORS - 0.3%
Anadigics, Inc. * 14,300 102,388
-----------
SPECIALTY CHEMICALS - 0.4%
A. Schulman, Inc. 2,100 49,371
Nalco Holding Company * 3,900 72,228
-----------
121,599
-----------
STEEL - 1.1%
AK Steel Holding Corporation * 12,400 150,536
Highveld Steel and Vanadium Corporation, Ltd. ADR 3,100 25,947
Mittal Steel Company N.V. 1,300 45,162
NN, Inc. 4,880 57,730
Steel Technologies, Inc. 3,500 68,705
-----------
348,080
-----------
TECHNOLOGY DISTRIBUTORS - 2.8%
Anixter International, Inc. (1) 15,600 880,932
-----------
WIRELESS TELECOMMUNICATION SERVICES -2.0%
Crown Castle International Corporation * 8,300 292,492
SBA Communications Corporation * 12,900 313.857
-----------
606,349
-----------
TOTAL COMMON STOCK
(Cost $18,418,842) $18,080,149
-----------
PRINCIPAL
AMOUNT VALUE
---------- -----------
U.S. GOVERNMENT SPONSORED AGENCY BONDS & NOTES -
40.5%
Federal Farm Credit Discount Note
5.07% - 2006 (1) $1,250,000 1,238,404
Federal Home Loan Bank
5.125% - 2006 (2) 825,000 823,003
5.142% - 2006 (1) 425,000 421,416
5.15% - 2006 (1) 550,000 545,517
5.21% - 2006 (1) 600,000 596,880
Federal Home Loan Mortgage Corporation
5.13% - 2006 (2) 1,175,000 1,166,742
5.141% - 2006 (1) 550,000 549,921
5.23% - 2006 (1) 950,000 948,932
Federal National Mortgage Association
5.10% - 2006 (1) 600,000 599,235
5.14% - 2006 (2) 800,000 795,053
The accompanying notes are an integral part of the financial statements.
6
Schedule of Investments Security Equity Fund - Alpha Opportunity Series
September 30, 2006 - continued
PRINCIPAL
AMOUNT VALUE
---------- -----------
U.S. GOVERNMENT SPONSORED AGENCY BONDS & NOTES
(CONTINUED)
Federal National Mortgage Association (continued)
5.143% - 2006 (1) $1,000,000 $ 989,880
5.18% - 2006 (1) 275,000 275,000
5.22% - 2006 (1) 400,000 398,313
5.23% - 2006 (2) 1,400,000 1,395,474
5.252% - 2006 (1) 1,000,000 997,751
5.29% - 2006 (1) 825,000 824,768
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCY BONDS & NOTES
(Cost $12,563,806) $12,566,289
-----------
ASSET BACKED SECURITIES - 0.0%
OTHER - 0.0%
Credit-Based Asset Servicing and Securitization LLC
2005-CB2, 5.43%, 2036 (1)(3) 6,276 6,276
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $6,276) $ 6,276
-----------
TOTAL INVESTMENTS (SECURITY EQUITY FUND - ALPHA
OPPORTUNITY SERIES)
(COST $30,988,924) - 98.8% $30,652,714
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.2% 364,100
-----------
TOTAL NET ASSETS - 100.0% $31,016,814
===========
SCHEDULE OF SECURITIES SOLD SHORT
SEPTEMBER 30,2006
SECURITY EQUITY FUND - ALPHA OPPORTUNITY SERIES
SHARES VALUE
------ -----------
COMMON STOCK SOLD SHORT - (13.4%)
APPAREL RETAIL - (0.2%)
HOT Topic, Inc. * (5,000) $ (55,700)
-----------
APPAREL, ACCESSORIES & LUXURY GOODS - (0.1%)
Quiksilver, Inc. * (3,000) (36,450)
-----------
COMMERCIAL PRINTING - (0.2%)
John H. Harland Company (1,500) (54,675)
-----------
CONSUMER FINANCE - (0.2%)
Advanta Corporation (1,400) (47,558)
-----------
DATA PROCESSING & OUTSOURCED SERVICES - (0.1%)
BISYS Group, Inc. * (2,000) (21,720)
-----------
DIVERSIFIED BANKS - (0.3%)
Kookmin Bank ADR (1,300) (101,439)
-----------
EXCHANGE TRADED FUNDS - (2.2%)
Consumer Discretionary Select (500) (17,475)
SHARES VALUE
------ -----------
COMMON STOCK SOLD SHORT (CONTINUED)
EXCHANGE TRADED FUNDS (CONTINUED)
Financial Select Sector SPDR Fund (2,000) $ (69,320)
Health Care Select Sector SPDR (2,500) (83,000)
iShares Lehman 20+ Year Treasury (4,100) (366,540)
iShares Lehman U.S. Treasury Inflation Protected
Securities (900) (91,035)
Semiconductor HOLDRs Trust (2,000) (68,580)
-----------
(695,950)
-----------
HEALTH CARE EQUIPMENT - (0.4%)
Hospira, Inc. * (3,000) (114,810)
Medtronic, Inc. (500) (23,220)
-----------
(138,030)
-----------
INDUSTRIAL CONGLOMERATES - (0.3%)
Textron, Inc. (1,000) (87,500)
-----------
INVESTMENT BANKING & BROKERAGE - (0.8%)
Lehman Brothers Holdings, Inc. (2,000) (147,720)
Stifel Financial Corporation * (3,300) (104,742)
-----------
(252,462)
-----------
MORTGAGE REIT'S - (0.2%)
New Century Financial Corporation (1,500) (58,965)
-----------
MOVIES & ENTERTAINMENT - (0.4%)
Time Warner, Inc. (7,400) (134,902)
-----------
PACKAGED FOODS & MEATS - (0.1%)
WM Wrigley Jr Company (500) (23,030)
-----------
PHARMACEUTICALS - (0.5%)
King Pharmaceuticals, Inc. * (2,200) (37,466)
Teva Pharmaceutical Industries, (3,000) (102,270)
-----------
(139,736)
-----------
REGIONAL BANKS - (5.5%)
Bank of Hawaii Corporation (8,000) (385,280)
Cathay General Bancorp (3,600) (129,960)
Central Pacific Financial (1,000) (36,580)
Commerce Bancorp, Inc. (7,000) (256,970)
Fifth Third Bancorp (2,000) (76,160)
First Horizon National Corporation (2,000) (76,020)
Irwin Financial Corporation * (7,000) (136,920)
National City Corporation (4,500) (164,700)
PNC Financial Services Group, Inc. (1,000) (72,440)
TCF Financial Corporation (2,300) (60,467)
Zions Bancorporation (4,000) (319,240)
-----------
(1,714,737)
-----------
SEMICONDUCTORS - (0.2%)
Altera Corporation * (2,500) (45,950)
-----------
SPECIALIZED CONSUMER SERVICES - (0.2%)
H&R Block, Inc. (3,000) (65,220)
-----------
The accompanying notes are an integral part of the financial statements.
7
Schedule of Investments Security Equity Fund - Alpha Opportunity Series
September 30, 2006 - continued
SHARES VALUE
------ -----------
COMMON STOCK SOLD SHORT (CONTINUED)
THRIFTS & MORTGAGES FINANCE - (1.5%)
Accredited Home Lenders Holding (2,000) $ (71,880)
BankAtlantic Bancorp, Inc. (4,000) (56,880)
Countrywide Financial Corporation (3,500) (122,640)
Sovereign Bancorp, Inc. (500) (10,755)
Washington Mutual, Inc. (5,000) (217,350)
-----------
(479,505)
-----------
TOTAL COMMON STOCK
(Proceeds $4,059,520) $(4,153,529)
-----------
TOTAL SECURITIES SOLD SHORT (SECURITY EQUITY FUND - ALPHA
OPPORTUNITY SERIES) (PROCEEDS $4,059,520) $(4,153,529)
===========
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $31,154,326.
* - Non-income producing security
(1) - Security is segregated as collateral for open futures
contracts.
(2) - Security is segregated as collateral for short positions.
(3) - Variable rate security. Rate indicated is rate effective at
September 30, 2006.
Glossary:
ADR - American Depositary Receipt
plc - Public Limited Company
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
8
SECURITY EQUITY FUND
ALPHA OPPORTUNITY SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ......................................... $30,652,714
Cash ............................................................. 4,406,732
Receivables:
Fund shares sold .............................................. 25,016
Securities sold ............................................... 2,829,646
Dividends ..................................................... 8,508
Prepaid expenses ................................................. 13,425
-----------
Total assets ..................................................... 37,936,041
-----------
LIABILITIES:
Common stock sold short, at value(2) ............................. 4,153,529
Payable for:
Securities purchased .......................................... 2,601,359
Security Management Company ................................... 6,154
Fund shares redeemed .......................................... 37,377
Variation margin in futures ................................... 18,050
Dividends on common stock sold short .......................... 6,027
Management fees ............................................... 52,698
Custodian fees ................................................ 5,000
Transfer agent and administration fees ........................ 7,199
Professional fees ............................................. 16,410
12b-1 distribution plan fees .................................. 12,774
Directors' fees ............................................... 150
Other ......................................................... 2,500
-----------
Total liabilities ................................................ 6,919,227
-----------
NET ASSETS ....................................................... $31,016,814
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $29,274,655
Accumulated undistributed net investment loss .................... (103)
Accumulated undistributed net realized gain on sale of
investments, securities sold short and futures ................ 1,988,878
Net unrealized depreciation in value of investments, securities
sold short and futures ........................................ (246,616)
-----------
Net assets ....................................................... $31,016,814
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 1,684,625
Net assets ....................................................... $20,594,420
Net asset value and redemption price per share ................... $ 12.23
===========
Maximum offering price per share
(net asset value divided by 94.25%) ........................... $ 12.98
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 407,218
Net assets ....................................................... $ 4,846,328
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 11.90
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 468,481
Net assets ....................................................... $ 5,576,066
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 11.90
===========
(1)Investments, at cost .......................................... $30,988,925
(2)Common stock sold short, at proceeds .......................... 4,059,520
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends ..................................................... $ 193,465
Interest ...................................................... 513,871
----------
Total investment income ....................................... 707,336
----------
EXPENSES:
Management fees ............................................... 613,927
Custodian fees ................................................ 39,243
Transfer agent/maintenance fees ............................... 28,768
Administration fees ........................................... 45,721
Directors' fees ............................................... 746
Professional fees ............................................. 36,078
Reports to shareholders ....................................... 8,628
Registration fees ............................................. 30,739
Other expenses ................................................ 2,278
Dividends on securities sold short ............................ 18,602
12b-1 distribution plan fees - Class A ........................ 44,067
12b-1 distribution plan fees - Class B ........................ 45,372
12b-1 distribution plan fees - Class C ........................ 57,997
----------
Total expenses ................................................ 972,166
Less:
Reimbursement of expenses - Class A ........................ (17,045)
Reimbursement of expenses - Class B ........................ (4,738)
Reimbursement of expenses - Class C ........................ (6,514)
Earnings credits ........................................... (24,088)
----------
Net expenses .................................................. 919,781
----------
Net investment loss ........................................... (212,445)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ................................................... 1,904,920
Securities sold short ......................................... (102,361)
Futures ....................................................... 487,716
----------
Net realized gain ............................................. 2,290,275
----------
Net unrealized appreciation (depreciation) during the period on:
Investments ................................................... (547,156)
Securities sold short ......................................... (94,009)
Futures ....................................................... 126,874
----------
Net unrealized depreciation ................................... (514,291)
----------
Net gain ...................................................... 1,775,984
----------
Net increase in net assets resulting from operations .......... $1,563,539
==========
9 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets ALPHA OPPORTUNITY SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2006 SEPTEMBER 30, 2005
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................. $ (212,445) $ (252,493)
Net realized gain during the period on
investments, futures and securities
sold short ................................... 2,290,275 2,310,074
Net unrealized appreciation (depreciation) during
the period on investments, futures and
securities sold short ........................ (514,291) 144,528
----------- -----------
Net increase in net assets resulting from
operations ................................... 1,563,539 2,202,109
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A ...................................... (1,193,077) (604,730)
Class B ...................................... (346,675) (202,618)
Class C ...................................... (438,798) (478,033)
----------- -----------
Total distributions to shareholders ............. (1,978,550) (1,285,381)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ...................................... 7,974,133 11,459,073
Class B ...................................... 988,390 1,533,972
Class C ...................................... 1,340,669 4,544,101
Distributions reinvested
Class A ...................................... 1,170,685 591,209
Class B ...................................... 343,297 202,336
Class C ...................................... 380,745 269,335
Cost of shares redeemed
Class A ...................................... (2,922,942) (4,559,666)
Class B ...................................... (512,280) (107,116)
Class C ...................................... (3,871,410) (332,772)
----------- -----------
Net increase from capital share transactions .... 4,891,287 13,600,472
----------- -----------
Net increase in net assets ...................... 4,476,276 14,517,200
----------- -----------
NET ASSETS:
Beginning of period ............................. 26,540,538 12,023,338
----------- -----------
End of period ................................... $31,016,814 $26,540,538
=========== ===========
Accumulated undistributed net investment loss at
end of period ................................ $ (103) $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ...................................... 641,932 970,012
Class B ...................................... 81,728 130,674
Class C ...................................... 110,434 378,831
Shares reinvested
Class A ...................................... 99,888 50,401
Class B ...................................... 29,904 17,458
Class C ...................................... 33,166 23,238
Shares redeemed
Class A ...................................... (239,609) (393,904)
Class B ...................................... (42,378) (9,111)
Class C ...................................... (318,091) (28,119)
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 A 2006 2005 2004 2003(e)
- ------- ------- ------- ------ ------------
PER SHARE DATA
Net asset value, beginning of period $ 12.37 $ 11.79 $10.21 $10.00
------- ------- ------ ------
Income (loss) from investment operations:
Net investment loss(c) (0.06) (0.10) (0.16) (0.03)
Net gain on securities (realized and unrealized) 0.93 1.50 2.33 0.24
------- ------- ------ ------
Total from investment operations 0.87 1.40 2.17 0.21
------- ------- ------ ------
Less distributions:
Distributions from realized gains (1.01) (0.82) (0.59) --
------- ------- ------ ------
Total distributions (1.01) (0.82) (0.59) --
------- ------- ------ ------
Net asset value, end of period $ 12.23 $ 12.37 $11.79 $10.21
======= ======= ====== ======
TOTAL RETURN(a) 7.39% 12.26% 21.68% 2.10%
------- ------- ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $20,595 $14,622 $6,556 $2,935
------- ------- ------ ------
Ratios to average net assets:
Net investment loss (0.50%) (0.83%) (1.48%) (1.35%)
Total expenses(b) 3.20% 2.94% 3.57% 3.25%
Net expenses(d) 3.01% 2.86% 2.78% 2.75%
Expenses prior to custodian earnings credits and
net of expense waivers 3.10% 2.86% 2.79% 2.75%
Net expenses prior to performance fee adjustment(f) 2.82% 2.78% 2.78% 2.75%
------- ------- ------ ------
Portfolio turnover rate 1,302% 1,502% 1,175% 867%
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
CLASS B 2006 2005 2004 2003(e)
- ------- ------ ------ ------ -------------
PER SHARE DATA
Net asset value, beginning of period $12.15 $11.68 $10.20 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss(c) (0.15) (0.18) (0.25) (0.05)
Net gain on securities (realized and unrealized) 0.91 1.47 2.32 0.25
------ ------ ------ ------
Total from investment operations 0.76 1.29 2.07 0.20
------ ------ ------ ------
Less distributions:
Distributions from realized gains (1.01) (0.82) (0.59) --
------ ------ ------ ------
Total distributions (1.01) (0.82) (0.59) --
------ ------ ------ ------
Net asset value, end of period $11.90 $12.15 $11.68 $10.20
====== ====== ====== ======
TOTAL RETURN(a) 6.56% 11.39% 20.68% 2.00%
------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $4,846 $4,106 $2,324 $1,731
------ ------ ------ ------
Ratios to average net assets:
Net investment loss (1.24%) (1.60%) (2.25%) (2.11%)
Total expenses(b) 3.95% 3.69% 4.29% 4.01%
Net expenses(d) 3.76% 3.61% 3.53% 3.50%
Expenses prior to custodian earnings credits and
net of expense waivers 3.85% 3.61% 3.53% 3.50%
Net expenses prior to performance fee adjustment(f) 3.57% 3.53% 3.53% 3.50%
------ ------ ------ ------
Portfolio turnover rate 1,302% 1,502% 1,175% 867%
11 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 2006 2005 2004 2003(e)
- ------- ------ ------ ------ -------------
PER SHARE DATA
Net asset value, beginning of period $12.15 $11.68 $10.20 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss(c) (0.15) (0.18) (0.25) (0.05)
Net gain on securities (realized and unrealized) 0.91 1.47 2.32 0.25
------ ------ ------ ------
Total from investment operations 0.76 1.29 2.07 0.20
------ ------ ------ ------
Less distributions:
Distributions from realized gains (1.01) (0.82) (0.59) --
------ ------ ------ ------
Total distributions (1.01) (0.82) (0.59) --
------ ------ ------ ------
Net asset value, end of period $11.90 $12.15 $11.68 $10.20
====== ====== ====== ======
TOTAL RETURN(a) 6.56% 11.39% 20.68% 2.00%
------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,576 $7,813 $3,143 $1,723
------ ------ ------ ------
Ratios to average net assets:
Net investment loss (1.18%) (1.58%) (2.24%) (2.11%)
Total expenses(b) 3.95% 3.68% 4.30% 4.01%
Net expenses(d) 3.75% 3.61% 3.53% 3.50%
Expenses prior to custodian earnings credits and
net of expense waivers 3.83% 3.61% 3.53% 3.50%
Net expenses prior to performance fee adjustment(f) 3.57% 3.53% 3.53% 3.50%
------ ------ ------ ------
Portfolio turnover rate 1,302% 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 shares.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager and custodian earnings credits.
(c) Net investment 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.
12 See accompanying notes.
This page left blank intentionally.
13
SECURITY EQUITY FUND
Manager's Commentary EQUITY SERIES
November 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Adviser, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Mark Mitchell
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Security Equity Fund Equity Series returned 7.88%(1) in the period, lagging the
benchmark S&P 500 Index's return of 10.79% and the Series' peer group median
return of 9.13%. Over the past few years, higher beta, smaller capitalization
companies have helped drive equity market higher. In such environment, we tend
to under perform. We still believe the market is not yet recognizing the
potential in several high quality large capitalization companies. We believe
that our approach will deliver good performance over a long-term investment
horizon.
Our investment philosophy is centered around three key tenants: first, we
believe good investments are purchased at less than their intrinsic value,
second, a long-term approach and patience are critical to successful investing,
and last, we concentrate our investments in companies that have the greatest
return potential.
Our process is a bottom-up, research-driven investment process that attempts to
identify companies that have a competitive advantage or have the ability to
become more competitive in the future. We focus on owning these companies for
three to five years or longer, which we believe differentiates us from a
majority of our peers and ultimately allows us to make better investment
decisions. We buy these companies when their current price trades below their
intrinsic value. We closely monitor each company's progress. We will sell a
company if the valuation no longer makes sense, if we've made a mistake and our
investment thesis is no longer valid, or if we have a more attractive investment
alternative. For this Series, we apply this philosophy to a broad range of both
growth and value names.
FINANCIAL, MATERIALS, AND INDUSTRIAL STOCKS TOP PERFORMERS
The Series' financial holdings were up 34% compared to 20% for the index with
our position in First Marblehead Corporation up over 200%. Ill-placed,
short-term concerns over the company's competitive position offered us an
excellent opportunity to take a position in this leading student lending
company. First Marblehead Corporation maintains its competitive advantage with
its loan underwriting capability, superior economics, and value-added services.
The materials sector was up 35%. This was driven by Praxair, Inc., up 25% and
Alcoa, Inc., up 34%. Both companies benefited from continued strong global
demand for commodity-related products.
Several companies in the industrial sector performed well including FedEx
Corporation, up 25%, and General Dynamics Corporation, up 21%. FedEx Corporation
continued to show operational improvements and experienced solid demand as a
result of global economic growth. General Dynamics Corporation experienced
strong results in its defense-related and corporate aircraft segments.
ENERGY AND TELECOM DISAPPOINTING
The Series was negatively impacted by the energy sector, which was down more
than 9% overall. This was driven in part by Evergreen Energy, Inc., down more
than 19% (previously known as KFx) and Halliburton Company, down 16%. Evergreen
Energy was hurt by concerns over the viability of the initial production results
of its proprietary clean coal technology. Halliburton was impacted more
generally by the recent exodus from oil-services-related names as a result of a
weakening energy commodity market.
The telecom sector in the benchmark was up more than 25%, while our sector
return was down 18%. Not owning AT&T, up 43%, and Bell South, up 69%, negatively
impacted the Series. We've avoided these names because we believe it's very
difficult to determine which, if any, company will be able to create a lasting
competitive advantage that allows it to generate acceptable returns on the
significant capital expenditures required to build out its services offerings.
Our position in Sprint Nextel Corporation, down 17%, hurt the Series'
performance. Concerns over the integration of Nextel and lack of improvement in
its core legacy operations attributed to the weakness. We still believe in
management's ability to show steady improvement as demonstrated by the spin-off
of its slower-growing wire line business.
14
SECURITY EQUITY FUND
Manager's Commentary EQUITY SERIES
November 15, 2006 (unaudited)
2007 MARKET OUTLOOK
The current low return investment environment has continued to make available
ample liquidity in the U.S. equity market. Falling energy prices have helped
increase consumer confidence and provide support to corporate profit margins
through lower raw material input prices. Additionally, businesses continue to
have very healthy balance sheets to help drive future growth initiatives.
As we noted in last year's shareholder letter, we've been concerned about a
slowdown in U.S. consumer spending for some time. This concern has yet to
materialize, but we still think it will happen. Lower energy prices will help;
however, higher interest rates and a housing market slowdown provide likely
headwinds. The Federal Reserve is walking a fine line between managing inflation
risks while supporting economic growth. We're unsure, like most investors, what
the Fed's next move will be. This uncertainty will weigh on the market until
it's resolved.
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
(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.
15
SECURITY EQUITY FUND
Performance Summary EQUITY SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY EQUITY SERIES VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
Equity Series
9/30/96 9,425.00
12/31/96 9,859.94
3/31/97 9,928.41
6/30/97 11,612.81
9/30/97 12,448.17
12/31/97 12,778.33
3/31/98 14,603.80
6/30/98 15,056.40
9/30/98 13,366.70
12/31/98 16,160.49
3/31/99 16,322.42
6/30/99 17,229.23
9/30/99 16,128.11
12/31/99 17,936.00
3/31/00 18,120.39
6/30/00 17,600.75
9/30/00 17,198.45
12/31/00 15,689.54
3/31/01 13,713.67
6/30/01 14,633.13
9/30/01 12,442.08
12/31/01 13,831.05
3/31/02 13,752.80
6/30/02 11,737.81
9/30/02 9,957.57
12/31/02 10,564.03
3/31/03 10,270.58
6/30/03 11,542.18
9/30/03 11,698.68
12/31/03 12,775.01
3/31/04 12,912.17
6/30/04 13,088.51
9/30/04 12,735.83
12/31/04 13,717.46
3/31/05 13,277.67
6/30/05 13,382.38
9/30/05 13,780.29
12/31/05 14,237.23
3/31/06 14,758.10
6/30/06 14,454.26
9/30/06 14,866.62
S&P 500 INDEX
09/30/96 10,000.00
12/31/96 10,834.02
03/31/97 11,124.13
06/30/97 13,066.42
09/30/97 14,046.29
12/31/97 14,450.11
03/31/98 16,465.91
06/30/98 17,009.80
09/30/98 15,317.18
12/31/98 18,577.97
03/31/99 19,506.31
06/30/99 20,880.99
09/30/99 19,576.84
12/31/99 22,489.58
03/31/00 23,006.47
06/30/00 22,396.39
09/30/00 22,179.76
12/31/00 20,445.88
03/31/01 18,022.90
06/30/01 19,078.27
09/30/01 16,279.61
12/31/01 18,020.24
03/31/02 18,069.22
06/30/02 15,648.99
09/30/02 12,946.29
12/31/02 14,039.68
03/31/03 13,597.51
06/30/03 15,690.58
09/30/03 16,105.85
12/31/03 18,068.47
03/31/04 18,374.99
06/30/04 18,691.81
09/30/04 18,341.37
12/31/04 20,034.97
03/31/05 19,603.36
06/30/05 19,870.22
09/30/05 20,587.26
12/31/05 21,014.96
03/31/06 21,898.31
06/30/06 21,582.80
09/30/06 22,807.09
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1996, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares. The S&P
500 Index 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.
AVERAGE ANNUAL RETURNS
SINCE
PERIODS ENDED 9-30-06 1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------- ------ ------- -------- ---------
A Shares 7.88% 3.62% 4.70% --
A Shares with sales charge 1.70% 2.40% 4.08% --
B Shares 7.16% 2.81% 3.93% --
B Shares with CDSC 2.16% 2.45% 3.93% --
C Shares 7.10% 2.82% N/A (2.13%)
(1-29-99)
C Shares with CDSC 6.10% 2.82% N/A (2.13%)
(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 AS OF 9-30-06
Consumer Discretionary 9.66%
Consumer Staples 10.78
Energy 11.82
Financials 19.86
Health Care 17.54
Industrials 15.36
Information Technology 9.31
Materials 2.33
Telecommunication Services 1.69
Commercial Paper 1.63
Repurchase Agreement 0.05
Liabilities in excess of other assets (0.03)
------
Total net assets 100.00%
======
16 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary EQUITY SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
ENDING
BEGINNING ACCOUNT EXPENSES
ACCOUNT VALUE VALUE PAID DURING
04-01-06 09-30-06(1) PERIOD(2)
------------- ----------- -----------
Equity Series - Class A
Actual $1,000.00 $1,007.40 $ 6.79
Hypothetical 1,000.00 1,018.30 6.83
Equity Series - Class B
Actual 1,000.00 1,005.00 10.56
Hypothetical 1,000.00 1,014.54 10.61
Equity Series - Class C
Actual 1,000.00 1,004.70 10.55
Hypothetical 1,000.00 1,014.54 10.61
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was 0.74%, 0.50% and 0.47%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.35%, 2.10% and
2.10% 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).
17
Schedule of Investments Security Equity Fund - Equity Series
September 30, 2006
SHARES VALUE
--------- ------------
COMMON STOCK - 98.3%
AEROSPACE & DEFENSE - 3.9%
General Dynamics Corporation 173,800 $ 12,456,246
L-3 Communications Holdings, Inc. 42,000 3,289,860
------------
15,746,106
------------
AIR FREIGHT & LOGISTICS - 2.9%
FedEx Corporation 107,700 11,704,836
------------
BIOTECHNOLOGY - 3.5%
Amgen, Inc. * 195,200 13,962,656
------------
BROADCASTING & CABLE TV - 2.3%
CBS Corporation (CI.B) 158,100 4,453,677
Univision Communications, Inc. * 142,200 4,883,148
------------
9,336,825
------------
COAL & CONSUMABLE FUELS - 2.2%
Evergreen Energy, Inc. * 857,800 9,015,478
------------
COMMUNICATIONS EQUIPMENT - 1.7%
ADC Telecommunications, Inc. * 447,757 6,716,355
------------
CONSTRUCTION & ENGINEERING - 1.7%
Shaw Group, Inc. * 293,300 6,933,612
------------
CONSUMER FINANCE - 7.3%
American Express Company 193,850 10,871,108
First Marblehead Corporation (1) 267,100 18,499,346
------------
29,370,454
------------
DATA PROCESSING & OUTSOURCED SERVICES - 2.2%
First Data Corporation 208,100 8,740,200
------------
DRUG RETAIL - 3.1%
CVS Corporation 393,200 12,629,584
------------
HEALTH CARE EQUIPMENT - 4.1%
Zimmer Holdings, Inc. * 247,000 16,672,500
------------
HEALTH CARE SERVICES - 2.0%
Medco Health Solutions, Inc. * 133,650 8,033,701
------------
HOME IMPROVEMENT RETAIL - 2.4%
Home Depot, Inc. 273,100 9,905,337
------------
HOTELS, RESORTS & CRUISE LINES - 2.5%
Carnival Corporation 216,500 10,181,995
------------
HYPERMARKETS & SUPER CENTERS - 5.7%
Costco Wholesale Corporation 226,300 11,242,584
Wal-Mart Stores, Inc. 240,200 11,846,664
------------
23,089,248
------------
INDUSTRIAL CONGLOMERATES - 6.9%
General Electric Company (1) 474,400 16,746,320
Tyco International, Ltd. 394,300 11,036,457
------------
27,782,777
------------
INDUSTRIAL GASES - 2.3%
Praxair, Inc. 160,000 9,465,600
------------
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
INTEGRATED OIL & GAS - 6.1% 128,500 $ 8,334,510
Chevron Corporation
ConocoPhillips 8,500 506,005
Exxon Mobil Corporation 229,700 15,412,870
Sasol, Ltd. ADR 15,600 513,084
------------
24,766,469
------------
IT CONSULTING & OTHER SERVICES - 2.1%
Unisys Corporation * 1,488,000 8,422,080
------------
MANAGED HEALTH CARE - 5.0%
UnitedHealth Group, Inc. 162,000 7,970,400
WellPoint, Inc. * 156,700 12,073,735
------------
20,044,135
------------
MOVIES & ENTERTAINMENT - 2.4%
Time Warner, Inc. 528,000 9,625,440
------------
MULTI-LINE INSURANCE - 4.6%
American International Group, Inc. 282,500 18,718,450
------------
OIL & GAS DRILLING - 0.7%
Transocean, Inc. * (1) 36,200 2,650,926
------------
OIL & GAS EQUIPMENT & SERVICES - 2.8%
BJ Services Company 125,500 3,781,315
Halliburton Company 267,000 7,596,150
------------
11,377,465
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 4.7%
Citigroup, Inc. 244,600 12,149,282
JPMorgan Chase & Company 150,600 7,072,176
------------
19,221,458
------------
PACKAGED FOODS & MEATS - 1.9%
Tyson Foods, Inc. (1) 496,900 7,890,772
------------
PHARMACEUTICALS - 3.0%
Johnson & Johnson 189,000 12,273,660
------------
PROPERTY & CASUALTY INSURANCE - 3.2%
Berkshire Hathaway, Inc. * 136 13,028,800
------------
SYSTEMS SOFTWARE - 3.4%
Microsoft Corporation 505,300 13,809,849
------------
WIRELESS TELECOMMUNICATION SERVICES - 1.7%
Sprint Nextel Corporation 399,700 6,854,855
------------
TOTAL COMMON STOCK
(Cost $324,176,610) $397,971,623
------------
The accompanying notes are an integral part of the financial statements.
18
Schedule of Investments Security Equity Fund - Equity Series
September 30, 2006 - continued
PRINCIPAL
AMOUNT VALUE
--------- ------------
ASSET BACKED COMMERCIAL PAPER - 0.9%
MISC. RECEIVABLES - 0.3%
Fairway Finance Corporation
5.257%, 10/5/2006 1,100,000 $ 1,099,355
------------
TRADE RECEIVABLES - 0.6%
Old Line Funding LLC
5.25%, 10/3/2006 1,280,000 1,279,627
Sheffield Receivables Corporation
5.26%, 10/4/2006 1,300,000 1,299,430
------------
2,579,057
------------
TOTAL ASSET BACKED COMMERCIAL
PAPER (Cost $3,678,412) $ 3,678,412
------------
COMMERCIAL PAPER - 0.7%
BANKING - 0.4%
UBS Finance (DE) LLC
5.25%, 10/2/2006 1,600,000 1,599,767
------------
METALS & MINING - 0.3%
Alcoa, Inc.
5.34%, 10/6/2006 1,300,000 1,299,036
------------
TOTAL COMMERCIAL PAPER
(Cost $2,898,803) $ 2,898,803
------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 4.88%,
dated 09-29-06, matures
10-02-06; repurchase amount
of $226,092 (Collateralized
by FHLB, 2.625%, 05-15-07 with a
value of $232,665) $ 226,000 $ 226,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $226,000) $ 226,000
------------
TOTAL INVESTMENTS (SECURITY EQUITY FUND -
EQUITY SERIES)
(COST $330,979,825) - 100.0% $404,774,838
LIABILITIES IN EXCESS OF OTHER ASSETS - 0.0% (132,986)
------------
TOTAL NET ASSETS - 100.0% $404,641,852
============
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $330,979,825.
* - Non-income producing security
(1) - Security is segregated as collateral for open written options contracts.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
19
SECURITY EQUITY FUND
EQUITY SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ........................................ $404,774,838
Receivables:
Securities sold .............................................. 815,646
Fund shares sold ............................................. 307,413
Dividends .................................................... 178,674
Prepaid expenses ................................................ 24,086
------------
Total assets .................................................... 406,100,657
------------
LIABILITIES:
Cash overdraft .................................................. 33
Payable for:
Securities purchased ......................................... 67,557
Fund shares redeemed ......................................... 260,747
Written options, at value (premiums received, $463,009) ...... 627,810
Management fees .............................................. 246,802
Transfer agent and administration fees ....................... 67,729
Professional fees ............................................ 51,100
12b-1 distribution plan fees ................................. 102,777
Directors' fees .............................................. 3,000
Other ........................................................ 31,250
------------
Total liabilities ............................................... 1,458,805
------------
NET ASSETS ...................................................... $404,641,852
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $298,037,716
Accumulated undistributed net realized gain on sale of
investments and options written .............................. 32,973,924
Net unrealized appreciation in value of investments and options
written ...................................................... 73,630,212
------------
Net assets ...................................................... $404,641,852
============
CLASS A:
Capital shares outstanding (unlimited number
of shares authorized) ........................................ 54,136,170
Net assets ...................................................... $371,006,110
Net asset value and redemption price per share .................. $ 6.85
============
Maximum offering price per share (net asset value divided by
94.25%) ...................................................... $ 7.27
============
CLASS B:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 4,610,711
Net assets ...................................................... $ 27,841,473
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 6.04
============
CLASS C:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 906,930
Net assets ...................................................... $ 5,794,269
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 6.39
============
(1)Investments, at cost ......................................... $330,979,825
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends .................................................... $ 4,840,662
Interest ..................................................... 266,261
------------
Total investment income ...................................... 5,106,923
------------
EXPENSES:
Management fees .............................................. 3,046,388
Custodian fees ............................................... 24,962
Transfer agent/maintenance fees .............................. 704,156
Administration fees .......................................... 383,797
Directors' fees .............................................. 10,933
Professional fees ............................................ 66,197
Reports to shareholders ...................................... 106,122
Registration fees ............................................ 41,180
Other expenses ............................................... 26,125
12b-1 distribution plan fees - Class A ....................... 913,140
12b-1 distribution plan fees - Class B ....................... 350,900
12b-1 distribution plan fees - Class C ....................... 58,394
------------
Total expenses ............................................... 5,732,294
------------
Net investment loss .......................................... (625,371)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments .................................................. 40,438,617
Options written .............................................. 1,141,486
------------
Net realized gain ............................................ 41,580,103
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................. (9,013,023)
Options written .............................................. (200,603)
------------
Net unrealized depreciation .................................. (9,213,626)
------------
Net realized and unrealized gain ............................. 32,366,477
------------
Net increase in net assets resulting from operations ......... $ 31,741,106
============
20 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets EQUITY SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss).......................... $ (625,371) $ 2,106,508
Net realized gain during the period on investments and
options written.................................... 41,580,103 5,986,078
Net unrealized appreciation (depreciation) during the
period on investments and options written.......... (9,213,626) 26,726,517
------------ ------------
Net increase in net assets resulting from operations.. 31,741,106 34,819,103
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A............................................ (2,147,421) --
Class B............................................ -- --
Class C............................................ -- --
Net realized gain
Class A............................................ (11,068,277) (26,380,459)
Class B............................................ (1,320 160) (3,538,521)
Class C............................................ (182,232) (441,254)
------------ ------------
Total distributions to shareholders................... (14,718,090) (30,360,234)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A............................................ 52,710,115 27,211,499
Class B............................................ 7,159,305 7,524,651
Class C............................................ 1,001,095 1,434,117
Distributions reinvested
Class A............................................ 12,004,929 24,060,300
Class B............................................ 1,296,700 3,490,102
Class C............................................ 180,424 436,627
Cost of shares redeemed
Class A............................................ (84 851 352) (71,972,519)
Class B............................................ (21 542 434) (20,528,055)
Class C............................................ (1,287,944) (2,480,994)
------------ ------------
Net decrease from capital share transactions.......... (33,329,162) (30,824,272)
------------ ------------
Net decrease in net assets............................ (16,306,146) (26,365,403)
------------ ------------
NET ASSETS:
Beginning of period................................... 420,947,998 447,313,401
------------ ------------
End of period......................................... $404,641,852 $420,947,998
============ ============
Accumulated undistributed net investment income at
end of period...................................... $ -- $ 2,106,508
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A............................................ 8,042,578 4,214,004
Class B............................................ 1,205,513 1,306,540
Class C............................................ 160,281 233,732
Shares reinvested
Class A............................................ 1,816,177 3,673,328
Class B............................................ 221,280 597,620
Class C............................................ 29,101 70,881
Shares redeemed
Class A............................................ (12,720,895) (11,058,402)
Class B............................................ (3,666,875) (3,529,552)
Class C............................................ (208,581) (406,368)
21 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 2006 2005 2004 2003 2002(c, e)
- ------- -------- -------- -------- -------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 6.58 $ 6.50 $ 5.98 $ 5.09 $ 6.36
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss)(b) (0.01) 0.04 0.01 0.01 0.01
Net gain (loss) on securities (realized and
unrealized) 0.52 0.49 0.52 0.88 (1.28)
-------- -------- -------- -------- --------
Total from investment operations 0.51 0.53 0.53 0.89 (1.27)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.04) -- (0.01) -- --
Distributions from realized gains (0.20) (0.45) -- -- --
-------- -------- -------- -------- --------
Total distributions (0.24) (0.45) (0.01) -- --
-------- -------- -------- -------- --------
Net asset value, end of period $ 6.85 $ 6.58 $ 6.50 $ 5.98 $ 5.09
======== ======== ======== ======== ========
TOTAL RETURN(a) 7.88% 8.20% 8.87% 17.49% (19.97%)
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $371,006 $375,280 $391,384 $430,161 $412,791
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income (loss) (0.08%) 0.57% 0.08% 0.23% 0.13%
Total expenses 1.34% 1.30% 1.28% 1.25% 1.11%
-------- -------- -------- -------- --------
Portfolio turnover rate 34% 32% 28% 54% 30%
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
CLASS B 2006 2005 2004 2003 2002(c, e)
- ------- -------- -------- -------- -------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 5.83 $ 5.83 $ 5.41 $ 4.64 $ 5.86
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.05) (0.01) (0.04) (0.03) (0.05)
Net gain (loss) on securities (realized and
unrealized) 0.46 0.44 0.48 0.80 (1.17)
------- ------- ------- ------- -------
Total from investment operations 0.41 0.43 0.44 0.77 (1.22)
------- ------- ------- ------- -------
Less distributions:
Distributions from realized gains (0.20) (0.45) -- -- --
------- ------- ------- ------- -------
Total distributions (0.20) (0.45) -- -- --
------- ------- ------- ------- -------
Net asset value, end of period $ 6.04 $ 5.83 $ 5.85 $ 5.41 $ 4.64
======= ======= ======= ======= =======
TOTAL RETURN(a) 7.16% 7.35% 8.13% 16.59% (20.82%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $27,842 $39,962 $49,600 $61,733 $66,267
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (0.83%) (0.16%) (0.67%) (0.52%) (0.78%)
Total expenses 2.09% 2.05% 2.03% 2.00% 2.02%
------- ------- ------- ------- -------
Portfolio turnover rate 34% 32% 28% 54% 30%
22 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 2006 2005 2004 2003 2002(c, d, e)
- ------- -------- -------- -------- -------- -------------
PER SHARE DATA
Net asset value, beginning of period $ 6.16 $ 6.16 $ 5.69 $ 4.88 $ 6.16
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment loss(b) (0.05) (0.01) (0.04) (0.03) (0.05)
Net gain (loss) on securities (realized and
unrealized) 0.48 0.46 0.51 0.84 (1.23)
------ ------ ------ ------ -------
Total from investment operations 0.43 0.45 0.47 0.81 (1.28)
------ ------ ------ ------ -------
Less distributions:
Distributions from realized gains (0.20) (0.45) -- -- --
------ ------ ------ ------ -------
Total distributions (0.20) (0.45) -- -- --
------ ------ ------ ------ -------
Net asset value, end of period $ 6.39 $ 6.16 $ 6.16 $ 5.69 $ 4.88
====== ====== ====== ====== =======
TOTAL RETURN(a) 7.10% 7.32% 8.26% 16.60% (20.78%)
------ ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,794 $5,706 $6,329 $6,651 $ 4,979
------ ------ ------ ------ -------
Ratios to average net assets:
Net investment loss (0.83%) (0.18%) (0.67%) (0.52%) (0.76%)
Total expenses 2.09% 2.05% 2.03% 2.00% 2.02%
------ ------ ------ ------ -------
Portfolio turnover rate 34% 32% 28% 54% 30%
(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 shares.
(b) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(c) 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.
(d) 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.
(e) Effective May 1, 2002 the fee structure for Equity Series changed. Per
share information reflects this change.
23 See accompanying notes.
This page left blank intentionally.
24
SECURITY EQUITY FUND
Manager's Commentary GLOBAL SERIES
November 15, 2006 (unaudited)
(OPPENHEIMERFUNDS(R) LOGO)
Subadviser, OppenheimerFunds, Inc.
(PHOTO OF RAJEEV BHAMAN)
Rajeev Bhaman
Portfolio Manager
TO OUR SHAREHOLDERS:
The Global Series of the Security Equity Fund under performed its benchmark, the
Morgan Stanley Capital International (MSCI) World Index, over the 12-month
period ending September 30, 2006. Class A shares of the Series returned
12.48%(1), versus the benchmark's return of 14.18%. Although we are not pleased
with the Series' performance during the reporting period, we remain committed to
our investment horizon of three to five years.
The past year has been characterized by significant increases in commodity
prices, including oil, and monetary tightening worldwide, primarily in the
United States, Europe, and Japan. These two phenomena are related, as
inflationary concerns from higher oil prices have driven global tightening.
Furthermore, there has been concern regarding the decline of U.S. housing
prices. Although this has not been the most benign environment for stocks,
markets have continued to rally as valuations remained attractive.
Among thematic disappointments for the year was the heightened focus on options
expensing, particularly for technology companies, and the concerns about
lawsuits and damages resulting thereof. This cast a pall on technology shares,
which underperformed notwithstanding their excellent long-term growth
characteristics. There was also a market slowdown in the take up of implantable
cardiac defibrillators and growth rate of knee and hip replacements, hurting
some of the Series holdings. We remain confident that the long-term opportunity
set for all of the segments that faced setbacks in the past year remain
excellent and that our original thesis will come to pass.
As to the Series' successes, investments in software companies Intuit, Inc. and
Adobe Systems, Inc. continue to pay off. Both companies continue to innovate
with new products, satisfying existing customers and achieving broader appeal.
Investments in television companies, including ZEE Telefilms Ltd. in India and
Grupo Televisa SA in Mexico, contributed positively to the Series' performance
as they retained high respective market shares and a growing audience for their
programming worldwide.
We are also finding strong opportunities across a variety of areas, particularly
in technology. We continue to favor a number of our existing holdings, such as
Juniper Networks, Inc., as the opportunity for communication network build-outs
remains robust. Additionally, we are finding attractive opportunities in the
areas of analog and mixed signal semiconductors.
Companies such as Maxim Integrated Products, Inc. and Linear Technology
Corporation continue to see a high margin of profitable growth and are now
available at a fraction of their valuations of only a few years ago. Leading
companies in the programmable logic devices arena such as Altera Corporation and
Xilinx, Inc., we believe, also provide significant investment upside. The Series
has also invested significantly in great companies such as Carnival Corporation,
which runs the Carnival Cruise Lines, and the car manufacturer Bayerische
Motoren Werke AG (BMW), which both have wonderful franchises and are available
at bargain prices. Automatic Data Processing, Inc., the leading payroll
processor in the world, is another investment for which we have great
enthusiasm. Its business opportunities expand as more companies look to
outsourcing their non-core activities to high-quality, lower-cost providers.
As global growth continues to advance nicely and interest rates remain
relatively low, we remain optimistic about markets generally. As such, we expect
to continue to see good opportunities for investment. We remain focused on our
long-term investment philosophy and our mantra of looking for "good companies in
good businesses at good prices."
Sincerely,
Rajeev Bhaman,
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.
25
SECURITY EQUITY FUND
Performance Summary GLOBAL SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY GLOBAL SERIES VS. MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
(PERFORMANCE GRAPH)
GLOBAL SERIES
09/30/96 9,425.00
12/31/96 9,709.63
03/31/97 9,943.60
06/30/97 10,946.31
09/30/97 11,330.69
12/31/97 10,380.48
03/31/98 11,968.95
06/30/98 11,710.36
09/30/98 10,371.24
12/31/98 12,373.75
03/31/99 12,602.90
06/30/99 13,718.73
09/30/99 13,937.91
12/31/99 19,157.60
03/31/00 21,722.09
06/30/00 20,928.84
09/30/00 20,494.18
12/31/00 19,743.19
03/31/01 16,907.37
06/30/01 18,103.52
09/30/01 14,837.63
12/31/01 17,135.85
03/31/02 17,377.77
06/30/02 15,738.10
09/30/02 12,754.45
12/31/02 12,996.37
03/31/03 11,907.74
06/30/03 14,380.67
09/30/03 15,697.78
12/31/03 18,399.20
03/31/04 19,151.83
06/30/04 18,909.91
09/30/04 18,721.76
12/31/04 21,705.41
03/31/05 20,939.34
06/30/05 21,544.13
09/30/05 23,479.47
12/31/05 24,541.23
03/31/06 26,274.97
06/30/06 25,334.18
09/30/06 26,409.37
MSCI WORLD INDEX
9/30/96 10,000.00
12/31/96 10,469.97
3/31/97 10,511.55
6/30/97 12,105.92
9/30/97 12,464.66
12/31/97 12,169.53
3/31/98 13,924.88
6/30/98 14,220.29
9/30/98 12,527.96
12/31/98 15,186.70
3/31/99 15,741.08
6/30/99 16,506.74
9/30/99 16,274.79
12/31/99 19,035.23
3/31/00 19,242.03
6/30/00 18,572.82
9/30/00 17,653.15
12/31/00 16,573.91
3/31/01 14,456.22
6/30/01 14,857.82
9/30/01 12,732.31
12/31/01 13,835.63
3/31/02 13,894.43
6/30/02 12,644.22
9/30/02 10,329.79
12/31/02 11,129.55
3/31/03 10,579.16
6/30/03 12,403.38
9/30/03 13,015.07
12/31/03 14,871.13
3/31/04 15,260.00
6/30/04 15,392.25
9/30/04 15,238.65
12/31/04 17,059.31
3/31/05 16,872.05
6/30/05 16,942.43
9/30/05 18,124.52
12/31/05 18,696.97
3/31/06 19,950.20
6/30/06 20,080.61
9/30/06 20,999.83
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Global Series on
September 30, 1996, reflects deduction of the 5.75% sales load and assumes all
dividends reinvested. The chart does not reflect the deduction of taxes that a
shareholder would pay on distributions or the redemption of fund shares. The
MSCI World Index is an unmanaged capitalization-weighted index that is designed
to measure global developed market equity performance.
PORTFOLIO COMPOSITION BY SECTOR AS OF 9-30-06
Consumer Discretionary 13.91%
Consumer Staples 11.15
Energy 5.19
Financials 15.85
Health Care 12.71
Industrials 9.88
Information Technology 18.27
Materials 1.19
Telecommunication Services 10.59
Utilities 0.63
Cash & other assets, less liabilities 0.63
------
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE
PERIODS ENDED 9-30-06 1YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------- ----- ------- -------- ---------
A Shares 12.48% 12.22% 10.84% --
A Shares with sales charge 5.99% 10.91% 10.19% --
B Shares 12.72% 11.85% 10.29% --
B Shares with CDSC 7.72% 11.59% 10.29% --
C Shares 11.60% 11.37% N/A 9.21%
(1-29-99)
C Shares with CDSC 10.60% 11.37% N/A 9.21%
(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 and/or reimbursements reduced
expenses of the Series and in the absence of such waiver, the performance quoted
would be reduced.
26 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary GLOBAL SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES
VALUE VALUE PAID DURING
04-01-06 09-30-06(1) PERIOD(2)
--------- ----------- -----------
Global Series -
Class A
Actual $1,000.00 $1,005.10 $ 8.95
Hypothetical 1,000.00 1,016.74 9.00
Global Series -
Class B
Actual 1,000.00 1,006.10 7.69
Hypothetical 1,000.00 1,017.40 7.74
Global Series -
Class C
Actual 1,000.00 1,001.10 12.69
Hypothetical 1,000.00 1,012.38 12.76
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was 0.51%, 0.61% and 0.11%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.78%, 1.53% and
2.53% 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).
27
Schedule of Investments Security Equity Fund - Global Series
September 30, 2006
SHARES VALUE
--------- ------------
COMMON STOCK - 98.8%
AUSTRALIA - 0.3%
Macquarie Airports 176,302 $ 403,389
------------
BERMUDA - 0.3%
Everest Re Group, Ltd. 4,900 477,897
------------
BRAZIL - 1.5%
Companhia de Bebidas das
Americas ADR 21,557 978,257
Empresa Brasileira de
Aeronautica S.A. ADR 36,768 1,443,879
------------
2,422,136
------------
CANADA - 1.7%
Husky Energy, Inc. 27,880 1,794,976
Manulife Financial Corporation 25,646 826,032
------------
2,621,008
------------
CAYMAN ISLANDS - 1.1%
ACE, Ltd. 17,740 970,910
XL Capital, Ltd. 11,800 810,660
------------
1,781,570
------------
DENMARK - 0.3%
Novo-Nordisk A/S (CI.B) 6,400 475,687
------------
FINLAND - 0.7%
Fortum Oyj 37,100 988,361
Neste Oil Oyj 5,225 151,851
------------
1,140,212
------------
FRANCE - 5.6%
Arkema * 5,959 281,157
LVMH Moet Hennessy Louis
Vuitton S.A 18,520 1,908,007
NicOxSA * 7,490 98,297
Sanofi-Aventis 28,235 2,513,278
Societe Generale 10,880 1,731,364
Technip S.A. 26,740 1,519,669
Total S.A. 10,200 669,308
------------
8,721,080
------------
GERMANY - 4.4%
Allianz AG 10,469 1,811,715
Bayerische Motoren Werke
(BMW) AG * 28,073 1,503,587
SAPAG 8,783 1,741,788
Siemens AG 21,478 1,873,691
------------
6,930,781
------------
HONG KONG - 0.4%
Hutchison Whampoa, Ltd. 63,082 557,080
------------
INDIA - 3.1%
Hindustan Lever, Ltd. 180,100 1,011,184
ICICI Bank, Ltd. ADR (1) 14,650 449,901
Infosys Technologies, Ltd. 49,374 1,993,965
ZEE Telefilms, Ltd. * 198,900 1,328,881
------------
4,783,931
------------
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
IRELAND - 0.0%
Anglo Irish Bank Corporation plc 203 $ 3,336
------------
ITALY - 0.5%
Bulgari SpA 59,100 752,379
------------
JAPAN - 10.5%
Canon, Inc. 12,150 633,600
Chugai Pharmaceutical Company, Ltd. 29,200 627,877
Credit Saison Company, Ltd. (1) 18,500 779,936
Fanuc, Ltd. 4,800 374,654
Hoya Corporation 25,700 968,169
KDDI Corporation 266 1,657,363
Keyence Corporation 3,200 736,847
Kyocera Corporation 7,500 641,905
Murata Manufacturing Company, Ltd. 21,700 1,506,370
Nidec Corporation 6,300 475,200
Nintendo Company, Ltd. 4,200 865,422
Resona Holdings, Inc. 238 713,244
Shionogi & Company, Ltd. 59,000 1,083,852
Shiseido Company, Ltd. 27,000 539,429
Sony Corporation 43,600 1,764,301
Square Enix Company, Ltd. 24,700 599,073
Sumitomo Mitsui Financial Group, Inc. 34 356,910
Takeda Pharmaceutical Company, Ltd. 12,800 798,612
Toyota Motor Corporation 25,700 1,396,775
------------
16,519,539
------------
MEXICO - 2.1%
Fomento Economico Mexicano,
S.A. de C.V. * 110,200 1,070,054
Grupo Modelo, S.A. de C.V. (CI.C) 152,300 664,824
Grupo Televisa S.A. ADR 74,456 1,582,934
------------
3,317,812
------------
NETHERLANDS - 2.2%
European Aeronautic Defence
and Space Company N.V. 55,090 1,584,278
Koninklijke (Royal) Philips
Electronics N.V. 52,700 1,848,994
------------
3,433,272
------------
NORWAY - 0.3%
Tandberg ASA 49,000 523,297
------------
REPUBLIC OF KOREA - 2.0%
Hyundai Heavy Industries
Company, Ltd. 4,054 561,241
Samsung Electronics Company, Ltd.* 1,711 1,200,638
SK Telecom Company, Ltd. ADR 60,460 1,428,670
------------
3,190,549
------------
The accompanying notes are an integral part of the financial statements.
28
Schedule of Investments Security Equity Fund - Global Series
September 30, 2006 - continued
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
SINGAPORE - 0.2%
Singapore Press Holdings, Ltd. 137,848 $ 355,860
------------
SPAIN - 0.9%
Industria de Diseno Textil S.A 29,600 1,379,694
------------
SWEDEN - 5.7%
Hennes & Mauritz AB (CI.B) 65,700 2,747,885
Investor AB (CI.B) (1) 42,428 882,928
Telefonaktiebolaget LM Ericsson
(CI.B) 1,512,600 5,242,766
------------
8,873,579
------------
SWITZERLAND - 3.3%
Credit Suisse Group 33,155 1,918,398
Novartis AG 15,430 900,824
Roche Holding AG 11,914 2,059,986
Syngenta AG 2,156 325,193
------------
5,204,401
------------
TAIWAN, PROVINCE OF CHINA - 1.4%
Benq Corporation 407,000 239,122
MediaTek, Inc. 106,700 1,012,047
Taiwan Semiconductor
Manufacturing Company, Ltd.
ADR 99,636 956,506
------------
2,207,675
------------
UNITED KINGDOM - 12.5%
3i Group plc (1) 36,195 634,251
BP plc ADR 19,567 1,283,204
Burberry Group plc 59,591 575,104
Cadbury Schweppes plc 155,624 1,656,318
Diageo plc 48,672 859,722
GUS plc 26,420 477,801
HSBC Holdings plc 91,545 1,669,753
Pearson plc 48,130 685,254
Prudential plc 115,159 1,430,460
Reckitt Benckiser plc 57,844 2,397,578
Royal Bank of Scotland Group plc 70,279 2,420,918
Smith & Nephew plc 85,582 787,085
Tesco plc 175,289 1,182,212
Vodafone Group plc 1,359,243 3,117,238
WPP Group plc 41,910 519,412
------------
19,696,310
------------
UNITED STATES - 37.8%
3M Company 20,600 1,533,052
Adobe Systems, Inc. * 52,500 1,966,125
Advanced Micro Devices, Inc. * 91,700 2,278,745
Affymetrix, Inc. * 14,800 319,088
Altera Corporation * 53,200 977,816
Amgen, Inc. * 17,000 1,216,010
Atherogenics, Inc. * 24,700 325,299
Automatic Data Processing, Inc. 39,900 1,888,866
Avis Budget Group, Inc. 6,060 110,837
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
UNITED STATES (CONTINUED)
Avon Products, Inc. 23,000 $ 705,180
Berkshire Hathaway, Inc. (CI.B) * 280 888,720
Biomet, Inc. 25,400 817,626
Boeing Company 12,800 1,009,280
Boston Scientific Corporation * 64,079 947,729
Carnival Corporation 44,100 2,074,023
Chevron Corporation 15,866 1,029,069
Cisco Systems, Inc. * 28,300 650,900
Coach, Inc. * 22,600 777,440
Conor Medsystems, Inc. * 9,300 219,201
Corning, Inc. * 77,900 1,901,539
Cree, Inc. * 26,300 528,893
eBay, Inc. * 81,700 2,317,012
Emerson Electric Company 12,100 1,014,706
Express Scripts, Inc. * 8,300 626,567
Genentech, Inc. * 8,500 702,950
Getty Images, Inc. * 10,500 521,640
Gilead Sciences, Inc. * 19,500 1,339,650
GlobalSantaFe Corporation 25,100 1,254,749
International Game Technology 29,100 1,207,650
International Rectifier
Corporation * 16,200 564,408
Intuit, Inc. * 43,000 1,379,870
Johnson & Johnson 6,500 422,110
JPMorgan Chase & Company 26,769 1,257,072
Juniper Networks, Inc. * 81,800 1,413,504
Linear Technology Corporation 14,100 438,792
Lockheed Martin Corporation 10,300 886,418
Maxim Integrated Products, Inc. 37,600 1,055,432
Medtronic, Inc. 11,700 543,348
Microsoft Corporation 102,500 2,801,325
Morgan Stanley 27,000 1,968,570
Nektar Therapeutics * (2) 10,308 148,538
Northern Trust Corporation 26,700 1,560,081
Northrop Grumman Corporation 11,400 775,998
Novell, Inc. * 83,800 512,856
Nuvelo, Inc. * 8,800 160,512
Qualcomm, Inc. 19,040 692,104
Quest Diagnostics, Inc. 13,200 807,312
Raytheon Company 18,900 907,389
Realogy Corporation * 16,100 365,148
Sirius Satellite Radio, Inc. * 320,900 1,254,719
Starbucks Corporation * 18,200 619,710
Theravance, Inc. * 12,500 338,000
Tiffany & Company 34,700 1,152,040
Transocean, Inc. * 23,300 1,706,259
Wal-Mart Stores, Inc. 33,200 1,637,424
Walt Disney Company 34,300 1,060,213
Wyeth 14,100 716,844
Xilinx, Inc. 35,600 781,420
The accompanying notes are an integral part of the financial statements.
29
Schedule of Investments Security Equity Fund - Global Series
September 30, 2006 - continued
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
UNITED STATES (CONTINUED)
Yahoo!, Inc. * 11,400 $ 288,192
------------
59,365,970
------------
TOTAL COMMON STOCK
(Cost $118,164,866) $155,138,444
------------
PREFERRED STOCK - 0.6%
GERMANY - 0.6%
Porsche AG 880 911,455
------------
TOTAL PREFERRED STOCK
(Cost $388,526) $ 911,455
------------
TOTAL INVESTMENTS (SECURITY EQUITY
FUND - GLOBAL SERIES)
(COST $118,553,392) - 99.4% $156,049,899
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.6 981.628
------------
TOTAL NET ASSETS - 100.0% $157,031,527
============
INVESTMENT CONCENTRATION
At September 30, 2006, the investment diversification of the fund was as
follows:
% OF
INDUSTRY NET ASSETS VALUE
- -------- ---------- ------------
Communications Equipment 6.5% $ 10,424,110
Pharmaceuticals 6.4 9,924,369
Semiconductors 6.2 9,794,697
Diversified Banks 4.2 6,632,182
Aerospace & Defense 4.2 6,607,242
Wireless Telecommunication Services 4.0 6,203,271
Application Software 3.3 5,087,783
Integrated Oil & Gas 3.0 4,776,557
Electronic Equipment Manufacturers 2.8 4,328,491
Broadcasting & Cable TV 2.7 4,166,535
Apparel Retail 2.6 4,127,579
Apparel, Accessories & Luxury Goods 2.6 4,012,930
Industrial Conglomerates 2.6 3,963,823
Biotechnology 2.5 3,855,419
Automobile Manufacturers 2.5 3,811,817
Consumer Electronics 2.3 3,613,294
Household Products 2.1 3,408,762
Health Care Equipment 2.0 3,314,989
Systems Software 2.1 3,314,181
Other Diversified Financial Services 2.1 3,225,642
Oil & Gas Drilling 1.9 2,961,008
Property & Casualty Insurance 1.7 2,670,290
Internet Software & Services 1.7 2,605,204
Life & Health Insurance 1.4 2,256,492
Asset Management & Custody Banks 1.4 2,194,332
Hotels, Resorts & Cruise Lines 1.3 2,074,023
IT Consulting & Other Services 1.3 1,993,965
Diversified Capital Markets 1.2 1,918,398
Data Processing & Outsourced Services 1.2 1,888,866
Multi-Line Insurance 1.1 1,811,715
Packaged Foods & Meats 1.1 1,656,318
Brewers 1.1 1,643,081
Hypermarkets & Super Centers 1.0 1,637,424
Publishing 0.9 1,562,754
Oil & Gas Equipment & Services 1.0 1,519,669
Home Entertainment Software 0.9 1,464,495
Health Care Services 0.9 1,433,879
Personal Products 0.8 1,244,608
Casinos & Gaming 0.8 1,207,650
Food Retail 0.8 1,182,212
Specialty Stores 0.7 1,152,040
Soft Drinks 0.7 1,070,054
Movies & Entertainment 0.7 1,060,213
Electrical Components & Equipment 0.6 1,014,706
Electric Utilities 0.6 988,361
Multi-Sector Holdings 0.6 882,928
Distillers & Vintners 0.5 859,722
Consumer Finance 0.5 779,937
Regional Banks 0.5 713,244
Office Electronics 0.4 633,600
Restaurants 0.4 619,710
Construction & Farm Machinery & Heavy Trucks 0.3 561,241
Advertising 0.3 519,412
Reinsurance 0.3 477,897
Catalog Retail 0.3 477,801
Life Sciences Tools & Services 0.3 467,626
Airport Services 0.3 403,389
Industrial Machinery 0.2 374,654
Real Estate Management & Development 0.2 365,148
Fertilizers & Agricultural Chemicals 0.2 325,193
Commodity Chemicals 0.2 281,157
Computer Storage & Peripherals 0.2 239,122
Oil & Gas Refining & Marketing 0.1 151,851
Diversified Commercial & Professional
Services 0.1 110,837
---- ------------
TOTAL INVESTMENTS 99.4 156,049,899
OTHER ASSETS AND LIABILITIES, NET 0.6 981,628
---- ------------
NET ASSETS 100% $157,031,527
==== ============
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $119,986,913.
* - Non-income producing security
(1) - PFIC (Passive Foreign Investment Company)
The accompanying notes are an integral part of the financial statements.
30
Schedule of Investments Security Equity Fund - Global Series
September 30, 2006 - continued
(2) - Security is restricted. See Notes to Financials.
Glossary:
ADR - American Depositary Receipt
plc - Public Limited Company
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
31
SECURITY EQUITY FUND
GLOBAL SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ........................................ $156,049,899
Cash ............................................................ 764,183
Cash denominated in a foreign currency, at value(2) ............. 306,252
Receivables:
Fund shares sold ............................................. 108,187
Dividends .................................................... 195,352
Foreign taxes recoverable ....................................... 32,451
Prepaid expenses ................................................ 20,224
------------
TOTAL ASSETS .................................................... 157,476,548
------------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 182,918
Management fees .............................................. 127,201
Custodian fees ............................................... 29,490
Transfer agent and administration fees ....................... 38,781
Professional fees ............................................ 25,042
12b-1 distribution plan fees ................................. 32,489
Directors' fees .............................................. 600
Other ........................................................ 8,500
------------
Total liabilities ............................................... 445,021
------------
NET ASSETS ...................................................... $157,031,527
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $104,007,591
Accumulated undistributed net investment loss ................... (4,979,244)
Accumulated undistributed net realized gain on sale of
investments, foreign currency transactions and options
purchased .................................................... 20,507,729
Net unrealized appreciation in value of investments and
translation of assets and liabilities in foreign currency .... 37,495,451
------------
Net assets ...................................................... $157,031,527
============
CLASS A:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 6,064,999
Net assets ...................................................... $119,176,458
Net asset value per share ....................................... $ 19.65
============
Maximum offering price per share (net asset value divided
by 94.25%) ................................................... $ 20.85
============
CLASS B:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 1,512,854
Net assets ...................................................... $ 27,493,865
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 18.17
============
CLASS C:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 563,899
Net assets ...................................................... $ 10,361,204
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) .. $ 18.37
============
(1) Investments, at cost ....................................... $118,553,392
(2) Cash denominated in a foreign currency, at cost ............ 306,421
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax $203,986) .......... $ 2,412,341
Interest ..................................................... 72,495
------------
Total investment income ...................................... 2,484,836
------------
EXPENSES:
Management fees .............................................. 1,566,845
Custodian fees ............................................... 121,874
Transfer agent/maintenance fees .............................. 279,480
Administration fees .......................................... 246,343
Directors' fees .............................................. 3,815
Professional fees ............................................ 40,701
Reports to shareholders ...................................... 41,614
Registration fees ............................................ 41,250
Other expenses ............................................... 9,931
12b-1 distribution plan fees - Class A ....................... 294,608
12b-1 distribution plan fees - Class C ....................... 96,425
------------
Total expenses ............................................... 2,742,886
Less: Earnings credits ....................................... (3,648)
------------
Net expenses ................................................. 2,739,238
------------
Net investment loss .......................................... (254,402)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments .................................................. 26,109,943
Foreign currency transactions ................................ (4,364,134)
Options purchased ............................................ 2,910
------------
Net realized gain ............................................ 21,748,719
------------
Net unrealized depreciation during the period on:
Investments .................................................. (2,328,820)
Translation of assets and liabilities in foreign currencies .. (2,285)
------------
Net unrealized depreciation .................................. (2,331,105)
------------
Net gain ..................................................... 19,417,614
------------
Net increase in net assets resulting from operations ......... $ 19,163,212
============
32 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets GLOBAL SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................................................. $ (254,402) $ (466,732)
Net realized gain during the period on investments, options purchased and foreign
currency transactions ........................................................ 21,748,719 13,103,309
Net unrealized appreciation (depreciation) during the period on investments and
translation of assets and liabilities in foreign currencies .................. (2,331,105) 20,726,759
------------ ------------
Net increase in net assets resulting from operations ............................ 19,163,212 33,363,336
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ...................................................................... 38,473,976 31,692,774
Class B ...................................................................... 4,863,534 3,283,116
Class C ...................................................................... 2,579,360 1,610,608
Cost of shares redeemed
Class A ...................................................................... (62,028,224) (27,395,260)
Class B ...................................................................... (9,756,709) (8,996,589)
Class C ...................................................................... (2,073,631) (2,115,442)
------------ ------------
Net decrease from capital share transactions .................................... (27,941,694) (1,920,793)
------------ ------------
Net increase (decrease) in net assets ........................................... (8,778,482) 31,442,543
------------ ------------
NET ASSETS:
Beginning of period ............................................................. 165,810,009 134,367,466
------------ ------------
End of period ................................................................... $157,031,527 $165,810,009
============ ============
Accumulated undistributed net investment loss at end of period .................. $ (4,979,244) $ (772,826)
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ...................................................................... 2,071,616 2,004,496
Class B ...................................................................... 283,447 225,028
Class C ...................................................................... 146,502 107,909
Shares redeemed
Class A ...................................................................... (3,331,473) (1,748,721)
Class B ...................................................................... (569,781) (618,877)
Class C ...................................................................... (119,789) (142,443)
33 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 2006 2005 2004(h) 2003 2002(e, g)
- ------- -------- -------- ------- ------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 17.47 $ 13.93 $ 11.68 $ 9.49 $ 11.04
-------- -------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(c) (0.03) (0.02) (0.03) (0.03) (0.05)
Net gain (loss) on securities (realized and
unrealized) 2.21 3.56 2.28 2.22 (1.50)
-------- -------- ------- ------- -------
Total from investment operations 2.18 3.54 2.25 2.19 (1.55)
-------- -------- ------- ------- -------
Net asset value, end of period $ 19.65 $ 17.47 $ 13.93 $ 11.68 $ 9.49
======== ======== ======= ======= =======
TOTAL RETURN(a) 12.48% 25.41% 19.26% 23.08% (14.04%)
-------- -------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $119,176 $127,970 $98,450 $42,711 $50,893
-------- -------- ------- ------- -------
Ratios to average net assets:
Net investment loss (0.17%) (0.14%) (0.20%) (0.26%) (0.46%)
Total expenses(b) 1.75% 1.73% 1.79% 2.00% 1.85%
Net expenses(d) 1.75% 1.73% 1.79% 2.00% 1.85%
Expenses prior to custodian earnings credits and
net of expense waivers 1.75% 1.73% 1.79% 2.00% 1.85%
-------- -------- ------- ------- -------
Portfolio turnover rate 28% 31% 25% 62% 36%
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS B 2006(i) 2005(i) 2004(h) 2003 2002(e, g)
- ------- ------- ------- ------- ------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 16.12 $ 12.93 $ 10.93 $ 8.89 $ 10.38
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss)(c) 0.02 (0.12) (0.13) (0.04) (0.10)
Net gain (loss) on securities (realized and
unrealized) 2.03 3.31 2.13 2.08 (1.39)
------- ------- ------- ------- -------
Total from investment operations 2.05 3.19 2.00 2.04 (1.49)
------- ------- ------- ------- -------
Net asset value, end of period $ 18.17 $ 16.12 $ 12.93 $ 10.93 $ 8.89
======= ======= ======= ======= =======
TOTAL RETURN(a) 12.72% 24.67% 18.30% 22.95% (14.35%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $27,494 $28,999 $28,360 $16,461 $19,021
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 0.11% (0.80%) (1.00%) (0.42%) (0.89%)
Total expenses(b) 1.50% 2.38% 2.54% 2.18% 2.28%
Net expenses(d) 1.50% 2.38% 2.54% 2.18% 2.28%
Expenses prior to custodian earnings credits and
net of expense waivers 1.50% 2.38% 2.54% 2.18% 2.28%
------- ------- ------- ------- -------
Portfolio turnover rate 28% 31% 25% 62% 36%
34 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 2006 2005 2004(h) 2003 2002(e, f, g)
- ------- ------- ------ ------- ------ -------------
PER SHARE DATA
Net asset value, beginning of period $ 16.46 $13.22 $11.17 $ 9.14 $ 10.72
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment loss(c) (0.15) (0.13) (0.13) (0.09) (0.15)
Net gain (loss) on securities (realized and
unrealized) 2.06 3.37 2.18 2.12 (1.43)
------- ------ ------ ------ -------
Total from investment operations 1.91 3.24 2.05 2.03 (1.58)
------- ------ ------ ------ -------
Net asset value, end of period $ 18.37 $16.46 $13.22 $11.17 $ 9.14
======= ====== ====== ====== =======
TOTAL RETURN(a) 11.60% 24.51% 18.35% 22.21% (14.74%)
------- ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $10,361 $8,841 $7,557 $5,326 $ 4,076
------- ------ ------ ------ -------
Ratios to average net assets:
Net investment loss (0.87%) (0.90%) (1.02%) (0.96%) (1.33%)
Total expenses(b) 2.51% 2.48% 2.54% 2.77% 2.74%
Net expenses(d) 2.50% 2.48% 2.54% 2.77% 2.74%
Expenses prior to custodian earnings credits and
net of expense waivers 2.51% 2.48% 2.54% 2.77% 2.74%
------- ------ ------ ------ -------
Portfolio turnover rate 28% 31% 25% 62% 36%
(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 shares.
(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 NASD sales cap regulations. Per share information reflects
this change. This fee may be reinstated at any time.
35 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary MID CAP VALUE SERIES
November 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Adviser, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
James P. Schier
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
For the year ending September 30 2006, the Security Equity Fund Mid Cap Value
Series gained 11.44%(1). This exceeded the 11.13% return of the Series'
benchmark, the Russell 2500 Value Index, and the 8.98% median return of the peer
group.
Our approach with the Mid Cap Senior Value Series is to seek appreciable
securities of companies that are able to grow and/or reinvest in increasingly
profitable ventures and hold them over three to five years to capture the better
part of the improvements in profitability. We are focused on investing in
securities when we find opportunities, with our individual position sizes
reflecting the magnitude and the confidence in the opportunity. For this Series,
we target securities generally priced at or below a market multiple that are
able to increase their return on capital over time.
STAPLES, INDUSTRIALS AND FINANCIALS WERE POSITIVE CONTRIBUTORS
Grain processors Archer Daniels Midland Corporation and Corn Products
International, Inc., gained 56% and 63% respectively, with a favorable commodity
environment. Archer Daniels Midland Corporation benefited from the ethanol
expansion and Corn Products International, Inc., benefited from a change in
import tariffs on the high fructose corn syrup market. Playtex Products, Inc.,
gained 31% as the company's new management team introduced new product
initiatives. The position in Archer Daniels Midland has been sold in favor of
more compelling alternatives.
Stock selection and a larger-than-benchmark allocation in the industrials sector
were positive contributors. With 25% of assets in this sector, the Series'
holdings in industrials gained 23%, versus 16% for the index. McDermott
International, Inc., gained 71% as the company's marine construction and
industrial services businesses enjoyed significant end-market demand. Hughes
Supply advanced 43% as it agreed to a buy-out offer from Home Depot. Orbital
Sciences Corporation gained 48% on the successful testing of its missile defense
system.
Positive stock selection in financials benefited the Series as stocks in this
sector gained 22% versus 15% for the benchmark. First Marblehead Corporation and
W.R. Berkley Corporation gained 176% and 35%, respectively, on continued solid
business operating results.
ENERGY, FINANCIALS, AND CONSUMER DISCRETIONARY DISAPPOINT
The Series' energy weighting and selection negatively impacted performance
during the year. The Series averaged a 16% weighting in this sector with
holdings declining 13% in aggregate. Exposure to Evergreen Energy, Inc., and
Arch Coal, Inc., coal companies, proved inopportune as they declined 38% and
13%, respectively. A temporary inventory build-up drove coal commodity prices
lower. We believe coal continues to represent the best energy value in the
market due to its low dollar cost per BTU. The Series' conviction in these two
stocks remains high as we view the correction as being temporary.
An underweight position in the financial sector hurt the Series. Given the
valuation and a very lackluster credit outlook, the Series was underweight in
the sector. The benchmark holds a 33% weighting in financials. If the sector has
a significant price correction, we may become more aggressive in the sector.
Stock selection in consumer discretionary stocks was also a negative for the
year. Poor sales results at retailers Bombay Company, Inc., and Tuesday Morning
Corporation hampered results. Merchandise changes at both of these companies
were expected to reinvigorate store productivity. The turnarounds have proven to
be far more elusive than originally anticipated and the Series has exited these
names.
OUTLOOK FOR 2007
We continue to be surprised by the strength of the market and maintain our
cautious stance for the U.S. equity market. Despite the higher levels of
short-term interest rates, high energy costs ($70 oil), and an increasingly
unpredictable geopolitical environment, the broad market averages have advanced
again in 2006. If anything, we are more cautious now than last year at this
time.
36
SECURITY EQUITY FUND
Manager's Commentary MID CAP VALUE SERIES
November 15, 2006 (unaudited)
We continue to find the most opportunities in the energy and industrial sectors.
With large existing exposure in these areas, we are not likely not to go beyond
today's significant levels. Over the past six months, the Series has increased
its commitments to the utility and consumer staple sectors.
On behalf of Security Management Company, I would like to thank you for trusting
your funds with us. We are excited to see what opportunities present themselves
in the future. As always, we continue to do our best to seek the potential
available in small and mid capitalization companies.
Sincerely,
James P. Schier
Senior Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares.
37
SECURITY EQUITY FUND
Performance Summary MID CAP VALUE SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY MID CAP VALUE SERIES VS. RUSSELL 2500 VALUE INDEX
(PERFORMANCE GRAPH)
MID CAP VALUE SERIES
05/01/97 9,425.00
06/30/97 10,386.35
09/30/97 12,205.38
12/31/97 12,202.14
03/31/98 13,982.63
06/30/98 13,914.89
09/30/98 11,679.61
12/31/98 14,172.02
03/31/99 13,968.04
06/30/99 16,872.38
09/30/99 16,124.44
12/31/99 17,264.05
03/31/00 19,149.61
06/30/00 18,997.55
09/30/00 21,035.18
12/31/00 21,872.54
03/31/01 22,618.32
06/30/01 24,688.70
09/30/01 20,080.44
12/31/01 24,341.98
03/31/02 26,771.65
06/30/02 24,635.80
09/30/02 19,098.39
12/31/02 20,725.71
03/31/03 20,228.48
06/30/03 25,731.98
09/30/03 27,664.42
12/31/03 31,467.96
03/31/04 33,864.00
06/30/04 34,753.95
09/30/04 34,742.54
12/31/04 39,907.19
03/31/05 39,821.68
06/30/05 40,921.05
09/30/05 44,390.18
12/31/05 46,184.87
03/31/06 51,316.52
06/30/06 50,450.47
09/30/06 49,468.09
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
12/31/05 29,232.64
03/31/06 32,291.66
06/30/06 31,477.47
09/30/06 32,190.62
$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. The Russell 2500 Value Index is an unmanaged index
that measures the performance of securities of small-to-mid cap U.S. companies
with greater-than-average value orientation.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ----------------
A Shares 11.44% 19.76% 19.16% (5-1-97)
A Shares with sales charge 5.02% 18.35% 18.42% (5-1-97)
B Shares 10.60% 18.80% 18.24% (5-1-97)
B Shares with CDSC 5.60% 18.60% 18.24% (5-1-97)
C Shares 10.62% 18.82% 16.74% (1-29-99)
C Shares with CDSC 9.62% 18.82% 16.74% (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 AS OF 9-30-06
Consumer Discretionary 4.76%
Consumer Staples 8.34
Energy 17.42
Financials 14.36
Health Care 3.01
Industrials 19.32
Information Technology 14.40
Materials 2.96
Utilities 6.98
Exchange Traded Funds 3.35
Commercial Paper 1.86
Asset Backed Commercial Paper 4.72
Warrants 0.25
Repurchase Agreement 0.03
Liabilities in excess of other assets (1.76)
------
Total net assets 100.00%
======
38 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary MID CAP VALUE SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
04-01-06 09-30-06(1) PERIOD(2)
------------- ------------- -------------
Mid Cap Value
Series - Class A
Actual $1,000.00 $ 964.00 $ 6.70
Hypothetical 1,000.00 1,018.25 6.88
Mid Cap Value
Series - Class B
Actual 1,000.00 960.20 10.37
Hypothetical 1,000.00 1,014.49 10.66
Mid Cap Value
Series - Class C
Actual 1,000.00 960.20 10.37
Hypothetical 1,000.00 1,014.49 10.66
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was (3.60%), (3.98%) and
(3.98%), for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.36%, 2.11% and
2.11% 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).
39
Schedule of Investments Security Equity Fund - Mid Cap Value Series
September 30, 2006
SHARES VALUE
--------- ------------
COMMON STOCK - 94.5%
AEROSPACE & DEFENSE - 1.7%
Orbital Sciences Corporation * 762,000 $ 14,302,740
------------
AGRICULTURAL PRODUCTS - 1.3%
Corn Products International, Inc. 330,000 10,738,200
------------
APPLICATION SOFTWARE - 1.7%
EPIQ Systems, Inc. * 645,000 9,487,950
PLATO Learning, Inc. * (1) 820,000 5,223,400
------------
14,711,350
------------
AUTO PARTS & EQUIPMENT - 0.4%
HydroGen Corporation * (1)(2) 732,850 3,664,250
------------
BUILDING PRODUCTS - 0.5%
Quixote Corporation (1) 239,650 4,270,563
------------
COAL & CONSUMABLE FUELS - 6.3%
Arch Coal, Inc. (3) 620,000 17,924,200
Consol Energy, Inc. 163,000 5,171,990
Evergreen Energy, Inc. * 1,953,800 20,534,438
USEC, Inc. 1,084,000 10,449,760
------------
54,080,388
------------
COMMUNICATIONS EQUIPMENT - 3.0%
Dycom Industries, Inc. * 235,000 5,052,500
EFJ, Inc. * 9,900 73,458
Mastec, Inc. * 1,100,000 12,177,000
MRV Communications, Inc. * 1,500,000 4,140,000
Oplink Communications, Inc. * 228,571 4,566,849
------------
26,009,807
------------
COMPUTER & ELECTRONICS RETAIL - 1.2%
RadioShack Corporation 530,000 10,229,000
------------
CONSTRUCTION & ENGINEERING - 7.6%
Granite Construction, Inc. (3) 84,900 4,529,415
Insituform Technologies, Inc. * 270,400 6,565,312
Quanta Services, Inc. * 1,225,000 20,653,500
Shaw Group, Inc. * 1,406,700 33,254,388
------------
65,002,615
------------
CONSUMER FINANCE - 2.4%
First Marblehead Corporation (3) 293,600 20,334,736
------------
DATA PROCESSING & OUTSOURCED SERVICES - 4.0%
Affiliated Computer Services, Inc. * 245,000 12,705,700
Computer Sciences Corporation * 440,000 21,612,800
------------
34,318,500
------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 2.6%
FTI Consulting, Inc. * 466,000 11,677,960
PHH Corporation * 380,000 10,412,000
------------
22,089,960
------------
ELECTRIC UTILITIES - 6.6%
Empire District Electric Company 265,800 5,948,604
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
ELECTRIC UTILITIES (CONTINUED)
Great Plains Energy, Inc. (3) 1,420,650 $ 44,068,563
Northeast Utilities 250,300 5,824,481
Westar Energy, Inc. 25,900 608,909
------------
56,450,557
------------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.9%
Powell Industries, Inc. * (1) 117,300 2,595,849
Power-One, Inc. * 1,904,000 13,784,960
------------
16,380,809
------------
ELECTRONIC MANUFACTURING SERVICES - 3.1%
Maxwell Technologies, Inc. * 601,000 12,224,340
Merix Corporation * (2) 1,476,000 14,184,360
------------
26,408,700
------------
EXCHANGE TRADED FUNDS - 3.3%
iShares Russell 2000 Value Index Fund 202,000 14,887,400
iShares S&P MidCap 400 185,000 13,673,350
------------
28,560,750
------------
GAS UTILITIES - 0.4%
Southern Union Company 130,000 3,433,300
------------
GENERAL MERCHANDISE STORES - 1.0%
Tuesday Morning Corporation 630,000 8,744,400
------------
HEALTH CARE EQUIPMENT - 0.4%
HealthTronics, Inc. * 510,000 3,146,700
------------
HEALTH CARE FACILITIES - 2.4%
Community Health Systems, Inc. * 185,000 6,909,750
Triad Hospitals, Inc. * 310,000 13,649,300
------------
20,559,050
------------
HOMEFURNISHING RETAIL - 0.0%
Bombay Company, Inc. * 119,200 163,304
------------
INDUSTRIAL CONGLOMERATES - 3.8%
McDermott International, Inc. * 781,700 32,675,060
------------
INSURANCE BROKERS - 0.3%
Hub International, Ltd. 96,000 2,776,320
------------
INTEGRATED OIL & GAS - 1.6%
Murphy Oil Corporation 279,000 13,266,450
------------
LIFE & HEALTH INSURANCE - 0.8%
KMG America Corporation * (1) 905,400 6,654,690
------------
MORTGAGE REIT'S - 3.4%
HomeBanc Corporation 650,000 3,997,500
MortgageIT Holdings, Inc. 960,700 13,526,656
Opteum, Inc. (1)(2) 1,474,400 11,868,920
------------
29,393,076
------------
The accompanying notes are an integral part of the financial statements.
40
Schedule of Investments Security Equity Fund - Mid Cap Value Series
September 30, 2006 - continued
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
MULTI - LINE INSURANCE - 1.4%
American Financial Group, Inc. 255,000 $ 11,967,150
------------
OIL & GAS DRILLING - 2.0%
Helmerich & Payne, Inc. 740,000 17,042,200
------------
OIL & GAS EQUIPMENT & SERVICES - 1.2%
Key Energy Services, Inc. * 780,000 10,608,000
------------
OIL & GAS EXPLORATION & PRODUCTION - 1.5%
Gulfport Energy Corporation * 260,000 3,013,400
Newfield Exploration Company * 260,000 10,020,400
------------
13,033,800
------------
OIL & GAS REFINING & MARKETING - 0.6%
Nova Oil, Inc. * (1) 1,354,900 4,742,150
------------
OIL & GAS STORAGE & TRANSPORTATION - 4.3%
Double Hull Tankers, Inc. 522,900 7,189,875
Williams Companies, Inc. 1,234,000 29,455,580
------------
36,645,455
------------
PACKAGED FOODS & MEATS - 4.8%
Hormel Foods Corporation 350,000 12,593,000
JM Smucker Company 260,000 12,467,000
Tyson Foods, Inc. (3) 1,000,000 15,880,000
------------
40,940,000
------------
PAPER PACKAGING - 2.6%
Bemis Company, Inc. 350,000 11,501,000
Sonoco Products Company 330,700 11,124,748
------------
22,625,748
------------
PERSONAL PRODUCTS - 2.3%
Alberto-Culver Company * 87,000 4,401,330
Playtex Products, Inc. * 1,150,000 15,410,000
------------
19,811,330
------------
PROPERTY & CASUALTY INSURANCE - 4.4%
Alleghany Corporation * 27,643 7,989,103
First American Corporation 262,500 11,114,250
North Pointe Holdings Corporation * (1)(2) 470,000 4,352,200
United America Indemnity, Ltd. * 130,000 2,921,100
W.R. Berkley Corporation (3) 322,500 11,413,275
------------
37,789,928
------------
REGIONAL BANKS - 1.7%
Mercantile Bankshares Corporation 148,000 5,367,960
Wilmington Trust Corporation 105,400 4,695,570
Zions Bancorporation 53,000 4,229,930
------------
14,293,460
------------
SEMICONDUCTOR EQUIPMENT - 0.9%
Ultratech, Inc. * 603,800 8,042,616
------------
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
SEMICONDUCTORS - 1.6%
Applied Micro Circuits Corporation * 850,000 $ 2,456,500
IXYS Corporation * 880,000 7,383,200
STATS ChipPAC, Ltd. ADR * 700,000 4,207,000
------------
14,046,700
------------
SPECIALIZED CONSUMER SERVICES - 0.7%
Regis Corporation 163,900 5,875,815
------------
SPECIALTY CHEMICALS - 0.2%
Material Sciences Corporation * 85,700 853,572
Minerals Technologies, Inc. 23,000 1,228,200
------------
2,081,772
------------
TIRES & RUBBER - 1.4%
Bandag, Inc. 296,000 12,147,840
------------
TRADING COMPANIES & DISTRIBUTORS - 1.2%
United Rentals, Inc. * 450,000 10,462,500
------------
TOTAL COMMON STOCK
(Cost $653,562,578) $810,521,739
------------
PREFERRED STOCK - 0.1%
DIVERSIFIED METALS & MINING - 0.1%
Arch Coal, Inc. 4,600 646,875
------------
ENVIRONMENTAL & FACILITIES SERVICES - 0.0%
ThermoEnergy Corporation PIPE * (1)(2)(4)(5)(6) 1,745,000 472,721
------------
TOTAL PREFERRED STOCK
(Cost $1,876,500) $ 1,119,596
------------
WARRANTS - 0.3%
WARRANTS - 0.3%
Lime Energy Company
$1.00, 3/19/2009 (4) 29,517 28,592
Nova Oil, Inc.
$2.57, 7/5/2011 (1)(4) 677,450 1,965,760
ThermoEnergy Corporation
$0.75, 7/14/2008 (1)(2)(4)(6) 1,745,000 160,889
------------
2,155,241
------------
TOTAL WARRANTS
(Cost $1,561,837) $ 2,155,241
------------
PRINCIPAL
AMOUNT VALUE
---------- ------------
CONVERTIBLE BOND - 0.3%
PHARMACEUTICALS - 0.3%
Ligand Pharmaceuticals, Inc.
6.00%, 2007 $1,250,000 2,017,187
------------
TOTAL CONVERTIBLE BOND
(Cost $1,250,000) $ 2,017,187
------------
The accompanying notes are an integral part of the financial statements.
41
Schedule of Investments Security Equity Fund - Mid Cap Value Series
September 30, 2006 - continued
PRINCIPAL
AMOUNT VALUE
---------- ------------
ASSET BACKED COMMERCIAL PAPER - 4.7%
DIVERSIFIED - 0.8%
Amsterdam Funding Corporation
5.26%, 10/5/2006 1,000,000 $ 999,416
5.26%, 10/6/2006 2,000,000 1,998,539
5.26%, 10/11/2006 1,500,000 1,497,808
5.24%, 10/30/2006 1,000,000 995,779
Govco, Inc.
5.36%, 10/18/2006 1,000,000 997,521
------------
6,489,063
------------
MISC. RECEIVABLES - 2.6%
Fairway Finance Corporation
5.255%, 10/3/2006 1,000,000 999,708
5.255%, 10/10/2006 1,000,000 998,686
5.255%, 10/13/2006 2,500,000 2,495,621
5.255%, 10/19/2006 1,000,000 997,373
5.255%, 10/24/2006 2,000,000 1,993,285
5.255%, 10/30/2006 1,000,000 995,767
Falcon Asset Securitization Corporation
5.25%, 10/12/2006 1,000,000 998,396
5.26%, 10/17/2006 2,000,000 1,995,325
5.25%, 10/20/2006 1,000,000 997,229
5.27%, 10/31/2006 1,600,000 1,592,973
5.25%, 11/7/2006 2,000,000 1,989,208
Jupiter Securitization Corporation
5.25%, 10/3/2006 1,000,000 999,708
5.30%, 10/4/2006 2,000,000 1,999,125
5.265%, 11/7/2006 1,000,000 994,589
5.26%, 11/10/2006 1,200,000 1,192,987
5.26%, 11/14/2006 1,200,000 1,192,285
------------
22,432,265
------------
SECURITIES - 0.1%
Perry Global Funding LLC
5.265%, 11/6/2006 1,000,000 994,735
------------
TRADE RECEIVABLES - 1.2%
Eureka Securitization
5.25%, 10/16/2006 2,000,000 1,995,625
Old Line Funding LLC
5.25%, 10/12/2006 1,400,000 1,397,754
5.26%, 10/20/2006 1,156,000 1,152,791
5.26%, 10/26/2006 1,000,000 996,347
5.26%, 11/3/2006 1,000,000 995,169
Sheffield Receivables Corporation
5.26%, 10/2/2006 2,000,000 1,999,708
5.26%, 10/18/2006 2,000,000 1.995.032
------------
10,532,426
------------
TOTAL ASSET BACKED COMMERCIAL
PAPER (Cost $40,448,489) $ 40,448,489
------------
PRINCIPAL
AMOUNT VALUE
---------- ------------
COMMERCIAL PAPER - 1.9%
AUTOMOTIVE - 0.7%
American Honda Finance
5.25%, 10/3/2006 1,000,000 $ 999,708
5.224%, 10/23/2006 2,600,000 2,591,700
5.23%, 10/25/2006 1,000,000 996,513
5.23%, 11/6/2006 1,022,000 1,016,655
------------
5,604,576
------------
BANKING - 0.9%
UBS Finance (DE) LLC
5.255%, 10/4/2006 1,000,000 999,562
5.25%, 10/5/2006 1,000,000 999,417
5.25%, 10/10/2006 1,000,000 998,688
5.25%, 10/24/2006 1,000,000 996,639
5.25%, 10/26/2006 1,300,000 1,295,260
5.25%, 10/27/2006 1,000,000 996,208
5.255%, 10/31/2006 1,000,000 995,621
------------
7,281,395
------------
BROKERAGE - 0.1%
Merrill Lynch & Company, Inc.
5.23%, 11/20/2006 1,100,000 1,092,010
------------
NON U.S. BANKING - 0.2%
Danske Corporation
5.30%, 10/19/2006 1,000,000 997,370
Societe Generale
5.25%, 10/11/2006 1,000,000 998.542
------------
1,995,912
------------
TOTAL COMMERCIAL PAPER
(Cost $15,973,893) $ 15,973,893
------------
REPURCHASE AGREEMENT - 0.0%
United Missouri Bank, 4.88%,
dated 09-29-06, matures
10-02-06; repurchase amount
of $248,101 (Collateralized by
FHLB, 2.625%, 05-15-07 with a
value of $257,416) $ 248,000 $ 248,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $248,000) $ 248,000
------------
TOTAL INVESTMENTS (SECURITY EQUITY FUND -
MID CAP VALUE SERIES)
(COST $714,921,297) - 101.8% $872,484,145
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.8)% (l5.046.999)
------------
TOTAL NET ASSETS - 100.0% $857,437,146
============
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $714,921,297.
The accompanying notes are an integral part of the financial statements.
42
Schedule of Investments Security Equity Fund - Mid Cap Value Series
September 30, 2006 - continued
* - Non-income producing security
(1) - Security is illiquid. See Notes to Financials.
(2) - Investment in an affiliated issuer. See Notes to Financials.
(3) - Security is segregated as collateral for open written options contracts.
(4) - Security is fair valued by the Board of Directors. See Note 8 in Notes to
Financials.
(5) - PIPE (Private Investment in Public Equity) - 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.
(6) - Security is restricted. See Notes to Financials.
Glossary:
ADR - American Depositary Receipt
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
43
SECURITY EQUITY FUND
MID CAP VALUE SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments in unaffiliated issues, at value(1) ................. $837,780,805
Investments in affiliated issues, at value(1) ................... 34,703,340
Cash ............................................................ 7,128
Receivables:
Securities sold .............................................. 134,506
Fund shares sold ............................................. 4,978,713
Interest ..................................................... 28,125
Dividends .................................................... 690,633
Prepaid expenses ................................................ 41,825
------------
Total assets .................................................... 878,365,075
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 16,019,256
Fund shares redeemed ......................................... 1,767,802
Written options, at value (premiums received $1,248,555) ..... 2,001,610
Management fees .............................................. 565,598
Custodian fees ............................................... 8,911
Transfer agent and administration fees ....................... 140,487
Professional fees ............................................ 45,150
12b-1 distribution plan fees ................................. 335,615
Directors' fees .............................................. 3,500
Other ........................................................ 40,000
------------
Total liabilities ............................................... 20,927,929
------------
NET ASSETS ...................................................... $857,437,146
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $655,149,203
Accumulated undistributed net realized gain on sale of
investments and options written .............................. 45,478,151
Net unrealized appreciation in value of investments and
options written .............................................. 156,809,792
------------
Net assets ...................................................... $857,437,146
============
CLASS A:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 15,576,345
Net assets ...................................................... $596,074,265
Net asset value per share ....................................... $ 38.27
============
Maximum offering price per share (net asset value
divided by 94.25%) ........................................... $ 40.60
============
CLASS B:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 3,130,023
Net assets ...................................................... $108,784,259
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales
charge) ...................................................... $ 34.76
============
CLASS C:
Capital shares outstanding (unlimited number of shares
authorized) .................................................. 4,306,171
Net assets ...................................................... $152,578,622
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales
charge) ...................................................... $ 35.43
============
(1) Investments, at cost ........................................ $714,921,297
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends from securities of unaffiliated issuers ............ $ 8,095,025
Dividends from securities of affiliated issuers .............. 590,220
Interest ..................................................... 1,704,232
------------
Total investment income ...................................... 10,389,477
------------
EXPENSES:
Management fees .............................................. 5,850,448
Custodian fees ............................................... 49,015
Transfer agent/maintenance fees .............................. 908,493
Administration fees .......................................... 676,986
Directors' fees .............................................. 18,661
Professional fees ............................................ 105,246
Reports to shareholders ...................................... 192,443
Registration fees ............................................ 81,351
Other expenses ............................................... 29,373
12b-1 distribution plan fees - Class A ....................... 1,199,972
12b-1 distribution plan fees - Class B ....................... 1,068,092
12b-1 distribution plan fees - Class C ....................... 1,265,949
------------
Total expenses ............................................... 11,446,029
Less: Earnings credits ....................................... (50)
------------
Net expenses ................................................. 11,445,979
------------
Net investment loss .......................................... (1,056,502)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investment transactions of unaffiliated issuers .............. 49,823,966
Investment transactions of affiliated issuers ................ 29,316
Options written .............................................. 3,988,614
------------
Net realized gain ............................................ 53,841,896
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................. 9,839,394
Options written .............................................. (866,604)
------------
Net unrealized appreciation .................................. 8,972,790
------------
Net gain ..................................................... 62,814,686
------------
Net increase in net assets resulting from operations ......... $ 61,758,184
============
44 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets MID CAP VALUE SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................................................... $ (1,056,502) $ (1,019,140)
Net realized gain during the period on investments and options written ............ 53,841,896 27,789,769
Net unrealized appreciation during the period on investments and options written .. 8,972,790 81,570,182
------------- ------------
Net increase in net assets resulting from operations .............................. 61,758,184 108,340,811
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A ........................................................................ (21,770,226) (17,531,136)
Class B ........................................................................ (5,997,235) (6,133,150)
Class C ........................................................................ (6,154,241) (4,546,382)
------------- ------------
Total distributions to shareholders ............................................... (33,921,702) (28,210,668)
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ........................................................................ 336,551,934 161,215,930
Class B ........................................................................ 24,068,613 17,972,042
Class C ........................................................................ 66,012,687 36,990,088
Distributions reinvested
Class A ........................................................................ 20,081,172 16,302,449
Class B ........................................................................ 5,715,437 5,863,417
Class C ........................................................................ 5,766,876 4,260,542
Cost of shares redeemed
Class A ........................................................................ (153,088,973) (73,348,101)
Class B ........................................................................ (22,952,102) (15,202,832)
Class C ........................................................................ (17,136,873) (14,043,393)
------------- ------------
Net increase from capital share transactions ...................................... 265,018,771 140,010,142
------------- ------------
Net increase in net assets ........................................................ 292,855,253 220,140,285
------------- ------------
NET ASSETS:
Beginning of period ............................................................... 564,581,893 344,441,608
------------- ------------
End of period ..................................................................... $ 857,437,146 $564,581,893
============= ============
Accumulated undistributed net investment income at end of period .................. $ -- $ --
============= ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ........................................................................ 8,840,332 4,912,125
Class B ........................................................................ 695,272 597,004
Class C ........................................................................ 1,858,360 1,196,717
Shares reinvested
Class A ........................................................................ 565,349 505,033
Class B ........................................................................ 176,130 196,298
Class C ........................................................................ 174,331 140,103
Shares redeemed
Class A ........................................................................ (4,094,527) (2,235,399)
Class B ........................................................................ (663,202) (503,071)
Class C ........................................................................ (485,231) (454,764)
45 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 2006 2005 2004 2003 2002
- ------- -------- -------- -------- -------- -------
PER SHARE DATA
Net asset value, beginning of period $ 36.34 $ 30.45 $ 24.48 $ 16.90 $ 18.04
-------- -------- -------- -------- -------
Income (loss) from investment operations:
Net investment income (loss)(b) 0.04 0.01 (0.09) (0.07) (0.04)
Net gain (loss) on securities (realized and unrealized) 3.96 8.16 6.32 7.65 (0.78)
-------- -------- -------- -------- -------
Total from investment operations 4.00 8.17 6.23 7.58 (0.82)
-------- -------- -------- -------- -------
Less distributions:
Distributions from realized gains (2.07) (2.28) (0.26) -- (0.21)
Return of capital -- -- -- -- (0.11)
-------- -------- -------- -------- -------
Total distributions (2.07) (2.28) (0.26) -- (0.32)
-------- -------- -------- -------- -------
Net asset value, end of period $ 38.27 $ 36.34 $ 30.45 $ 24.48 $ 16.90
======== ======== ======== ======== =======
TOTAL RETURN(a) 11.44% 27.77% 25.59% 44.85% (4.89%)
-------- -------- -------- -------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $596,074 $373,031 $215,659 $113,822 $68,544
-------- -------- -------- -------- -------
Ratios to average net assets:
Net investment income (loss) 0.10% 0.04% (0.31%) (0.33%) (0.20%)
Total expenses(d) 1.36% 1.41% 1.48% 1.65% 1.45%
Net expenses(e) 1.36% 1.41% 1.48% 1.65% 1.45%
-------- -------- -------- -------- -------
Portfolio turnover rate 33% 19% 45% 52% 51%
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
CLASS B 2006 2005 2004 2003 2002
- ------- -------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 33.43 $ 28.37 $ 22.99 $ 15.99 $ 17.26
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.23) (0.22) (0.28) (0.22) (0.21)
Net gain (loss) on securities (realized and unrealized) 3.63 7.56 5.92 7.20 (0.74)
-------- ------- ------- ------- -------
Total from investment operations 3.40 7.34 5.64 7.00 (0.95)
-------- ------- ------- ------- -------
Less distributions:
Distributions from realized gains (2.07) (2.28) (0.26) -- (0.21)
Return of capital -- -- -- -- (0.11)
-------- ------- ------- ------- -------
Total distributions (2.07) (2.28) (0.26) -- (0.32)
-------- ------- ------- ------- -------
Net asset value, end of period $ 34.76 $ 33.43 $ 28.37 $ 22.99 $ 15.99
======== ======= ======= ======= =======
TOTAL RETURN(a) 10.60% 26.83% 24.67% 43.78% (5.88%)
-------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $108,784 $97,664 $74,650 $53,947 $37,136
-------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (0.68%) (0.72%) (1.07%) (1.08%) (1.09%)
Total expenses(d) 2.11% 2.16% 2.23% 2.40% 2.34%
Net expenses(e) 2.11% 2.16% 2.23% 2.40% 2.34%
-------- ------- ------- ------- -------
Portfolio turnover rate 33% 19% 45% 52% 51%
46 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 C 2006 2005 2004 2003 2002(c)
- ------- -------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 34.03 $ 28.85 $ 23.37 $ 16.26 $ 17.53
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.22) (0.21) (0.29) (0.21) (0.21)
Net gain (loss) on securities (realized and unrealized) 3.69 7.67 6.03 7.32 (0.74)
-------- ------- ------- ------- -------
Total from investment operations 3.47 7.46 5.74 7.11 (0.95)
-------- ------- ------- ------- -------
Less distributions:
Distributions from realized gains (2.07) (2.28) (0.26) -- (0.21)
Return of capital -- -- -- -- (0.11)
-------- ------- ------- ------- -------
Total distributions (2.07) (2.28) (0.26) -- (0.32)
-------- ------- ------- ------- -------
Net asset value, end of period $ 35.43 $ 34.03 $ 28.85 $ 23.37 $ 16.26
======== ======= ======= ======= =======
TOTAL RETURN(a) 10.62% 26.80% 24.70% 43.73% (5.79%)
-------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $152,579 $93,887 $54,133 $32,999 $18,785
-------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (0.65%) (0.71%) (1.06%) (1.08%) (1.06%)
Total expenses(d) 2.11% 2.16% 2.23% 2.40% 2.35%
Net expenses(e) 2.11% 2.16% 2.23% 2.40% 2.35%
-------- ------- ------- ------- -------
Portfolio turnover rate 33% 19% 45% 52% 51%
(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 shares.
(b) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(c) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(d) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(e) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
47 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary SELECT 25 SERIES
November 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Adviser, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Mark Mitchell
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Security Equity Fund Select 25 Series returned 5.34%(1) in the period, lagging
the benchmark Russell 1000 Growth Index's return of 6.04%, but out performing
the Series' peer group median return of 3.72%. Individual stock selection drove
our results in fiscal 2006. While being disappointed that our results were below
the benchmark, we believe that our approach delivers performance over the
long-term.
Our investment philosophy is centered on three key tenants: first, we believe
good investments are purchased at less than their intrinsic value, second, a
long-term approach and patience are critical to successful investing, and last,
we concentrate our investments in companies that have the greatest return
potential.
Our process is a bottom-up, research-driven investment process that attempts to
identify companies that have a competitive advantage or have the ability to
become more competitive in the future. We focus on owning these companies for
three to five years or longer, which we believe differentiates us from a
majority of our peers and ultimately allows us to make better investment
decisions. We buy these companies when their current price trades below their
intrinsic value. We closely monitor each company's progress. We will sell a
company if the valuation no longer makes sense, if we've made a mistake and our
investment thesis is no longer valid, or if we have a more attractive investment
alternative. For this Series, we apply this philosophy to a broad range of
growth names.
We ultimately structure the portfolio with 25-30 names. This philosophy is
applied to a broad range of growth names.
FINANCIALS AND HEALTH CARE STOCKS TOP PERFORMERS
The Series' financial holdings were up 63% compared to 17% for the index with
our position in First Marblehead Corporation up over 200%. III-placed,
short-term concerns over the company's competitive position offered us an
excellent opportunity to take a position in this leading student lending
company. First Marblehead maintains its competitive advantage with its loan
underwriting capability, superior economics, and value-added services.
Health care, as a sector overall, was up only 5%; however, good stock selection
added value to the Series. Zimmer Holdings, Inc., was up over 15%. Zimmer is a
leading orthopedic manufacturer that has experienced a sharp decline in price
due to a deceleration in its long-term growth prospects. Having owned the
company previously, we had a very good understanding of the fundamentals for
both Zimmer and the orthopedic industry. We were comfortable with the new
lower-growth outlook and thus viewed the market's reaction as overly punitive.
We were able to buy a great company at a reasonable valuation with the stock
having recovered more than 33% since our purchase.
Covance, Inc., was up 35%. The company provides value-added services to
pharmaceutical companies and related industries. Capacity additions coupled with
end-market demand, we believe, have positioned Covance for continued profitable
growth.
ENERGY AND INDUSTRIAL SECTORS DISAPPOINT
The energy sector was down more than 18% compared to a down of 6% for the
benchmark. Evergreen Energy, Inc., down 39% (previously known as KFx) and BJ
Services Company, down 15%, both contributed negatively to the Series. Evergreen
Energy was hurt by concerns over the viability of the initial production results
of its proprietary clean coal technology. BJ Services was impacted more
generally by the recent exodus from oil-services-related names as a result of a
weakening energy commodity market.
Holdings in the industrial sector performed poorly in the reporting period. We
were positioned to take advantage of several unique opportunities in companies
that benefit broadly from strong global economic growth. Concerns regarding a
slowdown in the United States have impacted the group. We still like the
fundamentals of the companies we own, including FedEx Corporation, W.W.
Grainger, Inc., L-3 Communications, Holdings, Inc., and Shaw Group.
48
SECURITY EQUITY FUND
Manager's Commentary SELECT 25 SERIES
November 15, 2006 (unaudited)
2007 MARKET OUTLOOK
The current low-return investment environment has continued to make available
ample liquidity in the U.S. equity market. Falling energy prices have helped
increase consumer confidence and provide support to corporate profit margins
through lower raw material input prices. Additionally, businesses continue to
have very healthy balance sheets to help drive future growth initiatives.
As we noted in last year's shareholder letter, we've been concerned about a
slowdown in U.S. consumer spending for some time. This concern has yet to
materialize, but we still think it will happen. Lower energy prices will help;
however, higher interest rates and a housing market slowdown provide likely
headwinds. The Federal Reserve is walking a fine line between managing inflation
risks while supporting economic growth. We're unsure, like most investors, what
the Fed's next move will be. This uncertainty will weigh on the market until
it's resolved.
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
(1) Performance figures are based on Class A shares and do not reflect
deductions of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares.
49
SECURITY EQUITY FUND
Performance Summary SELECT 25 SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY SELECT 25 SERIES VS. RUSSELL 1000 GROWTH INDEX
(PERFORMANCE GRAPH)
Select 25 Series
01/29/99 9,425.00
03/31/99 9,802.00
06/30/99 9,915.10
09/30/99 9,924.53
12/31/99 11,734.13
03/31/00 11,573.90
06/30/00 11,064.95
09/30/00 10,687.95
12/31/00 9,660.63
03/31/01 8,228.03
06/30/01 8,793.53
09/30/01 7,144.15
12/31/01 8,605.03
03/31/02 8,539.05
06/30/02 7,002.78
09/30/02 6,145.10
12/31/02 6,343.03
03/31/03 6,173.38
06/30/03 6,776.58
09/30/03 6,851.98
12/31/03 7,417.48
03/31/04 7,719.08
06/30/04 7,775.63
09/30/04 7,360.93
12/31/04 8,228.03
03/31/05 7,954.70
06/30/05 8,048.95
09/30/05 8,821.80
12/31/05 9,189.38
03/31/06 9,641.78
06/30/06 9,236.50
09/30/06 9,293.05
RUSSELL 1000 GROWTH INDEX
INCEPTION 1/29/99 10,000.00
03/31/99 10,045.92
06/30/99 10,432.68
09/30/99 10,049.99
12/31/99 12,577.25
03/31/00 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
12/31/05 8,130.26
03/31/06 8,382.36
06/30/06 8,055.32
09/30/06 8,372.92
$10,000 SINCE INCEPTION
This chart assumes a $10,000 investment in Class A shares of Select 25 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. The Russell 1000 Growth Index is an unmanaged
capitalization-weighted index which includes stocks incorporated in the United
States and its territories and measures the performance of the Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 Year 5 Years Since Inception
- --------------------- ------ ------- ---------------
A Shares 5.34% 5.40% (0.18%)(1-29-99)
A Shares with sales charge (0.70%) 4.17% (0.95%)(1-29-99)
B Shares 4.60% 4.63% (0.90%)(1-29-99)
B Shares with CDSC (0.40%) 4.30% (0.90%)(1-29-99)
C Shares 4.70% 4.61% (0.86%)(1-29-99)
C Shares with CDSC 3.70% 4.61% (0.86%)(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 AS OF 9-30-06
Consumer Discretionary 13.00%
Consumer Staples 4.93
Energy 12.74
Financials 15.10
Health Care 18.95
Industrials 15.32
Information Technology 8.87
Materials 3.13
Exchange Traded Funds 4.04
Asset Backed Commercial Paper 1.70
Commercial Paper 3.57
Liabilities in excess of other assets (1.35)
------
Total net assets 100.00%
======
50 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary SELECT 25 SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID
04-01-06 09-30-06(1) DURING PERIOD(2)
------------- ------------- ----------------
Select 25
Series - Class A
Actual $1,000.00 $ 963.80 $ 8.52
Hypothetical 1,000.00 1,016.39 8.74
Select 25
Series - Class B
Actual 1,000.00 959.90 12.23
Hypothetical 1,000.00 1,012.58 12.56
Select 25
Series - Class C
Actual 1,000.00 960.00 12.23
Hypothetical 1,000.00 1,012.58 12.56
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was (3.62%), (4.01%) and
(4.00%), for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (1.73%, 2.49% and
2.49% 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).
51
Schedule of Investments Security Equity Fund - Select 25 Series
September 30, 2006
SHARES VALUE
--------- -----------
COMMON STOCK - 96.1%
AEROSPACE & DEFENSE - 2.5%
L-3 Communications Holdings, Inc. 18,813 $ 1,473,622
-----------
AIR FREIGHT & LOGISTICS - 5.3%
FedEx Corporation 28,943 3,145,525
-----------
BIOTECHNOLOGY -5.5%
Amgen, Inc. * 45,442 3,250,466
-----------
BROADCASTING & CABLE TV - 3.5%
CBS Corporation (CI.B) 25,626 721,884
Univision Communications, Inc. * 39,043 1,340,737
-----------
2,062,621
-----------
COAL & CONSUMABLE FUELS - 3.0%
Evergreen Energy, Inc. * 168,100 1,766,731
-----------
COMMUNICATIONS EQUIPMENT - 6.0%
ADC Telecommunications, Inc. * 110,374 1,655,612
Cisco Systems, Inc. * 81,373 1,871,579
-----------
3,527,191
-----------
CONSTRUCTION & ENGINEERING - 3.5%
Shaw Group, Inc. * 88,254 2,086,325
-----------
CONSUMER FINANCE - 6.4%
First Marblehead Corporation (1) 54,742 3,791,431
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.9%
First Data Corporation 40,346 1,694,532
-----------
ELECTRIC UTILITIES - 0.0%
Progress Energy, Inc. - Contingent Value Obligation* 400 124
-----------
EXCHANGE TRADED FUNDS - 4.1%
iShares Russell 1000 Growth Index Fund 33,886 1,767,494
iShares S&P 500 Growth Index Fund 10,000 617,600
-----------
2,385,094
-----------
HEALTH CARE EQUIPMENT - 5.1%
Zimmer Holdings, Inc. * 44,200 2,983,500
-----------
HOME IMPROVEMENT RETAIL - 4.5%
Home Depot, Inc. 73,272 2,657,575
-----------
HOTELS, RESORTS & CRUISE LINES - 3.5%
Carnival Corporation 43,633 2,052,060
-----------
HYPERMARKETS & SUPER CENTERS - 3.0%
Wal-Mart Stores, Inc. 35,696 1,760,527
-----------
INDUSTRIAL GASES - 3.2%
Praxair, Inc. 31,301 1,851,767
-----------
LIFE SCIENCES TOOLS & SERVICES - 3.7%
Covance, Inc. * 32,592 2,163,457
-----------
SHARES VALUE
--------- -----------
COMMON STOCK (CONTINUED)
MOVIES & ENTERTAINMENT - 1.5%
Viacom, Inc. (CI.B) * 23,953 $ 890,573
-----------
MULTI-LINE INSURANCE - 5.7%
American International Group, Inc. 50,634 3,355,009
-----------
OIL & GAS EQUIPMENT & SERVICES - 4.1%
BJ Services Company (1) 80,877 2,436,824
-----------
OIL & GAS STORAGE & TRANSPORTATION - 5.6%
Williams Companies, Inc. 138,259 3,300,242
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.0%
Citigroup, Inc. 35,323 1,754,493
-----------
PHARMACEUTICALS - 4.7%
Johnson & Johnson 42,617 2,767,548
-----------
SOFT DRINKS - 1.9%
PepsiCo, Inc. 17,495 1,141,724
-----------
TRADING COMPANIES & DISTRIBUTORS - 3.9%
W.W. Grainger, Inc. 34,653 2,322,444
-----------
TOTAL COMMON STOCK
(Cost $48,544,104) $56,621,405
-----------
PRINCIPAL
AMOUNT VALUE
--------- -----------
ASSET BACKED COMMERCIAL PAPER - 1.7%
MISC. RECEIVABLES - 1.7%
Fairway Finance Corporation
5.26%, 10/2/2006 1,000,000 999,854
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER
(Cost $999,854) $ 999,854
-----------
COMMERCIAL PAPER - 3.5%
BROKERAGE - 1.7%
Morgan Stanley
5.32%, 10/4/2006 1,000,000 999,557
-----------
FINANCIAL - OTHER - 1.8%
Countrywide Financial Corporation
5.28%, 10/3/2006 1,100,000 1,099,677
-----------
TOTAL COMMERCIAL PAPER
(Cost $2,099,234) $ 2,099,234
-----------
TOTAL INVESTMENTS (SECURITY EQUITY FUND -
SELECT 25 SERIES)
(COST $51,643,192) - 101.3% $59,720,493
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.3)% (792,000)
-----------
TOTAL NET ASSETS - 100.0% $58,928,493
===========
The accompanying notes are an integral part of the financial statements.
52
Schedule of Investments Security Equity Fund - Select 25 Series
September 30, 2006 - continued
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $51,742,644.
* - Non-income producing security
(1) - Security is segregated as collateral for open written options contracts.
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
53
SECURITY EQUITY FUND
SELECT 25 SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1)......................................... $ 59,720,493
Cash............................................................. 46,971
Receivables:
Fund shares sold.............................................. 51,470
Securities sold............................................... 182,817
Dividends..................................................... 18,860
Prepaid expenses................................................. 11,193
------------
Total assets..................................................... 60,031,804
------------
LIABILITIES:
Payable for:
Securities purchased.......................................... 618,975
Fund shares redeemed.......................................... 283,950
Written options, at value (premiums received, $41,934)........ 70,560
Management fees............................................... 36,086
Custodian fees................................................ 2,138
Transfer agent and administration fees........................ 16,417
Professional fees............................................. 21,810
12b-1 distribution plan fees.................................. 29,740
Directors' fees............................................... 240
Other......................................................... 23,395
------------
Total liabilities................................................ 1,103,311
------------
NET ASSETS....................................................... $ 58,928,493
============
NET ASSETS CONSIST OF:
Paid in capital.................................................. $ 68,281,796
Accumulated undistributed net realized loss on sale of
investments and options written............................... (17,401,978)
Net unrealized appreciation in value of investments and options
written....................................................... 8,048,675
------------
Net assets....................................................... $ 58,928,493
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized)....................... 3,050,606
Net assets....................................................... $ 30,078,337
Net asset value per share........................................ $ 9.86
============
Maximum offering price per share
(net asset value divided by 94.25%)........................... $ 10.46
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized)....................... 1,722,942
Net assets ...................................................... $ 16,073,157
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge)... $ 9.33
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized)....................... 1,365,273
Net assets....................................................... $ 12,776,999
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge)... $ 9.36
============
(1)Investments, at cost.......................................... $ 51,643,192
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends..................................................... $ 331,894
Interest...................................................... 40,756
------------
Total investment income....................................... 372,650
------------
EXPENSES:
Management fees............................................... 258,700
Custodian fees................................................ 5,142
Transfer agent/maintenance fees............................... 174,868
Administration fees........................................... 34,756
Directors' fees............................................... 894
Professional fees............................................. 10,795
Reports to shareholders....................................... 8,690
Registration fees............................................. 30,400
Other expenses................................................ 2,454
12b-1 distribution plan fees - Class A........................ 40,862
12b-1 distribution plan fees - Class B........................ 106,552
12b-1 distribution plan fees - Class C........................ 74,932
------------
Total expenses................................................ 749,045
------------
Net investment loss........................................... (376,395)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments................................................... 964,666
Options written............................................... 56,940
------------
Net realized gain............................................. 1,021,606
------------
Net unrealized appreciation (depreciation) during the period on:
Investments................................................... 3,350,791
Options written............................................... (28,626)
------------
Net unrealized appreciation................................... 3,322,165
------------
Net gain...................................................... 4,343,771
------------
Net increase in net assets resulting from operations.......... $ 3,967,376
============
54 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets SELECT 25 SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ................................... $ (376,395) $ (265,585)
Net realized gain during the period on investments
and options written ................................ 1,021,606 544,010
Net unrealized appreciation during the period on
investments ........................................ 3,322,165 3,480,799
----------- -----------
Net increase in net assets resulting from operations .. 3,967,376 3,759,224
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A ............................................ 7,864,377 1,492,556
Class B ............................................ 4,340,849 666,322
Class C ............................................ 2,041,112 610,317
Issuance of shares in connection with the
acquisition of Enhanced Index Series, Large Cap
Growth Series & Social Awareness Series (Note 12)
Class A ............................................ 15,062,441 --
Class B ............................................ 9,166,885 --
Class C ............................................ 8,374,157 --
Cost of shares redeemed
Class A ............................................ (6,429,656) (3,447,276)
Class B ............................................ (4,179,088) (2,219,476)
Class C ............................................ (2,220,890) (2,348,235)
----------- -----------
Net increase (decrease) from capital share
transactions ....................................... 34,020,187 (5,245,792)
----------- -----------
Net increase (decrease) in net assets ................. 37,987,563 (1,486,568)
----------- -----------
NET ASSETS:
Beginning of period ................................... 20,940,930 22,427,498
----------- -----------
End of period ......................................... $58,928,493 $20,940,930
=========== ===========
Accumulated undistributed net investment income at
end of period ...................................... $ -- $ --
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold
Class A ............................................ 806,448 174,623
Class B ............................................ 468,049 82,316
Class C ............................................ 220,684 73,575
Issuance of shares in connection with the
acquisition of Enhanced Index Series, Large Cap
Growth Series & Social Awareness Series (Note 12)
Class A ............................................ 1,968,338 --
Class B ............................................ 929,480 --
Class C ............................................ 826,684 --
Shares redeemed
Class A ............................................ (676,660) (403,526)
Class B ............................................ (459,639) (274,915)
Class C ............................................ (244,326) (291,186)
55 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SELECT 25 SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
CLASS A 2006(d) 2005 2004 2003 2002
- ------- ------- ------ ------ ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 9.36 $ 7.81 $ 7.27 $ 6.52 $ 7.58
------- ------ ------ ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.06) (0.07) (0.06) (0.05) (0.07)
Net gain (loss) on securities (realized and unrealized) 0.56 1.62 0.60 0.80 (0.99)
------- ------ ------ ------- -------
Total from investment operations 0.50 1.55 0.54 0.75 (1.06)
------- ------ ------ ------- -------
Net asset value, end of period $ 9.86 $ 9.36 $ 7.81 $ 7.27 $ 6.52
======= ====== ====== ======= =======
TOTAL RETURN(a) 5.34% 19.85% 7.43% 11.50% (13.98%)
------- ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $30,078 $8,912 $9,228 $10,396 $11,933
------- ------ ------ ------- -------
Ratios to average net assets:
Net investment loss (0.68%) (0.79%) (0.75%) (0.70%) (0.81%)
Total expenses 1.76% 1.67% 1.56% 1.63% 1.46%
------- ------ ------ ------- -------
Portfolio turnover rate 39% 13% 44% 54% 33%
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
CLASS B 2006(d) 2005 2004 2003 2002
- ------- ------- ------ ------ ------ -------
PER SHARE DATA
Net asset value, beginning of period $ 8.92 $ 7.50 $ 7.04 $ 6.36 $ 7.44
------- ------ ------ ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.13) (0.13) (0.11) (0.10) (0.13)
Net gain (loss) on securities (realized and unrealized) 0.54 1.55 0.57 0.78 (0.95)
------- ------ ------ ------ -------
Total from investment operations 0.41 1.42 0.46 0.68 (1.08)
------- ------ ------ ------ -------
Net asset value, end of period $ 9.33 $ 8.92 $ 7.50 $ 7.04 $ 6.36
======= ====== ====== ====== =======
TOTAL RETURN(a) 4.60% 18.93% 6.53% 10.69% (14.52%)
------- ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $16,073 $7,000 $7,333 $8,203 $ 8,566
------- ------ ------ ------- -------
Ratios to average net assets:
Net investment loss (1.46%) (1.54%) (1.50%) (1.45%) (1.56%)
Total expenses 2.53% 2.42% 2.31% 2.38% 2.21%
------- ------ ------ ------- -------
Portfolio turnover rate 39% 13% 44% 54% 33%
56 See accompanying notes.
SECURITY EQUITY FUND
Financial Highlights SELECT 25 SERIES
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
CLASS C 2006(d) 2005 2004 2003 2002(c)
- ------- ------- ------ ------ ------ -------
PER SHARE DATA
Net asset value, beginning of period $ 8.94 $ 7.52 $ 7.06 $ 6.38 $ 7.47
------- ------ ------ ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.13) (0.13) (0.11) (0.10) (0.13)
Net gain (loss) on securities (realized and unrealized) 0.55 1.55 0.57 0.78 (0.96)
------- ------ ------ ------ -------
Total from investment operations 0.42 1.42 0.46 0.68 (1.09)
------- ------ ------ ------ -------
Net asset value, end of period $ 9.36 $ 8.94 $ 7.52 $ 7.06 $ 6.38
======= ====== ====== ====== =======
TOTAL RETURN(a) 4.70% 18.88% 6.52% 10.66% (14.59%)
------- ------ ------ ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $12,777 $5,029 $5,866 $6,225 $ 3,954
------- ------ ------ ------- -------
Ratios to average net assets:
Net investment loss (1.44%) (1.54%) (1.50%) (1.44%) (1.56%)
Total expenses 2.52% 2.42% 2.31% 2.37% 2.21%
------- ------ ------ ------- -------
Portfolio turnover rate 39% 13% 44% 54% 33%
(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) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(c) The financial highlights for Class C shares exclude the historical
financial highlights of Class S shares. Class S shares were exchanged for
Class C shares on June 3, 2002.
(d) The financial highlights for the Select 25 Series exclude the historical
financial highlights of the Enhanced Index Series, Class A, B and C shares,
the Large Cap Growth Series, Class A, B and C shares and the Social
Awareness Series Class A, B and C shares. A total of $29,412,366 was
excluded from purchases in the portfolio turnover calculation. This was the
cost of the securities Select 25 received as a result of the merger. The
assets of the Enhanced Index, Large Cap Growth and Social Awareness Series'
were acquired by the Select 25 Series on June 16, 2006.
57 See accompanying notes.
SECURITY EQUITY FUND
Manager's Commentary SMALL CAP GROWTH SERIES
November 15, 2006 (unaudited)
(RS INVESTMENTS LOGO)
Subadviser, RS Investments
(PHOTO OF BILL WOLFENDEN)
Bill Wolfenden
Portfolio Manager
TO OUR SHAREHOLDERS:
The Small Cap Growth Series of the Security Equity Fund was down 0.82%(1) for
the fiscal year ending September 30, 2006, lagging the benchmark, which rose
5.88% in the same period.
The fourth quarter of 2005, and in particular the first quarter of 2006, were
positive for stocks, with investors focused on continued strong corporate
earnings growth and the possibility of a pause in oil prices and interest rates.
Uncertainty surrounding inflation, the new Federal Reserve Board chairman's
stewardship of the economy, and continuing increases in interest rates and oil
prices, however, led to a drubbing of stocks in the second quarter. The
portfolio lagged the index during the strong first-quarter rally but gained
ground as the market sold off for much of the second quarter. Unfortunately,
these relative gains evaporated over the last several trading days of the second
quarter.
The macroeconomic picture was muddied during the third quarter by the start of a
global economic slowdown. The slowing economy seemed to offset the positive
effects of a pause by the Federal Reserve Board in its 18-month march toward
higher short-term interest rates. While longer-term investors like us look
forward to a "Goldilocks" scenario of slightly slower growth and a soft landing
in 2007 with the tailwinds of lower interest rates and lower commodity prices,
the market drifted aimlessly for much of the third quarter of 2006, searching
for direction. Without clear leadership, more defensive groups, such as health
care and financials, were sources of positive contribution to our performance
and the benchmark's. Much of our underperformance during the year came from
sub-par stock selection in energy and technology.
The second-quarter earnings period in July and early August was challenging for
our companies despite many earnings reports that were generally strong and on
track with our expectations. The market did not always agree, however, and
sometimes voted differently. Many companies' reports were "not good enough,"
and shares were often mispriced to the downside. We took advantage of the
volatility, adding to a number of core holdings, and have already seen the
fruits of those efforts. Nutri/System, Inc., is a leading provider of
subscription weight-loss programs. In the recent quarter, the company announced
increasing subscriptions, revenues, and earnings per share (EPS). Investors
focused on a slight up tick in customer acquisition costs, however, and the
stock declined more than 25% in a three-day period. We met with company
management, came away reassured about the acquisition cost issue, and used the
price decline as an opportunity to purchase more stock. The stock is up more
than 40% from its second-quarter low and was a solid contributor to returns
during the quarter. This kind of volatility is not unusual in the small cap
universe, and we think that this kind of research advantage, creating portfolio
management conviction, serves investors over time.
We increased our weighting in financial services in the spring of 2006 as we saw
the prospects of a pause in the Fed's short-term interest rate hikes. Our
overweighting in financials, which represented an average of 17% of the
portfolio in the most recent quarter, is spread broadly across a range of growth
businesses. Longtime holding Private Bancorp, Inc., continued its good
performance as it executed on growing its regional footprint for the
high-net-worth market.
We own a number of companies that are benefiting from the increase in
derivatives and options trading. International Securities Exchange Holdings,
Inc., the largest equity options exchange, is among the leading options
exchanges in the world. The company is benefiting from significantly increased
derivatives trading volume and a general up tick in overall market volatility.
This is an exciting emerging growth company, but it is also a high-beta stock
that we monitor closely.
Investment Technology Group, Inc., (ITG) is a newer position that detracted from
returns during the recent quarter. A leader in institutional trading analytics
and execution, ITG is solidly positioned to benefit from the unbundling of trade
execution and research, electronic trading, and algorithmic trading. Trading
volumes at ITG continue to increase, measured quarter-by-quarter and
year-over-year. The stock declined during the third quarter as investors worried
about competitive threats. We think ITG can meet those challenges and continue
to build market share-and the stock is cheap, trading at less than 18 times our
2007 EPS estimate.
58
SECURITY EQUITY FUND
Manager's Commentary SMALL CAP GROWTH SERIES
November 15, 2006 (unaudited)
Poor stock selection in technology hurt our performance during the year. Despite
a concerted effort midyear to be underweighted in technology due to the upcoming
slower seasonal period, we were plagued by poor stock selection. Digitas, Inc.,
a leader in providing Web-based marketing services to large Fortune 1000
companies, was an example of overstaying our welcome in a long-term core
holding. This segment is growing rapidly as blue-chip companies like General
Motors and American Express move more advertising dollars out of traditional
media and onto the Web. We have owned the stock since early 2003, and it has
contributed significantly to returns since then. In the recent quarter, Digitas
announced some execution stumbles and the loss of several major clients, and the
stock dipped significantly. Despite our past success with Digitas, we are not
convinced of its ability to resolve its issues and we have exited the stock.
Openwave Systems, Inc., was another large loser in the tech sector. Openwave
suffered the double whammy of an earnings disappointment combined with being
embroiled in the options backdating scandal. We quickly cut our losses in the
name but suffered a precipitous decline in the shares before exiting.
In health care our stock-picking ability helped add to performance. Winners such
as PolyMedica Corporation, a provider of healthcare products and services to
patients suffering from chronic diseases; AMN Healthcare Services, Inc., which
engages in the recruitment and placement of physicians, nurses, and allied
health professionals; and Vital Signs, Inc., a manufacturer of disposable
medical products for use in anesthesia, critical care, and respiratory
procedures, made significant contributions. We were unfortunately underweighted
for the quarter, at approximately 18% vs. 19%, and that cost us some relative
performance. We aim to increase our health care weighting as we gear the
portfolio for a potential slowdown in economic activity in 2007. As we have
consistently said, our goal is to find exciting, fast-growing health care names
that have sustainable recurring business models and that will perform well
throughout the economic cycle.
Overall we are disappointed with the relative underperformance during the year.
As you know, we have a three to five-year time horizon with our investments, and
we are very optimistic about the portfolio's prospects. Given our focus on
strong, fast-growing companies that we believe will achieve superior results
regardless of the economic cycle, we are eager to enter 2007 with a clearer look
at the extent of the economic slowdown. We think that with the Fed's
rate-tightening cycle nearing an end, lower inflation expectations, and
commodity price easing, the environment in the fourth quarter and 2007 bodes
well for small cap growth stocks.
As a fellow investor in the strategy, I appreciate your patience this year and
your continued support.
Sincerely,
Bill Wolfenden
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or the redemption of shares.
59
SECURITY EQUITY FUND
Performance Summary SMALL CAP GROWTH SERIES
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY SMALL CAP GROWTH SERIES VS. RUSSELL 2000 GROWTH INDEX
(PERFORMANCE GRAPH)
Small Cap Growth Series
10/15/97 9,425.00
12/31/97 9,063.00
03/31/98 10,128.68
06/30/98 9,921.20
09/30/98 8,204.80
12/31/98 10,006.08
03/31/99 10,015.51
06/30/99 10,571.93
09/30/99 12,241.18
12/31/99 18,728.25
03/31/00 23,780.52
06/30/00 20,741.41
09/30/00 21,370.53
12/31/00 16,926.48
03/31/01 12,356.86
06/30/01 13,572.63
09/30/01 10,271.18
12/31/01 12,042.43
03/31/02 11,665.12
06/30/02 10,428.39
09/30/02 8,258.87
12/31/02 8,751.46
03/31/03 8,248.39
06/30/03 10,522.72
09/30/03 12,189.16
12/31/03 13,572.63
03/31/04 14,453.02
06/30/04 14,222.44
09/30/04 13,740.32
12/31/04 15,763.12
03/31/05 14,756.96
06/30/05 15,658.31
09/30/05 16,517.73
12/31/05 16,821.68
03/31/06 18,551.01
06/30/06 16,999.85
09/30/06 16,381.48
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
12/31/05 11,545.56
03/31/06 13,204.61
06/30/06 12,246.75
09/30/06 12,032.62
$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. The Russell 2000 Growth Index measures the
performance of those Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
PORTFOLIO COMPOSITION BY SECTOR AS OF 9-30-06
Consumer Discretionary 14.02%
Consumer Staples 3.51
Energy 5.80
Financials 14.05
Health Care 20.68
Industrials 14.89
Information Technology 17.40
Telecommunication Services 0.74
Repurchase Agreement 12.18
Liabilities in excess of other assets (3.27)
------
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------- ------ ------- ---------------
A Shares (0.82%) 9.79% 6.37% (10-15-97)
A Shares with sales charge (6.52%) 8.49% 5.67% (10-15-97)
B Shares (1.51%) 8.94% 5.50% (10-15-97)
B Shares with CDSC (6.43%) 8.66% 5.50% (10-15-97)
C Shares (1.61%) 8.97% 5.07% (1-29-99)
C Shares with CDSC (2.60%) 8.97% 5.07% (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.
60 See accompanying notes.
SECURITY EQUITY FUND
Performance Summary SMALL CAP GROWTH SERIES
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
04-01-06 09-30-06(1) PERIOD(2)
------------- ------------- -------------
Small Cap Growth
Series - Class A
Actual $1,000.00 $ 883.10 $ 9.44
Hypothetical 1,000.00 1,015.04 10.10
Small Cap Growth
Series - Class B
Actual 1,000.00 880.00 13.20
Hypothetical 1,000.00 1,011.03 14.12
Small Cap Growth
Series - Class C
Actual 1,000.00 879.30 13.14
Hypothetical 1,000.00 1,011.08 14.07
(1) The actual ending account value is based on the actual total return of the
Series for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was (11.69%), (12.00%) and
(12.07%), for Class A, B and C shares, respectively.
(2) Expenses are equal to the Series annualized expense ratio (2.00%, 2.80% and
2.79% for Class A, B and C shares, respectively), net of any applicable fee
waivers or earnings credits, multiplied by the average account value over
the period, multiplied by 183/365 (to reflect the one-half year period).
61
Schedule of Investments Security Equity Fund - Small Cap Growth Series
September 30, 2006
SHARES VALUE
---------- -----------
COMMON STOCK-91.1%
AEROSPACE & DEFENSE -1.8%
BE Aerospace, Inc. * 25,700 $ 542,013
Heico Corporation 14,080 482,944
-----------
1,024,957
-----------
ALTERNATIVE CARRIERS - 0.7%
Time Warner Telecom, Inc. * 21,680 412,137
-----------
APPAREL RETAIL - 2.9%
Cache, Inc. * 54,370 972,679
Jos A. Bank Clothiers, Inc. * 21,826 653,907
-----------
1,626,586
-----------
APPAREL, ACCESSORIES & LUXURY GOODS -1.3%
Carter's, Inc. * 27,210 718,072
-----------
APPLICATION SOFTWARE -1.7%
Advent Software, Inc. * 8,000 289,680
Concur Technologies, Inc. * 45,840 666,972
-----------
956,652
-----------
BIOTECHNOLOGY -1.0%
Solexa, Inc. * 61,227 540,022
-----------
CASINOS & GAMING -3.4%
Century Casinos, Inc. * 73,020 725,819
Scientific Games Corporation * 36,740 1,168,332
-----------
1,894,151
-----------
COMMUNICATIONS EQUIPMENT -1.0%
CommScope, Inc. * 17,680 580,965
-----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS -0.9%
American Railcar Industries, Inc. 18,000 523,980
-----------
DISTRIBUTORS -0.2%
Keystone Automotive Industries, Inc.* 2,800 106,456
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES -1.7%
FirstService Corporation * 38,710 922,072
-----------
ELECTRICAL COMPONENTS & EQUIPMENT -0.9%
Regal-Beloit Corporation 11,830 514,605
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS -1.1%
Optimal Group, Inc. * 53,310 626,926
-----------
ENVIRONMENTAL & FACILITIES SERVICES -3.1%
Rollins, Inc. 40,620 857,488
Team, Inc. * 33,550 840,763
-----------
1,698,251
-----------
SHARES VALUE
---------- -----------
COMMON STOCK (CONTINUED)
FOOTWEAR -1.6%
Iconix Brand Group, Inc. * 54,280 $ 873,908
-----------
HEALTH CARE DISTRIBUTORS -1.0%
MWI Veterinary Supply, Inc. * 17,090 573,028
-----------
HEALTH CARE EQUIPMENT -10.7%
American Medical Systems Holdings, Inc. * 49,610 914,312
Angiodynamics, Inc. * 30,930 640,560
Arthrocare Corporation* 8,930 418,460
Kyphon, Inc. * 16,430 614,811
NuVasive, Inc. * 32,030 644,123
Orthovita, Inc. * 124,580 434,784
Resmed, Inc. * 16,610 668,553
Spectranetics Corporation* 79,510 930,267
Vital Signs, Inc. 12,359 699,643
-----------
5,965,513
-----------
HEALTH CARE FACILITIES - 2.4%
Five Star Quality Care, Inc. * 91,810 987,875
NovaMed, Inc. * 42,360 333,797
-----------
1,321,672
-----------
HEALTH CARE SERVICES - 2.2%
AMN Healthcare Services, Inc. * 26,990 641,013
Health Extras, Inc. * 20,240 572,994
-----------
1,214,007
-----------
HEALTH CARE SUPPLIES - 2.9%
Immucor, Inc. * 15,380 344,666
Lifecell Corporation * 13,390 431,426
PolyMedica Corporation 20,102 860,566
-----------
1,636,658
-----------
HOME ENTERTAINMENT SOFTWARE -1.2%
THE9, LTD. ADR* 31,240 668,536
-----------
HOTELS, RESORTS & CRUISE LINES - 0.6%
Ctrip.com International, Ltd. ADR 6,960 312,852
-----------
HOUSEHOLD PRODUCTS -1.6%
Central Garden and Pet Company * 18,860 910,184
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES -1.4%
Barrett Business Services* 36,440 782,367
-----------
INDUSTRIAL MACHINERY - 2.7%
Dynamic Materials Corporation 11,250 364,725
Flow International Corporation * 56,400 731,508
Gardner Denver, Inc. * 12,250 405,230
-----------
1,501,463
-----------
INTERNET RETAIL -1.9%
Nutri/System, Inc. * 16,440 1,024,048
Shutterfly, Inc. * 3,600 55,980
-----------
1,080,028
-----------
The accompanying notes are an integral part of the financial statements.
62
Schedule of Investments Security Equity Fund - Small Cap Growth Series
September 30, 2006 - continued
SHARES VALUE
---------- -----------
COMMON STOCK (CONTINUED)
INTERNET SOFTWARE & SERVICES - 7.7%
Equinix, Inc. * 12,075 $ 725,707
j2 Global Communications, Inc. * 28,780 781,953
Marchex, Inc. (CI.B) * 31,860 488,732
Omniture, Inc. * 60,580 477,976
Online Resources Corporation * 80,790 989,678
RADVision, Ltd. * 50,370 831,105
-----------
4,295,151
-----------
INVESTMENT BANKING & BROKERAGE - 4.6%
GFI Group, Inc. * 6,300 348,327
Greenhill& Company, Inc. 5,890 394,748
Investment Technology Group, Inc.* 18,910 846,222
optionsXpress Holdings, Inc. 20,020 558,158
TradeStation Group, Inc. * 27,550 415,178
-----------
2,562,633
-----------
LEISURE FACILITIES - 0.7%
Life Time Fitness, Inc. * 8,800 407,352
-----------
MANAGED HEALTH CARE - 0.5%
Healthspring, Inc. * 13,850 266,612
-----------
MARINE -0.9%
American Commercial Lines, Inc. * 8,000 475,600
-----------
MORTGAGE REIT'S -1.5%
KKR Financial Corporation 33,490 821,845
-----------
OIL & GAS EQUIPMENT & SERVICES - 5.8%
Allis-Chalmers Energy, Inc. * 19,810 290,018
Lufkin Industries, Inc. 7,140 377,849
Maverick Tube Corporation * 15,010 973,098
Oil States International, Inc. * 23,040 633,600
Superior Energy Services, Inc. * 25,200 661,752
W-H Energy Services, Inc. * 7,010 290,705
-----------
3,227,022
-----------
PACKAGED FOODS & MEATS -1.1%
SunOpta, Inc. * 59,280 626,590
-----------
PERSONAL PRODUCTS - 0.1%
Bare Escentuals, Inc. * 1,260 34,209
-----------
PROPERTY & CASUALTY INSURANCE - 2.7%
Amerisafe, Inc. * 74,720 732,256
Navigators Group, Inc. * 15,590 748,476
-----------
1,480,732
-----------
REGIONAL BANKS - 2.9%
Boston Private Financial Holdings, Inc. 15,070 420,152
PrivateBancorp, Inc. 11,960 546,811
Virginia Commerce Bancorp, Inc. * 28,049 622,688
-----------
1,589,651
-----------
SHARES VALUE
---------- -----------
COMMON STOCK (CONTINUED)
SEMICONDUCTOR EQUIPMENT -0.7%
Cymer, Inc. * 9,210 $ 404,411
-----------
SEMICONDUCTORS -3.9%
Atheros Communications, Inc. * 27,950 506,734
Silicon Motion Technology
Corporation ADR * 25,000 415,750
SRS Labs, Inc. * 105,217 652,345
Volterra Semiconductor Corporation * 35,670 579,637
-----------
2,154,466
-----------
SOFT DRINKS - 0.7%
Hansen Natural Corporation * 11,770 382,290
-----------
SPECIALIZED CONSUMER SERVICES -1.4%
Steiner Leisure, Ltd. * 18,530 779,186
-----------
SPECIALIZED FINANCE - 2.5%
International Securities Exchange Holdings, Inc. 10,420 488,594
Portfolio Recovery Associates, Inc.* 19,940 874,768
-----------
1,363,362
-----------
TRUCKING -1.5%
Old Dominion Freight Line, Inc. * 12,780 383,783
Vitran Corporation, Inc. * 25,440 470,640
-----------
854,423
-----------
TOTAL COMMON STOCK
(Cost $45,186,540) $50,711,583
-----------
PRINCIPAL
AMOUNT VALUE
---------- -----------
REPURCHASE AGREEMENT -12.2%
United Missouri Bank, 4.88%,
dated 09-29-06, matures
10-02-06; repurchase amount
of $6,785,758 (Collateralized
by FHLB, 2.875%, 02-15-07,
GNMA #781522, 5.00%,
11-15-17, and GNMA #603544,
5.00%, 03-15-18 with a
combined value of
$6,918,660) $6,783,000 $ 6,783,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $6,783,000) $ 6,783,000
-----------
TOTAL INVESTMENTS (SECURITY EQUITY FUND -
SMALL CAP GROWTH SERIES)
(COST $51,969,540) - 103.3% $57,494,583
LIABILITIES IN EXCESS OF OTHER ASSETS - (3.3)% (1,820,047)
-----------
TOTAL NET ASSETS -100.0% $55,674,536
===========
The accompanying notes are an integral part of the financial statements.
63
Schedule of Investments Security Equity Fund - Small Cap Growth Series
September 30, 2006 - continued
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $52,200,887.
* - Non-income producing security
Glossary:
ADR - American Depositary Receipt
GNMA - Government National Mortgage Association
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
64
SECURITY EQUITY FUND
SMALL CAP GROWTH SERIES
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ......................................... $50,711,583
Repurchase agreement, at value(1) ................................ 6,783,000
Cash ............................................................. 55,054
Receivables:
Fund shares sold .............................................. 32,536
Securities sold ............................................... 307,558
Dividends ..................................................... 1,656
Prepaid expenses ................................................. 9,915
-----------
Total assets ..................................................... 57,901,302
-----------
LIABILITIES:
Payable for:
Securities purchased .......................................... 2,101,025
Fund shares redeemed .......................................... 33,078
Management fees ............................................... 44,943
Custodian fees ................................................ 3,116
Transfer agent and administration fees ........................ 14,533
Professional fees ............................................. 11,280
12b-1 distribution plan fees .................................. 17,341
Directors' fees ............................................... 250
Other ......................................................... 1,200
-----------
Total liabilities ................................................ 2,226,766
-----------
NET ASSETS ....................................................... $55,674,536
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $52,441,215
Accumulated undistributed net realized loss
on sale of investments ........................................ (2,291,722)
Net unrealized appreciation in value of investments .............. 5,525,043
-----------
Net assets ....................................................... $55,674,536
===========
CLASS A:
Capital shares outstanding (unlimited number of
shares authorized) ............................................ 2,908,223
Net assets ....................................................... $45,450,952
Net asset value per share ........................................ $ 15.63
===========
Maximum offering price per share
(net asset value divided by 94.25%) ........................... $ 16.58
===========
CLASS B:
Capital shares outstanding (unlimited number of
shares authorized) ............................................ 411,678
Net assets ....................................................... $ 5,919,204
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 14.38
===========
CLASS C:
Capital shares outstanding (unlimited number of
shares authorized) ............................................ 293,934
Net assets ....................................................... $ 4,304,380
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 14.64
===========
(1)Investments, at cost .......................................... $51,969,540
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends ..................................................... $ 97,311
Interest ...................................................... 125,980
-----------
Total investment income ....................................... 223,291
-----------
EXPENSES
Management fees ............................................... 420,178
Custodian fees ................................................ 21,923
Transfer agent/maintenance fees ............................... 200,822
Administration fees ........................................... 41,859
Directors' fees .............................................. 1,101
Professional fees ............................................ 13,658
Reports to shareholders ....................................... 9,632
Registration fees ............................................. 33,144
Other expenses ................................................ 3,202
12b-1 distribution plan fees - Class A ........................ 73,049
12b-1 distribution plan fees - Class B ........................ 82,939
12b-1 distribution plan fees - Class C ...................... 45,044
-----------
Total expenses ................................................ 946,551
Less: Earnings credits ........................................ (568)
-----------
Net expenses .................................................. 945,983
-----------
Net investment loss ........................................... (722,692)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ................................................... 1,764,643
-----------
Net realized gain ............................................. 1,764,643
-----------
Net unrealized depreciation during the period on:
Investments ................................................... (1,130,941)
-----------
Net unrealized depreciation ................................... (1,130,941)
-----------
Net realized and unrealized gain .............................. 633,702
-----------
Net decrease in net assets
resulting from operations ................................. $ (88,990)
===========
65 See accompanying notes.
SECURITY EQUITY FUND
Statement of Changes in Net Assets SMALL CAP GROWTH SERIES
YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER
30, 2006 30, 2005
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ........................... $ (722,692) $ (703,494)
Net realized gain during the period on
investments ................................ 1,764,643 4,851,401
Net unrealized appreciation during the period
on investments ............................. (1,130,941) 1,920,648
------------ ------------
Net increase in net assets resulting from
operations ................................. (88,990) 6,068,555
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................... 34,591,629 8,144,188
Class B .................................... 2,145,297 1,848,399
Class C .................................... 1,341,687 1,278,043
Cost of shares redeemed
Class A .................................... (11,879,893) (10,786,990)
Class B .................................... (4,367,496) (4,281,215)
Class C .................................... (1,407,378) (1,752,947)
------------ ------------
Net increase (decrease) from capital share
transactions ............................... 20,423,846 (5,550,522)
------------ ------------
Net increase in net assets .................... 20,334,856 518,033
------------ ------------
NET ASSETS:
Beginning of period ........................... 35,339,680 34,821,647
------------ ------------
End of period ................................. $ 55,674,536 $ 35,339,680
============ ============
Accumulated undistributed net investment income
at end of period ........................... $ -- $ --
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................... 2,223,136 560,063
Class B .................................... 141,177 138,265
Class C .................................... 87,821 91,558
Shares redeemed
Class A .................................... (751,218) (759,381)
Class B .................................... (296,698) (324,239)
Class C .................................... (90,959) (128,106)
66 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 2006 2005 2004 2003 2002(f)
- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 15.76 $ 13.11 $ 11.63 $ 7.88 $ 9.80
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(c) (0.23) (0.24) (0.25) (0.18) (0.20)
Net gain (loss) on securities (realized and
unrealized) 0.10 2.89 1.73 3.93 (1.72)
------- ------- ------- ------- -------
Total from investment operations (0.13) 2.65 1.48 3.75 (1.92)
------- ------- ------- ------- -------
Net asset value, end of period $ 15.63 $ 15.76 $ 13.11 $ 11.63 $ 7.88
======= ======= ======= ======= =======
TOTAL RETURN(a) (0.82%) 20.21% 12.73% 47.59% (19.59%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $45,451 $22,637 $21,443 $14,406 $ 8,350
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (1.46%) (1.67%) (1.95%) (2.01%) (1.93%)
Total expenses(b) 2.01% 2.10% 2.09% 2.51% 2.14%
Net expenses(d) 2.01% 2.10% 2.09% 2.25% 2.14%
Expenses prior to custodian earnings credits and
net of expense waivers 2.01% 2.10% 2.09% 2.25% 2.14%
------- ------- ------- ------- -------
Portfolio turnover rate 136% 134% 157% 206% 302%
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
CLASS B 2006 2005 2004 2003 2002(f)
- ------- ------ ------ ------ ------ -------
PER SHARE DATA
Net asset value, beginning of period $14.60 $12.24 $10.94 $ 7.47 $ 9.37
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment loss(c) (0.36) (0.33) (0.33) (0.24) (0.26)
Net gain (loss) on securities (realized and
unrealized) 0.14 2.69 1.63 3.71 (1.64)
------ ------ ------ ------ -------
Total from investment operations (0.22) 2.36 1.30 3.47 (1.90)
------ ------ ------ ------ -------
Net asset value, end of period $14.38 $14.60 $12.24 $10.94 $ 7.47
====== ====== ====== ====== =======
TOTAL RETURN(a) (1.51%) 19.28% 11.88% 46.45% (20.28%)
------ ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $5,919 $8,283 $9,218 $6,838 $ 4,292
------ ------ ------ ------ -------
Ratios to average net assets:
Net investment loss (2.31%) (2.41%) (2.69%) (2.76%) (2.69%)
Total expenses(b) 2.79% 2.85% 2.84% 3.23% 2.90%
Net expenses(d) 2.79% 2.85% 2.83% 3.00% 2.90%
Expenses prior to custodian earnings credits and
net of expense waivers 2.79% 2.85% 2.84% 3.00% 2.90%
------ ------ ------ ------ -------
Portfolio turnover rate 136% 134% 157% 206% 302%
67 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 C 2006 2005 2004 2003 2002(e, f)
- ------- ------ ------ ------ ------ ----------
PER SHARE DATA
Net asset value, beginning of period $14.88 $12.47 $11.15 $ 7.61 $ 9.53
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment loss(c) (0.35) (0.33) (0.33) (0.24) (0.26)
Net gain (loss) on securities (realized and
unrealized) 0.11 2.74 1.65 3.78 (1.66)
------ ------ ------ ------ -------
Total from investment operations (0.24) 2.41 1.32 3.54 (1.92)
------ ------ ------ ------ -------
Net asset value, end of period $14.64 $14.88 $12.47 $11.15 $ 7.61
====== ====== ====== ====== =======
TOTAL RETURN(a) (1.61%) 19.33% 11.84% 46.52% (20.15%)
------ ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $4,304 $4,420 $4,160 $3,533 $ 2,164
------ ------ ------ ------ -------
Ratios to average net assets:
Net investment loss (2.29%) (2.42%) (2.69%) (2.76%) (2.69%)
Total expenses(b) 2.79% 2.85% 2.83% 3.23% 2.91%
Net expenses(d) 2.79% 2.85% 2.82% 3.00% 2.91%
Expenses prior to custodian earnings credits and
net of expense waivers 2.79% 2.85% 2.83% 3.00% 2.91%
------ ------ ------ ------ -------
Portfolio turnover rate 136% 134% 157% 206% 302%
(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 shares.
(b) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net investment loss was computed using average shares outstanding
throughout the period.
(d) Net expense information reflects expense ratios after voluntary expense
waivers 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.
68 See accompanying notes.
This page left blank intentionally.
69
SECURITY
Manager's Commentary LARGE CAP VALUE FUND
November 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Adviser, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Mark Mitchell
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Security Large Cap Value Fund returned 13.45%(1) in the period, lagging the
benchmark Russell 1000 Value Index's return of 14.62%, but out performing the
Fund's peer group median return of 12.49%. Good individual stock selection was
offset slightly by our sector weights in fiscal 2006. While being disappointed
that our results were below the benchmark, we believe that our approach delivers
performance over the long-term.
Our investment philosophy is centered around three key tenants: first, we
believe good investments are purchased at less than their intrinsic value,
second, a long-term approach and patience are critical to successful investing,
and last, we concentrate our investments in companies that have the greatest
return potential.
Our process is a bottom-up, research-driven investment process that attempts to
identify companies that have the ability to become more competitive in the
future. We focus on owning these companies for three to five years or longer,
which we believe differentiates us from a majority of our peers and ultimately
allows us to make better investment decisions. We buy these companies when their
current prices trade below their intrinsic value. We closely monitor each
company's progress. We will sell a company if the valuation no longer makes
sense, if we've made a mistake and our investment thesis is no longer valid, or
if we have a more attractive investment alternative. For this Fund, we apply
this philosophy to a broad range of value names.
FINANCIALS AND INDUSTRIAL STOCKS TOP PERFORMERS
The Fund's financial holdings were up 41% compared to 20% for the index with our
position in First Marblehead Corporation up over 200%. III-placed, short-term
concerns over the company's competitive position offered us an excellent
opportunity to take a position in this leading student lending company. First
Marblehead maintains its competitive advantage with its loan underwriting
capability, superior economics, and value-added services.
The Fund continues to be underweight in financials. The valuations of
financial-related companies do not reflect our expectation for a negative impact
from declining credit trends.
Holdings in the industrial sector were up 25%. McDermott International, Inc.,
appreciated 71%, driven by strong demand for its energy infrastructure
construction- related services. Hughes Supply was up 40% as it agreed to be
acquired by Home Depot. Hughes' strong position in the professional contractor
market fits well into Home Depot's expansion plans in that segment.
ENERGY DISAPPOINTING
Energy stocks provided negative returns and the Fund's slight overweighting
proved to be a significant headwind. Following a period of being a strong
leader, the sector experienced a significant pullback after oil prices had a
period of unprecedented and sustained appreciation.
Halliburton Company and Sasol, Ltd., ADR were down 16% and 13%, respectively.
Halliburton's price was impacted as investors became concerned about a
weakening energy commodity market. Sasol was weaker due to country-specific tax
issues related to its core gas-to-liquids business.
2007 MARKET OUTLOOK
The current low-return investment environment has continued to make available
ample liquidity in the U.S. equity market. Falling energy prices have helped
increase consumer confidence and provide support to corporate profit margins
through lower raw material input prices. Additionally, businesses continue to
have very healthy balance sheets to help drive future growth initiatives.
As we noted in last year's shareholder letter, we've been concerned about a
slowdown in U.S. consumer spending for some time. This concern has yet to
materialize, but we still think it will happen. Lower energy prices will help;
however, higher interest rates and a housing market slowdown provide likely
headwinds. The Federal Reserve is walking a fine line between managing inflation
risks while supporting economic growth. We're unsure, like most investors, what
the Fed's next move will be. This uncertainty will weigh on the market until
it's resolved.
70
SECURITY
Manager's Commentary LARGE CAP VALUE FUND
November 15, 2006 (unaudited)
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
(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.
71
SECURITY
Performance Summary LARGE CAP VALUE FUND
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY LARGE CAP VALUE FUND VS. RUSSELL 1000 VALUE INDEX
(PERFORMANCE GRAPH)
Large Cap Value Fund
09/30/96 9,425.00
12/31/96 9,721.68
03/31/97 9,697.53
06/30/97 11,041.10
09/30/97 12,752.51
12/31/97 12,802.09
03/31/98 13,842.50
06/30/98 13,388.78
09/30/98 11,738.96
12/31/98 12,762.42
03/31/99 12,762.42
06/30/99 14,596.10
09/30/99 13,147.49
12/31/99 13,082.66
03/31/00 12,304.16
06/30/00 11,639.58
09/30/00 12,190.23
12/31/00 12,134.94
03/31/01 11,311.91
06/30/01 11,771.28
09/30/01 10,278.34
12/31/01 11,457.13
03/31/02 11,322.56
06/30/02 10,092.27
09/30/02 8,169.93
12/31/02 8,688.96
03/31/03 8,246.83
06/30/03 9,477.12
09/30/03 9,823.14
12/31/03 11,057.82
03/31/04 11,404.58
06/30/04 11,269.73
09/30/04 11,000.02
12/31/04 12,175.16
03/31/05 12,040.31
06/30/05 12,059.57
09/30/05 13,061.32
12/31/05 13,346.23
03/31/06 14,217.90
06/30/06 14,760.27
09/30/06 14,818.38
RUSSELL 1000 VALUE INDEX
09/30/96 10,000.00
12/31/96 10,997.46
03/31/97 11,279.13
06/30/97 12,942.22
09/30/97 14,230.66
12/31/97 14,866.87
03/31/98 16,599.39
06/30/98 16,674.02
09/30/98 14,743.46
12/31/98 17,191.67
03/31/99 17,438.52
06/30/99 19,404.40
09/30/99 17,504.06
12/31/99 18,456.06
03/31/00 18,544.21
06/30/00 17,675.12
09/30/00 19,064.87
12/31/00 19,751.50
03/31/01 18,594.96
06/30/01 19,502.22
09/30/01 17,365.74
12/31/01 18,646.58
03/31/02 19,409.19
06/30/02 17,755.92
09/30/02 14,422.57
12/31/02 15,752.56
03/31/03 14,986.36
06/30/03 17,575.46
09/30/03 17,938.06
12/31/03 20,483.32
03/31/04 21,102.53
06/30/04 21,288.45
09/30/04 21,616.25
12/31/04 23,860.44
03/31/05 23,879.74
06/30/05 24,279.29
09/30/05 25,221.77
12/31/05 25,542.20
03/31/06 27,055.47
06/30/06 27,213.85
09/30/06 28,904.64
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Large Cap Value
Fund on September 30, 1996, reflects deduction of the 5.75% sales load and
assumes all dividends reinvested. The chart does not reflect the deduction of
taxes that a shareholder would pay on distributions or the redemption of fund
shares. The Russell 1000 Value Index is an unmanaged index representing the
performance of those Russell 1000 Index companies with lower price-to-book
ratios and lower forecasted growth values.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- ---------------
A Shares 13.45% 7.59% 4.56% --
A Shares with sales charge 6.98% 6.32% 3.95% --
B Shares 12.54% 6.75% 3.78% --
B Shares with CDSC 7.54% 6.44% 3.78% --
C Shares 12.63% 6.72% N/A 1.25% (1-29-99)
C Shares with CDSC 11.63% 6.72% N/A 1.25% (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 AS OF 9-30-06
Consumer Discretionary 9.73%
Consumer Staples 12.96
Energy 13.94
Financials 17.73
Health Care 5.90
Industrials 17.17
Information Technology 2.56
Materials 4.96
Telecommunication Services 3.05
Utilities 1.24
Exchange Traded Funds 6.01
Asset Backed Commercial Paper 2.84
Commercial Paper 3.33
Repurchase Agreement 0.23
Liabilities in excess of other assets (1.65)
------
Total net assets 100.00%
======
72 See accompanying notes.
SECURITY
Performance Summary LARGE CAP VALUE FUND
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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
ACCOUNT ACCOUNT PAID
VALUE VALUE DURING
04-01-06 09-30-06(1) PERIOD(2)
--------- ----------- ---------
Large Cap Value Fund - Class A
Actual $1,000.00 $1,042.20 $ 7.53
Hypothetical 1,000.00 1,017.70 7.44
Large Cap Value Fund - Class B
Actual 1,000.00 1,037.60 11.44
Hypothetical 1,000.00 1,013.84 11.31
Large Cap Value Fund - Class C
Actual 1,000.00 1,036.90 11.39
Hypothetical 1,000.00 1,013.89 11.26
(1) The actual ending account value is based on the actual total return of the
Fund for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was 4.22%, 3.76% and 3.69%,
for Class A, B and C shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.47%, 2.24% and
2.23% 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).
73
Schedule of Investments Security Large Cap Value Fund
September 30, 2006
SHARES VALUE
-------- ----------
COMMON STOCK - 95.3%
AEROSPACE & DEFENSE - 2.8%
United Technologies Corporation 35,400 $ 2,242,590
-----------
AGRICULTURAL PRODUCTS - 2.4%
Archer-Daniels-Midland Company (1) 51,500 1,950,820
-----------
ALUMINUM - 0.7%
Alcoa, Inc. 20,100 563,604
-----------
BROADCASTING & CABLE TV - 4.2%
CBS Corporation (CI.B) 88,200 2,484,594
Clear Channel Communications, Inc. 31,800 917,430
-----------
3,402,024
-----------
COMPUTER HARDWARE - 2.1%
Hewlett-Packard Company 46,500 1,706,085
-----------
CONSTRUCTION & ENGINEERING - 2.4%
Shaw Group, Inc. * 81,400 1,924,296
-----------
CONSUMER FINANCE - 4.0%
First Marblehead Corporation (1) 47,300 3,275,998
-----------
DIVERSIFIED CHEMICALS - 2.6%
Dow Chemical Company 30,100 1,173,298
E.I. Du Pont de Nemours & Company 22,100 946,764
-----------
2,120,062
-----------
DRUG RETAIL - 3.3%
CVS Corporation 82,100 2,637,052
-----------
ELECTRIC UTILITIES - 1.2%
Edison International 24,300 1,011,852
-----------
EXCHANGE TRADED FUNDS - 6.0%
iShares Russell 1000 Value Index Fund 31,600 2,435,728
iShares S&P 500 Value Index Fund 34,100 2,447,698
-----------
4,883,426
-----------
HEALTH CARE SERVICES - 3.1%
Medco Health Solutions, Inc. * 41,500 2,494,565
-----------
HYPERMARKETS & SUPER CENTERS - 3.0%
Costco Wholesale Corporation 48,900 2,429,352
-----------
INDUSTRIAL CONGLOMERATES - 9.3%
General Electric Company 73,400 2,591,020
McDermott International, Inc. * 71,250 2,978,250
Tyco International, Ltd. 69,600 1,948,104
-----------
7,517,374
-----------
INTEGRATED OIL & GAS - 8.6%
Chevron Corporation 22,400 1,452,864
ConocoPhillips 20,300 1,208,459
Exxon Mobil Corporation 35,100 2,355,210
SHARES VALUE
-------- ----------
COMMON STOCK (CONTINUED)
INTEGRATED OIL & GAS (CONTINUED)
Sasol, Ltd. ADR 59,800 $ 1,966,822
-----------
6,983,355
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.2%
Windstream Corporation 11,476 151,369
-----------
IT CONSULTING & OTHER SERVICES - 0.5%
Unisys Corporation * 66,400 375,824
-----------
MANAGED HEALTH CARE - 2.8%
WellPoint, Inc. * 29,700 2,288,385
-----------
MOVIES & ENTERTAINMENT - 5.5%
News Corporation 95,500 1,876,575
Time Warner, Inc. 112,500 2,050,875
Viacom, Inc. (CI.B) * 15,100 561,418
-----------
4,488,868
-----------
MULTI-LINE INSURANCE - 4.8%
American International Group, Inc. 58,300 3,862,958
-----------
OIL & GAS DRILLING - 0.5%
Transocean, Inc. * (1) 5,500 402,765
-----------
OIL & GAS EQUIPMENT & SERVICES - 2.0%
Halliburton Company 58,400 1,661,480
-----------
OIL & GAS STORAGE &
TRANSPORTATION - 2.8%
Williams Companies, Inc. 94,500 2,255,715
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.0%
Citigroup, Inc. 46,500 2,309,655
JPMorgan Chase & Company 37,600 1,765,696
-----------
4,075,351
-----------
PACKAGED FOODS & MEATS - 1.4%
Tyson Foods, Inc. (1) 69,800 1,108,424
-----------
PROPERTY & CASUALTY INSURANCE - 3.9%
Berkshire Hathaway, Inc. * 33 3,161,400
-----------
RAILROADS - 2.8%
Union Pacific Corporation 25,400 2,235,200
-----------
SPECIALTY CHEMICALS - 1.6%
Rohm & Haas Company 28,100 1,330,535
-----------
TOBACCO - 2.9%
Altria Group, Inc. 31,100 2,380,705
-----------
WIRELESS TELECOMMUNICATION SERVICES - 2.9%
Alltel Corporation 11,100 616,050
The accompanying notes are an integral part of the financial statements.
74
Schedule of Investments Security Large Cap Value Fund
September 30, 2006 - continued
SHARES VALUE
-------- -----------
COMMON STOCK (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES (CONTINUED)
Sprint Nextel Corporation 99,200 $ 1,701,280
-----------
2,317,330
-----------
TOTAL COMMON STOCK
(Cost $67,276,518) $77,238,764
-----------
PRINCIPAL
AMOUNT VALUE
---------- -----------
CORPORATE BOND - 0.0%
SERVICES - 0.0%
American ECO Corporation
9.63%, 2008 (2)(3)(4)(5) $ 125,000 --
-----------
TOTAL CORPORATE BOND
(Cost $125,000) $ --
-----------
ASSET BACKED COMMERCIAL PAPER - 2.9%
MISC. RECEIVABLES - 2.9% 1,000,000 999,854
Fairway Finance Corporation
5.25%, 10/2/2006
Jupiter Securitization Corporation
5.26%, 10/4/2006 1,300,000 1,299,430
-----------
2,299,284
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER (Cost $2,299,284) $ 2,299,284
-----------
COMMERCIAL PAPER - 3.3%
BROKERAGE - 1.2%
Morgan Stanley
5.31%, 10/5/2006 1,000,000 999,410
-----------
ELECTRIC - 2.1%
Florida Power & Light Company
5.25%, 10/3/2006 1,700,000 1,699,504
-----------
TOTAL COMMERCIAL PAPER
(Cost $2,698,914) $ 2,698,914
-----------
REPURCHASE AGREEMENT - 0.2%
United Missouri Bank, 4.88%, dated 09-29-06,
matures 10-02-06; repurchase amount of $189,077
(Collateralized by FHLB, 2.625%, 05-15-07 with a
value of $193,062) $ 189,000 $ 189,000
-----------
TOTAL REPURCHASE AGREEMENT
(Cost $189,000) $ 189,000
-----------
TOTAL INVESTMENTS (SECURITY LARGE CAP VALUE FUND)
(Cost $72,587,716) - 101.7% $82,425,962
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.7)% (1,343,068)
-----------
TOTAL NET ASSETS -100.0% $81,082,894
===========
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $72,700,322.
* - Non-income producing security
(1) - Security is segregated as collateral for open written options contracts.
(2) - Security is illiquid. See Notes to Financials.
(3) - In Default
(4) - Private Placement
(5) - Security is fair valued by the Board of Directors. See Notes to
Financials.
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
75
SECURITY
LARGE CAP VALUE FUND
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ......................................... $82,425,962
Cash ............................................................. 743
Receivables:
Securities sold ............................................... 154,691
Fund shares sold .............................................. 556,871
Dividends ..................................................... 129,510
Prepaid Expenses ................................................. 23,383
-----------
Total assets ..................................................... 83,291,160
-----------
LIABILITIES:
Payable for:
Securities purchased .......................................... 1,645,744
Fund shares redeemed .......................................... 388,147
Written options, at value (Premiums received, $67,841) ........ 60,415
Management fees ............................................... 42,154
Custodian fees ................................................ 3,798
Transfer agent and administration fees ........................ 17,239
Professional fees ............................................. 15,300
12b-1 distribution plan fees .................................. 26,169
Directors' fees ............................................... 6,000
Other ......................................................... 3,300
-----------
Total liabilities ................................................ 2,208,266
-----------
NET ASSETS ....................................................... $81,082,894
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $76,701,372
Accumulated undistributed net investment income .................. 21,221
Accumulated undistributed net realized loss on sale of investments
and options written ........................................... (5,485,370)
Net unrealized appreciation in value of investments and options
written ....................................................... 9,845,671
-----------
Net assets ....................................................... $81,082,894
===========
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 8,472,288
Net assets ....................................................... $64,786,166
Net asset value per share ........................................ $ 7.65
===========
Maximum offering price per share
(net asset value divided by 94.25%) ........................... $ 8.12
===========
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 1,777,116
Net Assets ....................................................... $12,760,924
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 7.18
===========
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ....................... 483,482
Net assets ....................................................... $ 3,535,804
Net asset value, offering and redemption price per share
(excluding any applicable contingent deferred sales charge) ... $ 7.31
===========
(1) Investments, at cost ......................................... $72,587,716
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends ..................................................... $ 996,957
Interest ...................................................... 122,386
-----------
Total investment income ....................................... 1,119,343
-----------
EXPENSES:
Management fees ............................................... 437,307
Custodian fees ................................................ 12,271
Transfer agent/maintenance fees ............................... 178,416
Administration fees ........................................... 63,853
Directors' fees ............................................... 35,157
Professional fees ............................................. 16,813
Reports to shareholders ....................................... 30,794
Registration Fees ............................................. 40,116
Other Expenses ................................................ 24,151
12b-1 distribution plan fees - Class A ........................ 139,700
12b-1 distribution plan fees - Class B ........................ 84,547
12b-1 distribution plan fees - Class C ........................ 29,434
-----------
Total expenses ................................................ 1,092,559
Less: Earnings credits ........................................ (31)
-----------
Net expenses .................................................. 1,092,528
-----------
Net investment income ......................................... 26,815
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ................................................... 2,223,331
Options written ............................................... 128,393
-----------
Net realized gain ............................................. 2,351,724
-----------
Net unrealized appreciation during the period on:
Investments ................................................... 4,878,067
Options written ............................................... 3,850
-----------
Net unrealized appreciation ................................... 4,881,917
-----------
Net realized and unrealized gain .............................. 7,233,641
-----------
Net increase in net assets resulting from operations .......... $ 7,260,456
===========
76 See accompanying notes.
SECURITY
Statement of Changes in Net Assets LARGE CAP VALUE FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ....................... $ 26,815 $ 226,529
Net realized gain during the period on
investments and options written .......... 2,351,724 6,823,643
Net unrealized appreciation during the period
on investments and options written ....... 4,881,917 2,430,519
------------ ------------
Net increase in net assets resulting from
operations ............................... 7,260,456 9,480,691
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A .................................. (232,389) --
Class B .................................. -- --
Class C .................................. -- --
------------ ------------
Total distributions to shareholders ......... (232,389) --
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................. 52,794,309 6,416,077
Class B .................................. 8,335,522 1,294,323
Class C .................................. 2,030,893 1,300,122
Distributions reinvested
Class A .................................. 214,200 --
Class B .................................. -- --
Class C .................................. -- --
Cost of shares redeemed
Class A .................................. (39,239,195) (11,718,072)
Class B .................................. (5,067,244) (4,481,711)
Class C .................................. (1,707,635) (1,393,049)
------------ ------------
Net increase (decrease) from capital share
transactions ............................. 17,360,850 (8,582,310)
------------ ------------
Net increase in net assets .................. 24,388,917 898,381
------------ ------------
NET ASSETS:
Beginning of period ......................... 56,693,977 55,795,596
------------ ------------
End of period ............................... $ 81,082,894 $ 56,693,977
============ ============
Accumulated undistributed net investment
income at end of period .................. $ 21,221 $ 226,795
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................. 7,129,132 1,026,323
Class B .................................. 1,198,221 220,087
Class C .................................. 287,449 213,510
Shares reinvested
Class A .................................. 30,999 --
Class B .................................. -- --
Class C .................................. -- --
Shares redeemed
Class A .................................. (5,369,253) (1,883,545)
Class B .................................. (753,462) (763,775)
Class C .................................. (250,401) (231,421)
77 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 2006 2005(f) 2004 2003 2002(c, e)
- ------- ------- ------- ------- ------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 6.78 $ 5.71 $ 5.11 $ 4.25 $ 5.37
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income(b) 0.01 0.03 0.01 0.02 0.01
Net gain (loss) on securities (realized and unrealized) 0.90 1.04 0.60 0.84 (1.10)
------- ------- ------- ------- -------
Total from investment operations 0.91 1.07 0.61 0.86 (1.09)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.04) -- (0.01) -- (0.03)
------- ------- ------- ------- -------
Total distributions (0.04) -- (0.01) -- (0.03)
------- ------- ------- ------- -------
Net asset value, end of period $ 7.65 $ 6.78 $ 5.71 $ 5.11 $ 4.25
======= ======= ======= ======= =======
TOTAL RETURN(a) 13.45% 18.74% 11.98% 20.24% (20.51%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $64,786 $45,295 $43,071 $45,858 $32,997
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income 0.17% 0.56% 0.19% 0.41% 0.20%
Total expenses(g) 1.49% 1.61% 1.52% 1.45% 1.37%
Net expenses(h) 1.49% 1.61% 1.52% 1.45% 1.37%
------- ------- ------- ------- -------
Portfolio turnover rate 54% 110% 75% 76% 68%
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS B 2006 2005(f) 2004 2003 2002(c, e)
- ------- ------- ------- ------- ------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 6.38 $ 5.42 $ 4.87 $ 4.08 $ 5.18
------- ------ ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.04) (0.01) (0.03) (0.02) (0.04)
Net gain (loss) on securities (realized and unrealized) 0.84 0.97 0.58 0.81 (1.06)
------- ------ ------- ------- -------
Total from investment operations 0.80 0.96 0.55 0.79 (1.10)
------- ------ ------- ------- -------
Net asset value, end of period $ 7.18 $ 6.38 $ 5.42 $ 4.87 $ 4.08
======= ====== ======= ======= =======
TOTAL RETURN(a) 12.54% 17.71% 11.29% 19.36% (21.24%)
------- ------ ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $12,761 $8,500 $10,164 $11,687 $ 4,905
------- ------ ------- ------- -------
Ratios to average net assets:
Net investment loss (0.58%) (0.16%) (0.57%) (0.42%) (0.71%)
Total expenses(g) 2.26% 2.36% 2.27% 2.20% 2.27%
Net expenses(h) 2.26% 1.61% 1.52% 1.45% 1.37%
------- ------ ------- ------- -------
Portfolio turnover rate 54% 110% 75% 76% 68%
78 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 2006 2005(f) 2004 2003 2002(c, d, e)
- ------- ------ ------- ------ ------ -------------
PER SHARE DATA
Net asset value, beginning of period $ 6.49 $ 5.52 $ 4.96 $ 4.16 $ 5.28
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment loss(b) (0.04) (0.01) (0.03) (0.02) (0.04)
Net gain (loss) on securities (realized and unrealized) 0.86 0.98 0.59 0.82 (1.08)
------ ------ ------ ------ -------
Total from investment operations 0.82 0.97 0.56 0.80 (1.12)
------ ------ ------ ------ -------
Net asset value, end of period $ 7.31 $ 6.49 $ 5.52 $ 4.96 $ 4.16
====== ====== ====== ====== =======
TOTAL RETURN(a) 12.63% 17.57% 11.29% 19.23% (21.21%)
------ ------ ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $3,536 $2,899 $2,561 $2,130 $ 1,510
------ ------ ------ ------ -------
Ratios to average net assets:
Net investment loss (0.60%) (0.18%) (0.57%) (0.33%) (0.72%)
Total expenses(g) 2.25% 2.36% 2.28% 2.20% 2.25%
Net expenses(h) 2.25% 2.36% 2.28% 2.20% 2.25%
------ ------ ------ ------ -------
Portfolio turnover rate 54% 110% 75% 76% 68%
(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 shares.
(b) Net investment income (loss) was computed using average shares outstanding
throughout the period.
(c) 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.
(d) 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.
(e) Effective May 1, 2002 the fee structure for Security Large Cap Value Fund
changed. Per share information reflects this change.
(f) Security Management Company, LLC (SMC) became the adviser of Security Large
Cap Value Fund effective June 30, 2005. Prior to June 30, 2005, SMC paid
Dreyfus Corporation for sub-advisory services.
(g) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(h) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements, and custodian earnings credits, as applicable.
79 See accompanying notes.
This page left blank intentionally.
80
SECURITY
Manager's Commentary MID CAP GROWTH FUND
November 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Adviser, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
James P. Schier
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
For the year ended September 30, 2006, the Security Mid Cap Growth Fund returned
2.81%(1), lagging the benchmark Russell 2500 Growth Index's return of 6.53%. The
Fund also lagged its peer group median return of 4.69%.
Our approach with the Mid Cap Growth Fund is to seek securities of companies
that are able to grow and/or reinvest in increasingly profitable ventures and
hold them over three to five years to capture the best part of the improvements
in profits or profitability. 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.
TECHNOLOGY, INDUSTRIALS AND MATERIALS DRIVE POSITIVE CONTRIBUTIONS
Stock selection and an overweight position in technology drove positive returns.
Finisar Corporation, Maxwell Technologies, Inc., Tyler Technologies, Inc., and
BEA Systems, Inc., all gained more than 30% on strong business momentum. Finisar
gained 165% as strong demand for data transfer caused metro network to upgrade.
Over-weight exposure to industrials was beneficial as this sector performed
better than the average equity.
Stock selection in materials was also positive as Pactiv Corporation, the
packaging company, gained 62%. The company posted good results during an adverse
raw material commodity price environment and is a perceived beneficiary from
lower resin prices.
HEALTH CARE AND ENERGY PROVE MORE DIFFICULT
The market displayed a much greater than normal level of fear for biotechnology
and health care service companies during the trailing year. One of our
holdings, Sciclone, declined 60% as a key drug for the treatment of Hepatitis C
failed in a clinical trial. USPI, a healthcare service company, fell 36% on
concerns of slowing growth in the short-term. Over the long-term, the need for
surgery centers continues to be robust. The company's business model, which
includes joint ventures with key anchor hospitals and an emphasis on cost
containment, should keep the company's growth on track.
Energy stocks provided negative returns and the Fund's average 18% weighting
proved to be a significant headwind. Following a period of being a strong
leader, the sector experienced a significant pullback after oil prices had a
period of unprecedented and sustained appreciation. Our work continues to
suggest the rise in energy prices is not a transitory phenomenon. We continue to
hold a significant exposure to the sector. We do not believe that a robust
commodity-price environment is required for our holdings in this sector to be
significant performance contributors in the years ahead.
Among our individual holdings, Evergreen Energy, Inc., declined 38% for no
material reason. The company is in the early stages of establishing a clean coal
technology that greatly enhances the attractiveness of this energy source from
an environmental standpoint. The company has continued to deliver on all its
progress metrics and continues to offer bright and significant potential.
Consequently, the position continues to be held.
OUTLOOK FOR 2007
We continue to be surprised by the strength of the market and maintain our
cautious stance for the U.S. equity market. Despite the higher levels of
short-term interest rates, high energy costs ($70 oil), and an increasingly
unpredictable geopolitical environment, the broad market averages have advanced
again in 2006. If anything, we are more cautious now than last year at this
time.
We continue to find the most opportunities in the energy and industrial sectors.
With large exposures in these areas, we are not likely to increase beyond
today's significant levels. Over the past six months, the Fund has increased its
commitments to the utility and consumer staple sectors.
On behalf of Security Management Company, I would like to thank you for trusting
your funds with us. We are excited to see what opportunities present themselves
in the future. As always, we continue to do our best to seek the potential
available in small and mid capitalization companies.
Sincerely,
James P. Schier,
Senior Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charges or taxes that a shareholder would pay on
distributions or redemptions of shares.
81
SECURITY
Performance Summary MID CAP GROWTH FUND
September 30, 2006 (unaudited)
PERFORMANCE
SECURITY MID CAP GROWTH FUND VS. RUSSELL 2500 GROWTH INDEX
(PERFORMANCE GRAPH)
Mid Cap Growth Fund
09/30/96 9,425.00
12/31/96 9,371.02
03/31/97 8,633.14
06/30/97 9,850.64
09/30/97 11,363.28
12/31/97 11,041.08
03/31/98 12,185.50
06/30/98 11,938.41
09/30/98 9,948.68
12/31/98 12,889.75
03/31/99 12,857.07
06/30/99 14,948.19
09/30/99 15,013.53
12/31/99 20,580.87
03/31/00 24,622.33
06/30/00 23,280.84
09/30/00 25,946.85
12/31/00 23,961.75
03/31/01 19,782.16
06/30/01 22,051.62
09/30/01 16,037.54
12/31/01 20,461.05
03/31/02 20,974.48
06/30/02 17,247.37
09/30/02 13,368.14
12/31/02 14,813.35
03/31/03 14,642.20
06/30/03 18,863.72
09/30/03 20,613.18
12/31/03 23,108.82
03/31/04 24,407.96
06/30/04 24,348.91
09/30/04 21,691.59
12/31/04 25,325.00
03/31/05 23,445.98
06/30/05 24,531.64
09/30/05 26,410.66
12/31/05 27,107.19
03/31/06 30,470.20
06/30/06 27,603.74
09/30/06 27,152.33
Russell 2500 Growth Index
09/30/96 10,000.00
12/31/96 10,093.80
03/31/97 9,286.21
06/30/97 10,796.38
09/30/97 12,592.52
12/31/97 11,584.25
03/31/98 12,873.94
06/30/98 12,245.81
09/30/98 9,526.65
12/31/98 11,941.74
03/31/99 11,816.52
06/30/99 13,802.29
09/30/99 13,323.92
12/31/99 18,569.48
03/31/00 21,380.54
06/30/00 19,904.69
09/30/00 19,319.24
12/31/00 15,582.13
03/31/01 12,479.82
06/30/01 15,133.27
09/30/01 11,036.53
12/31/01 13,894.15
03/31/02 13,484.67
06/30/02 11,242.20
09/30/02 9,099.75
12/31/02 9,853.19
03/31/03 9,538.08
06/30/03 11,705.26
09/30/03 12,871.20
12/31/03 14,415.86
03/31/04 15,209.71
06/30/04 15,230.54
09/30/04 14,376.21
12/31/04 16,519.84
03/31/05 15,805.22
06/30/05 16,368.54
09/30/05 17,397.54
12/31/05 17,870.65
03/31/06 19,984.17
06/30/06 18,760.77
09/30/06 18,534.96
$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, 1996, reflects deduction of the 5.75% sales load
and assumes all dividends reinvested. The chart does not reflect the deduction
of taxes that a shareholder would pay on distributions of the redemption of fund
shares. The Russell 2500 Growth Index is an unmanaged index that measures this
performance of securities of small-to-mid U.S. companies with
greater-than-average growth orientation.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 9-30-06 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- --------------------- ------ ------- -------- ---------------
A Shares 2.81% 11.11% 11.07% --
A Shares with sales charge (3.09%) 9.79% 10.42% --
B Shares 2.12% 10.26% 10.26% --
B Shares with CDSC (2.54%) 9.99% 10.26% --
C Shares 2.20% 10.32% N/A 8.74%
(1-29-99)
C Shares with CDSC 1.26% 10.32% N/A 8.74%
(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 AS OF 9-30-06
Consumer Discretionary 6.40%
Consumer Staples 1.82
Energy 17.11
Financials 8.20
Health Care 11.17
Industrials 18.82
Information Technology 26.02
Materials 4.21
Exchange Traded Funds 1.54
Warrants 0.33
Commercial Paper 1.70
Asset Backed Commerical Paper 2.83
Repurchase Agreement 0.35
Liabilities in excess of other assets (0.50)
------
Total net assets 100.00%
======
82 See accompanying notes.
SECURITY
Performance Summary MID CAP GROWTH FUND
September 30, 2006 (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, 2006 - September 30, 2006.
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 mutual 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
04-01-06 09-30-06(1) PERIOD(2)
------------- ------------- -------------
Mid Cap Growth Fund
- Class A
Actual $1,000.00 $ 891.10 $ 6.68
Hypothetical 1,000.00 1,018.00 7.13
Mid Cap Growth Fund
- Class B
Actual 1,000.00 887.70 10.22
Hypothetical 1,000.00 1,014.24 10.91
Mid Cap Growth Fund
- Class C
Actual 1,000.00 888.30 10.22
Hypothetical 1,000.00 1,014.24 10.91
(1) The actual ending account value is based on the actual total return of the
Fund for the period from April 1, 2006 to September 30, 2006 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, 2006 to September 30, 2006 was (10.89%), (11.23%) and
(11.17%), for Class A, B and C shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (1.41%, 2.16% and
2.16% 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).
83
Schedule of Investments Security Mid Cap Growth Fund
September 30, 2006
SHARES VALUE
--------- ------------
COMMON STOCK - 95.2%
APPAREL, ACCESSORIES & LUXURY GOODS - 0.7%
Maidenform Brands, Inc. * 87,500 $ 1,688,750
------------
APPLICATION SOFTWARE - 1.2%
TIBCO Software, Inc. * 307,000 2,756,860
------------
ASSET MANAGEMENT & CUSTODY BANKS - 3.0%
Northern Trust Corporation (1) 116,000 6,777,880
------------
AUTO PARTS & EQUIPMENT - 0.6%
HydroGen Corporation * (2) 253,722 1,268,610
------------
BIOTECHNOLOGY - 4.6%
CellGenesys, Inc. * 229,000 1,046,530
Combinatorx, Inc. * 152,000 946,960
Human Genome Sciences, Inc. * 179,800 2,074,892
Incyte Corporation* 355,000 1,501,650
lomai Corporation * 244,000 1,154,120
Kosan Biosciences, Inc. * 169,100 816,753
Ligand Pharmaceuticals, Inc. (CI.B) * 196,900 1,974,907
Zymogenetics, Inc. * 55,900 943,033
------------
10,458,845
------------
BROADCASTING & CABLE TV - 1.3%
Salem Communications Corporation 180,000 2,035,800
WorldSpace, Inc. * 290,000 994,700
------------
3,030,500
------------
COAL & CONSUMABLE FUELS - 5.1%
Evergreen Energy, Inc. * 1,113,900 11,707,089
------------
COMMUNICATIONS EQUIPMENT - 7.8%
ADC Telecommunications, Inc. * 233,000 3,495,000
Finisar Corporation* 2,145,000 7,786,350
PC-Tel, Inc. * 287,250 3,016,125
Symmetricom, Inc. * 440,100 3,551,607
------------
17,849,082
------------
COMPUTER STORAGE & PERIPHERALS - 0.9%
Novatel Wireless, Inc. * 220,000 2,118,600
------------
CONSTRUCTION & ENGINEERING - 4.4%
Insituform Technologies, Inc. * 168,000 4,079,040
Shaw Group, Inc. * 253,700 5,997,468
------------
10,076,508
------------
CONSUMER FINANCE - 2.4%
First Marblehead Corporation (1) 78,000 5,402,280
------------
DATA PROCESSING & OUTSOURCED SERVICES - 1.0%
Euronet Worldwide, Inc. * 94,700 2,324,885
------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 1.6%
Equifax, Inc. 41,390 1,519,427
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES (CONTINUED)
Navigant Consulting, Inc. * 110,000 $ 2,206,600
------------
3,726,027
------------
ELECTRICAL COMPONENTS & EQUIPMENT - 7.2%
Millennium Cell, Inc. * 141,500 149,990
Power-One, Inc. * 1,359,800 9,844,952
Roper Industries, Inc. (1) 117,000 5,234,580
UQM Technologies, Inc. * 477,816 1,309,216
------------
16,538,738
------------
ELECTRONIC EQUIPMENT MANUFACTURERS - 3.9%
Aeroflex, Inc. * 240,000 2,467,200
Flir Systems, Inc. * 239,000 6,491,240
------------
8,958,440
------------
ELECTRONIC MANUFACTURING SERVICES - 3.3%
Maxwell Technologies, Inc. * 370,000 7,525,800
------------
EXCHANGE TRADED FUNDS - 1.5%
iShares Russell 2000 Growth Index Fund 25,000 1,808,250
iShares S&P MidCap 400 Growth Index Fund 23,000 1,732,360
------------
3,540,610
------------
GENERAL MERCHANDISE STORES - 0.7%
Fred's, Inc. 133,400 1,683,508
------------
HEALTH CARE EQUIPMENT - 0.9%
Orthovita, Inc. * 375,000 1,308,750
Strategic Diagnostics, Inc. * 206,300 794,255
------------
2,103,005
------------
HEALTH CARE FACILITIES - 1.9%
United Surgical Partners International, Inc. * 125,000 3,103,750
US Physical Therapy, Inc. * 97,000 1,156,240
------------
4,259,990
------------
HEALTH CARE SERVICES - 1.8%
Providence Service Corporation * 150,000 4,138,500
------------
HEALTH CARE SUPPLIES - 0.5%
Regeneration Technologies, Inc. * 165,000 1,158,300
------------
HEAVY ELECTRICAL EQUIPMENT - 0.9%
Plug Power, Inc. * 504,000 2,051,280
------------
HOMEFURNISHING RETAIL - 0.3%
Kirkland's, Inc. * 118,825 581,054
------------
INDUSTRIAL MACHINERY - 0.9%
Basin Water, Inc. * 164,000 1,343,160
Tennant Company 34,200 832,428
------------
2,175,588
------------
The accompanying notes are an integral part of the financial statements.
84
Schedule of Investments Security Mid Cap Growth Fund
September 30, 2006 - continued
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
IT CONSULTING & OTHER SERVICES - 0.6%
Keane, Inc. * 98,700 $ 1,422,267
------------
METAL & GLASS CONTAINERS - 4.2%
Pactiv Corporation * 340,000 9,662,800
------------
MOVIES & ENTERTAINMENT - 0.5%
Lions Gate Entertainment Corporation * 116,700 1,168,167
------------
OIL & GAS DRILLING - 2.9%
ENSCO International, Inc. 82,300 3,607,209
Helmerich & Payne, Inc. 130,000 2,993,900
------------
6,601,109
------------
OIL & GAS EQUIPMENT & SERVICES - 1.2%
BJ Services Company 80,000 2,410,400
Superior Energy Services, Inc. * 15,700 412,282
------------
2,822,682
------------
OIL & GAS REFINING & MARKETING - 5.9%
Nova Oil, Inc. * 416,100 1,456,350
Rentech, Inc. * 2,300,000 10,649,000
Syntroleum Corporation * 320,000 1,532,800
------------
13,638,150
------------
OIL & GAS STORAGE & TRANSPORTATION - 2.0%
Williams Companies, Inc. 190,000 4,535,300
------------
PACKAGED FOODS & MEATS - 1.8%
Hormel Foods Corporation 116,000 4,173,680
------------
PHARMACEUTICALS - 1.5%
Connetics Corporation * 200,000 2,180,000
Hollis-Eden Pharmaceuticals, Inc. * 257,744 1,363,466
------------
3,543,466
------------
PUBLISHING - 0.6%
Dow Jones & Company, Inc. 41,000 1,375,140
------------
RAILROADS - 1.7%
Kansas City Southern* 141,000 3,850,710
------------
REGIONAL BANKS - 1.0%
Boston Private Financial Holdings,
Inc. 80,000 2,230,400
------------
SEMICONDUCTOR EQUIPMENT - 0.0%
Semitool, Inc. * 5,450 56,353
------------
SEMICONDUCTORS -5.9%
Applied Micro Circuits
Corporation * 1,100,000 3,179,000
hi/fn, Inc. * 125,400 590,634
IXYS Corporation * 610,000 5,117,900
Mindspeed Technologies, Inc. * 1,516,700 2,623,891
Netlogic Microsystems, Inc. * 40,000 1,014,800
SHARES VALUE
--------- ------------
COMMON STOCK (CONTINUED)
SEMICONDUCTORS (CONTINUED)
QuickLogic Corporation * 300,000 $ 1,062,000
------------
13,588,225
------------
SPECIALIZED CONSUMER SERVICES - 1.7%
Weight Watchers International, Inc. 88,000 3,901,920
------------
SYSTEMS SOFTWARE - 1.4%
Progress Software Corporation * 21,900 569,400
Sybase, Inc. * 106,950 2,592,468
------------
3,161,868
------------
THRIFTS & MORTGAGE FINANCE - 1.9%
Clayton Holdings, Inc. * 352,000 4,424,640
------------
TRADING COMPANIES & DISTRIBUTORS - 1.3%
MSC Industrial Direct Company, Inc. 75,900 3,092,166
------------
TRUCKING - 0.7%
J.B.Hunt Transport Services, Inc. (1) 72,000 1,495,440
------------
TOTAL COMMON STOCK
(Cost $185,521,028) $218,645,212
------------
PREFERRED STOCK - 0.1%
ENVIRONMENTAL & FACILITIES SERVICES - 0.1%
ThermoEnergy Corporation PIPE * (2)(3)(4)(5) 745,000 201,820
------------
TOTAL PREFERRED STOCK
(Cost $702,947) $ 201,820
------------
WARRANTS - 0.3%
WARRANTS - 0.3%
Hollis-Eden Pharmaceuticals, Inc.
$ 15.45, 6/19/2007 (3) 8,143 601
Lime Energy Company
$ 1.00, 3/19/2009 (3) 20,767 20,116
Nova Oil, Inc.
$ 2.57, 7/5/2011 (3) 208,050 603,700
Orthovita, Inc.
$ 4.00, 6/26/2008 (3) 75,000 52,492
Syntroleum Corporation
$ 7.60, 5/26/2008 14,100 22,419
ThermoEnergy Corporation
$ 0.75, 7/14/2008 (2)(3)(5) 745,000 68.689
------------
768,017
------------
TOTAL WARRANTS
(Cost $849,026) $ 768,017
------------
The accompanying notes are an integral part of the financial statements.
85
Schedule of Investments Security Mid Cap Growth Fund
September 30, 2006 - continued
PRINCIPAL
AMOUNT VALUE
---------- ------------
ASSET BACKED COMMERCIAL PAPER - 2.8%
MISC. RECEIVABLES - 2.8%
Fairway Finance Corporation
5.255%, 10/3/2006 1,000,000 $ 999,708
5.255%, 10/4/2006 1,100,000 1,099,518
5.255%, 10/10/2006 1,500,000 1,498,028
Jupiter Securitization Corporation
5.26%, 10/6/2006 1,800,000 1,798,685
5.26%, 10/11/2006 1,100,000 1,098,393
------------
6,494,332
------------
TOTAL ASSET BACKED COMMERCIAL
PAPER (Cost $6,494,332) $ 6,494,332
------------
COMMERCIAL PAPER - 1.7%
BANKING - 0.6%
UBS Finance (DE) LLC
5.25%, 10/2/2006 1,300,000 1,299,810
------------
BROKERAGE - 0.7%
Credit Suisse First Boston USA
5.26%, 10/5/2006 1,600,000 1,599,065
------------
FINANCIAL-OTHER - 0.4%
Countrywide Financial Corporation
5.29%, 10/12/2006 1,000,000 998,384
------------
TOTAL COMMERCIAL PAPER
(Cost $3,897,259) $ 3,897,259
------------
REPURCHASE AGREEMENT - 0.4%
United Missouri Bank, 4.88%,
dated 09-29-06, matures 10-02-06; repurchase
amount of $806,328 (Collateralized by U.S.
Treasury Note, 3.25%, 01-15-09 with a value of
$822,376) $ 806,000 $ 806,000
------------
TOTAL REPURCHASE AGREEMENT
(Cost $806,000) $ 806,000
------------
TOTAL INVESTMENTS (SECURITY MID CAP GROWTH FUND)
(Cost $198,270,592) - 100.5% $230,812,640
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.5)% (1,138,405)
------------
TOTAL NET ASSETS - 100.0% $229,674,235
============
Footnotes
Percentages are stated as a percent of net assets.
For federal income tax purposes the identified cost of investments owned at
9/30/2006 was $198,849,382.
* - Non-income producing security
(1) - Security is segregated as collateral for open written options contracts.
(2) - Security is illiquid. See Notes to Financials.
(3) - Security is fair valued by the Board of Directors. See Note 8 in Notes to
Financials.
(4) - PIPE (Private Investment in Public Equity) - 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.
(5) - Security is restricted. See Notes to Financials.
See notes to financial statements.
The accompanying notes are an integral part of the financial statements.
86
SECURITY
MID CAP GROWTH FUND
Statement of Assets and Liabilities
September 30, 2006
ASSETS:
Investments, at value(1) ........................................ $230,812,640
Cash ............................................................ 920
Receivables:
Fund shares sold ............................................. 113,297
Securities sold .............................................. 127,020
Dividends .................................................... 49,711
Prepaid expenses ................................................ 19,021
------------
Total assets .................................................... 231,122,609
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 519,503
Fund shares redeemed ......................................... 166,080
Written options, at value
(premiums received, $258,245) ............................. 462,580
Management fees .............................................. 141,699
Custodian fees ............................................... 2,435
Transfer agent and administration fees ....................... 42,093
Professional fees ............................................ 25,948
12b-1 distribution plan fees ................................. 70,486
Directors' fees .............................................. 6,000
Other ........................................................ 11,550
------------
Total liabilities ............................................... 1,448,374
------------
NET ASSETS....................................................... $229,674,235
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $176,323,382
Accumulated undistributed net realized gain
on sale of investments and options written ................... 21,013,141
Net unrealized appreciation in value of
investments and options written .............................. 32,337,712
------------
Net assets ...................................................... $229,674,235
============
CLASS A:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 15,968,398
Net assets ...................................................... $192,158,699
Net asset value per share ....................................... $ 12.03
============
Maximum offering price per share
(net asset value divided by 94.25%) .......................... $ 12.76
============
CLASS B:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 2,175,563
Net assets ...................................................... $ 22,010,410
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 10.12
============
CLASS C:
Capital shares outstanding
(unlimited number of shares authorized) ...................... 1,393,567
Net assets ...................................................... $ 15,505,126
Net asset value, offering and redemption price
per share (excluding any applicable contingent
deferred sales charge) ....................................... $ 11.13
============
(1)Investments, at cost ......................................... $198,270,592
Statement of Operations
For the Year Ended September 30, 2006
INVESTMENT INCOME:
Dividends .................................................... $ 760,024
Interest ..................................................... 355,674
------------
Total investment income ...................................... 1,115,698
------------
EXPENSES:
Management fees .............................................. 1,759,408
Custodian fees ............................................... 23,608
Transfer agent/maintenance fees .............................. 458,227
Administration fees .......................................... 223,519
Directors' fees .............................................. 35,180
Professional fees ............................................ 48,182
Reports to shareholders ...................................... 78,113
Registration fees ............................................ 48,868
Other expenses ............................................... 30,197
12b-1 distribution plan fees - Class A ....................... 483,678
12b-1 distribution plan fees - Class B ....................... 250,456
12b-1 distribution plan fees - Class C ....................... 160,714
------------
Total expenses ............................................... 3,600,150
------------
Net investment loss .......................................... (2,484,452)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................................. 30,732,059
Options written .............................................. 1,149,569
------------
Net realized gain ............................................ 31,881,628
------------
Net unrealized appreciation (depreciation)
during the period on:
Investments .................................................. (25,058,971)
Options written .............................................. 94,776
------------
Net unrealized depreciation .................................. (24,964,195)
------------
Net realized and unrealized gain ............................. 6,917,433
------------
Net increase in net assets
resulting from operations ................................. $ 4,432,981
============
87 See accompanying notes.
SECURITY
Statement of Changes in Net Assets MID CAP GROWTH FUND
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2006 2005
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment loss ......................... $ (2,484,452) $ (2,111,085)
Net realized gain during the period on
investments and options written .......... 31,881,628 12,943,161
Net change in unrealized appreciation
(depreciation) during the period on
investments and options written .......... (24,964,195) 30,372,234
------------ ------------
Net increase in net assets resulting from
operations ............................... 4,432,981 41,204,310
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A .................................. (13,404,927) (9,955,799)
Class B .................................. (2,137,907) (2,023,316)
Class C .................................. (1,288,551) (1,044,883)
------------ ------------
Total distributions to shareholders ......... (16,831,385) (13,023,998)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares
Class A .................................. 64,440,077 39,688,683
Class B .................................. 3,192,315 4,639,146
Class C .................................. 3,755,889 3,851,285
Distributions reinvested
Class A .................................. 12,899,625 9,564,132
Class B .................................. 2,106,540 1,981,156
Class C .................................. 1,195,749 955,741
Cost of shares redeemed
Class A .................................. (58,969,056) (38,532,269)
Class B .................................. (8,845,377) (9,060,461)
Class C .................................. (4,824,246) (5,198,188)
------------ ------------
Net increase from capital share
transactions ............................. 14,951,516 7,889,225
------------ ------------
Net increase in net assets .................. 2,553,112 36,069,537
------------ ------------
NET ASSETS:
Beginning of period ......................... 227,121,123 191,051,586
------------ ------------
End of period ............................... $229,674,235 $227,121,123
============ ============
Accumulated undistributed net investment
income at end of period .................. $ -- $ --
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold
Class A .................................. 5,111,243 3,433,535
Class B .................................. 297,700 459,016
Class C .................................. 323,232 352,361
Shares reinvested
Class A .................................. 1,075,865 797,012
Class B .................................. 207,746 191,231
Class C .................................. 107,242 84,579
Shares redeemed
Class A .................................. (4,738,606) (3,301,939)
Class B .................................. (827,165) (917,791)
Class C .................................. (415,740) (473,376)
88 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 2006 2005 2004(e) 2003 2002(d)
- ------- -------- -------- -------- -------- -------
PER SHARE DATA
Net asset value, beginning of period $ 12.65 $ 11.02 $ 10.84 $ 7.03 $ 8.48
-------- -------- -------- -------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.12) (0.10) (0.13) (0.10) (0.09)
Net gain (loss) on securities (realized and unrealized) 0.47 2.46 0.71 3.91 (1.30)
-------- -------- -------- -------- -------
Total from investment operations 0.35 2.36 0.58 3.81 (1.39)
-------- -------- -------- -------- -------
Less distributions:
Distributions from realized gains (0.97) (0.73) (0.40) -- (0.06)
-------- -------- -------- -------- -------
Total distributions (0.97) (0.73) (0.40) -- (0.06)
-------- -------- -------- -------- -------
Net asset value, end of period $ 12.03 $ 12.65 $ 11.02 $ 10.84 $ 7.03
======== ======== ======== ======== =======
TOTAL RETURN(a) 2.81% 21.76% 5.23% 54.20% (16.64%)
-------- -------- -------- -------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $192,159 $183,676 $149,715 $134,208 $90,948
-------- -------- -------- -------- -------
Ratios to average net assets:
Net investment loss (0.93%) (0.85%) (1.11%) (1.14%) (0.92%)
Total expenses(b) 1.40% 1.42% 1.41% 1.41% 1.20%
-------- -------- -------- -------- -------
Portfolio turnover rate 41% 31% 50% 57% 47%
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
CLASS B 2006 2005 2004(e) 2003 2002(d)
- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 10.86 $ 9.61 $ 9.57 $ 6.26 $ 7.62
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.18) (0.16) (0.19) (0.15) (0.16)
Net gain (loss) on securities (realized and unrealized) 0.41 2.14 0.63 3.46 (1.14)
------- ------- ------- ------- -------
Total from investment operations 0.23 1.98 0.44 3.31 (1.30)
------- ------- ------- ------- -------
Less distributions:
Distributions from realized gains (0.97) (0.73) (0.40) -- (0.06)
------- ------- ------- ------- -------
Total distributions (0.97) (0.73) (0.40) -- (0.06)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.12 $ 10.86 $ 9.61 $ 9.57 $ 6.26
======= ======= ======= ======= =======
TOTAL RETURN(a) 2.12% 20.95% 4.44% 52.88% (17.35%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $22,010 $27,115 $26,578 $26,459 $17,502
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (1.68%) (1.61%) (1.86%) (1.89%) (1.84%)
Total expenses(b) 2.15% 2.17% 2.16% 2.16% 2.11%
------- ------- ------- ------- -------
Portfolio turnover rate 41% 31% 50% 57% 47%
89 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 2006 2005 2004(e) 2003 2002(c, d)
- ------- ------- ------- ------- ------- ----------
PER SHARE DATA
Net asset value, beginning of period $ 11.84 $ 10.43 $ 10.34 $ 6.76 $ 8.22
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss(b) (0.19) (0.18) (0.21) (0.16) (0.16)
Net gain (loss) on securities (realized and unrealized) 0.45 2.32 0.70 3.74 (1.24)
------- ------- ------- ------- -------
Total from investment operations 0.26 2.14 0.49 3.58 (1.40)
------- ------- ------- ------- -------
Less distributions:
Distributions from realized gains (0.97) (0.73) (0.40) -- (0.06)
------- ------- ------- ------- -------
Total distributions (0.97) (0.73) (0.40) -- (0.06)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.13 $ 11.84 $ 10.43 $ 10.34 $ 6.76
======= ======= ======= ======= =======
TOTAL RETURN(a) 2.20% 20.83% 4.59% 52.96% (17.30%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $15,505 $16,330 $14,759 $11,279 $ 5,883
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment loss (1.68%) (1.60%) (1.86%) (1.89%) (1.85%)
Total expenses(b) 2.15% 2.17% 2.16% 2.16% 2.12%
------- ------- ------- ------- -------
Portfolio turnover rate 41% 31% 50% 57% 47%
(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 shares.
(b) Net investment loss was computed using average shares outstanding
throughout the period.
(c) 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.
(d) Effective May 1, 2002 the fee structure for Security Mid Cap Growth Fund
changed. Per share information reflects this change.
(e) 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.
90 See accompanying notes.
Notes to Financial Statements
September 30, 2006
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.
Redemptions of Class "B" shares within five years of acquisition incur a
contingent deferred sales charge. Class "C" shares are offered without a
front-end sales charge but incur additional class-specific expenses. Redemptions
of 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 supervision 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. 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 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. Investments
in foreign securities may involve risks not present in domestic investments. The
Valuation Committee will determine the current value of such foreign securities
by taking into consideration certain factors which may include those discussed
above, as well as the following factors, among others: the value of the
securities traded on other foreign markets, ADR trading, closed-end fund
trading, foreign currency exchange activity, and the trading prices of financial
products that are tied to foreign securities such as WEBS(R). In addition, the
Board of Directors has authorized the Valuation Committee and Administrator to
use prices and other information supplied by IDC's Fair Value Information
Service in valuing such securities. Since foreign securities may be denominated
in a foreign currency and involve settlement and pay interest or dividends in
foreign currencies, changes in the relationship of these foreign currencies to
the U.S. dollar can significantly affect the value of the investments and
earnings of the Funds 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
91
Notes to Financial Statements
September 30, 2006
in the market prices of securities held. Such fluctuations are 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, as applicable, may purchase futures contracts to
immediately position incoming cash in the market, thereby simulating a fully
invested position in the underlying index while maintaining a cash balance for
liquidity. In the event of redemptions, the Funds or Series, as applicable, may
pay departing shareholders from its cash balances and reduce their futures
positions accordingly. Returns may be enhanced by purchasing futures contracts
instead of the underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks contained in the indexes and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Upon entering into a futures
contract, the Funds 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, 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 is accrued as of ex-dividend date, except that certain dividends for
foreign securities where the ex-dividend date may have passed are recorded as
soon as the Fund or Series is informed of the dividend in the exercise of
reasonable diligence. 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 complied with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distributed all of their taxable net income and net realized gains sufficient to
relieve them from all, or substantially all, federal income, excise and state
income taxes. Therefore, no provision for federal or state income tax is
required.
K. EARNINGS CREDITS - Under the fee schedule with the custodian, the Funds
or Series 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
92
Notes to Financial Statements
September 30, 2006
principles requires management to make estimates and 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. SECURITIES SOLD SHORT - 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. If a Fund or
Series makes a short sale, the Fund or Series does not immediately deliver from
its own account the securities sold and does not receive the proceeds from the
sale. 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 or
delivering the security from its own portfolio. The Fund or Series is said to
have a "short position" in securities sold until it delivers them to the broker,
at which time it receives the proceeds of the sale. Certain Funds or Series may
make short sales that are not "against the box," which create opportunities to
increase the Fund's or Series' return but, at the same time, involve specific
risk considerations and may be considered a speculative technique. Such short
sales theoretically involve unlimited loss potential, as the market price of
securities sold short may continually increase, although a Fund or Series may
mitigate such losses by replacing the securities sold short before the market
price has increased significantly. 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
Fund or Series 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 Fund or Series are required under the Investment Company Act of
1940 to maintain segregated assets consisting of cash, cash equivalents or
liquid securities. These segregated assets are valued consistent with Note 1a
above. These segregated assets are required to be adjusted daily to reflect
changes in the market value of the securities sold short.
N. INDEMNIFICATIONS - Under the 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 have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
O. RECENT ACCOUNTING PRONOUNCEMENTS - In June 2006, the Financial
Accounting Standards Board issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income
Taxes (FIN 48), to create a single model to address accounting for uncertainty
in tax positions. FIN 48 clarifies the accounting for income taxes, by
prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides
guidance on derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. Security Equity Fund,
Security Large Cap Value Fund and Security Mid Cap Growth Fund will adopt FIN 48
as of October 1, 2007, as required. The cumulative effect of adopting FIN 48
will be recorded in retained earnings and other accounts, as applicable. The
Funds have not determined the effect, if any, the adoption of FIN 48 will have
on the Funds' financial position and results of operations.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards No. 157, "Fair Value Measurements"
(FAS 157). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosure about the use of fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. As of September
30, 2006, the Funds are currently evaluating the impact of FAS 157.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC or
Investment Manager) as follows:
MANAGEMENT
FEES (AS A %
OF NET ASSETS)
--------------
Security Equity Fund:
Alpha Opportunity Series* 2.19%(1)
Equity Series 0.75%
Global Series 1.00%
Mid Cap Value Series 1.22%(2)
Select 25 Series 0.75%
Small Cap Growth Series 1.00%
Security Large Cap Value Fund 0.65%
Security Mid Cap Growth Fund 0.75%
* Alpha Opportunity Series' management fee will range from 1.25% to 2.75% of
average daily net assets as discussed below.
(1) SMC receives a management fee from the Alpha Opportunity Series that
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
93
Notes to Financial Statements
September 30, 2006
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 underper-forms 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 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, and 0.75% of the average daily net
assets of the Mid Cap Value Series in excess of $200 million.
SMC also acts as the administrative agent and transfer agent for the Funds,
and as such performs administrative functions, transfer agency and dividend
disbursing services, and the bookkeeping, accounting and pricing functions for
each Fund or Series. For these services, the Investment Manager receives the
following:
ADMINISTRATIVE FEES
(AS A % OF NET ASSETS)
-----------------------------------
Security Equity Fund:
Alpha Opportunity Series 0.15%
Equity Series 0.095%
Global Series 0.05% + greater of 0.10% or $60,000
Mid Cap Value Series 0.095%
Select 25 Series 0.095%
Small Cap Growth Series 0.095%
Security Large Cap Value Fund 0.095%
Security Mid Cap Growth Fund 0.095%
Minimum charge per Series or Fund $25,000
Certain out-of-pocket charges Varies
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
SMC has agreed to limit the total expenses for each class of the Select 25
Series to 1.75% of average net assets, Mid Cap Value Series and Small Cap Growth
Series to 2.00% of average net assets exclusive of interest, taxes,
extraordinary expenses, brokerage fees and commissions and 12b-1 fees for the
aforementioned Series. SMC has agreed to limit the total other expenses of Alpha
Opportunity Series to 0.50% The expense limits 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 Rules 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 and 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 charging 12b-1
fees on Class B shares in accordance with the NASD sales cap regulations. This
fee may be reinstated at any time.
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 shares after allowances to brokers and
dealers as follows:
SDI
UNDERWRITING
COMMISSIONS
------------
Security Equity Fund:
Alpha Opportunity Series $ 7,146
Global Series 70,977
Mid Cap Value Series 290,815
Select 25 Series 225
Small Cap Growth Series 7,579
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company, a subsidiary of Security
Benefit Corporation and its affiliates, which include SMC and SDI.
At September 30, 2006, Security Benefit Corporation and its subsidiaries
owned over five percent of the outstanding shares of the Funds or Series, as
follows:
FUND OR SERIES PERCENT OF OUTSTANDING SHARES OWNED
- -------------- -----------------------------------
Security Equity Fund:
Alpha Opportunity Series 38.81%
Equity Series 14.03%
Global Series 9.71%
Select 25 Series 17.36%
Security Large Cap Value Fund 21.45%
Security Mid Cap Growth Fund 5.72%
94
Notes to Financial Statements
September 30, 2006
3. UNREALIZED APPRECIATION/DEPRECIATION
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) on investments at September 30, 2006, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
Security Equity Fund:
Alpha Opportunity Series $ 209,022 $ (710,634) $ (501,612)
Equity Series 88,480,916 (14,685,903) 73,795,013
Global Series 38,609,896 (2,546,910) 36,062,986
Mid Cap Value Series 178,778,719 (21,215,871) 157,562,848
Select 25 Series 9,074,717 (1,096,868) 7,977,849
Small Cap Growth Series 6,325,487 (1,031,791) 5,293,696
Security Large Cap Value Fund 10,619,785 (894,145) 9,725,640
Security Mid Cap Growth Fund 49,316,929 (17,353,671) 31,963,258
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended September 30, 2006, (excluding
overnight investments and short-term commercial paper) were as follows:
PROCEEDS
PURCHASES FROM SALES
------------ ------------
Security Equity Fund:
Alpha Opportunity Series $202,652,430 $202,320,665
Equity Series 136,632,170 183,847,555
Global Series 43,750,348 74,920,747
Mid Cap Value Series 426,955,246 227,339,139
Select 25 Series 44,744,396 13,323,567
Small Cap Growth Series 71,481,282 54,741,561
Security Large Cap Value Fund 50,676,676 35,578,198
Security Mid Cap Growth Fund 93,369,307 105,884,000
5. OPEN FUTURES CONTRACTS
Open futures contracts for Alpha Opportunity Series as of September 30,
2006, were as follows:
ALPHA OPPORTUNITY SERIES
S&P 500 Index Futures
------------------------
POSITION Long
NUMBER OF CONTRACTS 38
EXPIRATION DATE 12-15-2006
CONTRACT AMOUNT $12,597,697
MARKET VALUE $12,781,300
UNREALIZED GAIN $183,603
6. OPTIONS WRITTEN
The following options written were outstanding for Equity Series at
September 30, 2006:
EQUITY SERIES CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
First Marblehead Corporation 10-20-06 $60.00 344 $319,920
Transocean, Inc. 11-17-06 80.00 362 63,350
Tyson Foods, Inc. 11-17-06 15.00 1,262 151,440
----- --------
Total call options outstanding
(premiums received, $320,689) 1,968 $534,710
===== ========
EQUITY SERIES PUT OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
McDermott International, Inc. 10-20-06 $40.00 980 $93,100
--- -------
Total put options outstanding
(premiums received, $142,320) 980 $93,100
=== =======
Transactions in options written for Equity Series for the year ended
September 30, 2006, were as follows:
EQUITY SERIES CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at September 30, 2005 1,194 $ 240,933
Opened 4,801 624,277
Expired (3,448) (528,309)
Exercised (579) (16,212)
------ ---------
Balance at September 30, 2006 1,968 $ 320,689
====== =========
EQUITY SERIES PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at September 30, 2005 -- $ --
Opened 8,885 1,111,406
Expired (4,949) (581,529)
Exercised (2,806) (342,858)
Bought Back (150) (44,699)
------ ----------
Balance at September 30, 2006 980 $ 142,320
====== ==========
The following options written were outstanding for Mid Cap Value Series at
September 30, 2006:
MID CAP VALUE SERIES CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ----------
First Marblehead
Corporation 12-15-06 $60.00 785 $ 879,200
Granite Construction, Inc. 12-15-06 55.00 849 331,110
Great Plains Energy, Inc. 10-20-06 30.00 1,420 163,300
Tyson Foods, Inc. 11-17-06 15.00 2,800 336,000
W.R. Berkley Corporation 10-20-06 35.00 400 46,000
----- ----------
Total call options outstanding
(premiums received, $1,118,958) 6,254 $1,755,610
===== ==========
95
Notes to Financial Statements
September 30, 2006
MID CAP VALUE SERIES PUT OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
Arch Coal, Inc. 10-20-06 $30.00 1,200 $246,000
----- --------
Total put options outstanding
(premiums received, $129,596) 1,200 $246,000
===== ========
Transactions in options written for Mid Cap Value Series for the year ended
September 30, 2006, were as follows:
MID CAP VALUE SERIES CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at September 30, 2005 6,504 $ 1,134,237
Opened 24,805 5,211,855
Bought Back (1,630) (737,618)
Expired (11,402) (1,826,862)
Exercised (12,023) (2,662,654)
------- -----------
Balance at September 30, 2006 6,254 $ 1,118,958
======= ===========
MID CAP VALUE SERIES PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at September 30, 2005 4,066 $ 523,507
Opened 14,914 1,995,007
Expired (12,190) (1,811,046)
Exercised (5,590) (577,872)
------- -----------
Balance at September 30, 2006 1,200 $ 129,596
======= ===========
The following options written were outstanding for Select 25 Series at
September 30, 2006:
SELECT 25 SERIES CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
BJ Services Company 10-20-06 $37.50 162 $ 810
First Marblehead Corporation 10-20-06 60.00 75 69,750
--- -------
Total call options outstanding
(premiums received, $41,934) 237 $70,560
=== =======
Transactions in options written for Select 25 Series for the year ended
September 30, 2006, were as follows:
SELECT 25 SERIES CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at September 30, 2005 -- $ --
Opened 673 87,226
Expired (361) (43,192)
Exercised (75) (2,100)
---- --------
Balance at September 30, 2006 237 $ 41,934
==== ========
SELECT 25 SERIES PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at September 30, 2005 -- $ --
Opened 174 22,400
Expired (90) (13,748)
Exercised (84) (8,652)
--- --------
Balance at September 30, 2006 -- $ --
=== ========
The following options written were outstanding for Security Large Cap Value
Fund at September 30, 2006:
SECURITY LARGE CAP VALUE FUND
CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
Archer-Daniels-Midland Company 10-20-06 $40.00 204 $ 9,180
First Marblehead Corporation 10-20-06 60.00 13 12,090
Transocean, Inc. 11-17-06 80.00 55 9,625
Tyson Foods, Inc. 11-17-06 15.00 246 29,520
--- -------
Total call options outstanding
(premiums received, $67,840) 518 $60,415
=== =======
Transactions in options written for Security Large Cap Value Fund for the
year ended September 30, 2006, were as follows:
LARGE CAP VALUE FUND CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at September 30, 2005 264 $ 23,375
Opened 1,206 137,738
Expired (609) (58,821)
Exercised (343) (34,452)
----- --------
Balance at September 30, 2006 518 $ 67,840
===== ========
LARGE CAP VALUE FUND PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at September 30, 2005 -- $ --
Opened 461 93,490
Bought Back (23) (6,854)
Exercised (97) (21,917)
Expired (341) (64,719)
---- --------
Balance at September 30, 2006 -- $ --
==== ========
96
Notes to Financial Statements
September 30, 2006
The following options written were outstanding for Security Mid Cap Growth
Fund at September 30, 2006:
SECURITY MID CAP GROWTH FUND
CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
First Marblehead Corporation 12-15-06 60.00 220 $246,400
JB Hunt Transport Services, Inc. 10-20-06 20.00 720 72,000
Northern Trust Corporation 01-19-07 55.00 290 139,200
Roper Industries, Inc. 10-20-06 45.00 83 4,980
----- --------
Total call options outstanding
(premiums received, $258,244) 1,313 $462,580
===== ========
Transactions in options written for Security Mid Cap Growth Fund for the
year ended September 30, 2006, were as follows:
SECURITY MID CAP GROWTH FUND CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at September 30, 2005 1,555 $ 412,720
Opened 6,009 996,827
Expired (4,822) (689,786)
Exercised (1,429) (461,517)
------ ---------
Balance at September 30, 2006 1,313 $ 258,244
====== =========
SECURITY MID CAP GROWTH FUND PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at September 30, 2005 1,227 $ 81,323
Opened 2,062 407,193
Expired (2,867) (459,783)
Exercised (422) (28,733)
------ ---------
Balance at September 30, 2006 -- $ --
====== =========
97
Notes to Financial Statements
September 30, 2006
7. RESTRICTED SECURITIES
As of September 30, 2006, the following Funds or Series contained
restricted securities. Market value, cost, percentage of total net assets and
acquisition dates are as follows:
MARKET VALUE
MARKET % OF ACQUISITION
VALUE COST NET ASSETS DATE
-------- ---------- ------------ -----------
Security Equity Fund:
Global Series $148,538 $ 116,996 0.1% 3-25-04
Mid Cap Value Series 633,610 2,094,000 0.1% 7-14-05
Security Mid Cap Growth Fund 270,510 894,000 0.1% 7-14-05
8. FAIR VALUED SECURITIES
As of September 30, 2006, the following Funds or Series contained
securities that were fair valued by the Board of Directors. Market value, cost
and percentage of total net assets are as follows:
MARKET VALUE
MARKET % OF
VALUE COST NET ASSETS
---------- ---------- ------------
Security Equity Fund:
Mid Cap Value Series $2,627,962 $3,208,337 0.3%
Security Large Cap Value Fund -- 125,000 0.0%
Security Mid Cap Growth Fund 947,418 1,551,832 0.4%
9. ILLIQUID SECURITIES
As of September 30, 2006, the following Funds or Series contained
securities that were considered illiquid. Market value, cost and percentage of
total net assets are as follows:
MARKET VALUE
MARKET % OF
VALUE COST NET ASSETS
----------- ----------- ------------
Security Equity Fund:
Mid Cap Value Series $45,971,392 $49,677,305 5.4%
Security Large Cap Value Fund -- 125,000 0.0%
Security Mid Cap Growth Fund 1,539,119 2,062,228 0.7%
10. FEDERAL TAX MATTERS
The tax character of distributions paid during the fiscal years ended
September 30, 2006 and 2005, was the same as that reported in the Statement of
Changes in Net Assets, except as follows:
ORDINARY CAPITAL
INCOME GAIN TOTAL
---------- -------- ----------
2006
Security Equity Fund:
Alpha Opportunity Series $1,674,911 $303,639 $1,978,550
2005
Security Equity Fund:
Alpha Opportunity Series $1,099,071 $186,310 $1,285,381
Note: For federal income tax purposes, short term capital gain distributions are
treated as ordinary income distributions.
98
Notes to Financial Statements
September 30, 2006
As of September 30, 2006 the components of distributable earnings on a tax basis
were:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED TOTAL
ORDINARY LONG-TERM CAPITAL AND APPRECIATION ACCUMULATED
INCOME GAIN OTHER LOSSES* (DEPRECIATION)** EARNINGS/(DEFICIT)
------------- ------------- ------------- ---------------- ------------------
Security Equity Fund:
Alpha Opportunity Series $ 1,969,025 $ 368,755 $ -- $ (595,621) $ 1,742,159
Equity Series 5,800,679 27,173,244 -- 73,630,213 106,604,136
Global Series 68,515 22,807,551 (5,914,060) 36,061,930 53,023,936
Mid Cap Value Series 11,335,111 34,143,040 -- 156,809,792 202,287,943
Select 25 Series -- -- (17,302,526) 7,949,223 (9,353,303)
Small Cap Growth Series -- -- (2,060,375) 5,293,696 3,233,321
Security Large Cap Value Fund 21,221 -- (5,372,764) 9,733,065 4,381,522
Security Mid Cap Growth Fund 1,579,334 22,297,681 (2,285,084) 31,758,922 53,350,853
* 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) are 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, 2006, 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:
CAPITAL LOSS DEFERRED
CARRYOVERS POST-
UTILIZED CAPITAL LOSS OCTOBER
IN 2006 CARRYOVERS EXPIRES IN LOSSES
------------ ------------ ---------- ----------
Security Equity Fund:
Global Series $ -- $ 651,525 2009 $4,353,895
442,978 908,640 2010
96,592 -- 2011
2,397,360 -- 2012
---------- -----------
$2,936,930 $ 1,560,165
========== ===========
Select 25 Series* $ 263,458 $ 1,867,435 2008 $ --
-- 3,495,954 2009
-- 6,080,559 2010
-- 5,819,939 2011
-- 38,639 2012
---------- -----------
$ 263,458 $17,302,526 $ --
========== ===========
Small Cap Growth Series $1,865,093 $ 2,060,375 2010 $ --
========== ===========
Security Large Cap Value Fund $2,409,607 $ 5,372,764 2011 $ --
========== ===========
Security Mid Cap Growth Fund $ 567,035 $ 1,701,105 2009 $ --
-- 567,035 2010
-- 16,944 2011
---------- -----------
$ 567,035 $ 2,285,084 $ --
========== ===========
* The Security Equity Fund - Select 25 Series obtained approximately
$1,236,753, $3,140,789 and $1,728,838 of capital losses (included above)
from its merger with Security Equity Fund - Social Awareness Series,
Enhanced Index Series and Large Cap Growth Series, respectively, on June
16, 2006 (see Note 12), which may be applied against realized net taxable
capital gains in future years or until September 30, 2012, subject to
certain limitations imposed by Section 382 of the Internal Revenue Code.
99
Notes to Financial Statements
September 30, 2006
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 Statement of Assets and Liabilities the following adjustments were
made for permanent tax differences:
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT PAID-IN-
GAIN/(LOSS) INCOME CAPITAL
------------ -------------- ---------
Security Equity Fund:
Alpha Opportunity Series $ (254,410) $ 212,342 $ 42,068
Equity Series (666,284) 666,284 --
Global Series 3,952,016 (3,952,016) --
Mid Cap Value Series (1,056,502) 1,056,502 --
Select 25 Series -- 376,395 (376,395)
Small Cap Growth Series -- 722,692 (722,692)
Security Mid Cap Growth Fund (2,484,452) 2,484,452 --
11. 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, 2006 amounted to
$34,703,340 which represents 4.05% of net assets. There were no affiliated
companies held in any other Fund or Series. Transactions in the Mid Cap Value
Series during the year ended September 30, 2006 in which the portfolio company
is an "affiliated person" are as follows:
NORTH
POINTE THERMOENERGY THERMOENERGY
HYDROGEN MERIX HOLDINGS CORPORATION CORPORATION
CORPORATION, LLC CORPORATION CORPORATION OPTEUM, INC. PIPES WARRANTS
---------------- ----------- ----------- ------------ ------------ ------------
SEPTEMBER 30, 2005
Balance
Shares 547,442 828,600 259,300 -- 1,745,000 1,745,000
Cost $2,443,018 $ 8,322,465 $3,111,600 $1,646,500 $ 447,500
Gross Additions
Shares 185,408 647,400 210,700 1,474,400 -- --
Cost $1,093,264 $ 7,265,569 $2,749,635 $16,310,457 $ -- $ --
Gross Reductions
Shares -- -- -- -- -- --
Cost $ -- $ -- $ -- $ -- $ -- $ --
SEPTEMBER 30, 2006
Balance
Shares 732,850 1,476,000 470,000 1,474,400 1,745,000 1,745,000
Cost $3,536,282 $15,588,034 $5,861,235 $16,310,457 $1,646,500 $ 447,500
Realized Gain/(Loss) $ 29,316 -- -- -- -- --
Investment Income -- -- -- $ 590,220 -- --
* 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.
12. ACQUISITION OF THE ENHANCED INDEX SERIES, LARGE CAP GROWTH SERIES AND SOCIAL
AWARENESS SERIES OF SECURITY EQUITY FUND
Pursuant to a plan of reorganization approved by the shareholders of the
Enhanced Index Series, Large Cap Growth Series and Social Awareness Series of
Security Equity Fund, Select 25 Series of Security Equity Fund acquired all of
the net assets of Enhanced Index Series, Large Cap Growth Series and Social
Awareness Series on June 16, 2006 which totaled $10,521,264, $9,349,430 and
$15,026,332, respectively. A total of 1,113,825 shares of Enhanced Index Series,
1,516,468 shares of Large Cap Growth Series and 734,975 shares of Social
Awareness Series were exchanged for 1,136,596 shares, 995,315 shares and
1,592,592 shares, respectively of Select 25 Series immediately after the closing
date. This exchange qualified as a tax-free reorganization under Section
368(a)(1)(c) of the Internal Revenue Code. Enhanced Index Series' net assets
included $134,643 of unrealized appreciation and $3,166,376 of accumulated
realized loss on investments. Large Cap Growth Series' net assets included
$950,756 of unrealized appreciation and $1,763,332 of accumulated realized loss
on investments. Social Awareness Series' net assets included $1,208,145 of
unrealized appreciation and $2,034,274 of accumulated realized loss. The
aggregate net assets of Select 25 Series immediately before the acquisition
totaled $28,909,382 and following the acquisition, the combined net assets of
Select 25 Series totaled $63,806,408.
100
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
SECURITY EQUITY FUND, SECURITY LARGE CAP VALUE 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, Equity, Global, Mid Cap Value, Select 25 and Small Cap Growth),
Security Large Cap Value Fund and Security Mid Cap Growth Fund (the Funds) as of
September 30, 2006, 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, 2006, 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, 2006,
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.
ERNST & YOUNG LLP
Kansas City, Missouri
November 20, 2006
101
Special Shareholders' Meeting
(unaudited)
A special meeting of the shareholders of Enhanced Index Series, Large Cap
Growth Series and the Social Awareness Series of Security Equity Fund was held
on June 1, 2006. Each matter voted upon at the meeting, as well as the number of
votes cast for, against or withheld, and the number of abstentions with respect
to such matters are set forth below:
(1) The approval of a plan of reorganization providing for the
acquisition of all of the assets and liabilities of Security
Equity Fund, Enhanced Index Series by Security Equity Fund,
Select 25 Series solely in exchange for shares of the Select 25
Series, followed by the complete liquidation of the Enhanced
Index Series. The following votes were cast regarding this
matter:
VOTES FOR VOTES AGAINST/ABSTENTIONS
--------- -------------------------
Security Equity Fund,
Enhanced Index Series 653,873 287,461
(2) The approval of a plan of reorganization providing for the
acquisition of all of the assets and liabilities of Security
Equity, Large Cap Growth Series by Security Equity Fund, Select
25 Series solely in exchange for shares of the Security Equity
Fund, Select 25 Series shares followed by the complete
liquidation of the Large Cap Growth Series. The following votes
were cast regarding this matter:
VOTES FOR VOTES AGAINST/ABSTENTIONS
--------- -------------------------
Security Equity Fund,
Large Cap Growth Series 931,051 417,632
(2) The approval of a plan of reorganization providing for the
acquisition of all of the assets and liabilities of Security
Equity Fund, Social Awareness Series by Security Equity Fund,
Select 25 Series solely in exchange for shares of the Security
Equity Fund, Select 25 Series, followed by the complete
liquidation of the Social Awareness Series. The following votes
were cast regarding this matter:
VOTES FOR VOTES AGAINST/ABSTENTIONS
--------- -------------------------
Security Equity Fund,
Social Awareness Series 307,135 142,368
102
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) Director - Jayhawk Area Boy Scouts Council
1994
Harry W. Craig, Jr.** Chairman, CEO, Secretary & Director, The Martin Tractor Company, Inc.;
(05-11-39) Director - Stormont-Vail Corporation
2004 Director - Concerned Citizens for Topeka
Director - Oscar S. Stauffer Executive in Residence
Jerry B. Farley** President, Washburn University
(09-20-46) President, J&J Bonanza
2005
Penny A. Lumpkin** Partner, Vivians' Gift Shop (Corporate Retail)
(08-20-39) Vice President, Palmer Companies, Inc.
1993 (Small 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, Stormont-Vail HealthCare
(12-18-43) DIrector - VHA Mid-America
1998 Director - Go Topeka
Michael G. Odlum* President & Managing Member Representative, Security Management Company, LLC
(01-12-52) Senior Vice President and Chief Investment Officer, Security Corporation and
2006 (Acting Chairman Security Benefit Life Insurance Company
of the Board) Director, Security Distributors, Inc.
2004 (President) Director, Vice President and Chief Investment Officer, First Security
2004 (Director) Benefit Life Insurance and Annuity Company of New York
* This director is deemed to be an "interested person" of the Funds under the
Investment Company Act of 1940, as amended, by reason of his position with
the Funds' Investment Manager and/or the parent of the Investment Manager.
** These directors serve on the Fund's joint audit committee, the purpose of
which is to meet with the independent auditors, to review the work of the
auditors, and to oversee the handling by Security Management Company, LLC
of the accounting function for the Funds.
*** Each director oversees 28 Security Fund portfolios and serves until the
next annual meeting, or until a successor has been duly elected and
qualified.
103
Directors and Officers (unaudited) (continued)
OFFICERS
NAME
(DATE OF BIRTH)
YEAR ELECTED*** PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
- --------------- -------------------------------------------
Steven M. Bowser Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(02-11-60) Vice President & Senior Portfolio Manager, Security Benefit Life Insurance
Vice President - 2003 Company
Christina Fletcher Vice President & Portfolio Manager, Security Management Company, LLC
(07-25-72) Credit Analyst/Portfolio Manager, Horizon Cash Management
Vice President - 2005 Senior Money Market Trader, Scudder Investments
Brenda M. Harwood Vice President & Chief Compliance Officer, Security Management Company, LLC;
(11-03-63) Assistant Vice President, Security Benefit Life Insurance Company
Chief Compliance Vice President, Assistant Treasurer & Director, Security Distributors, Inc.
Officer - 2004
Treasurer - 1988
Richard J. King Vice President & Head of Fixed Income Asset Management, Security Management
(03-59) Company, LLC;
Vice President - 2005 Vice President & Head of Fixed Income Asset Management, Security Benefit
Life Insurance Company
Partner, Head of Portfolio Management, INVESCO
Mark Lamb Vice President, Security Management Company, LLC,
(02-03-60) Vice President, Security Benefit Life Insurance Company
Vice President - 2003
Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.;
(06-05-61) Secretary & Chief Compliance Officer, Security Distributors, Inc.
Secretary - 1987 Vice President, Associate General Counsel & Assistant Secretary, Security
Benefit Life Insurance Company
Director, Brecek & Young Advisors, Inc.
Mark Mitchell Vice President & Portfolio Manager, Security Management Company, LLC
(08-24-64) Vice President & Portfolio Manager, Security Benefit Life Insurance Company
Vice President - 2003
Christopher Phalen Vice President & Portfolio Manager, Security Management Company, LLC;
(11-9-70) Assistant Vice President & Portfolio Manager, Security Benefit Life
Vice President - 2002 Insurance Company
James P. Schier Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(12-28-57) Vice President & Senior Portfolio Manager, Security Benefit Life Insurance
Vice President - 1998 Company
Cindy L. Shields Vice President & Head of Equity Asset Management, Security Management
(06-05-67) Company, LLC,
Vice President - 1988 Vice President & Head of Equity Asset Management, Security Benefit Life
Insurance Company
Christopher D. Swickard Assistant Secretary, Security Management Company, LLC;
(10-09-65) Second Vice President & Assistant General Counsel, Security Benefit Life
Assistant Secretary - Insurance Company
1996 Assistant Secretary, Security Distributors, inc.
David G. Toussaint Vice President & Portfolio Manager, Security Management Company, LLC;
(10-10-66) Assistant Vice President & Portfolio Manager, Security Benefit Life
Vice President - 2001 Insurance Company
Eric Welt Vice President, Director of Portfolio Risk Analysis & Consultant Relations,
(10-31-67) Portfolio Risk Manager, Security Management Company, LLC;
Vice President - 2006 Associate Director - Senior Due Diligence Analyst, Bear Stearns & Company
* Officers serve until the next annual meeting or until a successor has been
duly elected and qualified.
104
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, 2006, which qualify for the dividends received
deduction for corporate shareholders is 3% for the Alpha Opportunity Series and
100% for the Equity Series and the Security Large Cap Value Fund.
For the fiscal year ended September 30, 2006, certain dividends paid by the
Funds may be subject to a maximum tax rate of 15%, as provided by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. The percentage of ordinary income
distributions for the fiscal year ended September 30, 2006, taxed at the maximum
rate of 15% is 4% for the Alpha Opportunity Series and 100% for the Equity
Series and the Security Large Cap Value Fund.
For federal income tax purposes, the Funds designate capital gain dividends for
the fiscal year ended September 30, 2006 as follows:
Security Equity Fund:
Alpha Opportunity Series $ 310,649
Equity Series 12,570,669
Mid Cap Value Series 33,921,702
Security Mid Cap Growth Fund 16,831,385
Additional information for foreign shareholders only:
For the year ended September 30, 2006, 12% of the ordinary distributions paid by
Alpha Opportunity Series and 3% of the ordinary distributions paid by the Equity
Series qualify as interest related dividends under the Internal Revenue Code
Section 871(k)(1)(C).
For the year ended September 30, 2006, 100% of the ordinary distributions paid
by the Alpha Opportunity Series and 2% of the ordinary distributions paid by the
Equity Series qualify as short term capital gain dividends under the Internal
Revenue Code Section 871(k)(2)(C).
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, 2006 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.
105
THE SECURITY GROUP OF MUTUAL FUNDS
Security Equity Fund
- Alpha Opportunity Series
- Equity Series
- Global Series
- Mid Cap Value Series
- Select 25 Series
- Small Cap Growth Series
Security Large Cap Value Fund
Security Mid Cap Growth Fund
Security Income Fund
- Capital Preservation Series
- Diversified Income Series
- High Yield Series
- Income Opportunity Series
Security Cash Fund
SECURITY FUNDS OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
Harry W. Craig, Jr.
Jerry B. Farley
Penny A. Lumpkin
Michael G. Odlum
Maynard F. Oliverius
OFFICERS
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
Christopher Phalen, Vice President
James P. Schier, Vice President
Cindy L. Shields, Vice President
David G. Toussaint, Vice President
Eric Welt, 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)
Security Distributors, Inc.
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 $129,000 in 2005 and
$118,500 in 2006.
(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 2005
and $3,300 in 2006. 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 $17,000 in 2005 and $18,000 in 2006, which related to the
review of the transfer agent function.
(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 $23,000 in
2005 and $20,000 in 2006. These services consisted of (i) review or
preparation of U.S. federal, state and excise tax returns; (ii) U.S.
federal and state 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) calculation of tax
adjustments for potential Passive Foreign Investment Companies (as
determined by Fund personnel) and (v) review of U.S. federal excise
distribution calculations.
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 2005 and $0 in 2006.
(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 2005 and $0 in 2006.
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 2005 and $0 in 2006.
(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 $43,000 in 2005 and $41,300 in 2006.
(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: /s/ MICHAEL G. ODLUM
------------------------------------
Michael G. Odlum, President
Date: December 5, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ MICHAEL G. ODLUM
------------------------------------
Michael G. Odlum, President
Date: December 5, 2006
By: /s/ BRENDA M. HARWOOD
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Brenda M. Harwood, Treasurer
Date: December 5, 2006