UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03225
SECURITY MUNICIPAL BOND FUND
(Exact name of registrant as specified in charter)
ONE SECURITY BENEFIT PLACE, TOPEKA, KANSAS 66636-0001
(Address of principal executive offices) (Zip code)
JAMES R. SCHMANK, PRESIDENT
SECURITY MUNICIPAL BOND FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(Name and address of agent for service)
Registrant's telephone number, including area code: (785) 438-3000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2003
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. [sec]3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL REPORT
June 30, 2003
SECURITY FUNDS(SM)
o Security Cash Fund
o Security Diversified Income Fund
o Security High Yield Fund
o Security Municipal Bond Fund
[LOGO OF SECURITY DISTRIBUTORS, INC. (R)] SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
SECURITY CASH FUND
SECURITY DIVERSIFIED INCOME FUND
SECURITY HIGH YIELD FUND
SECURITY MUNICIPAL BOND FUND
JUNE 30, 2003
SEMI-ANNUAL REPORT
TABLE OF CONTENTS
Commentary from the Security Funds' Chairman of the Board ................... 2
Commentary from the Security Funds' President ............................... 3
Security Diversified Income Fund ............................................ 4
Security High Yield Fund .................................................... 9
Security Municipal Bond Fund ................................................ 14
Security Cash Fund .......................................................... 17
Statements of Assets and Liabilities ........................................ 19
Statements of Operations .................................................... 20
Statements of Changes in Net Assets ......................................... 21
Financial Highlights ........................................................ 23
Notes to Financial Statements ............................................... 29
Director Disclosure ......................................................... 33
[LOGO OF THE SECURITY BENEFIT GROUP OF COMPANIES(R)] THE SECURITY BENEFIT
GROUP OF COMPANIES(SM)
- --------------------------------------------------------------------------------
1
COMMENTARY FROM THE CHAIRMAN OF THE BOARD
AUGUST 15, 2003
[PHOTO OF JOHN CLELAND]
John Cleland
TO OUR SHAREHOLDERS:
The past six months continued to be characterized by one of the lowest interest
rate environments in history. The absence of any discernable inflationary
pressures, coupled with the Federal Reserve Board's attempts to re-stimulate
economic growth with an accommodating monetary policy, have kept both short- and
long-term interest rates at the lowest levels in a generation.
Yield spreads have remained extremely narrow in this environment both with
respect to maturities and quality. It is our expectation that this climate is
likely to continue over the balance of the year. The continued absence of
inflation, driven by ongoing productivity improvement as a result of dramatic
technological change, is a condition that we do not expect to see altered in the
foreseeable future. At the same time, while we expect a modest improvement in
global economic growth, it is unlikely that this will be strong enough to create
upward pressure on interest rates from demands for capital in the global
economy. There is a possibility that we might see a modest rise in long-term
interest rates early in the third quarter as concerns about budget deficits roil
the markets. However, we doubt that this will signal a dramatic reversal in
direction.
Our expectation is that investors in the fixed income markets should be able to
earn a modest coupon return with modest capital appreciation should the
continued economic stagnation result in another cut in short-term interest rates
by the Federal Reserve later in the year. We do not expect any dramatic rise in
interest rates in the near term.
As always, we thank you for your investment with us and invite any questions and
comments you have at any time.
Sincerely,
/s/ John Cleland
John Cleland
Chairman, The Security Funds
- --------------------------------------------------------------------------------
2
COMMENTARY FROM THE PRESIDENT
AUGUST 15, 2003
[PHOTO OF JAMES R. SCHMANK]
James R. Schmank
TO OUR SHAREHOLDERS:
Fixed Income investors have been sheltered from the tremendous volatility and
negative returns of the equity markets over the last three years. Unfortunately,
we now find ourselves in the lowest interest rate environment in 45 years! Since
January 2001 the Federal Open Markets Committee has diligently reduced the Fed
Fund rate to its current level of 1%. This low rate is a critical tool in
rebuilding economic conditions, which will ultimately lead to market strength.
The impact on fixed income investors has been significant, since the yield on
their investments has followed the Fed Fund rate downward, reducing income
produced. While inflation over this period has been very low, providing price
stability for many goods and services, rising costs for medical care, education
and energy have impacted consumers dependent on the earnings from their fixed
income securities. On a more positive note, mortgage rates in this environment
have continued to fall, allowing homeowners the option to refinance resulting in
reduced monthly interest payments.
The Fed is committed to keeping interest rates low until an adequate economic
recovery is underway. While some improvements in recent economic releases are
evident, they are marginal and still erratic. Given this environment, we expect
interest rates to remain at or near current levels for the next 6 to 18 months.
We see little reason for rates to go much lower at this point, limiting
opportunities to create meaningful benefits from future home refinancing.
Consequently, those dependent on fixed income investments will continue to see
lower coupon returns until the markets firm and the Fed begins reversing the
rate reductions put in place over the last two and one half years.
During these difficult times, it may be prudent to consult your financial
representative to review your long-term investment plan. While these markets are
challenging to maneuver, investors who have established their investment plans
and stuck to them are generally much better prepared to weather these times.
As always, I appreciate the confidence you have placed in the Security Funds and
its management team. We are working hard to deliver sound investment results to
earn your continued support.
Sincerely,
/s/ James R. Schmank
James R. Schmank
President, The Security Funds
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3
- --------------------------------------------------------------------------------
SECURITY
DIVERSIFIED INCOME FUND
[LOGO OF SECURITY FUNDS (R)] SECURITY
FUNDS
ADVISOR, SECURITY
MANAGEMENT COMPANY, LLC
- --------------------------------------------------------------------------------
4
SCHEDULE OF INVESTMENTS
JUNE 30, 2003
(UNAUDITED)
SECURITY DIVERSIFIED INCOME FUND
PRINCIPAL
AMOUNT OR
NUMBER MARKET
PREFERRED STOCK OF SHARES VALUE
- --------------------------------------------------------------------------------
BANKING - 0.6%
JP Morgan Chase Capital XI,
5.875% - 2033 ........................... 24,000 $ 600,000
CORPORATE BONDS
- ---------------
AEROSPACE & DEFENSE - 1.0%
Boeing Capital Corporation,
6.68% - 2003 ............................ $ 350,000 357,768
Eaton Corporation,
5.75% - 2012 ............................ $ 325,000 355,382
United Technologies Corporation,
6.35% - 2011 ............................ $ 300,000 347,843
----------
1,060,993
AIRLINES - 1.8%
Continental Airlines, Inc.,
7.434% - 2006 ........................... $ 350,000 308,811
Delta Air Lines:
7.779% - 2005 ........................... $ 250,000 217,462
7.57% - 2010 ............................ $ 100,000 102,856
Qantas Airways,
5.125% - 2013 ........................... $ 700,000 686,355
Southwest Airlines Company,
7.875% - 2007 ........................... $ 450,000 525,779
----------
1,841,263
BANKING - 2.6%
Abbey National plc,
6.69% - 2005 ............................ $ 300,000 332,312
Bank of America Corporation,
7.80% - 2010 ............................ $ 300,000 369,878
Bank of New York Company, Inc.,
6.50% - 2003 ............................ $ 100,000 102,228
BCH Cayman Islands, Ltd.,
7.70% - 2006 ............................ $ 300,000 341,287
Den Danske Bank,
7.40% - 2010(1) ......................... $ 475,000 552,583
KeyBank NA,
7.00% - 2011 ............... ............ $ 300,000 355,716
PNC Funding Corporation,
7.75% - 2004 ............................ $ 200,000 212,391
Washington Mutual Capital I,
8.375% - 2027 ........................... $ 300,000 354,730
----------
2,621,125
BASIC INDUSTRY - OTHER- 0.4%
Pioneer Hi Bred International, Inc.,
5.75% - 2009 ............................ $ 375,000 426,442
BEVERAGES - 1.1%
Anheuser-Busch Companies, Inc.,
7.10% - 2007 ............................ $ 400,000 421,028
Coca-Cola Company,
5.75% - 2011 ............................ $ 350,000 398,246
Fosters Brewing Group,
6.875% - 2011 ........................... $ 300,000 354,741
----------
1,174,015
BROKERAGE - 1.7%
Credit Suisse First Boston USA,
6.125% - 2011 ........................... $ 300,000 336,070
Goldman Sachs Group, Inc.,
6.125% - 2033 ........................... $ 300,000 321,713
Legg Mason, Inc.,
6.75% - 2008 ............................ $ 350,000 400,942
Merrill Lynch & Company, Inc.,
5.70% - 2004 ............................ $ 350,000 359,206
Waddell & Reed Financial, Inc.,
7.50% -2006 ............................. $ 300,000 327,314
----------
1,745,245
BUILDING MATERIALS - 1.3%
CRH America, Inc.,
6.95% - 2012 ............................ $ 300,000 350,052
Masco Corporation,
5.875% - 2012 ........................... $ 300,000 333,159
Vulcan Materials Company,
5.75% - 2004 ............................ $ 600,000 618,977
----------
1,302,188
CHEMICALS - 0.7%
PPG Industries, Inc.,
7.40% - 2019 ............................ $ 350,000 395,461
Potash Corporation of Saskatchewan,
4.875% - 2013 ........................... $ 300,000 308,718
----------
704,179
CONGLOMERATES - 0.7%
General Electric Company,
5.00% - 2013 ............................ $ 300,000 316,877
Tyco International, Ltd.,
7.00% - 2028 ............................ $ 350,000 353,500
----------
670,377
CONSUMER CYCLICAL - OTHER - 0.4%
American ECO Corporation,
9.625% - 2008* .......................... $ 25,000 3
ERAC USA Finance Company,
7.35% - 2008 ............................ $ 350,000 409,601
----------
409,604
See accompanying notes.
- --------------------------------------------------------------------------------
5
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY DIVERSIFIED INCOME FUND
(CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
CONSUMER NONCYCLICAL - OTHER - 0.4%
Eli Lilly & Company,
7.125% - 2025 ............................. $ 300,000 $ 379,475
CONSUMER PRODUCTS - 0.3%
Newell Rubbermaid, Inc.,
6.75% - 2012 .............................. 300,000 350,381
DISTRIBUTORS - NATURAL GAS - 0.6%
Michigan Consolidated Gas,
5.70% - 2033 .............................. 600,000 626,405
ELECTRIC UTILITIES - 2.6%
Arizona Public Service Company,
6.375% - 2011 ............................. 300,000 340,603
Calpine Corporation,
8.75% - 2007 .............................. 25,000 20,438
Cincinnati Gas & Electric Company,
5.70% - 2012 .............................. 300,000 329,599
CMS Energy Corporation,
6.75% - 2004 .............................. 25,000 25,250
Eastern Energy, Ltd,
7.25% - 2016 .............................. 600,000 738,717
National Rural Utilities,
5.50% - 2005 .............................. 300,000 317,069
Oncor Electric Delivery,
6.375% - 2015 ............................. 300,000 340,327
Progress Energy, Inc.,
6.55% - 2004 .............................. 200,000 206,329
Union Electric Company,
5.50% - 2034 .............................. 300,000 306,853
----------
2,625,185
ENERGY - INTEGRATED - 0.8%
Conoco, Inc.,
6.95% - 2029 .............................. 350,000 421,104
PanCanadian Petroleum,
6.30% - 2011 .............................. 350,000 404,371
----------
825,475
ENTERTAINMENT - 0.4%
Time Warner Entertainment Company,
7.25% - 2008 .............................. 300,000 353,844
FINANCIAL COMPANIES - CAPTIVE CONSUMER - 0.9%
Ford Motor Credit Company:
6.50% - 2007 .............................. 300,000 315,637
5.80% - 2009 .............................. 300,000 298,157
General Motors Acceptance Corporation,
6.125% - 2006 ............................. 300,000 315,841
----------
929,635
FINANCIAL COMPANIES - NONCAPTIVE CONSUMER - 2.0%
Core Invest Grade Trust,
4.727% - 2007 ............................. 600,000 637,260
Countrywide Capital,
8.00% - 2026 .............................. 300,000 339,318
Financement Quebec,
5.00% - 2012 .............................. 300,000 323,840
Household Netherlands BV,
6.20% - 2003 .............................. 350,000 356,620
SLM Corporation, 5.05% - 2014 ................ 325,000 338,908
----------
1,995,946
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.5%
CIT Group Holdings Inc.,
7.625% - 2005 ............................. 150,000 165,179
General Electric Cap Corporation,
5.875% - 2012 ............................. 300,000 335,582
----------
500,761
FOOD - 0.3%
Kraft Foods, Inc., 6.50% - 2031 .............. 300,000 331,245
GAMING - 0.2%
Park Place Entertainment,
7.875% - 2005 ............................. 175,000 186,594
HEALTHCARE - 0.3%
Anthem, Inc., 6.80% - 2012 ................... 300,000 350,237
INSURANCE - 0.8%
John Hancock Global Funding,
5.25% - 2015 .............................. 700,000 736,357
Transamerica Capital II,
7.65% - 2026 .............................. 100,000 101,004
----------
837,361
INSURANCE - LIFE - 0.5%
Nationwide Mutual Insurance,
8.25% - 2031 .............................. 400,000 494,430
INSURANCE - PROPERTY & CASUALTY - 0.3%
General Electric Global Insurance,
7.00% - 2026 .............................. 300,000 334,049
LODGING - 0.2%
HMH Properties,
7.875% - 2008 ............................. 200,000 203,000
MEDIA - CABLE - 0.9%
Cox Communications, Inc.,
6.40% - 2008 .............................. 300,000 339,931
Jones Intercable, Inc.,
7.625% - 2008 ............................. 275,000 319,609
Lenfest Communications,
10.50% - 2006 ............................. 250,000 296,549
----------
956,089
See accompanying notes.
- --------------------------------------------------------------------------------
6
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY DIVERSIFIED INCOME FUND
(CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
MEDIA - NON-CABLE - 1.1%
Clear Channel Communications,
4.625% - 2008 ............................. $ 300,000 $ 314,493
Cox Enterprises, 4.375% - 2008 ............... 300,000 311,955
Viacom, Inc., 5.625% - 2007 .................. 400,000 445,156
-----------
1,071,604
OIL FIELD SERVICES - 1.0%
Devon Financing Corporation,
6.875% - 2011 ............................. 300,000 351,910
Duke Energy Field Services,
7.50% - 2005 .............................. 300,000 328,052
Transocean Offshore, Inc.,
8.00% - 2027 .............................. 300,000 365,504
-----------
1,045,466
PAPER PRODUCTS - 0.4%
MeadWestvaco Corporation,
6.85% - 2012 .............................. 350,000 404,025
PIPELINES - 0.7%
Express Pipeline LP, 6.47% - 2013 ............ 328,533 350,828
Kinder Morgan Energy,
7.50% - 2010 .............................. 300,000 364,807
-----------
715,635
REAL ESTATE INVESTMENT TRUSTS - 0.3%
EOP Operating LP,
7.375% - 2003 ............................. 300,000 306,005
RETAILERS - 0.6%
Tandy Corporation, 6.95% - 2007 .............. 400,000 461,692
Zale Corporation, 8.50% - 2007 ............... 125,000 130,313
-----------
592,005
SUPERMARKETS - 0.4%
Safeway, Inc., 6.50% - 2008 .................. 400,000 453,600
TECHNOLOGY - 0.7%
Pitney Bowes, Inc., 5.875% - 2006 ............ 350,000 386,374
Science Applications,
7.125% - 2032 ............................. 300,000 349,813
-----------
736,187
TELECOMMUNICATIONS - 1.5%
GTE Corporation, 7.51% - 2009 ................ 500,000 599,506
New York Telephone Company,
6.00% - 2008 .............................. 300,000 338,138
MasTec, Inc., 7.75% - 2008 ................... 150,000 135,000
Pacific Bell, 7.125% - 2026 .................. 300,000 359,618
WorldCom, Inc., 7.75% - 2027* ................ 365,000 107,675
-----------
1,539,937
TOBACCO - 0.1%
Dimon, Inc., 8.875% - 2006 ................... 50,000 50,824
WIRELESS - 0.7%
Vodafone Group plc,
7.625% - 2005 ............................. 350,000 383,241
Vodafone Group LLC,
5.375% - 2015 ............................. 300,000 320,397
-----------
703,638
-----------
Total corporate bonds - 31.2% ......................... 31,854,469
MORTGAGE BACKED SECURITIES
- --------------------------
U.S. GOVERNMENT AGENCIES - 24.0%
Federal Home Loan Mortgage Corporation:
#C44050, 7.00% - 2030 ..................... 172,632 181,024
#C01172, 6.50% - 2031 ..................... 306,686 319,145
#C01210, 6.50% - 2031 ..................... 343,569 357,523
#C50964, 6.50% - 2031 ..................... 296,359 308,398
#C50967, 6.50% - 2031 ..................... 151,128 157,266
#C01277, 7.00% - 2031 ..................... 520,551 545,766
#C01292, 6.00% - 2032 ..................... 846,030 877,208
#C062801, 6.00% - 2032 .................... 652,286 676,324
#C01287, 6.50% - 2032 ..................... 698,170 726,534
#C076358, 5.00% - 2033 .................... 1,979,179 2,013,968
#C078238, 5.50% - 2033 .................... 1,987,495 2,053,215
Federal National Mortgage Association:
FNR #1990-108 G
CMO, 7.00% - 2020 ....................... 152,835 164,493
#252806, 7.50% - 2029 ..................... 171,524 182,320
#252874, 7.50% - 2029 ..................... 159,964 170,032
#190307, 8.00% - 2030 ..................... 104,121 112,280
#253356, 8.00% - 2030 ..................... 126,458 136,366
#535277, 7.00% - 2030 ..................... 190,732 200,864
#541735, 8.00% - 2030 ..................... 74,270 80,090
#585348, 6.50% - 2031 ..................... 319,863 333,556
#254477, 5.50% - 2032 ..................... 1,352,661 1,400,481
#254198, 6.00% - 2032 ..................... 1,094,135 1,137,472
#254346, 6.50% - 2032 ..................... 808,619 843,237
#254377, 6.00% - 2032 ..................... 1,540,160 1,601,155
#666750, 6.00% - 2032 ..................... 1,767,017 1,837,007
#545691, 6.50% - 2032 ..................... 1,069,297 1,115,076
#659790, 6.50% - 2032 ..................... 1,132,393 1,180,896
#640008, 7.00% - 2032 ..................... 599,445 631,290
#702879, 5.00% - 2033 ..................... 1,994,906 2,029,972
#688328, 5.50% - 2033 ..................... 1,964,503 2,033,952
#689108, 5.50% - 2033 ..................... 985,933 1,020,764
-----------
24,427,674
See accompanying notes.
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7
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY DIVERSIFIED INCOME FUND
(CONTINUED)
MORTGAGE BACKED PRINCIPAL MARKET
SECURITIES (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 6.0%
Government National Mortgage Association:
#313107, 7.00% - 2022 .................... $ 257,798 $ 272,299
#328618, 7.00% - 2022 .................... 82,656 87,305
#352022, 7.00% - 2023 .................... 187,426 197,969
#369303, 7.00% - 2023 .................... 192,184 202,995
#347017, 7.00% - 2024 .................... 147,866 156,183
#371006, 7.00% - 2024 .................... 73,625 77,767
#371012, 7.00% - 2024 .................... 125,836 132,914
#411643, 7.75% - 2025 .................... 106,882 114,814
#780454, 7.00% - 2026 .................... 210,622 222,469
#464356, 6.50% - 2028 .................... 249,482 261,956
#462680, 7.00% - 2028 .................... 200,242 211,506
#491492, 7.50% - 2029 .................... 204,989 217,801
#510704, 7.50% - 2029 .................... 229,552 243,899
#518436, 7.25% - 2029 .................... 191,228 202,524
#781079, 7.50% - 2029 .................... 113,102 120,171
#479229, 8.00% - 2030 .................... 117,514 126,731
#479232, 8.00% - 2030 .................... 124,991 134,795
#508342, 8.00% - 2030 .................... 258,835 279,137
#538285, 6.50% - 2031 .................... 401,873 421,966
#564472, 6.50% - 2031 .................... 620,051 651,111
#552324, 6.50% - 2032 .................... 536,228 563,039
#365608, 7.50% - 2034 .................... 503,274 526,816
|| #1260, 7.00% - 2023 ................... 37,075 38,999
|| #1849, 8.50% - 2024 ................... 24,245 25,939
|| #2270, 8.00% - 2026 ................... 66,348 70,888
|| #2320, 7.00% - 2026 ................... 94,566 99,471
|| #2445, 8.00% - 2027 ................... 74,099 79,170
|| #2616, 7.00% - 2028 ................... 121,120 127,403
|| #2689, 6.50% - 2028 ................... 117,972 123,244
|| #2909, 8.00% - 2030 ................... 111,594 119,231
------------
6,110,512
NON-AGENCY SECURITIES - 1.9%
Chase Commercial Mortgage Securities
Corporation:
1997-1 B, 7.37% - 2007 .................... 1,500,000 1,746,971
1998-1 B, 6.56% - 2008 .................... 225,000 259,106
Global Rate Eligible Asset Trust
1998-A, 7.33% - 2006 ...................... 41,982 4
------------
2,006,081
------------
Total mortgage backed securities - 31.9% .............. 32,544,267
U.S. AGENCY BONDS & NOTES - 17.6%
- ---------------------------------
Federal Farm Credit Bank,
5.45% - 2013 .............................. 1,000,000 1,126,684
Federal Home Loan Bank:
2.50% - 2006 .............................. 1,000,000 1,020,438
6.375% - 2006 ............................. 800,000 908,441
5.20% - 2008 .............................. 1,000,000 1,053,388
Federal Home Loan Mortgage Corporation:
6.625% - 2009 ............................. 1,000,000 1,200,176
Federal National Mortgage Association:
7.40% - 2004 .............................. 600,000 636,797
2.05% - 2005 .............................. 2,000,000 2,016,183
7.49% - 2005 .............................. 285,000 313,939
7.65% - 2005 .............................. 250,000 276,934
7.875% - 2005 ............................. 500,000 554,409
6.00% - 2008 .............................. 400,000 461,911
6.375% - 2009 ............................. 1,500,000 1,776,451
6.625% - 2009 ............................. 1,000,000 1,199,815
5.50% - 2011 .............................. 1,000,000 1,134,535
6.625% - 2030 ............................. 500,000 614,364
7.125% - 2030 ............................. 2,250,000 2,920,410
Financing Corporation,
9.65% - 2018 .............................. 500,000 781,896
------------
Total U.S. agency bonds & notes - 17.6% ............... 17,996,771
U.S. GOVERNMENT SECURITIES - 16.8%
- ----------------------------------
U.S. Treasury Bonds:
3.875% - 2013 ............................. 2,000,000 2,058,046
6.25% - 2023 .............................. 1,000,000 1,224,922
5.375% - 2031 ............................. 2,000,000 2,252,110
U.S. Treasury Notes:
3.25% - 2004 .............................. 2,000,000 2,040,390
6.75% - 2005 .............................. 1,000,000 1,101,289
3.50% - 2006 .............................. 1,000,000 1,054,102
4.625% - 2006 ............................. 1,000,000 1,084,023
4.375% - 2007 ............................. 1,500,000 1,629,609
6.25% - 2007 .............................. 1,500,000 1,725,000
8.75% - 2008 .............................. 600,000 616,992
6.50% - 2010 .............................. 1,000,000 1,213,164
4.875% - 2012 ............................. 1,000,000 1,111,562
------------
Total U.S. government securities - 16.8% .............. 17,111,209
REPURCHASE AGREEMENT - 1.1%
- ---------------------------
United Missouri Bank,
0.82%, 07-01-03
(Collateralized by FHLB, 07-09-03
with a value of $1,133,000) ............... 1,110,000 1,110,000
------------
Total investments - 99.2% ................. 101,216,716
Cash & other assets, less
liabilities - 0.8% ..................... 771,744
------------
Total net assets - 100.0% ............................. $101,988,460
============
The identified cost of investments owned at June 30, 2003 was the same for
federal income tax and financial statement purposes.
*Non-income producing security
CMO (Collateralized Mortgage Obligation)
(1)Variable rate security. Rate indicated is rate effective June 30, 2003.
See accompanying notes.
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
SECURITY
HIGH YIELD FUND
[LOGO OF SECURITY FUNDS (R)] SECURITY
FUNDS
ADVISOR, SECURITY
MANAGEMENT COMPANY, LLC
- --------------------------------------------------------------------------------
9
SCHEDULE OF INVESTMENTS
JUNE 30, 2003
(UNAUDITED)
SECURITY HIGH YIELD FUND
PRINCIPAL
AMOUNT OR
NUMBER MARKET
PREFERRED STOCK OF SHARES VALUE
- --------------------------------------------------------------------------------
BROADCAST MEDIA - 1.3%
CSC Holdings, Inc., 11.125% ................. 746 $ 76,465
Primedia, Inc., 10.00% ...................... 1,300 124,800
-----------
Total preferred stocks - 1.3% ......................... 201,265
COMMON STOCKS
- -------------
INTEGRATED TELECOMMUNICATION SERVICE - 0.00%
Call-Net Enterprises, Inc. (Cl. B)* ......... 1,119 2,798
MOVIES & ENTERTAINMENT - 0.1%
Viacom, Inc. (Cl. B)* ....................... 296 12,923
PUBLISHING & PRINTING - 0.0%
Golden Books Family Entertainment, Inc.* 2,833 2
-----------
Total common stocks - 0.1% ............................ 15,723
CONVERTIBLE BOND - 0.5%
- -----------------------
Gencorp, Inc., 5.75% - 2007 ................. $ 75,000 70,031
CORPORATE BONDS
- ---------------
AEROSPACE/DEFENSE - 1.8%
Esterline Technologies,
7.75% - 2013 ............................. $ 50,000 51,250
L-3 Communications Corporation,
8.00% - 2008 ............................. $ 100,000 104,000
Sequa Corporation,
9.00% - 2009 ............................. $ 125,000 132,500
-----------
287,750
AIRLINES - 1.6%
Delta Air Lines, 6.65% - 2004 ............... $ 175,000 167,125
United Air Lines, 7.73% - 2010 .............. $ 100,000 78,869
-----------
245,994
AUTOMOTIVE - 3.0%
Allied Holdings, Inc.,
8.625% - 2007 ............................ $ 225,000 202,781
Autonation, Inc., 9.00% - 2008 .............. $ 50,000 55,500
Group One Automotive, Inc.,
10.875% - 2009 ........................... $ 50,000 55,000
TRW Automotive, Inc.,
9.375% - 2013 ............................ $ 150,000 162,750
-----------
476,031
BANKING - 1.4%
BF SAUL REIT, 9.75% - 2008 .................. $ 175,000 175,000
FCB/NC Capital Trust,
8.05% - 2028 ............................. $ 50,000 49,625
-----------
224,625
BEVERAGE - 2.0%
Canandaigua Brands, Inc.,
8.625% - 2006 ............................ $ 100,000 109,000
Le-Nature's, Inc., 9.00% - 2013 ............. $ 200,000 206,000
-----------
315,000
BUILDING MATERIALS - 1.9%
Building Materials Corporation,
8.00% - 2008 ............................. $ 175,000 161,875
Nortek, Inc., 8.875% - 2008 ................. $ 125,000 130,469
-----------
292,344
CHEMICALS - 1.4%
ISP Holdings, Inc.,
10.625% - 2009 ........................... $ 200,000 212,500
CONSTRUCTION MACHINERY - 1.7%
Navistar International,
8.00% - 2008 ............................. $ 75,000 75,000
Titan Wheel International, Inc.,
8.75% - 2007 ............................. $ 100,000 63,000
United Rentals, Inc.,
9.25% - 2009 ............................. $ 125,000 123,125
-----------
261,125
CONSUMER PRODUCTS - 0.3%
Central Garden & Pet Company,
9.125% - 2013 ............................ $ 50,000 53,250
DIVERSIFIED MANUFACTURING - 1.3%
Tyco International Group S.A.,
5.80% - 2006 ............................. $ 200,000 206,500
ELECTRIC - UTILITY - 8.2%
AES Corporation, 10.25% - 2006 .............. $ 250,000 247,500
Calpine Corporation:
8.75% - 2007 ............................. $ 125,000 102,188
8.50% - 2011 ............................. $ 50,000 37,500
CMS Energy Corporation, 7.50% - 2009 $ 175,000 173,031
East Coast Power LLC:
6.737% - 2008 ............................ $ 38,149 39,389
7.066% - 2012 ............................ $ 56,347 58,037
Edison Mission Energy,
10.00% - 2008 ............................ $ 200,000 189,000
Mirant Americas General LLC,
7.625% - 2006 ............................ $ 225,000 173,250
PG&E Corporation,
6.875% - 2008 ............................ $ 250,000 259,375
-----------
1,279,270
ENERGY - INTEGRATED - 1.0%
Petrobras International Finance:
9.00% - 2008 ............................. $ 75,000 82,313
9.125% - 2013 ............................ $ 75,000 74,906
-----------
157,219
See accompanying notes.
- --------------------------------------------------------------------------------
10
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY HIGH YIELD FUND (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
ENTERTAINMENT - 2.5%
Cinemark USA, Inc.,
9.00% - 2013 ............................ $ 100,000 $ 108,500
Premier Parks, Inc., 9.75% - 2007 .......... 225,000 222,750
Speedway Motorsports, Inc.,
6.75% - 2013 ............................ 50,000 51,750
-----------
383,000
ENVIRONMENTAL - 2.6%
Allied Waste North America, Inc.:
8.875% - 2008 ........................... 150,000 162,750
10.00% - 2009 ........................... 125,000 132,812
Casella Waste Systems,
9.75% - 2013 ............................ 100,000 106,000
-----------
401,562
FINANCIAL COMPANIES - 0.6%
Dollar Financial Group, Inc.,
10.875% - 2006 .......................... 100,000 93,000
FOOD - 2.4%
Dean Foods Company,
8.15% - 2007 ............................ 150,000 166,500
Dole Food Company,
8.875% - 2011 ........................... 50,000 53,000
Land O'Lakes, Inc., 8.75% - 2011 ........... 200,000 160,000
-----------
379,500
GAMING - 7.4%
Circus Circus, 6.75% -2003 ................. 100,000 100,125
Harrahs Operating Company,
7.875% - 2005 ........................... 375,000 407,812
Mandalay Resort Group,
6.70% - 2096 ............................ 200,000 202,000
MGM Grand, Inc., 6.95% - 2005 .............. 125,000 130,469
Mirage Resorts, Inc.,
6.625% - 2005 ........................... 125,000 129,687
Park Place Entertainment Corporation,
7.875% - 2005 ........................... 175,000 186,594
-----------
1,156,687
HEALTH CARE - 3.3%
HealthSouth Corporation, Inc.,
8.50% - 2008 ............................. 225,000 177,750
Rural/Metro Corporation,
7.875% - 2008 ............................ 100,000 80,000
Service Corporation International,
6.00% - 2005 ............................. 250,000 251,875
-----------
509,625
HOME CONSTRUCTION - 2.2%
D.R. Horton, Inc., 8.375% - 2004 ............ 75,000 78,656
NVR, Inc., 8.00% - 2005 ..................... 50,000 52,000
Standard Pacific Corporation,
8.50% - 2009 ............................. 150,000 159,000
Toll Corporation, 7.75% - 2007 .............. 50,000 51,938
-----------
341,594
INDEPENDENT - EXPLORATION & PRODUCTION - 5.4%
Arch Western Finance,
6.75% - 2013 ............................. 250,000 256,250
BRL Universal Equipment,
8.875% - 2008 ............................ 75,000 81,375
Chesapeake Energy Corporation,
8.375% - 2008 ............................ 175,000 189,438
Houston Exploration Company,
7.00% - 2013 ............................. 50,000 51,625
Magnum Hunter Resources, Inc.,
9.60% - 2012 ............................. 125,000 137,500
Transmontaigne, Inc.,
9.125% - 2010 ............................ 75,000 79,031
Williams Companies, Inc.,
8.625% - 2010 ............................ 50,000 52,250
-----------
847,469
INDUSTRIAL OTHER - 3.9%
Corrections Corporation of America,
7.50% - 2011 ............................. 50,000 52,250
Iron Mountain, Inc.:
8.25% - 2011 ............................. 250,000 267,500
7.75% - 2015 ............................. 25,000 26,438
Mobile Mini, Inc., 9.50% - 2013 ............. 250,000 258,750
-----------
604,938
INSURANCE - 0.6%
Genamerica Capital, Inc.,
8.525% - 2027 ............................ 75,000 87,549
LODGING - 5.0%
HMH Properties, Inc.,
7.875% - 2008 ............................ 175,000 177,625
Meristar Hospitality Corporation,
9.00% - 2008 ............................. 225,000 222,187
Starwood Hotels & Resorts Worldwide,
Inc., 7.375% - 2007 ...................... 150,000 157,875
Sun International Hotels,
8.875% - 2011 ............................ 200,000 216,500
-----------
774,187
See accompanying notes.
- --------------------------------------------------------------------------------
11
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY HIGH YIELD FUND (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
MEDIA - CABLE - 8.0%
Adelphia Communications Corporation:
9.50% - 2004* ............................ $ 17,356 $ 10,717
8.375% - 2008* ........................... 200,000 124,000
Century Communications Corporation,
9.50% - 2005* ............................ 125,000 80,625
Charter Communications Holdings LLC:
8.625% - 2009 ............................ 100,000 72,000
11.125% - 2011 ........................... 200,000 155,000
CSC Holdings, Inc., 7.25% - 2008 ............ 125,000 125,000
Diamond Holdings plc,
9.125% - 2008 ............................ 175,000 162,094
Mediacom, LLC, 9.50% - 2013 ................. 200,000 211,500
Shaw Group, Inc., 10.75% - 2010 ............. 175,000 175,000
Shaw Communications, Inc.,
7.25% - 2011 ............................. 125,000 134,687
-----------
1,250,623
MEDIA - NON-CABLE - 3.8%
American Media, Inc.,
8.875% - 2011 ............................ 20,000 21,650
Entercom Radio/Capital,
7.625% - 2014 ............................ 75,000 81,750
Hollinger International Publishing,
9.00% - 2010 ............................. 100,000 107,000
Houghton Mifflin Company:
8.25% - 2011 ............................. 100,000 105,500
9.875% - 2013 ............................ 50,000 54,250
RH Donnelley Financial Corporation,
10.875% - 2012 ........................... 125,000 145,625
USA Networks, Inc.,
6.75% - 2005 ............................. 75,000 81,764
-----------
597,539
METALS - 0.4%
AK Steel Corporation,
7.875% - 2009 ............................ 75,000 63,750
Bulong Operations,
12.50% - 2008* ........................... 75,000 --
-----------
63,750
OIL & FIELD SERVICES - 2.4%
Grey Wolf, Inc., 8.875% - 2007 .............. 150,000 154,125
Key Energy Services, Inc.,
8.375% - 2008 ............................ 200,000 217,000
-----------
371,125
PACKAGING - 1.5%
Owens-Brockway Glass Containers,
7.75% - 2011 ............................. 50,000 52,875
Owens-Illinois, Inc., 8.10% - 2007 .......... 175,000 179,375
-----------
232,250
PAPER - 1.7%
Cascades, Inc., 7.25% - 2013 ................ 250,000 263,125
PHARMACEUTICALS - 1.4%
AdvancePCS, 8.50% - 2008 .................... 200,000 215,000
PIPELINES - 1.2%
Gulfterra Energy Partner,
6.25% - 2010 ............................. 75,000 74,625
Northwest Pipeline Corporation,
8.125% - 2010 ............................ 100,000 107,500
-----------
182,125
REFINING - 0.6%
Crown Central Petroleum Corporation,
10.875% - 2005 ........................... 140,000 91,000
RETAILERS - 0.7%
Ames Department Stores, Inc.,
10.00% - 2006* ........................... 200,000 --
Zale Corporation, 8.50% - 2007 .............. 100,000 104,250
-----------
104,250
SERVICES - 0.0%
American Eco Corporation,
9.625% - 2008* ........................... 125,000 13
SUPERMARKETS - 2.8%
Fleming Companies, Inc.:
10.125% - 2008* .......................... 125,000 18,750
9.875% - 2012* ........................... 100,000 125
Ingles Markets, Inc.,
8.875% - 2011 ............................ 200,000 201,250
Roundy's, Inc., 8.875% - 2012 ............... 200,000 209,000
-----------
429,125
TECHNOLOGY - 3.0%
Computer Associates, Inc.,
6.375% - 2005 ............................ 300,000 318,000
Cooperative Computing,
10.50% - 2011 ............................ 150,000 153,750
-----------
471,750
TELECOMMUNICATIONS - 3.9%
Call-Net Enterprises, Inc.,
10.625% - 2008 ........................... 23,282 19,324
Exodus Communications, Inc.,
11.625% - 2010* .......................... 150,000 5,625
Mastec, Inc., 7.75% - 2008 .................. 225,000 202,500
Nextel Communications:
9.95% - 2008(1) .......................... 150,000 156,750
9.375% - 2009 ............................ 200,000 214,750
-----------
598,949
See accompanying notes.
- --------------------------------------------------------------------------------
12
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY HIGH YIELD FUND (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
TOBACCO - 0.7%
Dimon, Inc.:
8.875% - 2006 ............................ $ 50,000 $ 50,824
7.75% - 2013 ............................. 50,000 51,375
-----------
102,199
TRANSPORTATION - OTHER - 2.1%
Overseas Shipholding Group,
8.25% - 2013 ............................. 100,000 104,000
Pegasus Aviation Lease Securitization,
8.42% - 2030* ............................ 244,615 --
Stena AB, 9.625% - 2012 ..................... 75,000 82,406
Teekay Shipping Corporation,
8.32% - 2008 ............................. 135,000 144,113
-----------
330,519
-----------
Total corporate bonds - 95.7% ....................... 14,894,061
REPURCHASE AGREEMENT - 1.2%
- ---------------------------
United Missouri Bank, 0.82%, 07-01-03
(Collateralized by FHLB, 07-09-03
with a value of $194,000) ................ 190,000 190,000
-----------
Total investments - 98.8% ........................... 15,371,080
Cash and other assets, less
liabilities - 1.2% ............................... 187,043
-----------
Total net assets - 100.0% ........................... $15,558,123
===========
The identified cost of investments owned at June 30, 2003, was the same for
federal income tax and book purposes
*Non-income producing security
(1)Deferred interest obligation currently zero under terms of initial offering.
See accompanying notes.
- --------------------------------------------------------------------------------
13
SECURITY
MUNICIPAL BOND FUND
--------------------
SALOMON BROTHERS
------------------------
ASSET MANAGEMENT
SUBADVISOR, SALOMON BROTHERS
ASSET MANAGEMENT, INC.
- --------------------------------------------------------------------------------
14
SCHEDULE OF INVESTMENTS
JUNE 30, 2003
(UNAUDITED)
SECURITY MUNICIPAL BOND FUND
PRINCIPAL MARKET
MUNICIPAL BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
ALASKA - 2.0%
Alaska Industrial Development &
Exploration, Providence Health
System, 5.00% - 2009 .................... $ 300,000 $ 332,790
CALIFORNIA - 6.2%
Los Angeles County, CA Metro Transit
Authority, 5.625% - 2018 ................ 1,000,000 1,020,130
ILLINOIS - 14.2%
Chicago, IL Board of Education,
5.75% - 2027 ............................ 250,000 275,885
Chicago, IL Midway Airport,
5.625% - 2029 ........................... 250,000 261,293
Cook County, IL,
5.625% - 2016 ........................... 275,000 312,004
Illinois Development Finance Authority:
5.25% - 2012 ............................ 220,000 253,075
0.9863% - 20322 ......................... 300,000 300,000
Illinois Educational Facility,
Northwestern University,
5.50% - 2013 ............................ 225,000 263,102
Winnebago County, IL School District
No. 122, 0.00% - 2014(1) ................ 1,000,000 652,810
-----------
2,318,169
INDIANA - 3.2%
Indiana Bond Bank,
5.00% - 2023 ............................ 500,000 521,245
KANSAS - 1.7%
Wyandotte County, Kansas City, KS
Unified Government Utility System,
5.75% - 2024 ............................ 250,000 279,905
MARYLAND - 5.4%
Maryland State Health & Higher
Education Carroll County General
Hospital, 6.00% - 2017 .................. 300,000 333,246
Northeast Maryland Waste Disposal
Authority, 5.50% - 2016 ................. 500,000 554,925
-----------
888,171
MASSACHUSETTS - 4.2%
Massachusetts State Conservation,
5.50% - 2015 ............................ 250,000 296,418
Massachusetts State Water Pollution
Abatement Trust, 5.75% - 2029 ........... 350,000 391,857
-----------
688,275
NEVADA - 6.7%
Clark County, NV School District,
5.50% - 2016 ............................ 1,000,000 1,092,070
NEW JERSEY - 6.6%
North Brunswick Township, NJ Board
of Education, 6.30% - 2013 .............. 1,000,000 1,080,210
NEW YORK - 19.1%
New York, NY City Municipal Water
Finance Authority, 5.50% - 2023 ......... 250,000 265,627
New York, NY Transitional Finance
Authority, 5.50% - 2017 ................. 250,000 283,245
New York State Dorm Authority,
5.50% - 2012 ............................ 750,000 883,792
New York State Local Government
Assistance Corporation, 6.00% - 2016 .... 205,000 226,103
New York State Mortgage Agency,
6.125% - 2030 ........................... 85,000 87,456
New York State Urban Development
Corporation, 5.375% - 2025 .............. 700,000 781,536
Triborough Bridge and Tunnel Authority,
New York:
5.50% - 2017 ............................ 250,000 297,640
5.50% - 2017 ............................ 250,000 297,640
-----------
3,123,039
OREGON - 1.7%
Umatilla County, Oregon Hospital
Facility, 5.00% - 2008 .................. 250,000 274,447
PENNSYLVANIA - 6.9%
Delaware Valley, PA, Regional Financial
Authority, 5.50% - 2028 ................. 500,000 576,850
Philadelphia, PA School District,
5.50% - 2031 ............................ 500,000 543,425
-----------
1,120,275
PUERTO RICO - 3.6%
Puerto Rico Public Buildings Authority,
5.25% - 2013 ............................ 500,000 582,030
TENNESSEE - 3.6%
Memphis-Shelby County, TN Airport
Authority, 6.00% - 2024 ................. 300,000 328,251
Tennessee Housing Development
Agency, 6.35% - 2031 .................... 240,000 258,094
-----------
586,345
See accompanying notes.
- --------------------------------------------------------------------------------
15
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
SECURITY MUNICIPAL BOND FUND (CONTINUED)
PRINCIPAL MARKET
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
TEXAS - 5.2%
Lower Colorado River Authority, Texas,
6.00% - 2013 ............................ $250,000 $ 296,612
North Harris Montgomery Community
College, 5.375% - 2016 .................. 500,000 558,990
-----------
855,602
WASHINGTON - 6.0%
Energy Northwest Washington Electric,
6.00% - 2016 ............................ 500,000 585,285
Seattle, WA, 5.75% - 2028 .................. 250,000 279,122
Washington State, 5.50% - 2018 ............. 100,000 117,668
-----------
982,075
-----------
Total municipal bonds - 96.3% ....................... 15,744,778
Cash and other assets, less
liabilities - 3.7% ................................ 611,585
-----------
Total net assets - 100.0% ........................... $16,356,363
===========
The identified cost of investments owned at June 30, 2003 was the same for
federal income tax and financial statement purposes.
(1) Original issue discount bond under terms of initial offering.
(2) Variable rate security. Rate indicated is rate effective June 30, 2003.
See accompanying notes.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
SECURITY
CASH FUND
[LOGO OF SECURITY FUNDS (R)] SECURITY
FUNDS
ADVISOR, SECURITY
MANAGEMENT COMPANY, LLC
- --------------------------------------------------------------------------------
17
SCHEDULE OF INVESTMENTS
JUNE 30, 2003
(UNAUDITED)
SECURITY CASH FUND
PRINCIPAL MARKET
COMMERCIAL PAPER AMOUNT VALUE
- --------------------------------------------------------------------------------
BEVERAGES - 3.8%
COCA-COLA COMPANY,
1.21%, 07-17-03 .......................... $ 2,500,000 $ 2,498,655
ELECTRIC UTILITIES - 3.0%
Florida Power & Light Company,
1.00%, 07-07-03 .......................... 2,000,000 1,999,667
NATURAL GAS - 3.0%
New Jersey Natural Gas Company,
1.23%, 08-13-03 .......................... 2,000,000 1,997,062
PHARMACEUTICALS - 4.2%
Schering Corporation:
1.23%, 07-15-03 .......................... 1,500,000 1,499,282
1.22%, 07-18-03 .......................... 1,300,000 1,299,251
-----------
2,798,533
PUBLISHING - 3.2%
McGraw-Hill Companies, Inc.,
1.16%, 08-26-03 .......................... 2,100,000 2,096,211
TELECOMMUNICATIONS - 3.4%
Verizon Network Funding Corporation:
1.18%, 07-24-03 .......................... 1,300,000 1,299,020
1.00%, 08-12-03 .......................... 1,000,000 998,833
-----------
2,297,853
-----------
Total commercial paper - 20.6% ............................ 13,687,981
U.S. GOVERNMENT & AGENCIES
- --------------------------
FEDERAL FARM CREDIT BANK - 6.9%
1.18%, 07-11-03 .......................... 1,600,000 1,599,475
1.19%, 07-11-03 .......................... 2,500,000 2,499,174
1.30%, 10-28-03 .......................... 450,000 448,066
-----------
4,546,715
FEDERAL HOME LOAN BANK - 3.7%
1.17%, 08-01-03 .......................... 1,500,000 1,498,489
1.20%, 08-13-03 .......................... 1,000,000 998,567
-----------
2,497,056
FEDERAL HOME LOAN MORTGAGE COMPANY - 20.6%
1.13%, 07-08-03 .......................... 1,200,000 1,199,736
1.16%, 07-08-03 .......................... 1,700,000 1,699,617
1.17%, 07-29-03 .......................... 1,400,000 1,398,726
0.89%, 08-11-03 .......................... 4,400,000 4,395,540
0.96%, 08-12-03 .......................... 1,600,000 1,598,208
0.89%, 09-25-03 .......................... 2,300,000 2,295,110
1.42%, 12-04-03 .......................... 1,100,000 1,093,231
-----------
13,680,168
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 42.0%
1.23%, 07-02-03 .......................... 3,200,000 3,199,891
1.25%, 07-09-03 .......................... 2,500,000 2,499,305
1.16%, 07-16-03 .......................... 1,300,000 1,299,372
1.15%, 07-25-03 .......................... 1,600,000 1,598,773
1.17%, 07-25-03 .......................... 1,366,000 1,364,935
0.90%, 07-31-03 .......................... 1,400,000 1,398,950
1.17%, 08-22-03 .......................... 1,100,000 1,096,997
1.25%, 08-22-03 .......................... 3,200,000 3,195,366
1.165%, 08-27-03 ......................... 2,300,000 2,295,757
1.20%, 09-03-03 .......................... 2,700,000 2,694,240
1.30%, 09-22-03 .......................... 100,000 99,700
0.97%, 9-24-03 ........................... 1,600,000 1,596,336
0.89%, 10-15-03 .......................... 1,445,000 1,441,213
1.33%, 10-17-03 .......................... 1,500,000 1,494,015
1.40%, 11-14-03 .......................... 2,600,000 2,586,249
-----------
27,861,099
STUDENT LOAN MORTGAGE ASSOCIATION - 1.3%
1.40%, 07-25-03(1,2) ..................... 29,289 29,289
1.40%, 07-25-03(1,2) ..................... 376,242 376,242
1.58%, 07-02-03(1,2) ..................... 435,570 436,913
-----------
842,444
SMALL BUSINESS ASSOCIATION POOLS - 2.7%
#501927, 2.50%, 07-01-03(1,2) ............ 905,533 914,080
#502398, 1.875%, 07-01-03(1,2) ........... 56,220 56,431
#503152, 1.875%, 07-01-03(1,2) ........... 263,701 263,700
#503265, 1.75%, 07-01-03(1,2) ............ 215,688 215,148
#503303, 1.75%, 07-01-03(1,2) ............ 152,420 152,516
#503295, 1.75%, 07-01-03(1,2) ............ 170,005 170,112
-----------
1,771,987
-----------
Total U.S. government & agencies - 77.2% .................. 51,199,469
MISCELLANEOUS ASSETS
- --------------------
FUNDING AGREEMENTS - 1.5%
United of Omaha Life Insurance Company,
1.42%, 07-01-03(1, 3) .................... 1,000,000 1,000,000
REPURCHASE AGREEMENT - 0.7%
- ---------------------------
United Missouri Bank, 0.82%, 07-01-03
(Collateralized by FHLB, 07-09-03
with a value of $465,000) ................ 455,000 455,000
-----------
Total investments - 100.0% ............... 66,342,450
Cash & other assets, less
liabilities - 0.0% ..................... 41,766
-----------
Total net assets - 100.0% ................ $66,384,216
===========
The identified cost of investments owned at June 30, 2003 was the same for
federal income tax and financial statement purposes.
(1) Variable rate security. Rate indicated is rate effective at June 30, 2003.
(2) Date indicated is next coupon reset date of security rather than maturity
date.
(3) Date indicated is next put date of security rather than maturity date.
See accompanying notes.
- --------------------------------------------------------------------------------
18
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2003
(UNAUDITED)
SECURITY INCOME FUND
---------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND FUND FUND FUND
ASSETS
Investments, at value(1) .................................. $15,744,778 $101,216,716 $15,371,080 $66,342,450
Cash ...................................................... 60,478 -- -- 162,461
Receivables:
Fund shares sold ........................................ 310,000 95 -- --
Securities sold ......................................... -- -- 397,500 14,607
Dividends ............................................... -- -- 2,599 --
Interest ................................................ 239,245 1,087,801 321,277 10,030
Security Management Company ............................. 3,397 1,388 -- 3,237
Prepaid expense ........................................... 19,826 24,814 17,298 24,379
----------- ------------ ----------- -----------
Total assets ......................................... $16,377,724 $102,330,814 $16,109,754 $66,557,164
----------- ------------ ----------- -----------
LIABILITIES
Cash overdraft ............................................ $ -- $ 53,650 $ 50,938 $ --
Payable for:
Securities purchased .................................... -- -- 399,397 --
Fund shares redeemed .................................... -- 184,190 77,898 95,152
Dividends payable to shareholders ....................... -- -- -- 12,279
Management fees ......................................... 6,774 29,721 7,551 28,062
Custodian fees .......................................... 425 1,791 995 1,634
Transfer and administration fees ........................ 2,362 24,777 2,947 25,220
Professional fees ....................................... 3,003 4,328 2,845 3,574
12b-1 distribution plan fees ............................ 4,135 38,733 7,996 --
Miscellaneous fees ...................................... 4,662 5,164 1,064 7,027
----------- ------------ ----------- -----------
Total liabilities .................................... 21,361 342,354 551,631 172,948
----------- ------------ ----------- -----------
NET ASSETS ................................................ $16,356,363 $101,988,460 $15,558,123 $66,384,216
=========== ============ =========== ===========
NET ASSETS CONSIST OF:
Paid in capital ........................................... $15,578,222 $103,666,081 $18,135,436 $66,384,216
Accumulated undistributed net investment income (loss) .... 493 (105,907) 6,551 --
Accumulated undistributed net realized gain (loss)
on sale of investments .................................. (470,592) (8,255,138) (2,033,035) --
Net unrealized appreciation (depreciation)
in value of investments ................................. 1,248,240 6,683,424 (550,829) --
----------- ------------ ----------- -----------
Total net assets .......................................... $16,356,363 $101,988,460 $15,558,123 $66,384,216
=========== ============ =========== ===========
CLASS "A" SHARES
Capital shares outstanding ................................ 1,419,055 14,876,740 635,250 66,384,216
Net assets ................................................ $15,156,488 $ 73,990,566 $ 7,436,440 $66,384,216
----------- ------------ ----------- -----------
Net asset value per share ................................. $10.68 $4.97 $11.71 $1.00
=========== ============ =========== ===========
Offering price per share
(net asset value divided by 95.25%) ..................... $11.21 $5.22 $12.29 --
=========== ============ =========== ===========
CLASS "B" SHARES
Capital shares outstanding ................................ 112,154 4,305,872 546,211 --
Net assets ................................................ $ 1,199,875 $ 21,330,879 $ 6,375,241 --
----------- ------------ ----------- -----------
Net asset value per share ................................. $10.70 $4.95 $11.67 --
=========== ============ =========== ===========
CLASS "C" SHARES
Capital shares outstanding ................................ -- 1,347,630 148,990 --
Net assets ................................................ -- $ 6,667,015 $ 1,746,442 --
----------- ------------ ----------- -----------
Net asset value per share ................................. -- $4.95 $11.72 --
=========== ============ =========== ===========
(1)Investments at cost .................................... $14,496,538 $ 94,533,292 $15,921,909 $66,342,450
See accompanying notes.
- --------------------------------------------------------------------------------
19
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 2003
(UNAUDITED)
SECURITY INCOME FUND
---------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND FUND FUND FUND
INVESTMENT INCOME:
Dividends ............................................... $ -- $ -- $ 14,118 $ --
Interest ................................................ 381,699 2,608,206 574,906 470,758
--------- ----------- ----------- --------
Total investment income ............................... 381,699 2,608,206 589,024 470,758
EXPENSES:
Management fees ......................................... 40,234 175,477 40,823 183,084
Custodian fees .......................................... 1,219 4,445 2,066 3,349
Transfer/maintenance fees ............................... 7,098 119,438 9,349 155,154
Administration fees ..................................... 7,242 45,123 6,124 16,478
Directors' fees ......................................... 6,841 1,200 152 6,987
Professional fees ....................................... 2,407 5,606 3,508 3,276
Reports to shareholders ................................. 898 5,649 852 4,131
Registration fees ....................................... 15,582 20,571 15,064 21,476
Other expenses .......................................... 923 2,463 486 2,071
12b-1 distribution plan fees - Class A .................. 18,467 91,213 8,729 --
12b-1 distribution plan fees - Class B .................. 6,598 107,529 27,037 --
12b-1 distribution plan fees - Class C .................. -- 28,982 6,085 --
--------- ----------- ----------- --------
Total expenses ........................................ 107,509 607,696 120,275 396,006
Less: Reimbursement of expenses - Class A .......... (20,667) (22,895) -- (29,838)
Reimbursement of expenses - Class B ......... (1,904) (7,195) -- --
Reimbursement of expenses - Class C ......... -- (1,886) -- --
--------- ----------- ----------- --------
Net expenses .......................................... 84,938 575,720 120,275 366,168
--------- ----------- ----------- --------
Net investment income .............................. 296,761 2,032,486 468,749 104,590
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on
investments ........................................... 214,819 138,446 (508,279) --
Net change in unrealized appreciation (depreciation)
during the period on investments ...................... (70,731) 1,417,719 1,804,045 --
--------- ----------- ----------- --------
Net gain (loss) ........................................... 144,088 1,556,165 1,295,766 --
--------- ----------- ----------- --------
Net increase (decrease) in net assets
resulting from operations ............................. $ 440,849 $ 3,588,651 $ 1,764,515 $104,590
========= =========== =========== ========
See accompanying notes.
- --------------------------------------------------------------------------------
20
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED
JUNE 30, 2003
(UNAUDITED)
SECURITY INCOME FUND
---------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND FUND FUND FUND
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ..................................... $ 296,761 $ 2,032,486 $ 468,749 $ 104,590
Net realized gain (loss)
during the period on investments ........................ 214,819 138,446 (508,279) --
Net change in unrealized appreciation
(depreciation) during the period ........................ (70,731) 1,417,719 1,804,045 --
----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations ............................... 440,849 3,588,651 1,764,515 104,590
DISTRIBUTIONS TO SHAREHOLDERS FROM:
NET INVESTMENT INCOME
Class A ................................................ (299,739) (1,517,287) (251,585) (104,590)
Class B ................................................ (21,361) (359,044) (177,345) --
Class C ................................................ -- (96,549) (39,840) --
----------- ------------ ----------- -----------
Total distributions to shareholders .................... (321,100) (1,972,880) (468,770) (104,590)
NET INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5) ............................. 39,464 6,617,301 3,283,012 (3,295,248)
----------- ------------ ----------- -----------
Total increase (decrease) in net assets ................ 159,213 8,233,072 4,578,757 (3,295,248)
NET ASSETS:
Beginning of period ....................................... 16,197,150 93,755,388 10,979,366 69,679,464
----------- ------------ ----------- -----------
End of period ............................................. $16,356,363 $101,988,460 $15,558,123 $66,384,216
=========== ============ =========== ===========
Accumulated undistributed
net investment income (loss) at end of period ........... $ 493 ($105,907) $ 6,551 $ --
=========== ============ =========== ===========
See accompanying notes.
- --------------------------------------------------------------------------------
21
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 2002
SECURITY INCOME FUND
---------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND FUND FUND FUND
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income ..................................... $ 700,466 $ 4,125,837 $ 747,405 $ 552,428
Net realized gain (loss)
during the period on investments ........................ 197,710 (250,291) (391,521) --
Net change in unrealized appreciation
(depreciation) during the period ........................ 661,383 3,601,677 (581,605) --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ............................... 1,559,559 7,477,223 (225,721) 552,428
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................................... (621,432) (3,347,304) (438,456) (552,428)
Class B ............................................... (58,682) (781,277) (289,368) --
Class C ............................................... -- (170,715) (31,132) --
Net realized gain
Class A ............................................... (173,587) -- -- --
Class B ............................................... (18,662) -- -- --
Class C ............................................... -- -- -- --
----------- ----------- ----------- -----------
Total distributions to shareholders ................... (872,363) (4,299,296) (758,956) (552,428)
NET INCREASE (DECREASE) FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5) ............................. (1,927,877) 15,939,016 1,445,733 2,041,757
----------- ----------- ----------- -----------
Total increase (decrease) in net assets ............... (1,240,681) 19,116,943 461,056 2,041,757
NET ASSETS:
Beginning of period ....................................... 17,437,831 74,638,445 10,518,310 67,637,707
----------- ----------- ----------- -----------
End of period ............................................. $16,197,150 $93,755,388 $10,979,366 $69,679,464
=========== =========== =========== ===========
Accumulated undistributed
net investment income (loss) at end of period ........... $24,832 ($165,513) $6,572 --
=========== =========== =========== ===========
See accompanying notes.
- --------------------------------------------------------------------------------
22
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY MUNICIPAL BOND FUND (CLASS A)
FISCAL YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c) 2001(b)(c) 2000(b)(c) 1999(b)(c)(d) 1998(b)(c)(d)
------------- ---------- ---------- ---------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $10.60 $10.15 $10.20 $9.48 $10.24 $10.08
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.20 0.45 0.43 0.45 0.42 0.43
Net Gain (Loss) on Securities
(realized and unrealized) ........... 0.09 0.55 (0.05) 0.72 (0.76) 0.17
------ ------ ------ ------ ------ ------
Total from Investment Operations ....... 0.29 1.00 0.38 1.17 (0.34) 0.60
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ............................. (0.21) (0.43) (0.43) (0.45) (0.42) (0.44)
Distributions (from Realized Gains) .... -- (0.12) -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions ................. (0.21) (0.55) (0.43) (0.45) (0.42) (0.44)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD .......... $10.68 $10.60 $10.15 $10.20 $9.48 $10.24
====== ====== ====== ====== ====== ======
TOTAL RETURN (a) ....................... 2.8% 10.1% 3.8% 12.7% (3.5%) 6.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ... $15,156 $14,567 $15,672 $16,679 $17,630 $19,012
Ratio of Expenses
to Average Net Assets ............... 1.00% 1.00% 0.99% 1.00% 1.01% 0.82%
Ratio of Net Investment Income
to Average Net Assets ............... 3.77% 4.09% 4.20% 4.60% 4.19% 4.23%
Portfolio Turnover Rate ................ 77% 50% 54% 52% 108% 94%
- --------------------------------------------------------------------------------
SECURITY MUNICIPAL BOND FUND (CLASS B)
FISCAL YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c) 2001(b)(c) 2000(b)(c) 1999(b)(c)(d) 1998(b)(c)(d)
------------- ---------- ---------- ---------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $10.62 $10.16 $10.22 $9.50 $10.26 $10.08
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.16 0.36 0.35 0.38 0.34 0.31
Net Gain (Loss) on Securities
(realized and unrealized) ........... 0.10 0.57 (0.05) 0.71 (0.76) 0.17
------ ------ ------ ------ ------ ------
Total from Investment Operations ....... 0.26 0.93 0.30 1.09 (0.42) 0.48
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ............................. (0.18) (0.35) (0.36) (0.37) (0.34) (0.30)
Distributions (from Realized Gains) .... -- (0.12) -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions ................. (0.18) (0.47) (0.36) (0.37) (0.34) (0.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD .......... $10.70 $10.62 $10.16 $10.22 $9.50 $10.26
====== ====== ====== ====== ====== ======
TOTAL RETURN (a) ....................... 2.4% 9.4% 2.9% 11.8% (4.2%) 4.8%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ... $1,200 $1,630 $1,766 $1,605 $1,661 $1,367
Ratio of Expenses
to Average Net Assets ............... 1.75% 1.75% 1.74% 1.75% 1.76% 2.01%
Ratio of Net Investment Income
to Average Net Assets ............... 3.02% 3.34% 3.45% 3.85% 3.45% 3.04%
Portfolio Turnover Rate ................ 77% 50% 54% 52% 108% 94%
See accompanying notes.
- --------------------------------------------------------------------------------
23
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
DIVERSIFIED INCOME FUND (CLASS A)
FISCAL YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c) 2001(b)(c)(h) 2000(b)(c)(e) 1999(b)(c)(g) 1998(b)(c)(g)
------------- ---------- ------------- ------------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $4.90 $4.73 $4.66 $4.52 $4.96 $4.81
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.10 0.24 0.26 0.28 0.26 0.27
Net Gain (Loss) on Securities
(realized & unrealized) .............. 0.07 0.18 0.07 0.14 (0.44) 0.16
----- ----- ----- ----- ----- -----
Total from Investment Operations ....... 0.17 0.42 0.33 0.42 (0.18) 0.43
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) .............................. (0.10) (0.25) (0.26) (0.28) (0.26) (0.28)
Distributions (from Capital Gains) ..... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total Distributions ................. (0.10) (0.25) (0.26) (0.28) (0.26) (0.28)
----- ----- ----- ----- ----- -----
NET ASSET VALUE END OF PERIOD .......... $4.97 $4.90 $4.73 $4.66 $4.52 $4.96
===== ===== ===== ===== ===== =====
TOTAL RETURN (a) ....................... 3.5% 9.0% 7.3% 9.7% (3.6%) 9.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ... $73,991 $68,489 $59,168 $63,293 $12,723 $12,664
Ratio of Expenses
to Average Net Assets ............... 0.95% 0.95% 0.95% 0.96% 0.87% 0.93%
Ratio of Net Investment Income
to Average Net Assets ............... 4.28% 4.98% 5.57% 6.18% 5.58% 5.62%
Portfolio Turnover Rate ................ 41% 33% 38% 71% 65% 78%
- --------------------------------------------------------------------------------
DIVERSIFIED INCOME FUND (CLASS B)
FISCAL YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c) 2001(b)(c)(d)(h) 2000(b)(c)(e) 1999(b)(c)(g) 1998(b)(c)(g)
------------- ---------- ---------------- ------------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $4.88 $4.71 $4.65 $4.51 $4.95 $4.80
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.08 0.20 0.22 0.23 0.22 0.22
Net Gain (Loss) on Securities
(realized & unrealized) .............. 0.07 0.18 0.07 0.16 (0.44) 0.16
----- ----- ----- ----- ----- -----
Total from Investment Operations ....... 0.15 0.38 0.29 0.39 (0.22) 0.38
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) .............................. (0.08) (0.21) (0.23) (0.25) (0.22) (0.23)
Distributions (from Capital Gains) ..... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total Distributions ................. (0.08) (0.21) (0.23) (0.25) (0.22) (0.23)
----- ----- ----- ----- ----- -----
NET ASSET VALUE END OF PERIOD .......... $4.95 $4.88 $4.71 $4.65 $4.51 $4.95
===== ===== ===== ===== ===== =====
TOTAL RETURN (a) ....................... 3.1% 8.3% 6.4% 8.9% (4.6%) 8.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ... $21,331 $20,365 $13,685 $13,850 $2,356 $3,668
Ratio of Expenses
to Average Net Assets ............... 1.70% 1.70% 1.70% 1.71% 1.85% 1.85%
Ratio of Net Investment Income
to Average Net Assets .............. 3.53% 4.22% 4.83% 5.40% 4.55% 4.66%
Portfolio Turnover Rate ................ 41% 33% 38% 71% 65% 78%
See accompanying notes.
- --------------------------------------------------------------------------------
24
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
DIVERSIFIED INCOME FUND (CLASS C)
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c)(i) 2001(b)(c)(h) 2000(b)(c)(f)
------------- ------------- ------------- --------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....... $4.87 $4.70 $4.65 $4.42
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.08 0.19 0.21 0.21
Net Gain (Loss) on Securities
(realized & unrealized) ............... 0.08 0.19 0.08 0.19
----- ----- ----- -----
Total from Investment Operations .......... 0.16 0.38 0.29 0.40
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ................................. (0.08) (0.21) (0.24) (0.17)
Distributions (from Capital Gains) ........ -- -- -- --
----- ----- ----- -----
Total Distributions ..................... (0.08) (0.21) (0.24) (0.17)
----- ----- ----- -----
NET ASSET VALUE END OF PERIOD ............. $4.95 $4.87 $4.70 $4.65
===== ===== ===== =====
TOTAL RETURN (a) .......................... 3.3% 8.3% 6.3% 7.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $6,667 $4,901 $1,760 $442
Ratio of Expenses to Average Net Assets ... 1.70% 1.70% 1.69% 1.67%
Ratio of Net Investment Income
to Average Net Assets ................... 3.52% 4.18% 4.84% 5.32%
Portfolio Turnover Rate ................... 41% 33% 38% 40%
See accompanying notes.
- --------------------------------------------------------------------------------
25
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
HIGH YIELD FUND (CLASS A)
FISCAL YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------
2003(c)(j) 2002(c) 2001(b)(c)(h) 2000(b)(c) 1999(b)(c) 1998(b)(c)
---------- ------- ------------- ---------- ----------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ..... $10.66 $11.68 $12.14 $13.65 $15.05 $15.71
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................... 0.40 0.81 1.06 1.10 1.25 1.22
Net Gain (Loss) on Securities
(realized & unrealized) ............... 1.05 (1.00) (0.47) (1.50) (1.32) (0.47)
------ ------ ------ ------ ------ ------
Total from Investment Operations ........ 1.45 (0.19) 0.59 (0.40) (0.07) 0.75
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ............................... (0.40) (0.83) (1.05) (1.11) (1.18) (1.22)
Distributions (from Realized Gains) ..... -- -- -- -- (0.15) (0.19)
------ ------ ------ ------ ------ ------
Total Distributions ................... (0.40) (0.83) (1.05) (1.11) (1.33) (1.41)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD ........... $11.71 $10.66 $11.68 $12.14 $13.65 $15.05
====== ====== ====== ====== ====== ======
TOTAL RETURN (a) ........................ 13.9% (1.7%) 4.9% (3.0%) (0.5%) 5.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) .... $7,436 $6,009 $5,919 $6,612 $6,328 $5,781
Ratio of Expenses
to Average Net Assets ................. 1.41% 1.48% 1.09% 0.79% 0.72% 0.76%
Ratio of Net Investment Income
to Average Net Assets ................. 7.30% 7.31% 8.80% 8.62% 8.17% 7.96%
Portfolio Turnover Rate ................. 61% 80% 65% 28% 36% 103%
- --------------------------------------------------------------------------------
HIGH YIELD FUND (CLASS B)
FISCAL YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------
2003(c)(j) 2002(c) 2001(b)(c)(h) 2000(b)(c) 1999(b)(c) 1998(b)(c)
---------- ------- ------------- ---------- ---------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....... $10.63 $11.65 $12.11 $13.62 $15.02 $15.68
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.35 0.73 0.96 1.00 1.06 1.10
Net Gain (Loss) on Securities
(realized & unrealized) ................. 1.05 (1.01) (0.47) (1.50) (1.25) (0.47)
------ ------ ------ ------ ------ ------
Total from Investment Operations .......... 1.40 (0.28) 0.49 (0.50) (0.19) 0.63
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ................................. (0.36) (0.74) (0.95) (1.01) (1.06) (1.10)
Distributions (from Realized Gains) ....... -- -- -- -- (0.15) (0.19)
------ ------ ------ ------ ------ ------
Total Distributions ..................... (0.36) (0.74) (0.95) (1.01) (1.21) (1.29)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD ............. $11.67 $10.63 $11.65 $12.11 $13.62 $15.02
====== ====== ====== ====== ====== ======
TOTAL RETURN (a) .......................... 13.4% (2.4%) 4.1% (3.8%) (1.3%) 4.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $6,375 $4,450 $4,231 $3,914 $4,469 $4,236
Ratio of Expenses to Average Net Assets ... 2.16% 2.23% 1.90% 1.51% 1.53% 1.53%
Ratio of Net Investment Income
to Average Net Assets ................... 6.53% 6.56% 7.98% 7.77% 7.35% 7.17%
Portfolio Turnover Rate ................... 61% 80% 65% 28% 36% 103%
See accompanying notes.
- --------------------------------------------------------------------------------
26
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
HIGH YIELD FUND (CLASS C)
FISCAL YEARS ENDED DECEMBER 31
---------------------------------------------------------------
2003(c)(j) 2002(c) 2001(b)(c)(h) 2000(b)(c)(f)
---------- ------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....... $10.67 $11.69 $12.16 $12.90
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.34 0.73 0.81 0.62
Net Gain (Loss) on Securities
(realized & unrealized) ................. 1.07 (1.01) (0.33) (0.69)
------ ------ ------ ------
Total from Investment Operations .......... 1.41 (0.28) 0.48 (0.07)
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income) ................................. (0.36) (0.74) (0.95) (0.67)
Distributions (from Capital Gains) ........ -- -- -- --
------ ------ ------ ------
Total Distributions ....................... (0.36) (0.74) (0.95) (0.67)
------ ------ ------ ------
NET ASSET VALUE END OF PERIOD ............. $11.72 $10.67 $11.69 $12.16
====== ====== ====== ======
TOTAL RETURN (a) .......................... 13.4% (2.4%) 4.0% (1.2%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $1,746 $520 $368 $50
Ratio of Expenses to Average Net Assets ... 2.15% 2.24% 2.11% 1.58%
Ratio of Net Investment Income
to Average Net Assets ................... 6.47% 6.60% 7.60% 8.05%
Portfolio Turnover Rate ................... 61% 80% 65% 39%
See accompanying notes.
- --------------------------------------------------------------------------------
27
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY CASH FUND
FISCAL YEARS ENDED DECEMBER 31
-------------------------------------------------------------------------------------
2003(b)(c)(j) 2002(b)(c) 2001(b)(c) 2000(c) 1999(c) 1998(c)(d)
------------- ---------- ---------- ------- ------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ..... 1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................... -- 0.01 0.03 0.05 0.04 0.05
Net Gain (Loss) on Securities
(realized & unrealized) ............... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total from Investment Operations ........ -- 0.01 0.03 0.05 0.04 0.05
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) .. -- (0.01) (0.03) (0.05) (0.04) (0.05)
Distributions (from Realized Gains) ..... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total Distributions ................... -- (0.01) (0.03) (0.05) (0.04) (0.05)
----- ----- ----- ----- ----- -----
NET ASSET VALUE END OF PERIOD ........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== =====
TOTAL RETURN (a) ........................ 0.1% 0.9% 3.2% 5.6% 4.4% 4.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) .... $66,384 $69,679 $67,638 $62,472 $53,137 $61,828
Ratio of Expenses
to Average Net Assets ................. 1.00% 1.00% 1.00% 0.98% 0.86% 0.89%
Ratio of Net Investment Income
to Average Net Assets ................. 0.29% 0.84% 3.08% 5.48% 4.30% 4.60%
(a) Total return information does not take into account any charges paid at time
of purchase or contingent deferred sales charges paid at time of redemption.
(b) Fund expenses were reduced by reimbursement from the Investment Manager.
Expense ratios absent such reimbursements would have been as follows:
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
Municipal Bond Fund Class A 1.28% 1.26% 1.17% 1.16% 1.14% 0.82%
Class B 2.04% 2.01% 1.93% 1.96% 2.19% 2.18%
Diversified Income Fund Class A 1.01% 1.02% 1.04% 1.19% 1.37% 1.43%
Class B 1.77% 1.77% 1.79% 2.02% 2.36% 3.03%
Class C 1.77% 1.77% 1.79% 1.84% -- --
High Yield Fund Class A -- -- 1.42% 1.39% 1.32% 1.36%
Class B -- -- 2.21% 1.84% 2.13% 2.13%
Class C -- -- 2.25% 2.02% -- --
Cash Fund 1.09% 1.07% 1.01% -- -- --
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Expense ratios, including reimbursements, were calculated without the
reduction for custodian fees earning credits. Expense ratios with such
reductions would have been as follows:
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
Municipal Bond Fund Class A -- -- -- -- 1.00% 0.82%
Class B -- -- -- -- 1.75% 2.00%
Diversified Income Fund Class B -- -- 1.70% -- -- --
Cash Fund -- -- -- -- -- 0.89%
(e) Portfolio turnover calculation excludes the portfolio investments in the
Limited Maturity Fund and Corporate Bond Fund prior to merger.
(f) Class C shares were initially offered for sale on May 1, 2000 for Security
High Yield Fund and Diversified Income Fund.
Percentage amounts for the period, except for total return, have been
annualized.
(g) The financial highlights for the Diversified Income Fund as set forth herein
exclude the historical financial highlights of the Corporate Bond Fund and
Limited Maturity Bond Fund Class Aand B shares. The assets of the Corporate
Bond Fund and Limited Maturity Bond Fund were acquired by the Diversified
Income Fund on April 30, 2000.
(h) As required, effective January 1, 2001, the Funds adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended December 31, 2001, was to decrease net investment
income per share by less than 1/2 of a cent, increase net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase the ratio of net investment income to average net assets from
0.01% to 0.18%. Per share, ratios and supplemental data for periods prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
(i) The financial highlights for the Class C shares exclude the historical
financial highlights of the Class S shares. Class S shares were exchanged
for Class C shares on June 3, 2002.
(j) Unaudited figures for the six months ended June 30, 2003. Percentage amounts
for the period, except total return, have been annualized.
See accompanying notes.
- --------------------------------------------------------------------------------
28
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Municipal Bond Fund and Security Cash Fund
(the Funds) are registered under the Investment Company Act of 1940, as amended,
as diversified open-end management investment companies. The shares of Security
Income Fund are currently issued in multiple series, with each series, in
effect, representing a separate fund. The Security Income Fund and Security
Municipal Bond Fund offer different classes and, therefore, are required to
account for each class separately and to allocate general expenses to each class
based on the net asset value of each series. Class A shares are sold with a
sales charge at the time of purchase. Class A shares generally are not subject
to a sales charge when they are redeemed, except that purchases of Class A
shares of $1 million or more sold without a front-end sales charge are subject
to a contingent deferred sales charge if redeemed within one year of purchase.
Class B and Class C shares are offered without a front-end sales charge but
incur additional class specific expenses. Redemptions of the shares within five
years of acquisition for Class B and within one year of acquisition for Class C
incur a contingent deferred sales charge.
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements.
A. SECURITY VALUATION - Valuations of Security Income and Security Municipal
Bond Funds' securities are supplied by pricing services approved by the Board of
Directors. The Funds' officers, under the general supervision of the Board of
Directors, regularly review procedures used by, and valuations provided by, the
pricing service. Each security owned by a Fund that is listed on a securities
exchange is valued at its last sale price on that exchange on the date as of
which assets are valued. Where the security is listed on more than one exchange,
the Fund will use the price of that exchange that it generally considers to be
the principal exchange on which the stock is traded. Fund securities listed on
the Nasdaq Stock Market, Inc. ("Nasdaq") will be valued at the Nasdaq Official
Closing Price, which may not necessarily represent the last sale price. If there
has been no sale on such exchange or Nasdaq on such day, the security is valued
at the closing bid price on such day. Securities for which market quotations
are not readily available are valued by a pricing service considering securities
with similar yields, quality, type of issue, coupon, duration and rating. If
there is no bid price or if the bid price is deemed to be unsatisfactory by the
Board of Directors or by the Funds' investment manager, then the securities are
valued in good faith by such method as the Board of Directors determines will
reflect the fair value. The Funds'officers, under the general supervision of the
Board of Directors, regularly review procedures used by, and valuations provided
by, the pricing service. This method is deemed to approximate market value.
Security Cash Fund, by approval of the Board of Directors, utilizes the
amortized cost method for valuing portfolio securities, whereby all investments
are valued by reference to their acquisition cost as adjusted for amortization
of premiums or accretion of discounts, which approximates market value.
B. REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the fair value of which exceeds the principal
amount of the repurchase transaction, including accrued interest, at all times.
If the seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Funds may be delayed or limited.
C. OPTIONS - Diversified Income Fund and the High Yield Fund may purchase
put and call options and write such options on a covered basis on securities
that are traded on recognized securities exchanges and over-the-counter markets.
Call and put options on securities give the holder the right to purchase or
sell, respectively (and the writer, the obligation to sell or purchase) a
security at a specified price, until a certain date. The primary risks
associated with the use of options are an imperfect correlation between the
change in market value of the securities held by the Funds and the price of the
option, the possibility of an illiquid market, and the inability of the
counter-party 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.
D. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis, including the amortization of premiums and
accretion of discounts on debt securities. Each class of shares participates in
investment income, fund-level expenses and realized and unrealized gains and
losses based on the total net asset value of its shares in proportion to the
total net assets of the fund.
E. 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.
F. TAXES - The Funds intend to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distribute all of
their taxable net income and net realized gains sufficient to relieve them from
all, or substantially all, federal income, excise and state income taxes.
Therefore, no provision for federal or state income tax is required.
G. EARNINGS CREDITS - Under the fee schedule with the custodian, the Funds
can earn credits based on overnight custody cash balances. These credits can
be utilized to reduce related custodial expenses. During the current period,
there were no custodian credits earned to reduce the related custodian
expenses.
H. USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and
- --------------------------------------------------------------------------------
29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) under
investment advisory contracts at an annual rate of .50% of the average daily net
assets of Security Municipal Bond Fund and Security Cash Fund; .35% of the
average daily net assets for Diversified Income Fund and .60% of the average
daily net assets of the High Yield Fund. SMC pays Salomon Brothers Asset
Management, Inc. an annual fee equal to .22% of the average daily net assets of
Security Municipal Bond Fund for management services provided to the fund. The
investment advisory contract for Security Income Fund provides that the total
annual expenses of each series of the fund (including management fees and
custodian fees net of earnings credits, but excluding interest, taxes, brokerage
commissions, extraordinary expenses and distribution fees paid under the Class B
and Class C distribution plans) will not exceed the level of expenses which
Security Income Fund is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are qualified for
sale. For the period ended June 30, 2003, SMC agreed to limit the total expenses
of Diversified Income Fund to an annual rate of .95% of the average daily net
asset value of Class A shares and 1.70% of Class B shares and Class C shares.
SMC also agreed to limit the total expenses of the High Yield Fund to 2.00% for
Class A shares and 2.75% for Class B and Class C shares. The investment advisory
contract for Security Municipal Bond Fund provides that the total annual
expenses of the fund, exclusive of interest, taxes, Rule 12b-1 fees, brokerage
fees and commissions and extraordinary expenses, will not exceed an amount equal
to an annual rate of 1.00% of the average net assets of Class A Shares and 1.75%
of the average net assets of Class B shares as calculated on a daily basis. The
investment advisory contract for Security Cash Fund provides that the total
annual expenses of the fund, exclusive of interest, taxes, brokerage fees and
commissions and extraordinary expenses, will not exceed an amount equal to an
annual rate of 1.00% of the average net assets of the fund as calculated on a
daily basis.
The Funds have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Funds. SMC
is paid an annual fixed charge per account and shareholder and dividend
transaction fees.
As the administrative agent for the Funds, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Funds. For this service SMC receives on an annual basis, a fee
of .09% of the average daily net assets of Diversified Income Fund, High Yield
Fund, and Security Municipal Bond Fund and .045% of the average daily net assets
of Security Cash Fund calculated daily and payable monthly.
Security Income and Security Municipal Bond Funds have adopted distribution
plans related to the offering of Class B shares and Security Income Fund has
adopted a distribution plan relating to the offering of Class C shares, each
such distribution plan has been adopted pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The plans provide for payments at an annual rate of 1.00%
of the average daily net assets of Class B and Class C shares. Class A shares of
Security Income Fund and Security Municipal Bond Fund incur 12b-1 distribution
fees at an annual rate of .25% of the average daily net assets of each series.
Security Distributors, Inc. (SDl), a wholly-owned subsidiary of Security
Benefit Group, Inc. and the national distributor of the Funds received net
underwriting commissions on sales of shares after allowances to brokers and
dealers. All amounts are presented in the following table:
SDI UNDERWRITING COMMISSIONS
----------------------------
Municipal Bond Fund $ 308
Diversified Income Series 0
High Yield Series 3,365
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries, which
include SMC and SDI.
3. FEDERAL INCOME TAX MATTERS
The amounts of gross unrealized appreciation (depreciation) for federal
income tax purposes as of June 30, 2003, were as follows:
MUNICIPAL DIVERSIFIED HIGH YIELD
BOND FUND INCOME SERIES SERIES
---------- ------------- ----------
Gross unrealized
appreciation $1,258,635 $7,184,338 $869,690
Gross unrealized
depreciation (10,395) (500,914) (1,420,519)
---------- ---------- ----------
Net unrealized
appreciation
(depreciation) $1,248,240 $6,683,424 ($550,829)
========== ========== ==========
- --------------------------------------------------------------------------------
30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
The tax character of distributions paid was the same for financial statement
purposes for the period ending June 30, 2003 and the year ending December 31,
2002, except as follows:
TAX-EXEMPT ORDINARY LONG-TERM
2002 INCOME INCOME CAPITAL GAIN TOTAL
---- ------ ------ ------------ -----
Municipal Bond Fund .......... $718,658 $16,319 $137,386 $872,363
As of December 31, 2002, the components of distributable earnings on a tax
basis were the same as financial statement purposes except for the following
funds:
UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY CAPITAL AND APPRECIATION/
INCOME OTHER LOSSES DEPRECIATION
-------------- ------------ ------------
SECURITY INCOME FUND:
DIVERSIFIED INCOME FUND $24,356 ($7,242,281) $ 3,924,533
HIGH YIELD FUND 5,501 (1,537,830) (2,340,731)
SECURITY MUNICIPAL
BOND FUND -- -- 658,392
4. INVESTMENT TRANSACTIONS
Investment transactions for the six months ended June 30, 2003, (excluding
overnight investments and short-term debt securities) were as follows:
MUNICIPAL DIVERSIFIED HIGH YIELD
BOND FUND INCOME SERIES SERIES
---------- ------------- -----------
Purchases $5,958,515 $26,103,220 $7,392,244
Proceeds from sales 6,545,359 19,524,506 3,688,856
- --------------------------------------------------------------------------------
31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2003
(UNAUDITED)
5. CAPITAL SHARE TRANSACTIONS
The Funds are authorized to issue an unlimited number of shares in an
unlimited number of classes. Transactions in the capital shares of the Funds for
the six-month period ending June 30, 2003 and year ending December 31, 2002 were
as follows:
2003 2003 2003 2003
SHARES AMOUNT SHARES AMOUNT
SOLD SOLD REINVESTED REINVESTED
------ ------- ---------- ----------
MUNICIPAL BOND FUND
Class A Shares .......... 454,616 $ 4,837,801 16,714 $ 177,453
Class B Shares .......... 6,474 69,567 1,690 17,985
----------- ------------- --------- -----------
Total ................. 461,090 $ 4,907,368 18,404 $ 195,438
=========== ============= ========= ===========
DIVERSIFIED INCOME SERIES
Class A Shares .......... 7,662,216 $ 37,696,894 252,776 $ 1,242,361
Class B Shares .......... 1,313,211 6,430,636 69,643 340,851
Class C Shares .......... 605,356 2,961,138 18,353 89,769
----------- ------------- --------- -----------
Total ................. 9,580,783 $ 47,088,668 340,772 $ 1,672,981
=========== ============= ========= ===========
HIGH YIELD SERIES
Class A Shares .......... 227,519 $ 2,535,548 19,646 $ 219,031
Class B Shares .......... 166,640 1,849,401 14,736 163,749
Class C Shares .......... 136,556 1,515,375 2,811 31,511
----------- ------------- --------- -----------
Total ................. 530,715 $ 5,900,324 37,193 $ 414,291
=========== ============= ========= ===========
CASH FUND ................. 48,039,771 $ 48,039,771 112,181 $ 112,181
2003 2003 2003 2003
SHARES AMOUNT INCREASE (DECREASE) INCREASE(DECREASE)
REDEEMED REDEEMED SHARES AMOUNT
---------- -------- ------------------- ------------------
MUNICIPAL BOND FUND
Class A Shares .......... (426,786) ($ 4,533,148) 44,544 $ 482,106
Class B Shares .......... (49,596) (530,194) (41,432) (442,642)
----------- ------------ ---------- -----------
Total ................. (476,382) ($ 5,063,342) 3,112 $ 39,464
=========== ============ ========== ===========
DIVERSIFIED INCOME SERIES
Class A Shares .......... (7,025,417) ($34,598,465) 889,575 $ 4,340,790
Class B Shares .......... (1,253,791) (6,163,705) 129,063 607,782
Class C Shares .......... (282,656) (1,382,178) 341,053 1,668,729
----------- ------------ ---------- -----------
Total ................. (8,561,864) ($42,144,348) 1,359,691 $ 6,617,301
=========== ============ ========== ===========
HIGH YIELD SERIES .........
Class A Shares .......... (175,829) ($ 1,989,410) 71,336 $ 765,169
Class B Shares .......... (53,738) (603,230) 127,638 1,409,920
Class C Shares .......... (39,153) (438,963) 100,214 1,107,923
----------- ------------ ---------- -----------
Total ................. (268,720) ($ 3,031,603) 299,188 $ 3,283,012
=========== ============ ========== ===========
CASH FUND ................. (51,447,200) ($51,447,200) (3,295,248) $(3,295,248)
2002 2002 2002 2002
SHARES AMOUNT SHARES AMOUNT
SOLD SOLD REINVESTED REINVESTED
------ ------- ---------- ----------
MUNICIPAL BOND FUND
Class A Shares .......... 522,159 $ 5,514,094 47,756 $ 499,094
Class B Shares .......... 62,530 662,295 4,563 47,859
----------- ------------- --------- -----------
Total ................. 584,689 $ 6,176,389 52,319 $ 546,953
=========== ============= ========= ===========
DIVERSIFIED INCOME FUND(1)
Class A Shares .......... 16,593,565 $ 79,650,771 542,093 $ 2,597,782
Class B Shares .......... 2,554,992 12,164,324 154,547 737,949
Class C Shares .......... 1,126,608 5,358,738 32,975 157,602
Class S Shares .......... 4,443 21,100 166 780
----------- ------------- --------- -----------
Total ................. 20,279,608 $ 97,194,933 729,781 $ 3,494,113
=========== ============= ========= ===========
HIGH YIELD FUND
Class A Shares .......... 317,009 $ 3,439,461 36,531 $ 402,690
Class B Shares .......... 82,834 924,046 24,672 271,148
Class C Shares .......... 24,305 273,951 2,607 28,632
----------- ------------- --------- -----------
Total ................. 424,148 $ 4,637,458 63,810 $ 702,470
=========== ============= ========= ===========
CASH FUND ................. 147,482,389 $ 147,482,389 552,811 $ 552,811
2002 2002 2002 2002
SHARES AMOUNT INCREASE (DECREASE) INCREASE(DECREASE)
REDEEMED REDEEMED SHARES AMOUNT
-------- -------- ------------------- ------------------
MUNICIPAL BOND FUND
Class A Shares .......... (739,974) ($ 7,734,532) (170,059) ($ 1,721,344)
Class B Shares .......... (87,288) (916,687) (20,195) (206,533)
------------ ------------- --------- ------------
Total ................. (827,262) ($ 8,651,219) (190,254) ($ 1,927,877)
============ ============= ========= ============
DIVERSIFIED INCOME FUND(1)
Class A Shares .......... (15,665,773) ($ 75,304,089) 1,469,885 $ 6,944,464
Class B Shares .......... (1,438,940) (6,880,807) 1,270,599 6,021,466
Class C Shares .......... (527,205) (2,518,416) 632,378 2,997,924
Class S Shares .......... (9,856) (46,718) (5,247) (24,838)
------------ ------------- --------- ------------
Total ................. (17,641,774) ($ 84,750,030) 3,367,615 $15,939,016
============ ============= ========= ============
HIGH YIELD FUND
Class A Shares .......... (296,440) ($ 3,227,316) 57,100 $ 614,835
Class B Shares .......... (52,042) (562,190) 55,464 633,004
Class C Shares .......... (9,575) (104,689) 17,337 197,894
------------ ------------- --------- ------------
Total ................. (358,057) ($ 3,894,195) 129,901 1,445,733
============ ============= ========= ============
CASH FUND ................. (145,993,443) ($145,993,443) 2,041,757 $ 2,041,757
(1) Effective June 3, 2002, the Diversified Income Fund exchanged 9,856 shares
of Class S for 9,889 shares of Class C. Class C Shares acquired $46,674 in net
assets from shares of Class S.
- --------------------------------------------------------------------------------
32
DIRECTOR DISCLOSURE
NUMBER OF
PRINCIPAL PORTFOLIOS IN
NAME, POSITION(S) TERM OF OCCUPATION(S) FUND COMPLEX
ADDRESS AND HELD WITH OFFICE AND DURING THE PAST OVERSEEN BY
AGE THE FUND LENGTH OF TIME SERVED 5 YEARS THE DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Donald A. Chubb, Jr. Director** 1994 to present*** Business broker, 36
One Security Benefit Place Griffith & Blair Realtors
Topeka, KS 66636-0001 Manager, Star Sign, Inc.
56
Penny A. Lumpkin Director** 1993 to present*** President, Vivian's Gift Shop 36
One Security Benefit Place Vice President, Palmer Companies, Inc.
Topeka, KS 66636-0001 Vice President, Bellairre Shopping Center
63 Partner, Goodwin Ent.
Partner, PLB
Partner, Town Crier
Vice President and Treasurer, Palmer News, Inc.
Vice President, M/S News, Inc.
Secretary, Kansas City Periodicals
Mark L. Morris, Jr., D.V.M. Director** 1991 to present*** Independent Investor, Morris Co. 36
One Security Benefit Place Partner, Mark Morris Associates
Topeka, KS 66636-0001
69
Maynard F. Oliverius Director** 1998 to present*** President & CEO, Stormont Vail HealthCare 36
One Security Benefit Place
Topeka, KS 66636-0001
59
John D. Cleland Chairman of February 2000 to present Sr. Vice President and Managing Member 36
One Security Benefit Place the Board 1991 to present*** Representative, Security Management Company, LLC
Topeka, KS 66636-0001 Director* Sr. Vice President, Security Benefit Group, Inc.
67 Sr. Vice President, Security Benefit Life Insurance Co.
Director & Vice President, Security Distributors, Inc.
James R. Schmank President February 2000 to present President and Managing Member Representative, 36
One Security Benefit Place Director* 1997 to present*** Security Management Company, LLC
Topeka, KS 66636-0001 Sr. Vice President, Security Benefit Group, Inc.
50 Sr. Vice President, Security Benefit Life Insurance Co.
Director, Security Distributors, Inc.
*These directors are deemed to be "interested persons" of the Funds under
the Investment Company Act of 1940, as amended, by reason of their positions
with the Funds'Investment Manager and/or the parent of the Investment Manager.
**These directors serve on the Funds'joint audit committee, the purpose of
which is to meet with the independent auditors, to review the work of the
auditors, and to oversee the handling by Security Management Company, LLC of the
accounting function for the Funds.
***Term is until the next annual meeting, or until their successors shall have
been duly elected and qualified.
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.
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36
THE SECURITY GROUP OF MUTUAL FUNDS
Security Large Cap Value Fund
Security Equity Fund
o Equity Fund
o Global Fund
o Social Awareness Fund
o Mid Cap Value Fund
o Small Cap Growth Fund
o Enhanced Index Fund
o International Fund
o Select 25 Fund
o Large Cap Growth Fund
o Technology Fund
o Alpha Opportunity Fund
Security Mid Cap Growth Fund
Security Diversified Income Fund
Security High Yield Fund
Security Capital Preservation Fund
Security Municipal Bond Fund
Security Cash Fund
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
James R. Schmank
OFFICERS
John D. Cleland, Chairman of the Board
James R. Schmank, President
Terry A. Milberger, Vice President
Cindy L. Shields, Vice President
Steven M. Bowser, Vice President
James P. Schier, Vice President
David Toussaint, Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, 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.
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[LOGO OF SECURITY DISTRIBUTORS, INC. (R)] SECURITY DISTRIBUTORS, INC.
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Presorted Standard
U.S. POSTAGE
P A I D
Louisville, KY
Permit No. 1051
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ITEM 2. CODE OF ETHICS.
Not required at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. RESERVED.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. RESERVED.
ITEM 9. 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 10. EXHIBITS.
(a) (1) Not required at this time.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment
Company Act of 1940, are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and required by Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SECURITY MUNICIPAL BOND FUND
By: JAMES R. SCHMANK
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James R. Schmank, President
Date: September 5, 2003
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: JAMES R. SCHMANK
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James R. Schmank, President
Date: September 5, 2003
By: BRENDA M. HARWOOD
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Brenda M. Harwood, Treasurer
Date: September 5, 2003