DESCRIPTIONS OF PRINCIPAL RISKS
Additional information on the principal risks of the Funds is described below. Not all of the risks apply to each Fund. A list of
the main risks that apply to a particular Fund can be found under the Principal Risks heading for that Fund. However, the fact that a particular risk was not indicated as a principal risk for a Fund does not mean that the Fund is
prohibited from investing its assets in securities that give rise to that risk. It simply means that the risk is not a principal risk for that Fund. For example, the risk of investing in smaller companies was not listed as a principal risk for Large
Cap Value Fund. This does not mean that Large Cap Value Fund is prohibited from investing in smaller companies, only that the risk of smaller companies is not one of the main risks associated with Large Cap Value Fund. The Portfolio Manager for a
Fund has considerable leeway in choosing investment strategies and selecting securities that he or she believes will help the Fund achieve its investment objective. Although the Fund will not generally trade for short-term profits, circumstances may
warrant a sale without regard to the length of time a security was held. A high turnover rate may increase transaction costs, which decreases the value of investments and may result in additional taxable gains. In seeking to meet its investment
objective, a Funds assets may be invested in any type of security or instrument whose investment characteristics are consistent with the Funds investment program.
In addition, investors should note that, to the extent authorized by law, each Fund reserves the right to discontinue offering shares at any time, to merge or reorganize itself or a class of shares,
or to cease operations and liquidate at any time.
Capitalization Securities Risk
A Funds benchmark index may be
composed primarily of, or have significant exposure to, securities in a particular capitalization range, e.g., large-, mid- or small-cap securities. As a result, the Fund may be subject to the risk that the pre-dominate capitalization range
represented in the benchmark index may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology
and may not be able to attain the high growth rate of smaller companies, especially during extended periods of economic expansion. In addition, in comparison to securities of companies with larger capitalizations, securities of small and
medium-capitalization companies may experience more price volatility, greater spreads between their bid and ask prices,
significantly lower trading volumes, and cyclical or static growth prospects. Small and medium-capitalization companies often have limited product lines, markets or financial resources, and may
therefore be more vulnerable to adverse developments than larger capitalization companies. These securities may or may not pay dividends.
Credit Risk
It is possible that some issuers of fixed income securities will not make payments on debt securities held by a Fund,
or there could be defaults on repurchase agreements held by a Fund. Also, an issuer may suffer adverse changes in its financial condition that could lower the credit quality of a security, leading to greater volatility in the price of the security
and in shares of a Fund. A change in the quality rating of a bond can affect the bonds liquidity and make it more difficult for a Fund to sell.
Currency Risk
A Funds indirect and direct exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in value relative to the
U.S. Dollar, which would cause a decline in the U.S. value of the holdings of the Fund. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and
the imposition of currency controls or other political, economic and tax developments in the U.S. or abroad. While a Fund may engage in currency hedging transactions, it generally does not intend to do so.
Depositary Receipt Risk
A Fund may hold the securities of non-U.S. companies in the form of ADRs and GDRs. ADRs are negotiable
certificates issued by a U.S. financial institution that represent a specified number of shares in a foreign stock and trade on a U.S. national securities exchange, such as the New York Stock Exchange. A Fund will primarily invest in sponsored ADRs,
which are issued with the support of the issuer of the foreign stock underlying the ADRs and carry all of the rights of common shares, including voting rights. GDRs are similar to ADRs, but may be issued in bearer form and are typically offered for
sale globally and held by a foreign branch of an international bank. The underlying securities of the ADRs and GDRs in a Funds portfolio are usually denominated or quoted in currencies other than the U.S. Dollar. As a result, changes in
foreign currency exchange rates may affect the value of a Funds portfolio. Generally, when the U.S. Dollar rises in value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer
U.S. Dollars. In addition, because the underlying securities of ADRs and GDRs trade on foreign exchanges at times when the U.S. markets are not open for trading, the value of the securities underlying the ADRs and GDRs may change materially at times
when the U.S. markets are not open for trading, regardless of whether there is an active U.S. market for shares of a Fund. A Funds investment exposure to the underlying foreign securities may involve risks not typically associated with
investing in U.S. companies. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices in some foreign markets can be extremely volatile due to increased risks of adverse issuer, political,
regulatory, market, or economic developments. Many foreign countries lack accounting and disclosure standards comparable to those that apply to U.S. companies, and it may be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, transaction costs and costs associated with custody services are generally higher for foreign securities than they are for U.S. securities.
Derivatives Risk
Derivatives include forwards, futures, options, options on futures, swaps and other instruments discussed in a Funds principal investment strategies, which may
be used to create economic leverage in the Fund, to enhance total return, to seeks to hedge against fluctuations in securities prices, interest rates, currency rates, etc., to change the effective duration of a Funds portfolio, to manage
certain investment risks, and/or as a substitute for the purchase or sale of securities or currencies. These investments may pose substantial risks in addition to those associated with investing directly in securities or other investments. These
risks may include illiquidity of the derivative, imperfect correlation with underlying investments or the Funds other portfolio holdings, lack of availability, counterparty risks, leverage and valuation risks and legal restrictions. There is
the risk that investments in derivatives may fail to serve their intended purposes and may reduce returns or increase volatility. There is also the risk that a Fund could lose more than the amount the Fund invested in the derivatives. These
practices also entail transactional expenses and may cause a Fund to realize higher amounts of short-term capital gains than if a Fund had not engaged in such transactions. Use of derivatives may also cause a Fund to be subject to additional
regulations, which may generate additional fund expenses.
Swaps
Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from one day to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or swapped between the parties are calculated with respect to a notional amounts, i.e., the return on or increase in value of a particular dollar
amount invested in a basket of securities representing a particular index. A Fund may enter into swap agreements, including, but not limited to total return swaps, index swaps, interest rate swaps and credit default swaps. A Fund may
utilize swap agreements in an attempt to gain exposure to certain securities without purchasing those securities, which is speculative, or to hedge a position.
Options and Futures
The buyer of an option acquires the right to buy (a call option) or sell (a put option) a certain quantity of a security (the underlying security) or instrument at
a predetermined price in the future. The seller or writer of the option is obligated to sell (a call option) or buy (a put option) the underlying security. A Fund may also purchase or sell call and put options on a
covered basis. A call option is covered if a Fund owns the security underlying the call or has an absolute right to acquire the security without additional cash
consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount are segregated by the Funds custodian). As a seller of a covered call option, a Fund faces the risk that it will forego the opportunity to
profit from increases in the market value of the security covering the call option during an options life. Futures (a type of potentially high-risk derivative) are often used to manage or hedge risk because they enable the investor to buy or
sell an asset in the future at an agreed-upon price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option.
Options and futures may be bought or sold for any number of reasons, including: to manage exposure to changes in interest rates and bond prices; as an efficient means of adjusting overall exposure to certain markets; in an effort to enhance income;
to protect the value of portfolio securities; and to adjust portfolio duration. Options and futures may not always be successful investments and their prices can be highly volatile.
Hybrid Securities
Hybrid instruments combine the characteristics of securities, futures and options. Typically, a hybrid instrument combines a traditional stock, bond or commodity with
an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied to the price of some security, commodity, currency or securities index, or another interest rate or some
other economic factor. Hybrid instruments can be used as an efficient means of pursuing a variety of investment goals, including currency hedging and increased total return. The risks of such investments would reflect the risks of investing in
futures, options and securities, including volatility and illiquidity. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. Under certain conditions, the redemption value of such an investment could
be zero.
Emerging Markets Risk
Certain Funds may invest in securities in emerging markets. Investing in securities in
emerging countries may entail greater risks than investing in securities in developed countries. These risks include: (1) less social, political and economic stability; (2) the small current size of the markets for such securities and the
currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (3) certain national policies which may restrict the Funds investment opportunities, including restrictions on investment
in issuers or industries deemed sensitive to national interests; (4) foreign taxation; and (5) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities
convertible into stocks), and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent
the riskiest investment in a company. A Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
A Funds investment in securities offered through initial public offerings (IPOs) may have a magnified performance impact, either positive or negative, on any Fund and particularly those with a
small asset base. There is no guarantee that as a Funds assets grow, they will continue to experience substantially similar performance by investing in IPOs. A Funds investments in IPOs may make it subject to more erratic price movements
than the overall equity market.
Foreign Securities Risk
Investing in foreign investments, including investing in
foreign securities through American Depository Receipts (ADRs) and Global Depositary Receipts (GDRs), involves certain special risks, including, but not limited to: (i) unfavorable changes in currency exchange rates;
(ii) adverse political and economic developments; (iii) unreliable or untimely information; (iv) limited legal recourse; (v) limited markets; (vi) higher operational expenses; and (vii) illiquidity. These risks may even
be higher in underdeveloped markets. A Fund considers a security to be a foreign security if the issuer is organized under the laws of a foreign country or is a foreign government, or a sub-division or agency of such government, or the security
is traded in markets outside the United States.
Foreign investments are normally issued and traded in foreign currencies. As a result,
their values may be affected by changes in the exchange rates between particular foreign currencies and the U.S. dollar. Foreign investments may be subject to the risks of seizure by a foreign government, imposition of restrictions on the exchange
or transport of foreign currency, and tax increases. There may also be less information publicly available about a foreign company than about most U.S. companies, and foreign companies are usually not subject to accounting, auditing and financial
reporting standards and practices comparable to those in the United States. The legal remedies for investors in foreign investments may be more limited than those available in the United States. Certain foreign investments may be less liquid (harder
to buy and sell) and more volatile than domestic investments, which means a Fund may at times be unable to sell its foreign investments at desirable prices. For the same reason, a Fund may at times find it difficult to value its foreign investments.
Brokerage commissions and other fees are generally higher for foreign investments than for domestic investments. The procedures and rules for settling foreign transactions may also involve delays in payment, delivery or recovery of money or
investments. Foreign withholding taxes may reduce the amount of income available to distribute to shareholders of the Funds.
Growth Stocks Risk
Investments in growth stocks may lack the dividend yield that
can cushion stock prices in market downturns. Growth companies often are expected to increase their earnings at a certain rate. If expectations are not met, investors can punish the stocks, even if earnings do increase.
Index Risk
The performance of an underlying fund or other investment that seeks to track a benchmark index may not correspond to
the benchmark index for any period of time. Such an investment may not duplicate the exact composition of its index. In addition, unlike a fund or other investment, the returns of an index are not reduced by expenses, and therefore, the ability of a
fund to match the performance of the index is adversely affected by the costs of buying and selling investments as well as other expenses.
Interest Rate Risk
Investments in fixed-income securities are subject to the possibility that interest rates could rise sharply,
causing the value of a Funds securities and share price to decline. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes than shorter-term bonds. Generally, the longer the average maturity of the bonds
in a Fund, the more a Funds share price will fluctuate in response to interest rate changes.
Investment in Investment Vehicles
Risk
Investments in investment companies or other investment vehicles may include index-based unit investment trusts such as Standard & Poors Depositary Receipts (SPDRs) and similar securities of other
investment companies, including mutual funds and exchange traded funds (ETFs) or other investment vehicles. Such index-based investments sometimes hold substantially all of their assets in securities representing a specific index. In the
case of SPDRs, the index represented is the S&P 500 Index, but a Fund may invest in other index-based investments designed to track other indexes or market sectors. To the extent a Fund invests in other investment companies or vehicles, the
Fund and its shareholders will incur its pro rata share of the underlying investment companies or vehicles expenses, such as investment advisory and other management expenses, and shareholders will be required to pay the operating
expenses of two or more investment vehicles. In addition, a Fund will be subject to the effects of business and regulatory developments that affect an underlying investment company or vehicle or the investment company industry generally. A Fund may
use index-based investments as a way of managing its cash position, to maintain liquidity while gaining exposure to the equity markets, or a particular sector of the equity market, or to seek to avoid losses in declining market conditions.
Leverage Risk
The use of derivatives and borrowings may create leveraging risk. For example, because of the low
margin deposits required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial impact on the net asset value of a Fund.
Leveraging may cause a Fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk and otherwise comply with regulatory requirements, a Fund segregates or earmarks liquid assets to meet its obligations under, or otherwise
covers, the transactions that may give rise to this risk. Applicable law limits a Fund from borrowing in an amount no more than 33 1/3% of its assets.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for a Fund to purchase and sell particular investments within a reasonable time at a fair price. To the
extent that there is not an established liquid market for instruments in which the Fund may invest, trading in such instruments may be relatively inactive. In addition, during periods of reduced market liquidity or in the absence of readily
available market quotations for particular investments in a Funds portfolio, the ability of the Fund to assign an accurate daily value to these investments may be difficult and the Investment Manager may be required to fair value the
investments.
Management Risk
Each Fund is subject to management risk because it is an actively managed investment
portfolio, which means that investment decisions are made based on investment views. The Investment Manager and each individual portfolio manager will apply investment techniques and risk analysis in making decisions for a Fund, but there can be no
guarantee that these decisions will produce the desired results. Additionally, legislative, regulatory or tax developments may affect the investment techniques available to the Investment Manager or and each individual portfolio manager in
connection with managing a Fund and may also adversely affect the ability of a Fund to achieve its investment objectives. Furthermore, active trading that can accompany active management will increase the costs a Fund incurs because of higher
brokerage charges or mark-up charges, which are passed on to shareholders of the Fund and, as a result, may lower the Funds performance.
Market Risk
Most securities fluctuate in price, and equity prices tend to fluctuate more dramatically over the shorter term than do the prices of other asset classes. These
movements may result from factors affecting individual companies or from broader influences like changes in interest rates, market conditions, investor confidence or changes in economic, political or financial market conditions. Volatility of
financial markets can expose a Fund to greater market risk, possibly resulting in greater liquidity risk. Market conditions also may lead to increased regulation of a Fund and the instruments in which the Fund may invest, which may, in turn, affect
the Funds ability to pursue its investment objective and the Funds performance.
Non-Diversification Risk
A non-diversified Fund may hold larger positions in a smaller number of securities than a diversified Fund. As a result, a change in the market value of a single security may have a greater impact on a Funds net asset value and total return. A
non-diversified Fund is expected to be more volatile than a diversified Fund.
Overweighting Risk
Overweighting investments in certain sectors or industries of
the stock market increases the risk that a Fund will suffer a loss because of general declines in the prices of stocks in those sectors or industries.
Preferred Securities Risk
Preferred stock represents an equity interest in a company that generally entitles the holder to receive, in preference to the holders of other stocks
such as common stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the company. Preferred stocks may pay fixed or adjustable rates of return. Preferred stock is subject to issuer-specific and market risks applicable
generally to equity securities. In addition, a companys preferred stock generally pays dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, the value of preferred stock will usually
react more strongly than bonds and other debt to actual or perceived changes in the companys financial condition or prospects.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional regulations and legislators may
pass new laws that affect the investments held by the Funds, the strategies used by the Funds or the level of regulation or taxation applying to the Funds (such as regulations related to investments in derivatives). These may impact the investment
strategies, performance, costs and operations of the Funds, as well as the way investments in, and shareholders of, the Funds are taxed.
Restricted Securities Risk
Restricted securities cannot be sold to the public without registration under the Securities Act of
1933 (1933 Act). Unless registered for sale, restricted securities can be sold only in privately negotiated transactions or pursuant to an exemption from registration. Restricted securities may be considered illiquid and, therefore, are
subject to a Funds limitation on illiquid securities.
Restricted securities may involve a high degree of business and financial
risk, which may result in substantial losses. The securities may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than
those originally paid by a Fund. A Fund may invest in restricted securities, including securities initially offered and sold without registration pursuant to Rule 144A (Rule 144A Securities) and securities of U.S. and non-U.S. issuers
initially offered and sold outside the United States without registration with the U.S. Securities and Exchange Commission pursuant to Regulation S (Regulation S Securities) under the 1933 Act. Rule 144A Securities and Regulation S
Securities generally may be traded freely among certain qualified institutional investors, such as the Fund, and non-U.S. persons, but resale to a broader base of investors in the United States may be permitted only in significantly more limited
circumstances.
Investing in Rule 144A Securities and other restricted and non-registered securities (such as privately placed securities
purchased through transactions complying with the requirements in Regulation D or S) could have the effect of increasing the amount of a Funds assets invested in illiquid securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities.
Short Sales Risk
A short sale entails selling a borrowed
security with the expectation that the price of the security will decline so that a Fund may purchase the security at a lower price when the Fund must return the security that it borrowed. While the potential losses associated with investing in
stocks are typically limited to the original cost of the securities, the potential for losses associated with short positions is much greater than the original value of the securities sold short. A Fund may not always be able to close out a short
position at a particular time or at an acceptable price. A lender may request that borrowed securities be returned to it on short notice, and a Fund may have to buy the borrowed securities at an unfavorable price, resulting in a loss. Short sales
also subject a Fund to risks related to the lender (such as bankruptcy risks) or the general risk that the lender does not comply with its obligations. The use of short sales may cause a Fund to have higher expenses than those of equity mutual funds
that do not engage in short sales, including the cost of paying the lender an amount equal to any dividends on the borrowed securities. Also, short sales may be subject to legal restrictions, which may limit the ability of a Fund to implement its
strategies.
Technology Stocks Risk
Companies in the rapidly changing fields of technology often face unusually high
price volatility, both in terms of gains and losses. The potential for wide variation in performance is based on the special risks common to these stocks. For example, products or services that at first appear promising may not prove commercially
successful or may become obsolete quickly. Earnings disappointments can result in sharp price declines. The level of risk will be increased to the extent that a Fund has significant exposure to smaller or unseasoned companies (those with less than a
three-year operating history), which may not have established products or more experienced management.
Value Stocks
Risk
Investments in value stocks are subject to the risk that their intrinsic values may never be realized by the market or that their prices may go down. While the Funds investments in value stocks may limit downside risk over
time, a Fund may, as a trade-off, produce more modest gains than riskier stock funds.
PORTFOLIO HOLDINGS
A description of the Funds policies and procedures with respect to the disclosure of the Funds underlying portfolio securities is available in the Funds Statement of Additional
Information and on their website at www.guggenheiminvestments.com. In addition, investors should note that the Funds publish a complete list of their month-end portfolio holdings on their website generally within one to two business days after the
end of each following calendar month. Such information will remain online for four months, or as otherwise required by law.
STATEMENT OF ADDITIONAL INFORMATION
The Funds Statement of Additional Information, which includes additional information about the Funds, and the Funds annual or
semi-annual reports are available, without charge, upon request by calling the Funds toll-free telephone number 1-800-820-0888. Shareholder inquiries should be addressed to Security Investors, LLC, 805 King Farm Boulevard, Suite 600,
Rockville, Maryland 20850, or by calling the Funds toll-free telephone number listed above. The Funds Statement of Additional Information is incorporated into this prospectus by reference.
Each Funds Investment Company Act file number is listed below:
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Security Equity Fund
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811-01136
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Security Large Cap Core Series
(d/b/a Guggenheim Large Cap Core Fund)
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Security Mid Cap Value Series
(d/b/a Guggenheim Mid Cap Value Fund)
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Security Small Cap Growth Series
(d/b/a Guggenheim Small Cap Growth Fund)
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Security Small Cap Value Series
(d/b/a Guggenheim Small Cap Value Fund)
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Security Large Cap Concentrated Growth Series
(d/b/a Guggenheim Large Cap Concentrated Growth Fund)
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Security Large Cap Value Fund (d/b/a Guggenheim Large Cap Value
Fund)
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811-00487
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Security Mid Cap Growth Fund
(d/b/a Guggenheim Mid Cap Growth Fund)
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811-01316
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Family of Funds,
for disclosure purposes in this prospectus, include Series of Security Equity Fund:
Guggenheim Large Cap Core Fund, Guggenheim Alpha Opportunity Fund, Guggenheim MSCI EAFE Equal Weight Fund, Guggenheim Global Institutional Fund, Guggenheim Mid Cap Value Fund, Guggenheim Mid Cap Value Institutional Fund, Guggenheim Small Cap Growth
Fund, Guggenheim Small Cap Value Fund, and Guggenheim Large Cap Concentrated Growth Fund; Series of Security Large Cap Value Fund: Guggenheim Large Cap Value Fund and Guggenheim Large Cap Value Institutional Fund; Security Mid Cap Growth Fund (aka
Guggenheim Mid Cap Growth Fund); Series of Security Income Fund: Guggenheim High Yield Fund, Guggenheim Investment Grade Bond Fund (formerly, Guggenheim U.S. Intermediate Bond Fund), Guggenheim Municipal Income Fund, Guggenheim Total
Return Bond Fund, Guggenheim Macro Opportunities Fund, and Guggenheim Floating Rate Strategies Fund; the Rydex Series Funds; and the Rydex Dynamic Funds.
805 KING FARM BLVD., SUITE 600
ROCKVILLE, MARYLAND 20850
800 820 0888
WWW.GUGGENHEIMINVESTMENTS.COM
46-06026-00-0113x0114
The U.S. Securities and Exchange Commission
has not approved or disapproved these securities, or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Table of Contents
Large Cap Value Institutional Fund
INVESTMENT OBJECTIVE
The Large Cap Value Institutional Fund seeks long-term growth of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
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SHAREHOLDER FEES
(fees paid directly from your
investment)
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Maximum Sales Charge (Load) Imposed on Purchases
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None
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Maximum Deferred Sales Charge (Load)
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None
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ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
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Management Fees
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0.65%
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Distribution and Service (12b-1) Fees
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None
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Other Expenses
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3.44%
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Tax Expenses
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0.03%
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Remaining Other Expenses
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3.41%
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Total Annual Fund Operating Expenses
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4.09%
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Fee Waiver (and/or expense reimbursement)
1
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-3.06%
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Total Annual Fund Operating Expenses After Fee Waiver (and/or expense
reimbursement)
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1.03%
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1
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The
Investment Manager has contractually agreed through February 1, 2014 to waive fees and/or reimburse expenses to the extent necessary to limit the ordinary operating expenses (including distribution (12b-1) fees, but exclusive of brokerage
costs, dividends on securities sold short, acquired fund fees and expenses, interest, taxes, litigation, indemnification, and extraordinary expenses) (Operating Expenses) of the Fund to the annual percentage of 0.96% of the average daily
net assets for the Fund. The Fund may have Total annual fund operating expenses after fee waiver greater than the expense cap as a result of any acquired fund fees and expenses or other expenses that are excluded from the calculation.
The Investment Manager is entitled to reimbursement by the Fund of fees waived during any of the previous 36 months beginning on the date of the expense limitation agreement. The agreement will expire when it reaches its termination or when the
investment adviser ceases to serve as such (subject to recoupment rights).
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
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1 Year
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3 Years
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5 Years
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10 Years
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$
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105
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$
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963
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$
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1,837
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$
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4,093
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The above Examples reflect applicable contractual fee waiver/expense reimbursement arrangements for the duration of
the arrangements only.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 19% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in equity securities,
which include common stocks, rights, options, warrants, convertible debt securities of both U.S. and U.S. dollar-denominated foreign issuers, and American Depositary Receipts (ADRs), of companies that, when purchased, have market
capitalizations that are usually within the range of companies in the Russell 1000 Value Index. Although a universal definition of large market capitalization companies does not exist, the Fund generally defines large market capitalization
companies as those whose market capitalization is similar to the market capitalization of companies in the Russell 1000 Value Index, which is an unmanaged index measuring the performance of the large cap value segment of the U.S. equity universe and
which includes companies with lower price-to-book ratios and lower expected growth values.
In choosing securities, Security Investors,
LLC, also known as Guggenheim Investments (the Investment Manager), primarily invests in value-oriented companies. Value-oriented companies are companies that appear to be undervalued relative to assets, earnings, growth potential or
cash flows. The Investment Manager uses a blend of quantitative analysis and fundamental research to identify securities that appear favorably priced and that may be able to sustain or improve their pre-tax ROIC (Return on Invested Capital) over
time. The Fund may, consistent with its status as a non-diversified mutual fund, focus its investments in a limited number of issuers.
The Fund may invest a portion of its assets in futures contracts, options on futures contracts, and options on securities. These instruments are
used to hedge the Funds portfolio, to maintain exposure to the equity markets, or to increase returns.
The Fund may invest in a
variety of investment vehicles, including those that seek to track the composition and performance of a specific index, such as exchange traded funds (ETFs) and other mutual funds. The Fund may use these investments as a way of managing
its cash position or to gain exposure to the equity markets or a particular sector of the equity markets, while maintaining liquidity.
The Fund typically sells a security when its issuer is no longer considered a value company, shows deteriorating fundamentals or falls short of the
Investment Managers expectations, among other reasons.
Under adverse or unstable market conditions, the Fund could invest some or
all of its assets in cash, fixed-income securities, government bonds, money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may be unable to pursue its investment objective
during that time, and it could reduce the benefit from any upswing in the market.
PRINCIPAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other
investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability
and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks),
and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent the riskiest investment
in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry additional risks when compared to U.S. securities, including currency
fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and other mutual funds, subjects the Fund to those risks affecting the investment vehicle,
including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro rata share of the underlying vehicles expenses.
Large-Capitalization Securities Risk
The Fund is subject to the risk that
large-capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and may
not be able to attain the high growth rate of smaller companies, especially during extended periods of economic expansion.
Leverage
Risk
The Funds use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the
price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and unable to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is actively managed, which means that investment decisions are made based on investment views.
There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active management, also called high turnover, may have a negative impact on performance. Active trading may result in
higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund.
Market Risk
The
market value of the securities held by the Fund may fluctuate resulting from factors affecting the individual company or other factors such as changing economic, political or financial market conditions.
Non-Diversification Risk
The Fund is considered non-diversified because it invests a large portion of its assets in a small number of
issuers. As a result, the Fund is more susceptible to risks associated with those issuers than a more diversified portfolio, and its performance may be more volatile.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional regulations and legislators may pass new laws that affect the investments held by
the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to investments in derivatives). These may impact the investment strategies, performance, costs and operations of the
Fund or taxation of shareholders.
Value Stocks Risk
Value stocks are subject to the risk that the intrinsic value of the
stock may never be realized by the market or that the price goes down.
PERFORMANCE INFORMATION
The following chart and table provide some indication of the risks of investing in the Fund by showing changes in the Funds performance from
year to year and by showing how the Funds average annual returns for the one year and since inception periods have compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes)
is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
2Q 2009 19.40%
|
|
3Q 2011 -18.41%
|
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
After-tax returns shown in the table are
calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
Since Inception
7/14/2008
|
|
Institutional Fund
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
14.73%
|
|
|
|
3.91%
|
|
Return After Taxes on Distributions
|
|
|
14.35%
|
|
|
|
3.59%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
9.57%
|
|
|
|
3.15%
|
|
Index
|
|
|
|
|
|
|
|
|
Russell 1000 Value Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
17.51%
|
|
|
|
4.91%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. Mark Mitchell is primarily responsible for the
day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since July 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Large Cap Core Institutional Fund
INVESTMENT OBJECTIVE
The Large Cap Core Institutional Fund seeks long-term growth of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from your
investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
0.75%
|
|
Distribution and Service (12b-1) Fees
|
|
|
None
|
|
Other Expenses
|
|
|
0.37%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.12%
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$
|
114
|
|
|
$
|
356
|
|
|
$
|
617
|
|
|
$
|
1,363
|
|
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 101% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in a widely-diversified
portfolio of equity securities, which may include common stocks, rights, options, warrants, American Depositary Receipts (ADRs) and convertible securities, of companies that, when purchased, have market capitalizations that are usually
within the range of companies in the S&P 500 Index. Although a universal definition of large market capitalization companies does not exist, the fund generally defines large market capitalization companies as those whose market capitalization is
similar to the market capitalization of companies in the S&P 500 Index, which is an unmanaged index composed of 500 selected common stocks that represent approximately two-thirds of the total market value of all U.S. common stocks.
The Fund pursues its objective by investing, under normal market conditions, in two discrete strategies as follows: (1) approximately 50% of
its total assets according to a Large Cap Growth strategy managed by Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), and (2) approximately 50% of its total assets to a Large Cap Value strategy
also managed by the Investment Manager.
The Investment Manager manages its allocation of the Funds assets according to each of the
two respective strategies, and the trading decisions with respect to each of the strategies are made independently. In order to maintain the target allocations between the two strategies, all daily cash inflows (purchases and reinvested
distributions) and outflows (redemptions and expense items) will be divided between the two strategies, as appropriate. The Investment Manager will rebalance the allocation to the Funds two strategies promptly to the extent the percentage of
the Funds assets allocated to either strategy equals or exceeds 60% of the Funds total assets.
The Investment Manager in its discretion may make adjustments if either of the two strategies becomes
over- or under-weighted as a result of market appreciation or depreciation. Accordingly, the performance of the Fund could differ from the performance of each strategy if either had been maintained as a separate portfolio. As a consequence of the
Investment Managers efforts to maintain assets between the two strategies at the targeted percentages, the Investment Manager will allocate assets and rebalance when necessary by (1) allocating cash inflow to the strategy that is below
its targeted percentage or (2) selling securities in the strategy that exceeds its targeted percentage with proceeds being reallocated to the strategy that is below its targeted percentage.
In choosing equity securities, the Investment Manager uses a blended approach, investing in growth stocks and value stocks and may invest in a
limited number of industries or industry sectors, including the technology sector. Growth-oriented stocks are stocks of established companies that typically have a record of consistent earnings growth. The Investment Manager typically chooses
growth-oriented companies through a combination of a qualitative top-down approach in reviewing growth trends that is based upon several fixed income factors, such as bond spreads and interest rates, and a quantitative fundamental bottom-up
approach. The Investment Manager will also invest in value-oriented stocks. Value-oriented companies appear to be undervalued relative to assets, earnings, growth potential or cash flows. The Investment Manager uses a blend of qualitative analysis
and fundamental research to identify securities that appear favorably priced and that may be able to sustain or improve their pre-tax ROIC (Return on Invested Capital) over time. The Fund typically sells a security when the reasons for buying it no
longer apply, when the company begins to show deteriorating fundamentals or poor relative performance, or falls short of the Investment Managers expectations.
The Fund also may invest a portion of its assets in derivatives, including options and futures contracts. These instruments may be used to hedge the Funds portfolio, to maintain exposure to
the equity markets or to increase returns.
The Fund may invest in a variety of investment vehicles, including those that seek to track
the composition and performance of a specific index, such as exchange traded funds (ETFs) and other mutual funds. The Fund may use these index-based investments as a way of managing its cash position, to gain exposure to the equity
markets, or a particular sector of the equity market, while maintaining liquidity.
The Fund may, from time to time, invest a portion of
its assets in technology stocks.
Although the Fund primarily invests in securities issued by domestic companies, there is no limit in
the amount that the Fund may invest in securities issued by foreign companies.
The Fund actively trades its investments without regard
to the length of time they have been owned by the Fund, which results in higher portfolio turnover.
Under adverse or unstable market
conditions, the Fund could invest some or all of its assets in cash, fixed-income securities, government bonds, money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may be
unable to pursue its investment objective during that time, and it could reduce the benefit from any upswing in the market.
PRINCIPAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other
investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability
and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks),
and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent the riskiest investment
in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry additional risks when compared to U.S. securities, including currency
fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Growth Stocks Risk
Growth stocks typically invest a high portion of their earnings back
into their business and may lack the dividend yield that could cushion their decline in a market downturn. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of
the issuing company.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and
other mutual funds, subjects the Fund to those risks affecting the investment vehicle, including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will
incur its pro rata share of the underlying vehicles expenses.
Large-Capitalization Securities Risk
The Fund is
subject to the risk that large-capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be unable to respond quickly to new competitive challenges such as
changes in technology and may not be able to attain the high growth rate of smaller companies, especially during extended periods of economic expansion.
Leverage Risk
The Funds use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for the Fund to purchase and sell particular
investments within a reasonable time at a fair price, or the price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and unable to realize what the Investment
Manager believes should be the price of the investment.
Management Risk
The Fund is actively managed, which means that
investment decisions are made based on investment views. There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active management, also called high turnover, may have a negative
impact on performance. Active trading may result in higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund.
Market Risk
The market value of the securities held by the Fund may fluctuate resulting from factors affecting the individual company or other factors such as changing economic,
political or financial market conditions.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies
may implement additional regulations and legislators may pass new laws that affect the investments held by the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to
investments in derivatives). These may impact the investment strategies, performance, costs and operations of the Fund or taxation of shareholders.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
Value Stocks Risk
Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market or that the price goes down.
PERFORMANCE INFORMATION
The following chart
and table provide some indication of the risks of investing in the Fund by showing changes in the performance of the Funds Class A shares from year to year and by showing how the Funds average annual returns for the Funds
Class A shares for one, five, and ten years have compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in
the future. Updated performance information is available on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
The bar chart does not reflect the impact of the sales charge applicable to Class A shares which, if reflected, would lower the returns shown. Although the table reflects the sales charge,
Institutional Class shares are not subject to the sales charge.
Because Institutional Class shares have not operated for a full calendar
year as of the date of this Prospectus, the figures shown provide performance for Class A shares of the Fund. Class A shares are not offered in this Prospectus. Institutional Class shares would have substantially similar returns as the
Class A shares because Institutional Class shares represent interests in the same portfolio of securities. Annual returns would differ only to the extent that Institutional Class shares have different expenses.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
3Q 2009 16.38%
|
|
4Q 2008 -22.03%
|
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2012)
After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the
impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Years
|
|
|
10 Years
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
7.12%
|
|
|
|
-1.17%
|
|
|
|
3.04%
|
|
Return After Taxes on Distributions
|
|
|
6.98%
|
|
|
|
-1.27%
|
|
|
|
2.35%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
4.63%
|
|
|
|
-1.05%
|
|
|
|
2.50%
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
16.00%
|
|
|
|
1.66%
|
|
|
|
7.10%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. Mark Mitchell and Mark Bronzo are
primarily responsible for the day-to-day management of the Fund, and each holds the title of Portfolio Manager with the Investment Manager. Mr. Mitchell has co-managed the Fund since February 2004, and Mr. Bronzo has co-managed
the Fund since February 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/ dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the
transfer agent (by mail or telephone, if you select the telephone option on your account application). You may purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial
investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund
reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not
increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a
combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL
INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and
its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over
another investment. Ask your sales person or visit your financial intermediarys website for more information.
Mid Cap Value Institutional Fund
INVESTMENT OBJECTIVE
The Mid Cap Value Institutional Fund seeks long-term growth of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from your
investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
0.75%
|
|
Distribution and Service (12b-1) fees
|
|
|
None
|
|
Acquired Fund Fees and Expenses
|
|
|
0.06%
|
|
Other Expenses
|
|
|
0.26%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.07%
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$109
|
|
$
|
340
|
|
|
$
|
590
|
|
|
$
|
1,306
|
|
The above Examples reflect applicable contractual fee waiver/expense reimbursement arrangements for the duration of
the arrangements only.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 33% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in a diversified
portfolio of equity securities, which include common stocks, rights, options, warrants, convertible debt securities, and American Depositary Receipts (ADRs), that, when purchased, have market capitalizations that are usually within the
range of companies in the Russell 2500 Value Index. Although a universal definition of mid-capitalization companies does not exist, the Fund generally defines mid-capitalization companies as those whose market capitalization is similar to the market
capitalization of companies in the Russell 2500 Value Index, which is an unmanaged index that measures the performance of securities of small-to-mid cap U.S. companies with greater-than-average value orientation. As of December 31, 2012, the
index consisted of securities of companies with capitalizations that ranged from $30 million to $10 billion.
Security Investors, LLC,
also known as Guggenheim Investments (the Investment Manager), typically chooses equity securities that appear undervalued relative to assets, earnings, growth potential or cash flows and may invest in a limited number of industries
or industry sectors, including the technology sector. Due to the nature of value companies, the securities included in the Funds portfolio typically consist of small-to medium-sized companies.
The Fund may sell a security if it is no longer considered undervalued or when the company begins to show deteriorating fundamentals.
The Fund also may invest a portion of its assets in derivatives, including options and futures
contracts. These instruments may be used to hedge the Funds portfolio, to maintain exposure to the equity markets or to increase returns.
The Fund may, from time to time, invest a portion of its assets in technology stocks.
The Fund may invest in a variety of investment vehicles, including those that seek to track the composition and performance of a specific index,
such as exchange traded funds (ETFs) and other mutual funds. The Fund may use these index-based investments as a way of managing its cash position to gain exposure to the equity markets or a particular sector of the equity market, while
maintaining liquidity. Certain investment vehicles securities and other securities in which the Fund may invest are restricted securities, which may be illiquid.
Under adverse or unstable market conditions, the Fund could invest some or all of its assets in cash, fixed-income securities, government bonds, money market securities, or repurchase agreements.
Although the Fund would do this only in seeking to avoid losses, the Fund may be unable to pursue its investment objective during that time, and it could reduce the benefit from any upswing in the market.
PRINCIPAL RISKS
An investment in the Fund is
not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors
could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose
risks in addition to those associated with investing directly in securities or other investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying
investments or the Funds other portfolio holdings, leverage risk, lack of availability and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market conditions, the
use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities
include common stocks and other equity securities (and securities convertible into stocks), and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition
and changes in the overall market. Common stocks generally represent the riskiest investment in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value
stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry
additional risks when compared to U.S. securities, including currency fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and other mutual funds, subjects the
Fund to those risks affecting the investment vehicle, including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro rata share of the
underlying vehicles expenses.
Leverage Risk
The Funds use of leverage, through borrowings or instruments such
as derivatives, may cause the Fund to be more volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In
certain circumstances, it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the price at which it has been valued by the Investment Manager for purposes of the Funds net
asset value, causing the Fund to be less liquid and unable to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is actively managed, which means that investment decisions are made based on investment views. There is no guarantee that the investment views will be
successful. Furthermore, active trading that can accompany active management, also called high turnover, may have a negative impact on performance. Active trading may result in higher brokerage costs or mark-up charges, which are
ultimately passed on to shareholders of the Fund.
Market Risk
The market value of the securities held by the Fund may
fluctuate resulting from factors affecting the individual company or other factors such as changing economic, political or financial market conditions.
Mid-Capitalization Securities Risk
The Fund is subject to the risk that medium-capitalization stocks may underperform other segments of the equity market or the equity market as a
whole. Securities of medium-capitalization companies may experience
more price volatility, greater spreads between their bid and ask prices, lower trading volumes, and cyclical or static growth prospects. Medium-capitalization companies often have limited product
lines, markets or financial resources, and may therefore be more vulnerable to adverse developments than larger capitalization companies.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional regulations and legislators may
pass new laws that affect the investments held by the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to investments in derivatives). These may impact the investment
strategies, performance, costs and operations of the Fund or taxation of shareholders.
Restricted Securities Risk
Restricted securities generally cannot be sold to the public and may involve a high degree of business, financial and liquidity risk, which may result in substantial losses to the Fund.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
Value Stocks Risk
Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market or that the price goes down.
PERFORMANCE INFORMATION
The following chart
and table provide some indication of the risks of investing in the Fund by showing changes in the Funds performance from year to year and by showing how the Funds average annual returns for the one year and since inception periods have
compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available
on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
2Q 2009 24.00%
|
|
3Q 2011 -19.86%
|
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2012)
After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the
impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
Since Inception
7/14/2008
|
|
Institutional Fund
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
17.63%
|
|
|
|
9.51%
|
|
Return After Taxes on Distributions
|
|
|
15.73%
|
|
|
|
7.54%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
13.63%
|
|
|
|
7.34%
|
|
Index
|
|
|
|
|
|
|
|
|
Russell 2500 Value Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
19.21%
|
|
|
|
8.05%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. James Schier is primarily responsible for the
day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since July 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Small Cap Growth Institutional Fund
INVESTMENT OBJECTIVE
The Small Cap Growth Institutional Fund seeks long-term growth of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from your
investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
0.85%
|
|
Distribution and Service (12b-1) Fees
|
|
|
None
|
|
Acquired Fund Fees and Expenses
|
|
|
0.01%
|
|
Other Expenses
|
|
|
0.94%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.80%
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$
|
183
|
|
|
$
|
566
|
|
|
$
|
975
|
|
|
$
|
2,116
|
|
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 82% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing, under normal circumstances, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in equity
securities, which include common and preferred stocks, warrants and securities convertible into common or preferred stocks, of companies that, when purchased, have market capitalizations that are usually within the range of companies in the Russell
2500 Growth Index. The Funds benchmark is the Russell 2000 Growth Index, which measures the performance of securities of smaller U.S. companies with greater-than-average growth orientation. Although a universal definition of
small-capitalization companies does not exist, the Fund generally defines small capitalization companies as those whose market capitalization is similar to the market capitalization of companies in the Russell 2500 Growth Index, which is an
unmanaged index that measures the performance of securities of small-to-mid cap U.S. companies with higher price-to-book ratios and higher forecasted growth values. As of December 31, 2012, the Russell 2500 Growth Index consisted of securities
of companies with capitalizations that ranged from $28 million to $5 billion.
Security Investors, LLC, also known as Guggenheim
Investments (the Investment Manager), uses a combination of a qualitative economic approach in reviewing growth trends that is based upon several fixed income factors, such as bond spreads and interest rates, along with a quantitative
fundamental bottom-up approach in selecting growth stocks. The Investment Manager chooses portfolio securities that it believes are attractively valued with the greatest potential for long term growth of capital and may invest in a limited number of
industries or industry sectors. The Investment Manager identifies the securities of companies that it believes are in the early to middle stages of growth and are valued at a reasonable price. Equity securities considered to have appreciation
potential may include securities of smaller and less mature companies which have unique proprietary products or profitable market niches and the potential to grow very rapidly (including, without limitation, technology companies).
The Fund typically sells a stock if its growth prospects diminish, or if better opportunities become
available.
The Fund also may invest a portion of its assets in derivatives, including options and futures contracts. These instruments
may be used to hedge the Funds portfolio, to increase returns or to maintain exposure to the equity markets. The Fund may also invest in American Depositary Receipts (ADRs).
The Fund may actively trade its investments without regard to the length of time they have been owned by the Fund, which results in higher portfolio turnover.
The Fund may, from time to time, invest a portion of its assets in technology stocks.
The Fund may invest in a variety of investment vehicles, including those that seek to track the composition and performance of a specific index, such as exchange traded funds (ETFs) and
other mutual funds. The Fund may use these index-based investments as a way of managing its cash position, to gain exposure to the equity markets, or a particular sector of the equity market, while maintaining liquidity. Certain investment company
securities and other securities in which the Fund may invest are restricted securities, which may be illiquid.
Under adverse or unstable
market conditions, the Fund could invest some or all of its assets in cash, fixed-income securities, government bonds, money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may
be unable to pursue its investment objective during that time, and it could reduce the benefit from any upswing in the market.
PRINCIPAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other
investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability
and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks),
and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent the riskiest investment
in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry additional risks when compared to U.S. securities, including currency
fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Growth Stocks Risk
Growth stocks typically invest a high portion of their earnings back into their business and may lack the dividend yield that could cushion their decline in a market
downturn. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing company.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and other mutual funds, subjects the Fund to those risks affecting the investment vehicle,
including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro rata share of the underlying vehicles expenses.
Leverage Risk
The Funds use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more
volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for
the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and
unable to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is actively managed, which means that investment decisions are
made based on investment views. There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active management, also called high turnover, may have a negative impact on performance.
Active trading may result in higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund.
Market Risk
The market value of the securities held by the Fund may fluctuate resulting from factors affecting the individual company
or other factors such as changing economic, political or financial market conditions.
Preferred Securities Risk
A
companys preferred stock generally pays dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, the value of preferred stock will usually react more strongly than bonds and other debt
to actual or perceived changes in the companys financial condition or prospects.
Regulatory and Legal Risk
U.S. and
other regulators and governmental agencies may implement additional regulations and legislators may pass new laws that affect the investments held by the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the
Fund (such as regulations related to investments in derivatives). These may impact the investment strategies, performance, costs and operations of the Fund or taxation of shareholders.
Restricted Securities Risk
Restricted securities generally cannot be sold to the public and may involve a high degree of business, financial and liquidity risk, which may result in
substantial losses to the Fund.
Small-Capitalization Securities Risk
The Fund is subject to the risk that small
capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Small-capitalization companies may be more vulnerable than larger, more established organizations to adverse business or economic
developments. Securities of small-capitalization companies may experience much more price volatility, greater spreads between their bid and ask prices, significantly lower trading volumes, and cyclical or static growth prospects.
Small-capitalization companies often have limited product lines, markets or financial resources, and may therefore be more vulnerable to adverse developments than larger capitalization companies.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
PERFORMANCE INFORMATION
The following chart
and table provide some indication of the risks of investing in the Fund by showing changes in the performance of the Funds Class A shares from year to year and by showing how the Funds average annual returns for the Funds
Class A shares for one, five, and ten years have compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in
the future. Updated performance information is available on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
The bar chart does not reflect the impact of the sales charge applicable to Class A shares which, if reflected, would lower the returns shown. Although the table reflects the sales charge,
Institutional Class shares are not subject to the sales charge.
Because Institutional Class shares have not operated for a full calendar
year as of the date of this Prospectus, the figures shown provide performance for Class A shares of the Fund. Class A shares are not offered in this Prospectus. Institutional Class shares would have substantially similar returns as the
Class A shares because Institutional Class shares represent interests in the same portfolio of securities. Annual returns would differ only to the extent that Institutional Class shares have different expenses.
RS Investment Management Co. LLC served as the sub-adviser to the Fund from September 30, 2002 to November 24, 2008. Since then, advisory
services have been provided by the Investment Manager, and the Fund has new principal investment strategies.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
2Q 2003 27.57%
|
|
4Q 2008 -26.11%
|
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
After-tax returns shown in the table are
calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Years
|
|
|
10 Years
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
5.30%
|
|
|
|
-2.21%
|
|
|
|
6.54%
|
|
Return After Taxes on Distributions
|
|
|
5.30%
|
|
|
|
-2.23%
|
|
|
|
6.35%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
3.44%
|
|
|
|
-1.87%
|
|
|
|
5.71%
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 2000 Growth Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
14.59%
|
|
|
|
3.49%
|
|
|
|
9.80%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. Joseph OConnor is primarily responsible for
the day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since January 2009.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Small Cap Value Institutional Fund
INVESTMENT OBJECTIVE
The Small Cap Value Institutional Fund seeks long-term capital appreciation.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from your
investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
1.00%
|
|
Distribution and Service (12b-1) Fees
|
|
|
None
|
|
Acquired Fund Fees and Expenses
|
|
|
0.06%
|
|
Other Expenses
|
|
|
0.44%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.50%
|
|
Fee Waiver (and/or expense reimbursement)
1
|
|
|
-0.39%
|
|
Total Annual Fund Operating Expenses After Fee Waiver (and/or expense
reimbursement)
|
|
|
1.11%
|
|
1
|
The
Investment Manager has contractually agreed through February 1, 2014 to waive fees and/or reimburse expenses to the extent necessary to limit the ordinary operating expenses (including distribution (12b-1) fees, but exclusive of brokerage
costs, dividends on securities sold short, acquired fund fees and expenses, interest, taxes, litigation, indemnification, and extraordinary expenses) (Operating Expenses) of the Fund to the annual percentage of 1.05% of the average daily
net assets for the Fund. The Fund may have Total annual fund operating expenses after fee waiver greater than the expense cap as a result of any acquired fund fees and expenses or other expenses that are excluded from the calculation.
The Investment Manager is entitled to reimbursement by the Fund of fees waived during any of the previous 36 months beginning on the date of the expense limitation agreement. The agreement will expire when it reaches its termination or when the
investment adviser ceases to serve as such (subject to recoupment rights).
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$
|
113
|
|
|
$
|
436
|
|
|
$
|
781
|
|
|
$
|
1,757
|
|
The above Examples reflect applicable contractual fee waiver/expense reimbursement arrangements for the duration of
the arrangements only.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 62% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in a diversified
portfolio of equity securities, which include common stocks, rights, options, warrants, convertible debt securities, and American Depositary Receipts (ADRs) that, when purchased, have market
capitalizations that are usually within the range of companies in the Russell 2000 Value Index. Although a universal definition of small-capitalization companies does not exist, the Fund
generally defines small-capitalization companies as those whose market capitalization is similar to the market capitalization of companies in the Russell 2000 Value Index, which is an unmanaged index measuring the performance of the small cap value
segment of the U.S. equity universe and which includes companies with lower price-to-book ratios and lower forecasted growth values.
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), typically chooses equity securities that appear
undervalued relative to assets, earnings, growth potential or cash flows and may invest in a limited number of industries or industry sectors, including the technology sector.
The Fund may sell a security if it is no longer considered undervalued or when the company begins to show deteriorating fundamentals.
The Fund also may invest a portion of its assets in derivatives, including options and futures contracts. These instruments may be used to hedge the Funds portfolio, to maintain exposure to
the equity markets or to increase returns.
The Fund may, from time to time, invest a portion of its assets in technology stocks.
The Fund may invest in a variety of investment vehicles, including those that seek to track the composition and performance of a
specific index, such as exchange traded funds (ETFs) and other mutual funds. The Fund may use these index-based investments as a way of managing its cash position to gain exposure to the equity markets or a particular sector of the
equity market, while maintaining liquidity. Certain investment vehicles securities and other securities in which the Fund may invest are restricted securities, which may be illiquid.
The Fund actively trades its investments without regard to the length of time they have been owned by the Fund, which results in higher portfolio turnover.
Under adverse or unstable market conditions, the Fund could invest some or all of its assets in cash, fixed-income securities, government bonds,
money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may be unable to pursue its investment objective during that time, and it could reduce the benefit from any upswing in the
market.
PRINCIPAL RISKS
An
investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks,
which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with
underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market
conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks), and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys
financial condition and changes in the overall market. Common stocks generally represent the riskiest investment in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more
volatile than value stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities
through ADRs, carry additional risks when compared to U.S. securities, including currency fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional
costs.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and other mutual
funds, subjects the Fund to those risks affecting the investment vehicle, including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro
rata share of the underlying vehicles expenses.
Leverage Risk
The Funds use of leverage, through borrowings or
instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for the Fund
to purchase and sell particular investments within a reasonable time at a fair price, or the price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and unable
to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is
actively managed, which means that investment decisions are made based on investment views. There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active management, also called high
turnover, may have a negative impact on performance. Active trading may result in higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund.
Market Risk
The market value of the securities held by the Fund may fluctuate resulting from factors affecting the individual company or other factors such as changing economic,
political or financial market conditions.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies
may implement additional regulations and legislators may pass new laws that affect the investments held by the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to
investments in derivatives). These may impact the investment strategies, performance, costs and operations of the Fund or taxation of shareholders.
Restricted Securities Risk
Restricted securities generally cannot be sold to the public and may involve a high degree of business, financial and liquidity risk, which may result in
substantial losses to the Fund.
Small-Capitalization Securities Risk
The Fund is subject to the risk that small
capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Small-capitalization companies may be more vulnerable than larger, more established organizations to adverse business or economic
developments. Securities of small-capitalization companies may experience much more price volatility, greater spreads between their bid and ask prices, significantly lower trading volumes, and cyclical or static growth prospects.
Small-capitalization companies often have limited product lines, markets or financial resources, and may therefore be more vulnerable to adverse developments than larger capitalization companies.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
Value Stocks Risk
Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market or
that the price goes down.
PERFORMANCE INFORMATION
The following chart and table provide some indication of the risks of investing in the Fund by showing changes in the Funds performance from year to year and by showing how the Funds
average annual returns for the one year and since inception periods have compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund
will perform in the future. Updated performance information is available on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
2Q 2009 31.34%
|
|
3Q 2011 -20.91%
|
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2012)
After-tax returns shown in the table are
calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
Since Inception
7/14/2008
|
|
Institutional Fund
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
18.97%
|
|
|
|
17.24%
|
|
Return After Taxes on Distributions
|
|
|
16.00%
|
|
|
|
14.75%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
12.86%
|
|
|
|
13.73%
|
|
Index
|
|
|
|
|
|
|
|
|
Russell 2000 Value Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
18.05%
|
|
|
|
6.90%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. James Schier is primarily responsible for the
day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since July 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Large Cap Concentrated Growth Institutional Fund
INVESTMENT OBJECTIVE
The Large Cap Concentrated Growth Institutional Fund seeks long-term growth of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from
your investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
0.75%
|
|
Distribution and Service (12b-1) Fees
|
|
|
None
|
|
Other Expenses
|
|
|
0.65%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.40%
|
|
Fee Waiver (and/or expense reimbursement)
1
|
|
|
-0.30%
|
|
Total Annual Fund Operating Expenses After Fee Waiver (and/or expense
reimbursement)
|
|
|
1.10%
|
|
1
|
The Investment Manager has contractually agreed through February 1, 2014 to waive fees and/or reimburse expenses to the extent necessary to limit
the ordinary operating expenses (including distribution (12b-1) fees, but exclusive of brokerage costs, dividends on securities sold short, acquired fund fees and expenses, interest, taxes, litigation, indemnification, and extraordinary
expenses) (Operating Expenses) of the Fund to the annual percentage of 1.10% of the average daily net assets for the Fund. The Fund may have Total annual fund operating expenses after fee waiver greater than the expense cap
as a result of any acquired fund fees and expenses or other expenses that are excluded from the calculation. The Investment Manager is entitled to reimbursement by the Fund of fees waived during any of the previous 36 months beginning on the date of
the expense limitation agreement. The agreement will expire when it reaches its termination or when the investment adviser ceases to serve as such (subject to recoupment rights).
|
EXAMPLE
This Example is intended to help
you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same.
Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$
|
112
|
|
|
$
|
414
|
|
|
$
|
737
|
|
|
$
|
1,654
|
|
The above Examples reflect applicable contractual fee waiver/expense reimbursement arrangements for the duration of
the arrangements only.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 184% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in equity securities,
which include common stocks, rights, options, warrants, convertible debt securities, and American Depositary Receipts (ADRs), of companies that, when purchased, have market capitalizations that are usually within the range of companies
in the Russell 1000 Growth Index. The Fund focuses its investments in a core position of 20-30 common stocks of growth companies which have exhibited consistent above average earnings and/or revenue growth. The
Fund is non-diversified, which means that it may invest a larger portion of its assets in a limited number of companies than a diversified fund. Security Investors, LLC, also known as Guggenheim
Investments (the Investment Manager), selects what it believes to be premier growth companies as the core position for the Fund using a combination of a qualitative top-down approach in reviewing growth trends that is based upon several
fixed income factors, such as bond spreads and interest rates, along with a quantitative fundamental bottom-up approach. Portfolio holdings will be replaced when one or more of a companys fundamentals have changed, and, in the opinion of the
Investment Manager, it is no longer a premier growth company. Although a universal definition of large market capitalization companies does not exist, for purposes of this fund, the Fund generally defines large market capitalization companies as
those whose market capitalization is similar to the market capitalization of companies in the Russell 1000 Growth Index, which is an unmanaged index measuring the performance of the large cap growth segment of the U.S. equity universe and which
includes companies with higher price-to-book ratios and higher forecasted growth values.
The Fund may invest a portion of its assets in
derivatives, including options and futures contracts. These instruments may be used to hedge the Funds portfolio, to maintain exposure to the equity markets or to increase returns. The Fund also may invest in ADRs.
The Fund may actively trade its investments without regard to the length of time they have been owned by the Fund, which results in higher portfolio
turnover.
The Fund may, from time to time, invest a portion of its assets in technology stocks.
The Fund also may invest in a variety of investment vehicles, including those that seek to track the composition and performance of a specific
index, such as exchange traded funds (ETFs) and other mutual funds. The Fund may use these index-based investments as a way of managing its cash position, to gain exposure to the equity markets or a particular sector of the equity
market, while maintaining liquidity.
The Fund typically sells a stock if its growth prospects diminish or if better opportunities become
available.
Under adverse or unstable market conditions, the Fund could invest some or all of its assets in cash, fixed-income
securities, government bonds, money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may be unable to pursue its investment objective during that time, and it could reduce the
benefit from any upswing in the market.
PRINCIPAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The value of an investment in the
Fund will fluctuate and is subject to investment risks, which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including possible illiquidity of the
derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability and the risk that the counterparty may default on its
obligations. If the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks), and the prices of equity securities fluctuate in
value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent the riskiest investment in a company. The Fund may lose a substantial
part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
Foreign
Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry additional risks when compared to U.S. securities, including currency fluctuations, adverse political and economic developments,
unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Growth Stocks Risk
Growth stocks typically invest a high portion of their earnings back into their business and may lack the dividend yield that could cushion their decline in a market downturn. Growth stocks may be more volatile than other stocks because they
are more sensitive to investor perceptions regarding the growth potential of the issuing company.
Investment in Investment Vehicles
Risk
Investing in other investment vehicles, including ETFs and other mutual funds, subjects the Fund to those risks affecting the investment vehicle, including the possibility that the value of the underlying securities held by the
investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro rata share of the underlying vehicles expenses.
Large-Capitalization Securities Risk
The Fund is subject to the risk that
large-capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and may
not be able to attain the high growth rate of smaller companies, especially during extended periods of economic expansion.
Leverage
Risk
The Funds use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the
price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and unable to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is actively managed, which means that investment decisions are made based on investment views.
There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active management, also called high turnover, may have a negative impact on performance. Active trading may result in
higher brokerage costs or mark-up charges, which are ultimately passed on to shareholders of the Fund.
Market Risk
The
market value of the securities held by the Fund may fluctuate resulting from factors affecting the individual company or other factors such as changing economic, political or financial market conditions.
Non-Diversification Risk
The Fund is considered non-diversified because it invests a large portion of its assets in a small number of
issuers. As a result, the Fund is more susceptible to risks associated with those issuers than a more diversified portfolio, and its performance may be more volatile.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional regulations and legislators may pass new laws that affect the investments held by
the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to investments in derivatives). These may impact the investment strategies, performance, costs and operations of the
Fund or taxation of shareholders.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
PERFORMANCE INFORMATION
The following chart and table provide some indication of the risks of investing in the Fund by showing changes in the performance of
the Funds Class A shares from year to year and by showing how the Funds average annual returns for the Funds Class A shares for one, five, and ten years have compared to those of a broad measure of market performance. As
with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available on the Funds website at www.guggenheiminvestments.com or
by calling 1-800-820-0888.
The bar chart does not reflect the impact of the sales charge applicable to Class A shares which, if
reflected, would lower the returns shown. Although the table reflects the sales charge, Institutional Class shares are not subject to the sales charge.
Because Institutional Class shares have not operated for a full calendar year as of the date of this Prospectus, the figures shown provide performance for Class A shares of the Fund.
Class A shares are not offered in this Prospectus. Institutional Class shares would have substantially similar returns as the Class A shares because Institutional Class shares represent interests in the same portfolio of securities. Annual
returns would differ only to the extent that Institutional Class shares have different expenses.
|
|
|
Highest Quarter Return
|
|
Lowest Quarter Return
|
3Q 2009 16.22%
|
|
4Q 2008 -19.83%
|
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2012)
After-tax returns shown in the table are
calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
5 Years
|
|
|
10 Years
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
5.36%
|
|
|
|
-0.67%
|
|
|
|
3.39%
|
|
Return After Taxes on Distributions
|
|
|
5.36%
|
|
|
|
-0.70%
|
|
|
|
3.24%
|
|
Return After Taxes on Distributions and Sale of Fund Shares
|
|
|
3.48%
|
|
|
|
-0.59%
|
|
|
|
2.93%
|
|
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 1000 Growth Index
(reflects no deductions for fees, expenses or
taxes)
|
|
|
15.26%
|
|
|
|
3.12%
|
|
|
|
7.52%
|
|
MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. Mark Bronzo is primarily responsible for the
day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since February 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Mid Cap Growth Institutional Fund
INVESTMENT OBJECTIVE
The Mid Cap Growth Institutional Fund seeks capital appreciation.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
|
|
|
|
|
SHAREHOLDER FEES
(fees paid directly from your
investment)
|
|
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases
|
|
|
None
|
|
Maximum Deferred Sales Charge (Load)
|
|
|
None
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a percentage of the value of your
investment)
|
|
|
|
|
Management Fees
|
|
|
0.75%
|
|
Distribution and Service (12b-1) Fees
|
|
|
None
|
|
Acquired Fund Fees and Expenses
|
|
|
0.01%
|
|
Other Expenses
|
|
|
0.62%
|
|
Total Annual Fund Operating Expenses
|
|
|
1.38%
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although the actual costs may be higher or lower, based on these assumptions your costs would be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$
|
140
|
|
|
$
|
437
|
|
|
$
|
755
|
|
|
$
|
1,657
|
|
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Funds performance. During the most recent fiscal year,
the Funds portfolio turnover rate was 149% of the average value of its portfolio.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by investing, under normal market conditions, at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in a diversified
portfolio of equity securities, which include common stocks, rights, options, warrants, convertible debt securities, and American Depositary Receipts (ADRs), that, when purchased, have market capitalizations that are usually within the
range of companies in the Russell Midcap Growth Index. Although a universal definition of mid-capitalization companies does not exist, for purposes of this fund, the Fund generally defines mid-capitalization companies as those whose market
capitalization is similar to the market capitalization of companies in the Russell Mid Cap Growth Index, which is an unmanaged index measuring the performance of the mid cap growth segment of the U.S. equity universe and which includes companies
with higher price-to-book ratios and higher forecasted growth values.
Security Investors, LLC, also known as Guggenheim Investments (the
Investment Manager), uses a combination of a qualitative top-down approach in reviewing growth trends that is based upon several fixed income factors, such as bond spreads and interest rates, along with a quantitative fundamental
bottom-up approach in selecting growth stocks. The Investment Manager chooses portfolio securities that it believes are attractively valued with the greatest potential for appreciation and may invest in a limited number of industries or industry
sectors. The Investment Manager identifies the securities of companies that it believes are in the early to middle stages of growth and are valued at a reasonable price. Equity securities considered to have appreciation potential may include
securities of smaller and less mature companies which have unique proprietary products or profitable market niches and the potential to grow very rapidly. Certain investment vehicles securities in which the Fund may invest may be illiquid.
The Fund also may invest a portion of its assets in derivatives, including options and futures
contracts. These instruments may be used to hedge the Funds portfolio, to increase returns or to maintain exposure to the equity markets.
The Fund actively trades its investments without regard to the length of time they have been owned by the Fund, which results in higher portfolio turnover.
The Fund may, from time to time, invest a portion of its assets in technology stocks.
The Fund may invest in a variety of investment vehicles, including those that seek to track the composition and performance of a specific index, such as exchange traded funds (ETFs) and
other mutual funds. The Fund may use these index-based investments as a way of managing its cash position, to gain exposure to the equity markets, or a particular sector of the equity market, while maintaining liquidity. Certain investment
vehicles securities and other securities in which the Fund may invest are restricted securities, which may be illiquid.
The Fund
typically sells a stock if its growth prospects diminish or if better opportunities become available.
Under adverse or unstable market
conditions, the Fund could invest some or all of its assets in cash, fixed-income securities, government bonds, money market securities, or repurchase agreements. Although the Fund would do this only in seeking to avoid losses, the Fund may be
unable to pursue its investment objective during that time, and it could reduce the benefit from any upswing in the market.
PRINCIPAL
RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. The principal risks of investing in the Fund are listed below.
Derivatives Risk
Derivatives may pose risks in addition to those associated with investing directly in securities or other
investments, including possible illiquidity of the derivative, limited ability to enter into or unwind a position, imperfect correlations with underlying investments or the Funds other portfolio holdings, leverage risk, lack of availability
and the risk that the counterparty may default on its obligations. If the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited.
Equity Securities Risk
Equity securities include common stocks and other equity securities (and securities convertible into stocks),
and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in the overall market. Common stocks generally represent the riskiest investment
in a company. The Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
Foreign Securities Risk
Foreign securities, including investments in foreign securities through ADRs, carry additional risks when compared to U.S. securities, including currency
fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs.
Growth Stocks Risk
Growth stocks typically invest a high portion of their earnings back into their business and may lack the dividend yield that could cushion their decline in a market
downturn. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing company.
Investment in Investment Vehicles Risk
Investing in other investment vehicles, including ETFs and other mutual funds, subjects the Fund to those risks affecting the investment vehicle,
including the possibility that the value of the underlying securities held by the investment vehicle could decrease. Moreover, the Fund and its shareholders will incur its pro rata share of the underlying vehicles expenses.
Leverage Risk
The Funds use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more
volatile than if it had not been leveraged.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult for
the Fund to purchase and sell particular investments within a reasonable time at a fair price, or the price at which it has been valued by the Investment Manager for purposes of the Funds net asset value, causing the Fund to be less liquid and
unable to realize what the Investment Manager believes should be the price of the investment.
Management Risk
The Fund is
actively managed, which means that investment decisions are made based on investment views. There is no guarantee that the investment views will be successful. Furthermore, active trading that can accompany active
management, also called high turnover, may have a negative impact on performance. Active trading may result in higher brokerage costs or mark-up charges, which are ultimately passed
on to shareholders of the Fund.
Market Risk
The market value of the securities held by the Fund may fluctuate resulting
from factors affecting the individual company or other factors such as changing economic, political or financial market conditions.
Mid-Capitalization Securities Risk
The Fund is subject to the risk that medium-capitalization stocks may underperform other segments
of the equity market or the equity market as a whole. Securities of medium-capitalization companies may experience more price volatility, greater spreads between their bid and ask prices, lower trading volumes, and cyclical or static growth
prospects. Medium-capitalization companies often have limited product lines, markets or financial resources, and may therefore be more vulnerable to adverse developments than larger capitalization companies.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional regulations and legislators may
pass new laws that affect the investments held by the Fund, the strategies used by the Fund or the level of regulation or taxation applying to the Fund (such as regulations related to investments in derivatives). These may impact the investment
strategies, performance, costs and operations of the Fund or taxation of shareholders.
Restricted Securities Risk
Restricted securities generally cannot be sold to the public and may involve a high degree of business, financial and liquidity risk, which may result in substantial losses to the Fund.
Technology Stocks Risk
Stocks of companies involved in the technology sector may be very volatile.
PERFORMANCE INFORMATION
The following chart and table provide some indication of the risks of
investing in the Fund by showing changes in the performance of the Funds Class A shares from year to year and by showing how the Funds average annual returns for the Funds Class A shares for one, five, and ten years have
compared to those of a broad measure of market performance. As with all mutual funds, past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. Updated performance information is available
on the Funds website at www.guggenheiminvestments.com or by calling 1-800-820-0888.
The bar chart does not reflect the impact of
the sales charge applicable to Class A shares which, if reflected, would lower the returns shown. Although the table reflects the sales charge, Institutional Class shares are not subject to the sales charge.
Because Institutional Class shares have not operated for a full calendar year as of the date of this Prospectus, the figures shown provide
performance for Class A shares of the Fund. Class A shares are not offered in this Prospectus. Institutional Class shares would have substantially similar returns as the Class A shares because Institutional Class shares represent
interests in the same portfolio of securities. Annual returns would differ only to the extent that Institutional Class shares have different expenses.
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Highest Quarter Return
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Lowest Quarter Return
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2Q 2003 28.83%
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4Q 2008 -25.69%
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AVERAGE ANNUAL TOTAL RETURNS
(for the periods ended December 31, 2012)
After-tax returns shown in the table are
calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown.
After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
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1 Year
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5 Years
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10 Years
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Class A
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Return Before Taxes
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9.46%
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1.53%
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6.40%
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Return After Taxes on Distributions
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9.46%
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1.50%
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5.51%
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Return After Taxes on Distributions and Sale of Fund Shares
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6.15%
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1.29%
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5.44%
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Index
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Russell Midcap Growth Index
(reflects no deductions for fees, expenses or
taxes)
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15.81%
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3.23%
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10.32%
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MANAGEMENT OF THE FUND
Security Investors, LLC, also known as Guggenheim Investments (the Investment Manager), serves as the investment manager of the Fund. Joseph OConnor is primarily responsible for
the day-to-day management of the Fund and holds the title of Portfolio Manager with the Investment Manager. He has managed the Fund since February 2008.
PURCHASE AND SALE OF FUND SHARES
You may purchase or redeem Fund shares through your broker/
dealer, other financial intermediary that has an agreement with Guggenheim Distributors, LLC, the Funds distributor, or through the transfer agent (by mail or telephone, if you select the telephone option on your account application). You may
purchase, redeem or exchange shares of the Fund on any day the New York Stock Exchange is open for business. The minimum initial investment is $2 million, although the Fund may waive this requirement at its discretion. The Fund has a minimum account
balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Fund reserves the right to redeem shares if an account balance falls below the minimum account balance for any reason. Investors
will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset value on the
day the account is closed.
TAX INFORMATION
Fund distributions are taxable as ordinary income or capital gains (or a combination of both), unless your investment is in an IRA or other tax-advantaged retirement account.
PAYMENTS TO BROKER/DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase Fund shares through a broker/dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Fund over another investment. Ask your sales person or visit your financial
intermediarys website for more information.
Description of Funds Offered in This Prospectus
This prospectus offers shares of the Large
Cap Value Institutional Fund, Mid Cap Value Institutional Fund, and Institutional Class Shares of the Large Cap Core Fund, Small Cap Growth Fund, Guggenheim Small Cap Value Fund, Guggenheim Large Cap Concentrated Growth Fund, and Guggenheim Mid Cap
Growth Fund (which are referred to in this prospectus as the Guggenheim Large Cap Core Institutional Fund Shares, Guggenheim Small Cap Growth Institutional Fund Shares, Guggenheim Small Cap Value Institutional Fund Shares, Guggenheim Large Cap
Concentrated Growth Institutional Fund Shares, and Guggenheim Mid Cap Growth Institutional Fund Shares, respectively, and the funds are referred to as Guggenheim Large Cap Core Institutional Fund, Guggenheim Small Cap Growth Institutional Fund,
Guggenheim Small Cap Value Institutional Fund, Guggenheim Large Cap Concentrated Growth Institutional Fund, and Guggenheim Mid Cap Growth Institutional Fund, respectively) (each a Fund and together, the Funds). Other share
classes of certain Funds are offered in separate prospectuses.
Additional Information Regarding
Investment Objectives and Strategies
The Board of Directors of the Funds may change the Funds investment objectives and strategies at any time without shareholder approval. A Fund will provide written notice to shareholders prior
to, or concurrent with, any such change as required by applicable law. Should a Fund with a name suggesting a specific type of investment or industry change its policy of investing at least 80% of its assets (net assets, plus the amount of any
borrowing for investment purposes) in the type of investment or industry suggested by its name, the Fund will provide shareholders at least 60 days notice prior to making the change. As with any investment, there can be no guarantee the Funds
will achieve their investment objectives.
Each Fund may, from time to time, take temporary defensive positions that are inconsistent
with the Funds principal investment strategies in attempting to respond to adverse market, economic, political, or other conditions. For example, each Fund may invest some or all of its assets in cash, fixed-income securities, government
bonds, money market securities or repurchase agreements. Although a Fund would do this only in seeking to avoid losses, the Fund may be unable to pursue its investment objective at that time, and it could reduce the benefit to the Fund from any
upswing in the market.
The Funds holdings of certain types of investments cannot exceed a maximum percentage of net assets.
Percentage limitations are set forth in this Prospectus and/or the statement of additional information. While the percentage limitations provide a useful level of detail about the Funds investment program, they should not be viewed as an
accurate gauge of the potential risk of the investment. For example, in a given period, a 5% investment in futures contracts could have significantly more of an impact on a Funds share price than its weighting in the portfolio. The net effect
of a particular investment depends on its volatility and the size of its overall return or risk profile in relation to the performance of the Funds other investments. The Portfolio Managers of the Funds have considerable leeway in choosing
investment strategies and selecting securities they believe will help a Fund achieve its objective. Notwithstanding the above, the Funds will be invested in accordance with the Principal Investment Strategies discussed earlier in this Prospectus. In
seeking to meet its investment objective, a Fund may invest in any type of security or instrument whose investment characteristics are consistent with the Funds investment program. Investors should be aware that the investments made by a Fund
and the results achieved by a Fund at any given time are not expected to be the same as those made by other mutual funds for which the Investment Manager acts as investment adviser, including mutual funds with names, investment objectives and
policies similar to the Fund.
The Funds are subject to certain investment policy limitations referred to as fundamental
policies. The full text of each Funds fundamental policies is included in the statement of additional information.
Descriptions of Principal Risks
Additional information on the principal
risks of the Funds is described below. Not all of the risks apply to each Fund. A list of the main risks that apply to a particular Fund can be found under the Principal Risks heading for that Fund. However, the fact that a particular
risk was not indicated as a principal risk for a Fund does not mean that the Fund is prohibited from investing its assets in securities that give rise to that risk. It simply means that the risk is not a principal risk for that Fund. For example,
the risk of investing in smaller companies was not listed as a principal risk for Large Cap Value Institutional Fund. This does not mean that Large Cap Value Institutional Fund is prohibited from investing in smaller companies, only that the risk of
smaller companies is not one of the main risks associated with Large Cap Value Institutional Fund. The Portfolio Manager for a Fund has considerable leeway in choosing investment strategies and selecting securities that he or she believes will help
the Fund achieve its investment objective. Although the Fund will not generally trade for short-term profits, circumstances may warrant a sale without regard to the length of time a security was held. A high turnover rate may increase transaction
costs, which decreases the value of investments and may result in additional taxable gains. In seeking to meet its investment objective, a Funds assets may be invested in any type of security or instrument whose investment characteristics are
consistent with the Funds investment program.
In addition, investors should note that, to the extent authorized by law, each Fund
reserves the right to discontinue offering shares at any time, to merge or reorganize itself or a class of shares, or to cease operations and liquidate at any time.
Capitalization Securities Risk
A Funds benchmark index may be composed primarily of, or have significant exposure to, securities in a particular
capitalization range, e.g., large-, mid- or small-cap securities. As a result, the Fund may be subject to the risk that the pre-dominate capitalization range represented in the benchmark index may underperform other segments of the equity market or
the equity market as a whole. Larger, more established companies may be unable to respond quickly to new competitive challenges such as changes in technology and may not be able to attain the high growth rate of smaller companies, especially during
extended periods of economic expansion. In addition, in comparison to securities of companies with larger capitalizations, securities of small and medium-capitalization companies may experience more price volatility, greater spreads between their
bid and ask prices, significantly lower trading volumes, and cyclical or static growth prospects. Small and medium-capitalization companies often have limited product lines, markets or financial resources, and may therefore be more vulnerable to
adverse developments than larger capitalization companies. These securities may or may not pay dividends.
Credit Risk
It is possible that some issuers of fixed-income securities will not make payments on debt
securities held by a Fund, or there could be defaults on repurchase agreements held by a Fund. Also, an issuer may suffer adverse changes in its financial condition that could lower the credit quality of a security, leading to greater volatility in
the price of the security and in shares of a Fund. A change in the quality rating of a bond can affect the bonds liquidity and make it more difficult for a Fund to sell.
Currency Risk
A Funds indirect and direct exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in value
relative to the U.S. Dollar, which would cause a decline in the U.S. value of the holdings of the Fund. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in
interest rates and the imposition of currency controls or other political, economic and tax developments in the U.S. or abroad. While a Fund may engage in currency hedging transactions, it generally does not intend to do so.
Depositary Receipt Risk
A Fund may hold the securities of non-U.S. companies in the form of ADRs and GDRs.
ADRs are negotiable certificates issued by a U.S. financial institution that represent a specified number of shares in a foreign stock and trade on a U.S. national securities exchange, such as the New York Stock Exchange. A Fund will primarily
invest in sponsored ADRs, which are issued with the support of the issuer of the foreign stock underlying the ADRs and carry all of the rights of common shares, including voting rights. GDRs are similar to ADRs, but may be issued in bearer form and
are typically offered for sale globally and held by a foreign branch of an international bank. The underlying securities of the ADRs and GDRs in a Funds portfolio are usually denominated or quoted in currencies other than the U.S. Dollar. As a
result, changes in foreign currency exchange rates may affect the value of a Funds portfolio. Generally, when the U.S. Dollar rises in value against a foreign currency, a security denominated in that currency loses value because the
currency is worth fewer U.S. Dollars. In addition, because the underlying securities of ADRs and GDRs trade on foreign exchanges at times when the U.S. markets are not open for trading, the value of the securities underlying the ADRs and GDRs may
change materially at times when the U.S. markets are not open for trading, regardless of whether there is an active U.S. market for shares of a Fund. A Funds investment exposure to the underlying foreign securities may involve risks not
typically associated with investing in U.S. companies. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices in some foreign markets can be extremely volatile due to increased risks of adverse
issuer, political, regulatory, market, or economic developments. Many foreign countries lack accounting and disclosure standards comparable to those that apply to U.S. companies, and it may be more difficult to obtain reliable information regarding
a foreign issuers financial condition and operations. In addition, transaction costs and costs associated with custody services are generally higher for foreign securities than they are for U.S. securities.
Derivatives Risk
Derivatives include forwards, futures,
options, options on futures, swaps and other instruments discussed in a Funds principal investment strategies, which may be used to create economic leverage in the Fund, to enhance total return, to seeks to hedge against fluctuations in
securities prices, interest rates, currency rates, etc., to change the effective duration of a Funds portfolio, to manage certain investment risks, and/or as a substitute for the purchase or sale of securities or currencies. These investments
may pose substantial risks in addition to those associated with investing directly in securities or other investments. These risks may include illiquidity of the derivative, imperfect correlation with underlying investments or the Funds other
portfolio holdings, lack of availability, counterparty risks, leverage and valuation risks and legal restrictions. There is the risk that investments in derivatives may fail to serve their intended purposes and may reduce returns or increase
volatility. There is also the risk that a Fund could lose more than the amount the Fund invested in the derivatives. These practices also entail transactional expenses and may cause a Fund to realize higher amounts of short-term capital gains than
if a Fund had not engaged in such transactions. Use of derivatives may also cause a Fund to be subject to additional regulations, which may generate additional fund expenses.
Swaps
Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from one day to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or swapped between the parties are calculated
with respect to a notional amounts, i.e., the return on or increase in value of a particular dollar amount invested in a basket of securities representing a particular index. A Fund may enter into swap agreements, including,
but not limited to total return swaps, index swaps, interest rate swaps and credit default swaps. A Fund may utilize swap agreements in an attempt to gain exposure to certain securities without purchasing those securities, which is speculative, or
to hedge a position.
Options and Futures
The buyer of an option acquires the right to buy (a call option)
or sell (a put option) a certain quantity of a security (the underlying security) or instrument at a predetermined price in the future. The seller or writer of the option is obligated to sell (a call option) or buy (a put option) the underlying
security. A Fund may also purchase or sell call and put options on a covered basis. A call option is covered if a Fund owns the security underlying the call or has an absolute right to acquire the security without additional
cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount are segregated by the Funds custodian). As a seller of a covered call option, a Fund faces the risk that it will forego the
opportunity to profit from increases in the market value of the security covering the call option during an options life. Futures (a type of potentially high-risk derivative) are often used to manage or hedge risk because they enable the
investor to buy or sell an asset in the future at an agreed-upon price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the
term of the option. Options and futures may be bought or sold for any number of reasons, including: to manage exposure to changes in interest rates and bond prices; as an efficient means of adjusting overall exposure to certain markets; in an effort
to enhance income; to protect the value of portfolio securities; and to adjust portfolio duration. Options and futures may not always be successful investments and their prices can be highly volatile.
Hybrid Securities
Hybrid instruments combine the characteristics of securities, futures and options. Typically, a
hybrid instrument combines a traditional stock, bond or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied to the price of some security,
commodity, currency or securities index, or another interest rate or some other economic factor. Hybrid instruments can be used as an efficient means of pursuing a variety of investment goals, including currency hedging and increased total return.
The risks of such investments would reflect the risks of investing in futures, options and securities, including volatility and illiquidity. Such securities may bear interest or pay dividends at below market (or even relatively nominal) rates. Under
certain conditions, the redemption value of such an investment could be zero.
Emerging Markets
Risk
Certain Funds may invest in securities in emerging markets. Investing in securities in emerging countries may entail greater risks than investing in securities in developed countries. These risks include: (1) less social,
political and economic stability; (2) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (3) certain
national policies which may restrict the Funds investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (4) foreign taxation; and (5) the absence of developed
structures governing private or foreign investment or allowing for judicial redress for injury to private property.
Equity Securities Risk
Equity securities include common
stocks and other equity securities (and securities convertible into stocks), and the prices of equity securities fluctuate in value more than other investments. They reflect changes in the issuing companys financial condition and changes in
the overall market. Common stocks generally represent the riskiest investment in a company. A Fund may lose a substantial part, or even all, of its investment in a companys stock. Growth stocks may be more volatile than value stocks.
A Funds investment in securities offered through initial public offerings (IPOs) may have a magnified performance impact, either
positive or negative, on any Fund and particularly those with a small asset base. There is no guarantee that as a Funds assets grow, they will continue to experience substantially similar performance by investing in IPOs. A Funds
investments in IPOs may make it subject to more erratic price movements than the overall equity market.
Foreign Securities Risk
Investing in foreign investments, including investing in foreign securities
through American Depository Receipts (ADRs) and Global Depositary Receipts (GDRs), involves certain special risks, including but not limited to: (i) unfavorable changes in currency exchange rates; (ii) adverse
political and economic developments; (iii) unreliable or untimely information; (iv) limited legal recourse; (v) limited markets; (vi) higher operational expenses; and (vii) illiquidity. These risks may even be higher in
underdeveloped markets. A Fund considers a security to be a foreign security if the issuer is organized under the laws of a foreign country or is a foreign government, or a sub-division or agency of such government, or the security is traded in
markets outside the United States.
Foreign investments are normally issued and traded in foreign currencies. As a result, their values
may be affected by changes in the exchange rates between particular foreign currencies and the U.S. dollar. Foreign investments may be subject to the risks of seizure by a foreign government, imposition of restrictions on the exchange or transport
of foreign currency, and tax increases. There may also be less information publicly available about a foreign company than about most U.S. companies, and foreign companies are usually not subject to accounting, auditing and financial reporting
standards and practices comparable to those in the United States. The legal remedies for investors in foreign investments may be more limited than those available in the United States. Certain foreign investments may be less liquid (harder to buy
and sell) and more volatile than domestic investments, which means a Fund may at times be unable to sell its foreign investments at desirable prices. For the same reason, a Fund may at times find it difficult to value its foreign investments.
Brokerage commissions and other fees are generally higher for foreign investments than for domestic investments. The procedures and rules for settling foreign transactions may also involve delays in payment, delivery or recovery of money or
investments. Foreign withholding taxes may reduce the amount of income available to distribute to shareholders of the Funds.
Growth Stocks Risk
Investments in growth stocks may lack the dividend yield that can cushion stock prices in market downturns. Growth companies often are expected to increase their earnings at a certain rate. If expectations are
not met, investors can punish the stocks, even if earnings do increase.
Index Risk
The
performance of an underlying fund or other investment that seeks to track a benchmark index may not correspond to the benchmark index for any period of time. Such an investment may not duplicate the exact composition of its index. In addition,
unlike a fund or other investment, the returns of an index are not reduced by expenses, and therefore, the ability of a fund to match the performance of the index is adversely affected by the costs of buying and selling investments as well as other
expenses.
Interest Rate Risk
Investments in fixed-income securities are subject to the
possibility that interest rates could rise sharply, causing the value of a Funds securities and share price to decline. Longer term bonds and zero coupon bonds are generally more sensitive to interest rate changes than shorter-term bonds.
Generally, the longer the average maturity of the bonds in a Fund, the more a Funds share price will fluctuate in response to interest rate changes.
Investment in Investment Vehicles Risk
Investments in investment companies or other investment vehicles may include index-based unit investment trusts such
as Standard & Poors Depositary Receipts (SPDRs) and similar securities of other investment companies, including mutual funds and exchange traded funds (ETFs) or other investment vehicles. Such index-based
investments sometimes hold substantially all of their assets in securities representing a specific index. In the case of SPDRs, the index represented is the S&P 500 Index, but a Fund may invest in other index-based investments designed to
track other indexes or market sectors. To the extent a Fund invests in other investment companies or vehicles, the Fund and its shareholders will incur its pro rata share of the underlying investment companies or vehicles expenses, such
as investment advisory and other management expenses, and shareholders will be required to pay the operating expenses of two or more investment vehicles. In addition, a Fund will be subject to the effects of business and regulatory developments that
affect an underlying investment company or vehicle or the investment company industry generally. A Fund may use index-based investments as a way of managing its cash position, to maintain liquidity while gaining exposure to the equity markets, or a
particular sector of the equity market, or to seek to avoid losses in declining market conditions.
Leverage Risk
The use of derivatives and
borrowings may create leveraging risk. For example, because of the low margin deposits required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in an
immediate and substantial impact on the net asset value of a Fund. Leveraging may cause a Fund to be more volatile than if it had not been leveraged. To mitigate leveraging risk and otherwise comply with regulatory requirements, a Fund segregates or
earmarks liquid assets to meet its obligations under, or otherwise covers, the transactions that may give rise to this risk. Applicable law limits a Fund from borrowing in an amount no more than 33
1
/
3
% of
its assets.
Liquidity and Valuation Risk
In certain circumstances, it may be difficult
for a Fund to purchase and sell particular investments within a reasonable time at a fair price. To the extent that there is not an established liquid market for instruments in which the Fund may invest, trading in such instruments may be relatively
inactive. In addition, during periods of reduced market liquidity or in the absence of readily available market quotations for particular investments in a Funds portfolio, the ability of the Fund to assign an accurate daily value to these
investments may be difficult and the Investment Manager may be required to fair value the investments.
Management Risk
Each Fund is subject to management risk because it is an actively managed investment
portfolio, which means that investment decisions are made based on investment views. The Investment Manager and each individual portfolio manager will apply investment techniques and risk analysis in making decisions for a Fund, but there can be no
guarantee that these decisions will produce the desired results. Additionally, legislative, regulatory or tax developments may affect the investment techniques available to the Investment Manager and each individual portfolio manager in connection
with managing a Fund and may also adversely affect the ability of a Fund to achieve its investment objectives. Furthermore, active trading that can accompany active management will increase the costs a Fund incurs because of higher brokerage charges
or mark-up charges, which are passed on to shareholders of the Fund and, as a result, may lower the Funds performance.
Market Risk
Most securities fluctuate in price, and equity prices tend to fluctuate more dramatically over the shorter term than do the prices of other asset classes. These movements may result from factors affecting individual
companies or from broader influences like changes in interest rates, market conditions, investor confidence or changes in economic, political or financial market conditions. Volatility of financial markets can expose a Fund to greater market risk,
possibly resulting in greater liquidity risk. Market conditions also may lead to increased regulation of a Fund and the instruments in which the Fund may invest, which may, in turn, affect the Funds ability to pursue its investment objective
and the Funds performance.
Non-Diversification Risk
A non-diversified Fund may hold
larger positions in a smaller number of securities than a diversified Fund. As a result, a change in the market value of a single security may have a greater impact on a Funds net asset value and total return. A non-diversified Fund is
expected to be more volatile than a diversified Fund.
Overweighting Risk
Overweighting
investments in certain sectors or industries of the stock market increases the risk that a Fund will suffer a loss because of general declines in the prices of stocks in those sectors or industries.
Preferred Securities Risk
Preferred stock represents an equity interest in a company that generally
entitles the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the company. Preferred stocks may pay fixed or adjustable rates of
return. Preferred stock is subject to issuer-specific and market risks applicable generally to equity securities. In addition, a companys preferred stock generally pays dividends only after the company makes required payments to holders of its
bonds and other debt. For this reason, the value of preferred stock will usually react more strongly than bonds and other debt to actual or perceived changes in the companys financial condition or prospects.
Regulatory and Legal Risk
U.S. and other regulators and governmental agencies may implement additional
regulations and legislators may pass new laws that affect the investments held by the Funds, the strategies used by the Funds or the level of regulation or taxation applying to the Funds (such as regulations related to investments in derivatives).
These may impact the investment strategies, performance, costs and operations of the Funds, as well as the way investments in, and shareholders of, the Funds are taxed.
Restricted Securities Risk
Restricted securities cannot be sold to the public without registration under the Securities Act of 1933 (1933
Act). Unless registered for sale, restricted securities can be sold only in privately negotiated transactions or pursuant to an exemption from registration. Restricted securities may be considered illiquid and, therefore, are subject to a
Funds limitation on illiquid securities.
Restricted securities may involve a high degree of business and financial risk, which may result in
substantial losses. The securities may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized from these sales could be less than those originally paid by a
Fund. A Fund may invest in restricted securities, including securities initially offered and sold without registration pursuant to Rule 144A (Rule 144A Securities) and securities of U.S. and non-U.S. issuers initially offered and sold
outside the United States without registration with the U.S. Securities and Exchange Commission pursuant to Regulation S (Regulation S Securities) under the 1933 Act. Rule 144A Securities and Regulation S Securities generally may be
traded freely among certain qualified institutional investors, such as the Fund, and non-U.S. persons, but resale to a broader base of investors in the United States may be permitted only in significantly more limited circumstances.
Investing in Rule 144A Securities and other restricted and non-registered securities (such as privately placed securities purchased through
transactions complying with the requirements in Regulation D or S) could have the effect of increasing the amount of a Funds assets invested in illiquid securities to the extent that qualified institutional buyers become uninterested, for a
time, in purchasing these securities.
Short Sales Risk
A short sale entails selling a
borrowed security with the expectation that the price of the security will decline so that a Fund may purchase the security at a lower price when the Fund must return the security that it borrowed. While the potential losses associated with
investing in stocks are typically limited to the original cost of the securities, the potential for losses associated with short positions is much greater than the original value of the securities sold short. A Fund may not always be able to close
out a short position at a particular time or at an acceptable price. A lender may request that borrowed securities be returned to it on short notice, and a Fund may have to buy the borrowed securities at an unfavorable price, resulting in a loss.
Short sales also subject a Fund to risks related to the lender (such as bankruptcy risks) or the general risk that the lender does not comply with its obligations. The use of short sales may cause a Fund to have higher expenses than those of equity
mutual funds that do not engage in short sales, including the cost of paying the lender an amount equal to any dividends on the borrowed securities. Also, short sales may be subject to legal restrictions, which may limit the ability of a Fund to
implement its strategies.
Technology Stocks Risk
Companies in the rapidly changing fields of
technology often face unusually high price volatility, both in terms of gains and losses. The potential for wide variation in performance is based on the special risks common to these stocks. For example, products or services that at first appear
promising may not prove commercially successful or may become obsolete quickly. Earnings disappointments can result in sharp price declines. The level of risk will be increased to the extent that a Fund has significant exposure to smaller or
unseasoned companies (those with less than a three-year operating history), which may not have established products or more experienced management.
Value Stocks Risk
Investments in value stocks are subject to the risk that their intrinsic values may never be realized by the market or that their
prices may go down. While the Funds investments in value stocks may limit downside risk over time, a Fund may, as a trade-off, produce more modest gains than riskier stock funds.
Portfolio Holdings
A description of the Funds policies and procedures with respect to the disclosure of the Funds underlying portfolio securities is available in the Funds Statement of Additional
Information and on their website at www.guggenheiminvestments.com. In addition, investors should note that the Funds publish a complete list of their month-end portfolio holdings on their website generally within one to two business days after the
end of each following calendar month. Such information will remain online for four months, or as otherwise required by law.
Investment Manager
Security Investors, LLC, also known as
Guggenheim Investments (the Investment Manager), 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850, is the Funds investment manager. On September 30, 2012, the aggregate assets under the investment management
of the Investment Manager were approximately $22.0 billion. The Investment Manager makes investment decisions for the assets of the Funds and continuously reviews, supervises and administers each Funds investment program.
MANAGEMENT FEES
The following chart shows the aggregate investment management fees to be paid by each Fund. For Funds for which the Investment Manager has retained a sub-adviser, the Investment Manager, and not the
Funds, is responsible for payment of sub-advisory fees.
In addition to any contractual waivers and expense reimbursements, the
Investment Manager may waive some or all of its management fee to limit the total operating expenses of a Fund to a specified level. The Investment Manager also may reimburse expenses of a Fund from time to time to help it maintain competitive
expense ratios. These arrangements may be voluntary, in which case they may be terminated at any time.
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Contractual Management Fees (expressed as a percentage of average net assets)
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Large Cap Value Institutional Fund
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0.65%
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Large Cap Core Institutional Fund
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0.75%
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Mid Cap Value Institutional Fund
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0.75%
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Small Cap Growth Institutional Fund
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0.85%
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Small Cap Value Institutional Fund
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1.00%
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Large Cap Concentrated Growth Institutional Fund
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0.75%
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Mid Cap Growth Institutional Fund
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0.75%
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Additionally, as noted in the Fund Summary section for certain Funds, the Investment Manager has
contractually agreed through February 1, 2014 to waive fees and/or reimburse Fund expenses to the extent necessary to limit the ordinary operating expenses (including distribution (12b-1) fees, but exclusive of brokerage costs, dividends on
securities sold short, acquired fund fees and expenses, interest, taxes, litigation, indemnification, and extraordinary expenses) of a Fund to an indicated annual percentage of average daily net assets for each class of shares. A Fund with a
contractual fee waiver may have Total annual fund operating expenses after fee waiver greater than the expense cap as a result of any acquired fund fees and expenses or other expenses that are excluded from the calculation. The
Investment Manager is entitled to reimbursement by a Fund of fees waived or expenses reimbursed during any of the previous 36 months beginning on the date of the expense limitation agreement. The agreement will expire when it reaches its termination
or when the investment adviser ceases to serve as such or it may be terminated by a Funds Board of Directors (subject to recoupment rights).
A discussion regarding the basis for the Board of Directors approving the investment advisory contract on behalf of each of the Funds is available in the Funds annual report for fiscal period
ending September 30, 2011.
PORTFOLIO MANAGERS
The Portfolio Managers of the Investment Manager oversee the day-to-day operations of the following Funds:
Large Cap Value Institutional Fund and Large Cap Core Institutional Fund
Mark A. Mitchell,
Portfolio Manager of the Investment Manager, manages Large Cap Value Institutional Fund and Large Cap Core Institutional
Fund. Prior to joining the Investment Manager, Mr. Mitchell was employed by GE Investments and its successor company, GE Asset Management, from 1994 to 2002 in the following positions: Senior Financial Analyst, Taxable Fixed Income from 1994 to
1995; Sector Portfolio Manager and Research Analyst from 1996 to 1998; Vice President, Assistant Portfolio Manager from 1998 to 1999; Vice President, Sector Portfolio Manager and Research Analyst from 1999 to 2001; and most recently as Vice
President, Portfolio Manager, US Equities. Prior to 1994, Mr. Mitchell served in various positions with GE Capital. Mr. Mitchell holds a Bachelor of Science degree with an emphasis in Finance from the University of Nebraska and is a
graduate of the GE Financial Management Program. He is a Chartered Financial Analyst charterholder.
Large Cap Core Institutional
Fund and Large Cap Concentrated Growth Institutional Fund
Mark P. Bronzo
, Portfolio Manager of the Investment Manager,
has been the co-manager of Large Cap Core Fund and the manager of Large Cap Concentrated Growth Fund since February 2008. Prior to joining the Investment Manager in 2008, he was a Managing Director and member of the Board of Managers of Nationwide
Separate Accounts LLC, the successor advisor to Groupama Asset Management N.A. (GAMNA) and Chairman, President and Chief Executive Officer of the Gartmore Mutual Funds II, Inc. From 1995 to 2003, he served as Senior Vice President,
Managing Director and Board member of GAMNA. Mr. Bronzo earned a Bachelor of Arts degree in Economics from Boston College and an MBA in Finance from New York University. He is a Chartered Financial Analyst charterholder.
Mid Cap Value Institutional Fund and Small Cap Value Institutional
Fund
James P. Schier
, Senior Portfolio Manager of the Investment Manager, has co-managed Mid Cap Value Institutional Fund
since July 2008 and the Small Cap Value Institutional Fund since July 2008. While employed by the Investment Manager, he also served as a research analyst. Prior to joining the Investment Manager in 1995, he was a portfolio manager for Mitchell
Capital Management from 1993 to 1995. From 1988 to 1993, he served as Vice President and Portfolio Manager for Fourth Financial. Prior to 1988, Mr. Schier served in various positions in the investment field for Stifel Financial,
Josepthal & Company and Mercantile Trust Company. Mr. Schier earned a Bachelor of Business degree from the University of Notre Dame and an MBA from Washington University. He is a Chartered Financial Analyst charterholder.
Small Cap Growth Institutional Fund and Mid Cap Growth Institutional Fund
Joseph C. OConnor
, Portfolio Manager of the Investment Manager, has been the manager of Mid Cap Growth Fund since February 2008 and Small Cap Growth Fund since January 2009. Prior to
joining the Investment Manager in 2008, he was a Managing Director of Nationwide Separate Accounts LLC, the successor advisor to Groupama Asset Management N.A. (GAMNA). From 2000 to 2003, he served as Senior Vice President, Managing
Director and Board member of GAMNA. Mr. OConnor earned a Bachelor of Science degree in Finance from St. Johns University.
The Funds Statement of Additional Information provides additional information about the portfolio managers compensation, other accounts managed by the portfolio managers and the
portfolio managers ownership of Fund shares.
Sub-Advisers
Although the Funds are not currently
sub-advised, the Investment Manager and the Funds have received from the U.S. Securities and Exchange Commission an exemptive order for a multi-manager structure that allows the Investment Manager to hire, replace or terminate unaffiliated
sub-advisers without the approval of shareholders. The order also allows the Investment Manager to revise a sub-advisory agreement with an unaffiliated sub-adviser with the approval of the Funds Board of Directors, but without shareholder
approval. If a new unaffiliated sub-adviser is hired, shareholders will receive information about the new sub-adviser within 90 days of the change. The order allows the Funds to operate more efficiently and with greater flexibility. The Investment
Manager would provide the following oversight and evaluation services to a Fund that uses a sub-adviser:
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performing initial due diligence on prospective sub-advisers for the Funds;
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monitoring the performance of the sub-advisers;
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communicating performance expectations to the sub-advisers; and
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ultimately recommending to the Board of Directors whether a sub-advisers contract should be renewed, modified or terminated.
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The Investment Manager does not expect to recommend frequent changes of sub-advisers. Although the Investment Manager
will monitor the performance of the sub-advisers, there is no certainty that any sub-adviser or Fund will obtain favorable results at any given time.
Buying, Selling and Exchanging Fund Shares
Shares are offered directly through Rydex
Fund Services, LLC (the Transfer Agent) and also through authorized securities brokers and other financial intermediaries.
Eligible
investors for shares offered in this prospectus include the following:
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Investors who invest a minimum amount of $2,000,000;
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Employee benefit plan programs that have at least $25 million in plan assets;
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Broker-dealer managed account or wrap programs that charge an asset-based fee, have program assets of at least $50 million, and invest in the
Funds via omnibus accounts;
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Registered investment adviser mutual fund wrap programs that charge an asset-based fee, have program assets of at least $50 million, and invest
in the Funds via omnibus accounts;
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Internal Revenue Code Section 529 college savings plan accounts;
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Funds of Funds advised by the Investment Manager or its affiliates;
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Funds of Funds advised by unaffiliated investment advisers; and
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Institutions that invest the minimum initial investment amount in the Funds.
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If you are deemed to be an eligible investor by virtue of an initial investment in the
Funds in an amount of $2,000,000 or more, your account may be subject to a minimum account balance requirement of $1,000,000. The Funds reserve the right to waive the minimum initial investment amount of $2 million or to grant other investors
eligibility to invest in the shares of the Funds at their discretion.
The shares of the Funds offered in this prospectus has a minimum
account balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Funds reserve the right to redeem shares if an account balance falls below the minimum account balance for any reason.
Investors will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the investor. Fund shares will be redeemed at net asset
value (NAV) on the day the account is closed.
The investor eligibility requirements, the minimum initial investment and
account balance requirements for purchases of shares of the Funds offered in this prospectus may be amended from time to time as reflected in the Funds then-current prospectus and Statement of Additional Information.
OPENING YOUR ACCOUNT
You will need to open a Guggenheim Investments shareholder account to make share transactions buy, sell or exchange shares of the Funds. You can obtain an account application or request more
information about opening an account by calling Guggenheim Investments Client Services at 800.820.0888 or 301.296.5100. You may also visit the Customer Service Center tab of www.guggenheiminvestments.com.
The type of application you will need depends on the type of account you want to open. For example, if you are opening a retirement account, such as
an IRA, you will need to complete a different application than you would if you were opening a taxable account. When you call Guggenheim Investments to request an account application, be sure to let the Client Services representative know what type
of account you want to open to ensure that you receive the correct application.
If you open your account through a broker or other
financial intermediary, your financial intermediary will ordinarily assist you in completing the necessary application to open your account with Guggenheim Investments.
TIPS TO SUCCESSFULLY COMPLETE YOUR ACCOUNT APPLICATION
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1.
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You must provide each account holders social security number or tax ID number and date of birth on the application to avoid a delay in processing.
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2.
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Attach a copy of the trust document when establishing a trust account.
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3.
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When establishing an account for your corporation, partnership or self directed retirement plan, please indicate the correct account type to ensure proper tax
reporting, and provide a copy of one of the following documents: registered articles of incorporation, government-issued business license, partnership papers, plan documents or other official documentation that verifies the entity and lists the
authorized individuals. Failure to provide this documentation may result in a delay in processing your application.
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4.
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You must provide a street address (Guggenheim Investments does not accept P.O. Box only addresses). If any joint owner has a different address than the account
registration, please indicate what it is on the application.
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5.
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Be sure to sign the application.
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6.
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If you open an account directly with Guggenheim Investments you will receive a confirmation statement by mail confirming your initial purchase. Review this
confirmation carefully to ensure that all of the information is correct. Notify us promptly of any errors.
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TRANSACTION INFORMATION
This section provides important information about the procedures that you must follow when you buy, sell or exchange shares of the Funds. You may submit transaction orders to buy, sell or exchange
Fund shares on any day that the New York Stock Exchange (the NYSE) is open for business (Business Day). The Funds NAV is calculated as of the close of trading on each day the NYSE is open (usually 4:00 p.m. Eastern
Time). On any day that the NYSE closes early or as otherwise permitted by the U.S. Securities and Exchange Commission (the SEC) the Fund reserves the right to advance the time that NAV is calculated and, correspondingly,
the time by which purchase and redemption orders must be received. On any day that the Fund calculates NAV earlier than normal, Guggenheim Investments reserves the right to advance the time on that day by which shareholder transaction orders must be
received by the Transfer Agent. The NYSE holiday schedule is included in the Statement of Additional Information and Guggenheim Investments will post advance notice of early closings at www.guggenheiminvestments.com.
TRANSACTION CUT-OFF TIMES
All shareholder transaction orders are processed at the NAV next determined after your transaction order is received with all of the necessary information, sometimes referred to as good
order, by the Funds Transfer Agent, Guggenheim Distributors, LLC (the Distributor), or authorized dealer, subject to any applicable sales charge. The following transaction cut-off times have been established in order to allow
the Transfer Agent appropriate time to report the current days trading activity to the Investment Manager. Any application that is sent to the Transfer Agent does not constitute a purchase order until the Transfer Agent processes the
application and receives correct payment by check, wire transfer or ACH.
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Method
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Cut-Off Time
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By Mail
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Market Close
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By Phone
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Market Close
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By Internet
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Market Close
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By Financial Intermediary
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Market Close*
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*
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Each financial intermediary may have its own rules about share transactions, and may have earlier cut-off times for processing your transaction order.
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TRANSACTIONS THROUGH YOUR FINANCIAL INTERMEDIARY
If you opened your account through a financial intermediary, you will ordinarily submit your transaction orders through that financial intermediary.
Your financial intermediary is responsible for ensuring that your transaction order is in good order, and promptly transmitting your order to the Funds. Transaction orders received in good order by your financial intermediary, which requires that
the financial intermediary receives your order before the financial intermediarys cut off time, will be processed at the Funds next determined NAV. Financial intermediaries may charge fees for the services they provide to you in
connection with processing your transaction order or maintaining your account with them. Each financial intermediary may also have its own rules about minimum initial investment amounts, minimum account balances, share transactions and limits on the
number of share transactions you are permitted to make in a given time period. Authorized financial intermediaries of the Funds may also designate further intermediaries to accept purchase and redemption orders on behalf of the Funds. For more
information about your financial intermediarys rules and procedures, you should contact your financial intermediary directly.
Buying Fund Shares
The
Funds offer their shares continuously and investors may submit purchase orders to buy shares on any Business Day. However, Guggenheim Investments reserves the right to reject or refuse, in whole or in part, any purchase order for Fund shares within
3 business days of Guggenheim Investments receiving the purchase order. Purchase orders are subject to the Funds transaction cut-off times and will be processed at the NAV next determined after your purchase order is received in good order.
The minimum investment for each class of each Fund is listed in the Fund Summary.
Shares acquired on or after
January 1, 2012 are generally considered covered shares. The Funds must report cost basis information to you and the Internal Revenue Service (IRS) when covered shares are redeemed. The Funds will use a default average cost method
for reporting your cost basis for covered shares, unless you instruct us otherwise in writing, to use another method. If you wish to choose another default cost basis method for your account you may select among: FIFO
(first-in-first-out), LIFO (last-in-first-out) and HIFO (highest-cost-in-first-out). For redemptions of shares acquired before January 1, 2012 (non-covered shares), the Funds are not required to report
cost basis information to you or the IRS.
Accounts opened through a financial intermediary may be subject to different cost basis
policies. For more information about your financial intermediarys rules and procedures, you should contact your financial intermediary directly.
Fund shareholders should consult with their tax advisors to determine the best IRS-accepted cost basis method for their tax situation and to obtain more information about how the new cost basis.
For additional discussion of the average cost method, see Redemption Procedures.
PURCHASE PROCEDURES
The Funds offer you the option to submit purchase orders through your financial intermediary or send purchase orders by mail, fax or internet and send purchase proceeds by check, wire transfer or
ACH to each Fund for accounts opened directly. The Funds do not accept cash or cash equivalents (such as travelers checks and money orders), starter checks, or checks drawn on a line of credit (including credit card convenience checks). The
Funds typically do not accept third-party checks. Fund management reserves the right to refuse other payment instruments if, in the sole discretion of Fund management, it is deemed to be in the best interest of the Funds. Any payment instrument not
accepted generally will be returned to you within twenty-four (24) hours of Fund managements determination to not accept such instrument, but in no event later than 3 Business Days after such determination.
Retirement contributions will be considered as current year contributions unless otherwise instructed in writing at the time of the contribution.
You may buy shares and send your purchase proceeds by any of the following methods:
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Initial Purchase
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Subsequent
Purchases
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Complete the account application that corresponds to the type of account you are
opening.
Make sure
to designate the Fund(s) you want to purchase.
Make sure your investment meets the account minimum.
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Complete the Guggenheim Investments
investment slip included with your quarterly statement or send written purchase instructions that include:
your name
your shareholder account number
the Fund(s) you want to
purchase.
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Make your check payable to
Guggenheim
Investments.
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Your check must be drawn on a U.S. bank and payable in
U.S. dollars.
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BY MAIL
IRA and other retirement accounts require additional paperwork.
Call Guggenheim Investments Client Services to request a Retirement Account
Investor application kit.
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Include the
name of the Fund(s) you want to purchase on your check.
If you do not specify the Fund(s) you want to purchase, your investment generally will be credited to the U.S. Government Money Market Fund, which is offered in a separate
prospectus.
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Mail your application and check to:
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Mail your written purchase instructions
and check to:
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Mailing Addresses:
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Standard Delivery
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Overnight Delivery
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Guggenheim Investments
Attn: Ops. Dept.
P.O. Box 758567
Topeka, KS 66675-8567
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Guggenheim Investments
Attn: Ops. Dept.
200 SW 6th Avenue
Topeka, KS 66603-3704
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Initial Purchase
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Subsequent
Purchases
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BY WIRE
Guggenheim Investments
Client Services phone
number:
800.820.0888
or
301.296.5100
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Complete and submit the account application that corresponds to the type of account you
are opening.
Contact Client Services at 800-820-0888 to obtain your
new account number.
Use the Wire Instructions below to send your
wire.
Make sure to
designate the Fund(s) you want to purchase.
Make sure your investment meets the account minimum.
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Be sure to designate in your wire instructions the Fund(s) you want to
purchase.
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To obtain same-day
credit (to get that Business Days NAV) for your purchase order,
you should call Guggenheim Investments Client Services and provide the following information prior to the transaction cut-off time for the Fund(s) you are
purchasing:
Account Number
Fund Name
Amount of Wire
Fed Wire Reference Number (upon request)
You will receive a confirmation number to verify that your purchase order has
been accepted.
If you do not notify Guggenheim Investments
Client Services of the incoming wire, your purchase order may not be processed until the Business Day following the receipt of the wire.
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Wire
Instructions:
U.S. Bank
Cincinnati, OH
Routing Number:
0420-00013
For Account of: Guggenheim Investments
Account Number: 48038-9030
[Your Name]
[Your shareholder account number]
[Your fund designation]
If you do not specify the Fund(s) you want to purchase, your investment generally will be credited to the U.S. Government Money Market Fund, which is offered in a separate
prospectus.
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BY ACH (FAX)
Guggenheim Investments
Fax number:
301.296.5103
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Subsequent purchases
made via ACH must be a minimum of $20.
A maximum of $50,000 is allowed to be purchased via ACH per day. To make a subsequent purchase send written purchase instructions that include:
your name
your shareholder account
number
the
Fund(s) you want to purchase
ACH bank information (if not on record).
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BY ACH
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Purchase payments may be sent via ACH only if you have existing ACH instructions on file.
If you currently do not have ACH instructions on file, download the Bank
Information and Alternate Payee Form from the www.guggenheiminvestments.com site, and follow the instructions for adding bank instructions.
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CANCELLED PURCHASE ORDERS
Guggenheim Investments will ordinarily cancel your purchase order under the following circumstances:
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if your bank does not honor your check for any reason
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if the Transfer Agent does not receive your wire transfer
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if the Transfer Agent does not receive your ACH transfer
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if your bank does not honor your ACH transfer
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If your purchase order is cancelled for any of these reasons, you will not be entitled to benefit from any increase in NAV that the Funds may have experienced from the time of your order to the time
of its cancellation. In addition, if the Funds NAV decreases in value from the time of your order to the time of its cancellation, the Funds will hold you liable for any losses that it incurs as a result of your cancelled order.
Selling Fund Shares
Each Fund redeems its shares continuously
and investors may sell their shares back to the Funds on any Business Day. You may redeem all or any portion of your Fund shares at the Funds next determined NAV calculated after your redemption order is received in good order by the Transfer
Agent or your financial intermediary.
Each Fund may suspend your right to redeem your shares during times when trading on the NYSE is
suspended or restricted, or otherwise as permitted by the SEC. Each Fund reserves the right to pay part of your redemption proceeds in liquid securities with a market value equal to the redemption price (additional information regarding redemptions
in kind is available in the Funds Statement of Additional Information). If a Fund redeems your shares in kind, you may bear transaction costs and will bear market risks until such time as such securities are converted to cash.
REDEMPTION PROCEDURES
You will ordinarily submit your transaction order through your financial intermediary or other securities dealers through which you opened your shareholder account or through Guggenheim Investments
if you opened your account directly with the Funds. The Funds also offer you the option to send redemption orders to Guggenheim Investments by:
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MAIL
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Standard Delivery
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Overnight
Delivery
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Guggenheim Investments
Attn: Ops. Dept.
P.O. Box 758567
Topeka, KS 66675-8567
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Guggenheim Investments
Attn: Ops. Dept.
200 SW 6th Avenue
Topeka, KS 66603-3704
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FAX
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301.296.5103
If you send your redemption order by fax, you must call Guggenheim Investments Client Services at 800.820.0888 or 301.296.5100 to verify that your
fax was received and when it will be processed.
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TELEPHONE
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800.820.0888 or 301.296.5100 (not available for retirement
accounts)
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BY ACH
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Redemption proceeds may
be sent via ACH only if you have existing ACH instructions on file.
If you currently do not have ACH instructions on file, download the
Bank Information and Alternate Payee Form from the www.guggenheiminvestments.com site, and follow the instructions for adding bank instructions.
A maximum of $50,000 is allowed to be redeemed via ACH per day.
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Whether you transmit your redemption order by mail, fax or telephone, you must include the following information in
your redemption order:
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your shareholder account number
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dollar amount or number of shares you would like to sell
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whether you want your sale proceeds sent to you by check, wire or ACH (a new alternate payee or new wire instructions may require a signature
guarantee)
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signature of account owner(s) (not required for telephone redemptions)
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You may only place a redemption order if you are the registered owner of the account or the registered
owner has given Guggenheim Investments written authorization to allow you to make redemptions from the account. You will receive a confirmation number for your redemption. Please retain it for your records.
If shareholders choose not to use the default cost basis method of average cost, such shareholders must choose a default cost basis method among
FIFO, LIFO or HIFO with respect to their account. Shareholders who choose not to use the default cost basis method (i.e., the average cost basis method) may instead specifically identify the shares to be sold at the time of redemption or exchange.
Shareholders using the specific identification method are expected to provide lot selection information along with their redemption or exchange request. For situations where shareholders are unable to or do not provide instructions (i.e., systematic
withdrawals and other non-shareholders generated activity) the account level default will be used. Shareholders who wish to use the specific identification method for identifying lots of shares sold, however, are not permitted to use the average
cost basis method.
Unless requested otherwise at the time of the transaction, the Funds will redeem or exchange shares in the following
order: undated non-covered shares, non-covered shares, followed by covered shares using the method in effect for the account.
DISTRIBUTIONS FROM QUALIFIED RETIREMENT ACCOUNTS
Distributions from your tax-qualified plan or individual retirement account
(IRA) may have adverse tax consequences to you. You should consult your tax adviser before redeeming shares and making distributions from your tax-qualified plan or IRA account. All requests for distributions of redemption proceeds from
tax-qualified plan and IRA accounts must be in writing. All distributions from tax-qualified plans and IRAs are subject to tax withholding rules.
Distributions from 403(b) accounts may require employer or plan administrator approval.
RECEIVING YOUR REDEMPTION PROCEEDS
Your redemption proceeds normally will be sent within seven days of the Transfer Agent
receiving your request. For redemption orders that settle on federal bank holidays, your redemption proceeds will be sent on the next Business Day following the holiday.
For investments made by check or ACH (not wire purchases), purchases will be
on hold for up to 10 Business Days before a payment of redemption proceeds may be made.
All redemptions will be mailed to your
address of record, sent electronically via ACH, or wired to your bank account of record. You may request overnight mail service for an additional fee. If redemption proceeds are transmitted by ACH or wire and the payee instructions are not valid,
the proceeds may be re-invested into shares of the U.S. Government Money Market Fund, which are offered in a separate prospectus, as of the date of the redemption.
If you request payment of redemption proceeds to a third party or to a location other than your address of record, alternate address on file, or bank account(s) of record, your redemption request
should be
in writing and include a signature guarantee and may not be faxed. Otherwise, your account may be subject up to a 10 Business Day hold before the redemption is processed.
SIGNATURE
GUARANTEES
Signature guarantees help protect you and your account against fraud.
You can obtain a signature guarantee at most banks and financial intermediaries. A notary public cannot provide a signature guarantee. You may not use fax to transmit a signature guarantee to the Funds.
UNCASHED CHECK POLICY
Any dividend, capital gain or partial redemption check that has remained outstanding for a period of 90 days from the issuance date will be canceled and re-issued. If a re-issued check is not cashed
within 90 days, the check will be canceled and the proceeds will be deposited into the shareholders account as of the cancellation date.
For dividend and capital gain checks, the proceeds will be reinvested into the appropriate share class of the Fund from which such distribution was paid, or if the Fund position has subsequently
been redeemed in full, the distribution will be reinvested into shares of the U.S. Government Money Market Fund, which are offered in a separate prospectus. The account also will have the distribution payout option adjusted so that all future
distributions are reinvested into the appropriate share class of the Fund from which the distribution would have been paid.
For partial
redemption checks, the proceeds will be deposited into shares of the U.S. Government Money Market Fund.
Any full redemption check (one
that brings your account balance to $0.00) that has remained outstanding for a period of 90 days from the issuance date will be cancelled and re-issued one time.
Any redemption check from a retirement account (IRA, Roth, SEP, for example) that has remained
outstanding for a period of 90 days from the issuance date will be cancelled and re-issued one time.
For checks returned in the mail, a
Fund will attempt to contact the client. If no contact is made, the check will be processed according to the procedures mentioned above.
EXCHANGING FUND SHARES
An exchange is when you sell shares of one Fund and use the proceeds from that sale to purchase shares of
another Fund. Investors may make exchanges on any Business Day of shares of the Funds for corresponding shares of any other Fund within the Family of Funds on the basis of the respective NAVs of the shares involved.
Exchange requests, like any other share transaction, will be processed at the NAV next determined after your exchange order is received in good
order. Exchanges involving other Funds not included in this Prospectus may be subject to different transaction cut-off times. All exchange requests must be received by the Funds Transfer Agent or your financial intermediary prior to the
cut-off time of the Fund you are exchanging out of or the Fund you are exchanging into, whichever is earlier, to be processed at that Business Days NAV.
The exchange privilege may be modified or discontinued at any time.
EXCHANGE PROCEDURES
You will ordinarily submit your transaction order through your financial intermediary or other securities dealers through which you opened your shareholder account or through Guggenheim Investments
directly. The Funds also offer you the option to send exchange requests to Guggenheim Investments by:
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Standard Delivery
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Overnight
Delivery
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MAIL
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Guggenheim Investments
Attn: Ops. Dept.
P.O. Box 758567
Topeka, KS 66675-8567
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Guggenheim Investments
Attn: Ops. Dept.
200 SW 6th Avenue
Topeka, KS 66603-3704
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FAX
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301.296.5103
If you send your exchange request by fax, you must call Guggenheim Investments Client Services at 800.820.0888 to verify that your fax was received
and when it will be processed.
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TELEPHONE
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800.820.0888 or 301.296.5100
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INTERNET
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Follow the directions on the Guggenheim Investments web site - Visit
www.guggenheiminvestments.com
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Whether you transmit your exchange request by mail, fax, telephone or internet, you must include the following
information in your exchange request:
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your shareholder account number
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Fund name(s) you are exchanging out of (selling) and Fund name(s) you are exchanging into (buying)
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dollar amount, number of shares or percentage of Fund position involved in the exchange
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signature of account owner(s) (not required for telephone or internet exchanges)
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You may only place exchange orders if you are the registered owner of the account or the registered owner has given Guggenheim Investments written
authorization to allow you to trade the account. You will receive a confirmation number for your exchange. Please retain it for your records.
DOLLAR-COST AVERAGING
Shareholders may elect to engage in dollar-cost averaging, which allows shareholders to make periodic
exchanges of shares from one Fund to one or more other Funds at regular intervals. With dollar-cost averaging, the cost of the securities is averaged over time and possibly over various market cycles.
Dollar-cost averaging does not guarantee profits, nor does it assure that a shareholder will not have losses. Shareholders should contact Client
Services to enroll in dollar-cost averaging. Shareholders will need to choose whether amounts are to be exchanged on
the basis of a specific dollar amount or a specific number of shares. Guggenheim Investments will exchange shares as requested on the date of your choosing. If the date selected falls on a
weekend or holiday, your request will be processed on the previous Business Day.
The Investment Manager will make exchanges until the
value of the shareholders account is depleted or until the shareholder instructs Guggenheim Investments to terminate dollar-cost averaging. Dollar-cost averaging may be terminated at any time by a shareholder by written request or by phone.
Account Policies
SHAREHOLDER IDENTIFICATION
AND VERIFICATION
Federal regulations may require the Funds to obtain your name, your date of birth (for a natural person), your
residential street address or principal place of business and your Social Security Number, Employer Identification Number or other government issued identification when you open an account. Additional information may be required in certain
circumstances or to open accounts for corporations or other entities. The Funds may use this information to attempt to verify your identity. The Funds may not be able to establish an account if the necessary information is not received. The Funds
may also place limits on account transactions while they are in the process of attempting to verify your identity. Additionally, if the Funds are unable to verify your identity after your account is established, the Funds may be required to redeem
your shares and close your account. If your account is closed for this reason, your shares will be redeemed at the NAV next calculated on the date your account is closed, and you bear the risk of loss.
Guggenheim Investments provides accounts for U.S. citizens and resident aliens. We will not open a new account for any non-resident aliens (natural
person or entity). If you are unsure of your status please consult your tax adviser. Non-resident aliens may hold shares of the Funds through a financial intermediary, subject to that financial intermediarys requirements.
Customer identification and verification is part of the Funds overall obligation to deter money laundering under applicable law. The Funds
have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind
any purchase or exchange order, (ii) freeze any account and/or suspend account services or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken
when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. If your account is closed at the
request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the Funds are required to withhold such proceeds.
CHANGES TO YOUR ACCOUNT
For information on what is required to make changes and/or additions to your account, and to obtain the appropriate forms, please visit the Guggenheim Investments web site at
www.guggenheiminvestments.com or call 800.820.0888 or 301.296.5100. If you own shares that are registered in your financial intermediarys name, and you want to transfer the registration to another financial intermediary or want the shares
registered in your name, then you should contact your financial intermediary for instructions on how to make this change.
TRANSACTIONS OVER TELEPHONE OR INTERNET
Internet and telephone transactions are extremely convenient, but are not risk free. To ensure that your internet and telephone transactions are safe, secure, and as risk-free as possible, the Funds
have instituted certain safeguards and procedures for determining the identity of web site users (including the use of secure passwords and 128-bit encryption technology) and telephone callers and authenticity of instructions. As a result, neither
the Funds nor their Transfer Agent will be responsible for any loss, liability, cost, or expense for following internet, telephone or wire instructions they reasonably believe to be genuine. If you or your intermediaries make exchange requests by
telephone or internet, you will generally bear the risk of any loss. Neither the Funds nor their Transfer Agent are responsible for internet transactions that are not received.
During periods of unusually high market activity or other times, it may be difficult to reach Guggenheim Investments by telephone or access our internet site. Guggenheim Investments and its
affiliates will not be liable for any losses resulting from a cause over which Guggenheim Investments or its affiliates do not have direct control, including but not limited to the failure of electronic or mechanical equipment or communication
lines, telephone or other interconnect problems (
e.g.,
if you are unable to access your online service provider), input errors on the internet, severe weather, facilities emergencies, earthquakes, floods and strikes or other labor problems.
If you are not able to reach Guggenheim Investments by telephone, fax, or internet, consider sending written instructions.
STATEMENTS & CONFIRMATIONS
You will receive statements and trade confirmations of your investment transactions. You may choose to receive your confirmations and/or statements
either by mail or electronically (see eDelivery Services, below).
eDELIVERY SERVICES
eDelivery offers shareholders the convenience of receiving most communications (such as trade confirmations, statements, prospectuses and
shareholder reports, etc.) from the Funds through the web via email notification. For more information on eDelivery, please visit the Guggenheim Investments web site at www.guggenheiminvestments.com. The Funds reserve the right to discontinue your
eDelivery service if two (2) or more e-mail notices are returned as undeliverable.
GUGGENHEIM INVESTMENTS EXPRESS
LINE 1(800) 717-7776
You may access information about the Funds and your Guggenheim Investments account anytime with the Guggenheim Investments Express Line. This automated line gives you telephone access to Funds
information including NAVs, daily factors, fund assets and distributions as well as balance and history information on your Guggenheim Investments account.
SERVICE AND OTHER FEES
Guggenheim Investments may charge the
following administrative fees on accounts held directly through the Funds Transfer Agent for services associated with the following:
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$15 for wire transfers of redemption proceeds under $5,000
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$50 on checks returned for insufficient funds
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$25 to stop payment of a redemption check within 10 Business Days of the settlement date
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$15 for standard overnight packages (fee may be higher for special delivery options)
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$25 for bounced draft checks or ACH transactions
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Client requests for historical account transcripts or the retrieval of a significant amount of documentation may be honored to the extent that
those records are readily available. The Funds reserve the right, upon notice, to charge you a fee to cover the costs of special requests for information that require extensive research or employee resources. Such requests could include a request
for historical account transcripts or the retrieval of a significant number of documents.
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Guggenheim Investments
reserves the right to change any of these fees or add additional service fees at any time.
RETIREMENT ACCOUNT
FEES
An annual maintenance fee of $15 will be charged on the following retirement plans: IRA, SEP, Roth IRA, 403(b), Simple,
Coverdell-ESA and Guggenheim Investments prototype money purchase plan and profit sharing plan accounts. You may pay the annual fee at any time during the calendar year by sending Guggenheim Investments a check. If the annual maintenance fee is not
paid separately prior to December, it will be deducted automatically from your account.
An account closing fee of $15 will be charged
upon liquidation of the following retirement accounts: IRA, SEP, Roth IRA, 403(b), Simple and Coverdell-ESA. This fee will be deducted from the proceeds of your redemption. Guggenheim Investments will waive the annual maintenance fee if a
liquidation fee is being charged.
MARKET TIMING/SHORT-TERM TRADING
The Funds are not suitable for purchase by active investors. The Funds are intended for long-term investment purposes only and discourage
shareholders from engaging in market timing or other types of excessive short-term trading. If you wish to engage in such practices, we request that you do not purchase shares of the Funds. This frequent trading into and out of the Funds
may present risks to the Funds long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds investment strategies,
triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. The Funds do not accommodate
frequent purchases and redemptions. Consequently, the Board of Directors has adopted policies and procedures designed to prevent frequent purchases and redemptions of shares of the Funds.
For purposes of applying the Funds policies, the Investment Manager may consider the trading history of accounts under common ownership or control. In addition, the Funds reserve the right to
reject any purchase request by any investor or group of investors
for any reason without prior notice, including, in particular, if the Investment Manager reasonably believes that the trading activity would be harmful or disruptive to the Funds. Under the
Funds policies, two round trip transfers within a 90-day period may indicate market timing. If such activity is detected, a letter is mailed to the shareholder (or his or her broker/dealer or financial intermediary) with a warning
that another round trip transfer request will result in the shareholder being prevented from making additional transfers for a 90-day period. If a third round trip transfer is attempted within the same 90-day period, the shareholder will be notified
that activity in that account is restricted for a 90-day period. Further, the Funds reserve the right to reject any purchase request for any reason without prior notice if the Investment Manager believes that the trading activity would be disruptive
or harmful to the Funds.
The restriction on round trip transfers is waived for, and no restrictions are applied to,
transfers, purchases and redemptions of the Funds by certain funds of funds within the Funds group of investment companies that are made (1) as part of the routine allocation and rebalancing transactions for such funds of
funds or (2) in order to allow for inflows and outflows of investors in such funds of funds, so long as the market timing policies and procedures for such funds of funds are consistent with the Funds objective of avoiding disruption due
to market timing. This waiver may be extended in the future without notice to permit investments by additional funds of funds in the Funds.
In its sole discretion, a Fund may revise its market timing procedures at any time without prior notice as it deems necessary or appropriate, including changing the criteria for monitoring market
timing and other harmful trading (including without limitation, imposing dollar or percentage limits on transfers). For purposes of applying the criteria used to detect potential market timing and other potentially harmful trading activity, the
Funds may aggregate transfers made in two or more transaction that the Funds believe are connected (for example, two transactions by the same owner, or by spouses, or by different partnerships or corporations that are under common control, etc.).
Transactions accepted by an authorized financial intermediary in violation of the market timing/short-term trading policies and
procedures are not deemed accepted by the Funds and may be cancelled or revoked by the Funds by the close of business on the next Business Day following receipt. Although these policies are designed to deter frequent trading, none of these measures
alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus accounts maintained by brokers,
retirement plan accounts and other financial intermediaries. The Funds access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. As a result, a Fund cannot
assure that its policies will be enforced with regard to shares held through such omnibus arrangements (which may represent a majority of the Funds shares), and as a result frequent trading could adversely affect the Fund and its long-term
shareholders as discussed above.
The Funds reserve the right to close your account in cases of suspected fraudulent or illegal activity
in accordance with applicable law. This action may be taken when, in the sole discretion of Fund management, it is deemed to be in the best interests of the Funds or in cases where the Funds are requested or compelled to do so by applicable law. If
your account is closed at the request of governmental or law enforcement authority or pursuant to applicable law, you may not receive proceeds of the redemption if the Funds are required to withhold such proceeds.
RIGHTS RESERVED BY THE FUNDS
The Funds reserve the right to close your account in cases of suspected fraudulent or illegal activity in accordance with applicable law. This action may be taken when, in the sole discretion of
Fund management, it is deemed to be in the best interest of the Funds or in cases where the Funds are requested or compelled to do so by applicable law. If your account is closed at the request of governmental or law enforcement authority or
pursuant to applicable law, you may not receive proceeds of the redemption if the Fund is required to withhold such proceeds.
Distribution and Shareholder Services
COMPENSATION TO DEALERS
The Investment Manager, at its expense, may provide compensation to financial intermediaries for the sale of Fund shares. Such payments, commonly referred to as revenue sharing, do not
increase Fund expenses and are not reflected in the fees and expenses listed in the Funds expense tables in this Prospectus. These payments may be made, at the discretion of the Investment Manager, to certain dealers who have sold shares of
the Funds. The level of payments made to dealers will generally vary, but may be significant. The Investment Manager determines the extent of such payments in its sole discretion in response to requests from dealer firms, based on factors it deems
relevant, such as the dealers sales, assets, share class utilized and the quality of the dealers relationship with the Investment Manager. The Investment Manager periodically determines the advisability of continuing these
payments. The Investment Manager may also pay expenses associated with meetings that facilitate educating financial advisers and shareholders about the Funds that are conducted by dealers. These
payments may create a conflict of interest by influencing the broker/dealer or other intermediary and your sales person to recommend the Funds over another investment. Shareholders should inquire of an intermediary how the intermediary will be
compensated for investments made in the Funds.
Dividends and Taxes
Each Fund pays its shareholders dividends
from its net investment income, and distributes any net capital gains that it has realized, at least annually. Your dividends and distributions will be reinvested in the Fund, unless you instruct the Investment Manager otherwise. There are no fees
or sales charges on reinvestments. Please see Uncashed Check Policy above for more information concerning uncashed dividend and distribution checks.
TAX ON DISTRIBUTIONS
Fund dividends and distributions are taxable
to shareholders (unless your investment is in a tax-advantaged retirement account) whether you reinvest your dividends or distributions or take them in cash.
In addition to federal tax, dividends and distributions may be subject to state and local taxes. If a Fund declares a dividend or distribution in October, November or December but pays it in
January, you may be taxed on that dividend or distribution as if you received it in the calendar year in which the dividend or distribution is declared.
For taxable years beginning after December 31, 2012, the maximum individual rate applicable to qualified dividend income and long-term capital gains is either 15% or 20%, depending
on whether the individuals income exceeds certain threshold amounts. These rate reductions do not apply to corporate taxpayers or to foreign shareholders. Distributions of earnings from dividends paid by certain qualified foreign
corporations can also qualify for the lower tax rates on qualifying dividends. A shareholder will also have to satisfy a more than 60-day holding period with respect to any distributions of qualifying dividends in order to obtain the benefit
of the lower tax rate. Distributions of earnings from non-qualifying dividends, interest income, other types of ordinary income and short-term capital gains will be taxed at the ordinary income tax rate applicable to the taxpayer.
Tax-deferred retirement accounts generally do not generate a tax liability unless you are taking a distribution or making a withdrawal.
A Fund has short-term capital gains when it sells assets within one year after buying them. Your share of a Funds net short-term
capital gains will be taxed at ordinary income rates. A Fund has long-term capital gains when it sells assets that it has owned for more than one year. Distributions designated by a Fund as long-term capital gain distributions will be
taxable to you at your long-term capital gains rate no matter how long you have held your Fund shares.
The Funds will mail you
information concerning the tax status of the distributions for each calendar year early the following year.
TAXES ON
SALES, REDEMPTIONS OR EXCHANGES
You may be taxed on any sale, redemption or exchange of Fund shares. Generally, gain or loss
realized upon the sale, redemption or exchange of Fund shares will be capital gain or loss if you hold the shares as capital assets and will be taxable as long-term capital gain or loss if you held the shares for more than one year, or as short-term
capital gain or loss if you held the shares for a year or less, at the time of sale, redemption or exchange.
If your tax basis in your
shares exceeds the amount of proceeds you received from a sale, exchange or redemption of shares, you will recognize a taxable loss on the sale of shares of a Fund. Any loss recognized on shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distributions that were received with respect to the shares. Additionally, any loss realized on a sale, redemption or exchange of shares of a Fund may be disallowed under wash
sale rules to the extent the shares disposed of are replaced with other shares of that Fund within a period of 61 days beginning thirty days before and ending thirty days after shares are disposed of, such as pursuant to a dividend
reinvestment in shares of that Fund. If disallowed, the loss will be reflected in an adjustment to the tax basis of the shares acquired.
BACK-UP WITHHOLDING
The Funds may be required to withhold federal income tax at the rate of 28% of all taxable distributions
payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to back-up withholding. Back-up
withholding is not an additional tax; rather, it is a way in which the Internal Revenue Service ensures it will collect taxes otherwise due. Any amounts withheld may be credited against your U.S. federal income tax liability.
If more than 50% of the value of a Funds total assets at the close of its taxable year consists
of securities of foreign corporations, that Fund will be eligible and may elect to treat a proportionate amount of certain foreign taxes paid by it as a distribution to each shareholder which would generally permit each shareholder (1) to
credit this amount (subject to applicable limitations) or (2) to deduct this amount for purposes of computing its U.S. federal income tax liability. The Fund will notify you if it makes this election.
FOREIGN SHAREHOLDERS
Shareholders other than U.S. persons may be subject to different federal income tax treatment, including withholding tax at the rate of 30% on amounts treated as ordinary dividends from a Fund, as
discussed in more detail in the Statement of Additional Information.
You should consult your tax professional about federal, state and
local tax consequences to you of an investment in the Fund. Please see the Statement of Additional Information for additional tax information.
Determination of Net Asset Value
The NAV of each Fund is computed as of the close of regular trading hours on the NYSE (normally 4:00 p.m. Eastern Time) on days when the NYSE is open. The NYSE is open Monday through Friday, except
on observation of the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. If portfolio investments of a Fund are
traded in markets on days when the NYSE is not open, a Funds NAV may fluctuate on days when investors cannot purchase or redeem shares.
Foreign securities are valued based on quotations from the primary market in which they are traded and are converted from the local currency into U.S. dollars using current exchange rates. Foreign
securities may trade in their primary markets on weekends or other days when the Funds do not price their shares. Therefore, the NAV of Funds holding foreign securities may change on days when shareholders will not be able to buy or sell shares of
the Funds.
Portfolio securities and other investments are generally valued at market value when market quotations are readily available.
Securities traded on a domestic securities exchange are valued at the last sale price on that exchange on the day the valuation is made, provided, however, that securities listed on NASDAQ will be valued at the NASDAQ Official Closing Price, which
may not necessarily represent the last sale price. If no sale is reported, the last current bid price is used. Securities traded over-the-counter are valued at the last current bid price. Market quotations for securities prices may be obtained from
automated pricing services. Investments in securities maturing in 60 days or less may be valued at amortized cost.
When a market
quotation for a security is not readily available (which may include closing prices deemed to be unreliable because of the occurrence of a subsequent event), the Investment Manager in good faith, establishes a fair value for the security in
accordance with the Funds valuation procedures. The types of securities for which such fair value pricing may be required include: foreign securities, where a significant event occurs after the close of the foreign market on which such
security principally trades, but before the close of the NYSE, that is likely to have changed the value of such security, or the closing value is otherwise deemed unreliable; securities of an issuer that has entered into a restructuring; securities
whose trading has been halted or suspended; fixed-income securities that have gone into default and for which there is no current market value quotation; and securities that are restricted as to transfer or resale.
Valuing securities at fair value involves greater reliance on judgment than valuing securities that have readily available market quotations. Fair
value determinations can also involve reliance on quantitative models employed by a fair value pricing service. The Investment Manager makes such determinations in good faith in accordance with the Funds valuation procedures, with the goal of
accurately reflecting the current value of each Funds portfolio holdings in the Funds net asset value per share. There can be no assurance that a Fund could obtain the fair value assigned to a security if it were to sell the security at
approximately the time at which the Fund determines its net asset value per share.
For further information about valuation of
investments, see the Statement of Additional Information.
Shareholder Services
EXCHANGE PRIVILEGE
Shareholders of the Funds may exchange their shares for shares of another Fund or for shares of other funds distributed by the
Distributor. An exchange is two transactions: a sale of shares of one fund and the purchase of shares of another fund. In general, the same policies that apply to purchases and sales apply to exchanges, including a Funds right to reject any
order to purchase shares.
Shares of a particular class of the Funds may be exchanged only for shares of the same class of
another available Fund. Shareholders should consult that prospectus prior to making such an exchange. A copy of the prospectus may be requested by contacting the Funds Distributor.
Shareholders of the Funds may exchange their shares for Institutional Class shares or for Class A shares of other funds in the Family of Funds distributed by the Funds Distributor.
Class A shares will be subject to all the Class A share conditions, including applicable sales charges.
Exchanges may be made
only in those states where shares of the Fund into which an exchange is to be made are qualified for sale. No service fee or sales charge is presently imposed on such an exchange. Any applicable contingent deferred sales charge will be imposed upon
redemption and calculated from the date of the initial purchase. For tax purposes, an exchange is a sale of shares which may result in a taxable gain or loss. Special rules may apply to determine the amount of gain or loss on an exchange occurring
within 90 days after purchase of the exchanged shares. Before exchanging your shares for shares of another mutual fund that is distributed by the Distributor and offered through another prospectus, you should request the prospectus of the mutual
fund into which you are contemplating exchanging your shares and review it carefully, as the other mutual fund may be subject to fees, charges or expenses that are different from the shares that you are exchanging. A current prospectus of the Fund
into which an exchange is made will be given to each shareholder exercising this privilege.
The terms of an employee-sponsored
retirement plan may affect a shareholders right to exchange shares as described above. Contact your plan sponsor or administrator to determine if all of the exchange options discussed above are available under your plan.
A shareholder may exchange shares by telephone by calling the Funds at 1-800-820-0888, on weekdays (except holidays) between the hours of 8:30 pm
and 5:30 pm Eastern Time. Exchange requests received by telephone after the close of the NYSE (normally 4:00 p.m. Eastern Time) will be treated as if received on the next Business Day. The exchange privilege, including telephone exchanges, dollar
cost averaging and asset rebalancing may be changed or discontinued at any time by either the Investment Manager or the Funds upon 60 days notice to shareholders.
The exchange privilege is not intended as a vehicle for short-term or excessive trading. Because excessive trading by a shareholder can hurt a Funds performance and its other shareholders, the
Funds reserve the right to limit the amount or number of exchanges or discontinue this privilege if (1) a Fund or the Investment Manager believes that the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or
anticipates simultaneous orders that may significantly affect the Fund. The Funds also may reject future investments from a shareholder if the shareholder engages in, or is suspected of engaging in, short-term or excessive trading.
Exchanges into the Rydex | SGI U.S. Government Money Market Fund.
A Funds shares may be exchanged into the Money Market Class Shares of
the Rydex | SGI U.S. Government Money Market Fund, which is offered in a separate prospectus that you can obtain upon request and that you should consult prior to an exchange. The Money Market Class Shares of the Rydex | SGI U.S. Government Money
Market Fund have no distribution and shareholder service (12b-1) fees, initial (up-front) sales charges, initial investment minimum and minimum balance requirements.
For additional information, see the prospectus for the Rydex | SGI U.S. Government Money Market Fund.
General Information
SHAREHOLDER INQUIRIES
Shareholders who have questions concerning their account or wish to obtain additional information may call the Funds (see back cover
for address and telephone numbers) or contact their securities dealer. Client requests for historical account transcripts or the retrieval of a significant amount of documentation may be honored to the extent that those records are readily
available. The Fund reserves the right, upon notice, to charge you a fee to cover the costs of special requests for information that require extensive research or employee resources.
Financial Highlights
The financial highlights tables are
intended to help you understand each Funds financial performance for the past 5 years (or, if shorter, the period of operations of that Fund, as applicable). Certain information reflects financial results for a single share. The total returns
in the table represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). The information provided below has been audited by Ernst & Young LLP, an
independent registered public accounting firm, whose reports, along with the financial statements and related notes, appear in the Funds 2012 Annual Reports. The 2012 Annual Reports are available upon request and are incorporated by reference
in the SAI.
Financial Highlights
Large Cap Value Institutional Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
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Year Ended
September 30,
2012
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Year Ended
September 30,
2011
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Year Ended
September 30,
2010
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Year Ended
September 30,
2009
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Period Ended
September 30,
2008
a
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Per Share Data
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Net asset value, beginning of period
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$
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8.95
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$
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9.43
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$
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8.89
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$
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9.61
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$
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10.00
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Income (loss) from investment operations:
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Net investment income
b
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.11
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.08
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.06
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.09
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.03
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Net gain (loss) on investments
(realized and unrealized)
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2.33
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(.49
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)
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.56
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(.76
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)
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(.42
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)
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Total from investment operations
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2.44
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(.41
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)
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.62
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(.67
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)
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(.39
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)
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Less distributions from:
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Net investment income
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(.08
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)
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(.07
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)
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(.08
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)
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(.05
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)
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Total distributions
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(.08
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)
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(.07
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)
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(.08
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)
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(.05
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)
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Net asset value, end of period
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$
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11.31
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$
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8.95
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$
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9.43
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$
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8.89
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$
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9.61
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Total Return
c
|
|
|
27.38
|
%
|
|
|
(4.40
|
%)
|
|
|
7.00
|
%
|
|
|
(6.89
|
%)
|
|
|
(3.90
|
%)
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
2,984
|
|
|
$
|
2,564
|
|
|
$
|
2,831
|
|
|
$
|
2,718
|
|
|
$
|
2,878
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
1.03
|
%
|
|
|
0.80
|
%
|
|
|
0.63
|
%
|
|
|
1.22
|
%
|
|
|
1.17
|
%
|
Total expenses
d
|
|
|
4.09
|
%
|
|
|
3.44
|
%
|
|
|
3.18
|
%
|
|
|
2.37
|
%
|
|
|
2.33
|
%
|
Net expenses
e
|
|
|
1.03
|
%
|
|
|
0.96
|
%
|
|
|
0.97
|
%
|
|
|
0.98
|
%
|
|
|
0.98
|
%
|
Portfolio turnover rate
|
|
|
19
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
45
|
%
|
|
|
35
|
%
|
a
|
Since commencement of operations: July 11, 2008. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized.
|
b
|
Net investment income per share was computed using average shares outstanding throughout the period.
|
d
|
Does not include expenses of the underlying funds in which the Fund invests.
|
e
|
Net expense information reflects the expense ratios after expense waivers, and reimbursements, as applicable.
|
Financial Highlights
Large Cap Core Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
Institutional Class
|
|
Period Ended
September 30,
2012
d
|
|
Per Share Data
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
20.84
|
|
Income (loss) from investment operations:
|
|
|
|
|
Net investment income
a
|
|
|
.07
|
|
Net gain on investments (realized and unrealized)
|
|
|
.37
|
|
Total from investment operations
|
|
|
.44
|
|
Net asset value, end of period
|
|
$
|
21.28
|
|
Total Return
b
|
|
|
2.11
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
10
|
|
Ratios to average net assets:
|
|
|
|
|
Net investment income
|
|
|
0.59
|
%
|
Total expenses
c
|
|
|
1.12
|
%
|
Portfolio turnover rate
|
|
|
101
|
%
|
a
|
Net investment income (loss) per share was computed using average shares outstanding throughout the period.
|
b
|
Total return does not reflect the impact of any applicable sales charges and has not been annualized.
|
c
|
Does not include expenses of the underlying funds in which the Fund invests.
|
d
|
Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized. The portfolio turnover rate stated is for the entire fiscal year of the Fund, not since commencement of operations of the Class.
|
Financial Highlights
Mid Cap Value Institutional Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class
|
|
Year Ended
September 30,
2012
|
|
|
Year Ended
September 30,
2011
|
|
|
Year Ended
September 30,
2010
|
|
|
Year Ended
September 30,
2009
|
|
|
Period Ended
September 30,
2008
a
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
9.97
|
|
|
$
|
11.34
|
|
|
$
|
10.49
|
|
|
$
|
10.68
|
|
|
$
|
10.00
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
b
|
|
|
.03
|
|
|
|
.04
|
|
|
|
.08
|
|
|
|
.08
|
|
|
|
.04
|
|
Net gain (loss) on investments
(realized and unrealized)
|
|
|
2.30
|
|
|
|
(.87
|
)
|
|
|
1.13
|
|
|
|
.27
|
|
|
|
.64
|
|
Total from investment operations
|
|
|
2.33
|
|
|
|
(.83
|
)
|
|
|
1.21
|
|
|
|
.35
|
|
|
|
.68
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(.04
|
)
|
|
|
(.06
|
)
|
|
|
(.01
|
)
|
|
|
(.06
|
)
|
|
|
|
|
Net realized gains
|
|
|
(.97
|
)
|
|
|
(.48
|
)
|
|
|
(.35
|
)
|
|
|
(.48
|
)
|
|
|
|
|
Total distributions
|
|
|
(1.01
|
)
|
|
|
(.54
|
)
|
|
|
(.36
|
)
|
|
|
(.54
|
)
|
|
|
|
|
Net asset value, end of period
|
|
$
|
11.29
|
|
|
$
|
9.97
|
|
|
$
|
11.34
|
|
|
$
|
10.49
|
|
|
$
|
10.68
|
|
Total Return
c
|
|
|
24.96
|
%
|
|
|
(8.05
|
%)
|
|
|
11.76
|
%
|
|
|
5.30
|
%
|
|
|
6.80
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
490,741
|
|
|
$
|
472,266
|
|
|
$
|
514,447
|
|
|
$
|
317,455
|
|
|
$
|
17,436
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.30
|
%
|
|
|
0.34
|
%
|
|
|
0.78
|
%
|
|
|
0.82
|
%
|
|
|
1.81
|
%
|
Total expenses
|
|
|
1.01
|
%
|
|
|
0.98
|
%
|
|
|
0.95
|
%
|
|
|
0.98
|
%
|
|
|
1.19
|
%
|
Net expenses
d
|
|
|
0.98
|
%
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
|
|
0.91
|
%
|
|
|
1.10
|
%
|
Portfolio turnover rate
|
|
|
33
|
%
|
|
|
38
|
%
|
|
|
20
|
%
|
|
|
76
|
%
|
|
|
63
|
%
|
a
|
Since commencement of operations: July 11, 2008. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized.
|
b
|
Net investment income per share was computed using average shares outstanding throughout the period.
|
d
|
Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable.
|
Financial Highlights
Small Cap Growth Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
Institutional Class
|
|
Period Ended
September 30,
2012
d
|
|
Per Share Data
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
15.68
|
|
Income (loss) from investment operations:
|
|
|
|
|
Net investment loss
a
|
|
|
(.11
|
)
|
Net loss on investments (realized and unrealized)
|
|
|
(.23
|
)
|
Total from investment operations
|
|
|
(.34
|
)
|
Net asset value, end of period
|
|
$
|
15.34
|
|
Total Return
b
|
|
|
(2.17
|
%)
|
Ratios/Supplemental Data
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
10
|
|
Ratios to average net assets:
|
|
|
|
|
Net investment loss
|
|
|
(1.26
|
%)
|
Total expenses
c
|
|
|
1.79
|
%
|
Portfolio turnover rate
|
|
|
82
|
%
|
a
|
Net investment loss per share was computed using average shares outstanding throughout the period.
|
b
|
Total return does not reflect the impact of any applicable sales charges and has not been annualized.
|
c
|
Does not include expenses of the underlying funds in which the Fund invests.
|
d
|
Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized. The portfolio turnover rate stated is for the entire fiscal year of the Fund, not since commencement of operations of the Class.
|
Financial Highlights
Small Cap Value Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Class
|
|
Year Ended
September 30,
2012
|
|
|
Year Ended
September 30,
2011
|
|
|
Year Ended
September 30,
2010
|
|
|
Year Ended
September 30,
2009
|
|
|
Period Ended
September 30,
2008
a
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
11.76
|
|
|
$
|
14.43
|
|
|
$
|
13.28
|
|
|
$
|
11.49
|
|
|
$
|
10.00
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
b
|
|
|
|
c
|
|
|
(.04
|
)
|
|
|
(.01
|
)
|
|
|
(.01
|
)
|
|
|
|
c
|
Net gain (loss) on investments
(realized and unrealized)
|
|
|
3.77
|
|
|
|
(.64
|
)
|
|
|
1.54
|
|
|
|
2.43
|
|
|
|
1.49
|
|
Total from investment operations
|
|
|
3.77
|
|
|
|
(.68
|
)
|
|
|
1.53
|
|
|
|
2.42
|
|
|
|
1.49
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains
|
|
|
(.32
|
)
|
|
|
(1.99
|
)
|
|
|
(.38
|
)
|
|
|
(.63
|
)
|
|
|
|
|
Total distributions
|
|
|
(.32
|
)
|
|
|
(1.99
|
)
|
|
|
(.38
|
)
|
|
|
(.63
|
)
|
|
|
|
|
Net asset value, end of period
|
|
$
|
15.21
|
|
|
$
|
11.76
|
|
|
$
|
14.43
|
|
|
$
|
13.28
|
|
|
$
|
11.49
|
|
Total Return
d
|
|
|
32.51
|
%
|
|
|
(7.11
|
%)
|
|
|
11.80
|
%
|
|
|
24.40
|
%
|
|
|
14.90
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
18,591
|
|
|
$
|
638
|
|
|
$
|
734
|
|
|
$
|
630
|
|
|
$
|
383
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
0.02
|
%
|
|
|
(0.30
|
%)
|
|
|
(0.08
|
%)
|
|
|
(0.14
|
%)
|
|
|
0.06
|
%
|
Total expenses
|
|
|
1.44
|
%
|
|
|
2.09
|
%
|
|
|
2.21
|
%
|
|
|
5.44
|
%
|
|
|
5.90
|
%
|
Net expenses
e
|
|
|
1.05
|
%
|
|
|
1.05
|
%
|
|
|
1.05
|
%
|
|
|
1.30
|
%
|
|
|
1.30
|
%
|
Portfolio turnover rate
|
|
|
62
|
%
|
|
|
70
|
%
|
|
|
140
|
%
|
|
|
58
|
%
|
|
|
86
|
%
|
a
|
Since commencement of operations: July 11, 2008. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized.
|
b
|
Net investment income (loss) per share was computed using average shares outstanding throughout the period.
|
c
|
Net investment income (loss) is less than $0.01 per share.
|
d
|
Total return does not reflect the impact of any applicable sales charges and has not been annualized.
|
e
|
Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable.
|
Financial Highlights
Large Cap Concentrated Growth Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
Institutional Class
|
|
Period Ended
September 30,
2012
b
|
|
Per Share Data
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
9.19
|
|
Income (loss) from investment operations:
|
|
|
|
|
Net investment income
a
|
|
|
.01
|
|
Net gain on investments (realized and unrealized)
|
|
|
.15
|
|
Total from investment operations
|
|
|
.16
|
|
Net asset value, end of period
|
|
$
|
9.35
|
|
Total Return
c
|
|
|
1.74
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
10
|
|
Ratios to average net assets:
|
|
|
|
|
Net investment income
|
|
|
0.26
|
%
|
Total expenses
d
|
|
|
1.40
|
%
|
Net expenses
e
|
|
|
1.08
|
%
|
Portfolio turnover rate
|
|
|
184
|
%
|
a
|
Net investment income (loss) per share was computed using average shares outstanding throughout the period.
|
b
|
Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have
been annualized. The portfolio turnover rate stated is for the entire fiscal year of the Fund, not since commencement of operations of the Class.
|
c
|
Total return does not reflect the impact of any applicable sales charges and has not been annualized.
|
d
|
Does not include expenses of the underlying funds in which the Fund invests.
|
e
|
Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable.
|
Financial Highlights
Mid Cap Growth Fund
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Funds
performance for the periods presented.
|
|
|
|
|
Institutional Class
|
|
Period Ended
September 30,
2012
d
|
|
Per Share Data
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
36.16
|
|
Income (loss) from investment operations:
|
|
|
|
|
Net investment loss
a
|
|
|
(.08
|
)
|
Net gain on investments (realized and unrealized)
|
|
|
.38
|
|
Total from investment operations
|
|
|
.30
|
|
Net asset value, end of period
|
|
$
|
36.46
|
|
Total Return
b
|
|
|
0.83
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
Net assets, end of period (in thousands)
|
|
$
|
10
|
|
Ratios to average net assets:
|
|
|
|
|
Net investment loss
|
|
|
(0.41
|
%)
|
Total expenses
c
|
|
|
1.37
|
%
|
Portfolio turnover rate
|
|
|
149
|
%
|
a
|
Net investment loss per share was computed using average shares outstanding throughout the year.
|
b
|
Total return does not reflect the impact of any applicable sales charges and has not been annualized.
|
c
|
Does not include expenses of the underlying funds in which the Fund invests.
|
d
|
Since commencement of operations: March 1, 2012. Percentage amounts for the year, except total return and portfolio turnover rate, have been
annualized. The portfolio turnover rate stated is for the entire fiscal year of the Fund, not since commencement of operations for the class.
|
For More Information
By Telephone
Call 1-800-820-0888
By Mail
Write to:
Guggenheim Investments
805 King Farm Boulevard, Suite 600
Rockville, MD
20850
On the Internet
Reports and other information about the Funds can be viewed
online or downloaded from:
SEC:
The EDGAR Database at http://www.sec.gov
Guggenheim Investments:
http://www.guggenheiminvestments.com
Additional information about the Funds (including the Statement of Additional Information) can be
reviewed and copied at the Securities and Exchange Commissions Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling the Commission at 1-202-551-8090. Copies may be
obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section of the Commission, Washington, DC 20549-1520.
ANNUAL/SEMI-ANNUAL REPORT
Additional
information about the Funds investments is available in the Funds annual and semi-annual reports to shareholders. In the Funds annual reports, you will find a discussion of the market conditions and investment strategies that
significantly affected each Funds performance during its last fiscal year.
Statement of Additional Information
January 28, 2013
RELATING TO THE PROSPECTUSES DATED JANUARY 28, 2013
Security Large Cap Value Funds Underlying Series:
Large Cap Value Fund
|
|
|
|
|
|
|
Class A SECIX
|
|
Class B SECBX
|
|
Class C SEGIX
|
|
|
Large Cap Value Institutional Fund
SLCIX
Security Equity Funds Underlying Series:
Large Cap Core Fund
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Class A SECEX
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Class B SEQBX
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Class C SFECX
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Institutional Class GILIX
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Alpha Opportunity Fund
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Class A SAOAX
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Class B SAOBX
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Class C SAOCX
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Institutional Class SAOIX
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Mid Cap Value Fund
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Class A SEVAX
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Class B SVSBX
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Class C SEVSX
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Mid Cap Value Institutional Fund
SVUIX
Small Cap Growth Fund
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Class A SSCAX
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Class B SEPBX
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Class C SESCX
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Institutional Class GIMIX
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Small Cap Value Fund
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Class A SSUAX
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Class C SSVCX
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Institutional Class SSUIX
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Large Cap Concentrated Growth Fund
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Class A SEFAX
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Class B SEFBX
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Class C SSSCX
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Institutional Class GIQIX
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Security Mid Cap Growth Fund (Registrant):
Mid Cap Growth Fund
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Class A SECUX
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Class B SEUBX
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Class C SUFCX
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Institutional Class GIUIX
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805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850
(301) 296-5100
(800) 820-0888
This Statement of Additional Information is not a prospectus. It should be read in conjunction with the prospectuses dated January 28, 2013 as it may be supplemented from time to time. A prospectus
may be obtained by writing Guggenheim Distributors, LLC, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850, or by calling (301) 296-5100 or (800) 820-0888. The Funds financial statements included in the Funds
September 30, 2012 Annual Report are incorporated herein by reference. A copy of the Funds Annual Report is available, without charge, by calling the phone numbers listed above.
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Investment Manager
Security Investors, LLC
805 King Farm
Boulevard,
Suite 600
Rockville,
Maryland 20850
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Underwriter
Guggenheim
Distributors, LLC (formerly known as
Rydex Distributors, LLC)
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
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Custodians
UMB Bank,
N.A.
928 Grand Avenue
Kansas
City,
Missouri 64106
State Street Bank and Trust Company
225 Franklin
Boston,
Massachusetts 02110
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Independent Registered Public Accounting Firm
Ernst & Young LLP
155 North Wacker Drive
Chicago,
Illinois
60606-6301
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47-00373-02-0113x0114
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General Information
Security Large Cap Value Fund,
Security Equity Fund and Security Mid Cap Growth Fund were organized as Kansas corporations on February 2, 1944, November 27, 1961 and April 20, 1965, respectively. The names of Security Large Cap Value Fund (formerly Security
Growth and Income Fund) and Security Mid Cap Growth Fund (formerly Security Ultra Fund) were changed effective October 1, 2002. The Funds are registered with the Securities and Exchange Commission (SEC) as investment companies. Such
registration does not involve supervision by the SEC of the management or policies of the Funds. The Funds are open-end investment companies that, upon the demand of the investor, must redeem their shares and pay the investor the current net asset
value (NAV) thereof. (See How to Redeem Shares)
Each of Large Cap Value Fund (Large Cap Value
Fund) and Large Cap Value Institutional Series (Large Cap Value Institutional Fund) of Security Large Cap Value Fund, Large Cap Core Series (Large Cap Core Fund), Alpha Opportunity Series (Alpha Opportunity
Fund), Mid Cap Value Institutional Series (Mid Cap Value Institutional Fund), Mid Cap Value Series (Mid Cap Value Fund), Small Cap Growth Series (Small Cap Growth Fund), Small Cap Value Series (Small
Cap Value Fund) and Large Cap Concentrated Growth Series (Large Cap Concentrated Growth Fund) of Security Equity Fund, and Security Mid Cap Growth Fund (Mid Cap Growth Fund) (collectively, the Funds) has its
own investment objective and policies. Each Fund (other than the Large Cap Value Fund, Large Cap Value Institutional Fund and Large Cap Concentrated Growth Fund) is diversified within the meaning of the Investment Company Act of 1940, as
amended (1940 Act).
Professional investment advice is provided to each Fund by Security Investors, LLC (the
Investment Manager). While there is no present intention to do so, the investment objective and policies of each Fund, unless otherwise noted, may be changed by the Board of Directors without the approval of shareholders. Each of the
Funds is also required to operate within limitations imposed by its fundamental investment policies, which may not be changed without shareholder approval. These limitations are set forth under Investment Restrictions. An investment in
one of the Funds does not constitute a complete investment program.
I
NVESTMENT
M
ETHODS
AND
R
ISK
F
ACTORS
Each Funds principal investment strategies and the risks associated with the same are described in the Fund Summaries
and Descriptions of Principal Risks sections of the Prospectus. The following discussion provides additional information about those principal investment strategies and related risks, as well as information about investment strategies
(and related risks) that the Fund may utilize, even though they are not considered to be principal investment strategies. Accordingly, an investment strategy (and related risk) that is described below, but which is not described in the
Funds prospectus, should not be considered to be a principal strategy (or related risk) applicable to the Fund.
Some of
the risk factors related to certain securities, instruments and techniques that may be used by one or more of the Funds are described in the Fund Summaries and Descriptions of Principal Risks sections of the applicable
prospectus and in this Statement of Additional Information. The following is a description of certain additional risk factors related to various securities, instruments and techniques. The risks so described only apply to those Funds which may
invest in such securities and instruments or which use such techniques. Also included is a general description of some of the investment instruments, techniques and methods which may be used by one or more of the Funds. The methods described only
apply to those Funds which may use such methods. Although a Fund may employ the techniques, instruments and methods described below, consistent with its investment objective and policies and any applicable law, no Fund will be required to do so.
Shares of Other Investment Vehicles
Each of the Funds may invest in shares of other investment companies or other investment
vehicles, which may include, among others, mutual funds, closed-end funds and exchange-traded funds (ETFs) such as index-based investments such as SPDRs (based on the S&P 500), MidCap SPDRs (based on the S&P MidCap 400 Index),
Select Sector SPDRs (based on sectors or industries of the S&P 500
3
Index) and DIAMONDS (based on the Dow Jones Industrial Average), and private or foreign investment funds. To the extent a Fund invests in other investment companies, it will incur its pro rata
share of the underlying investment companies expenses (including, for example, investment advisory and other management fees). Investment in the shares of other investment companies or investment vehicles thus has the effect of requiring
shareholders to pay the operating expenses (including, for example, investment advisory and other management fees) of two or more mutual funds. In addition, a Fund will be subject to the effects of business and regulatory developments that affect an
underlying investment company or the investment company industry generally. A Funds investment in the securities of other investment companies or investment vehicles will be limited so that it complies with applicable legal requirements.
Repurchase Agreements
Each of the Funds may utilize repurchase agreements on an overnight basis and, in the case of Small Cap
Value Fund and Small Cap Growth Fund, may enter into repurchase agreements with longer maturities. Repurchase agreements are similar to loans in many respects. A repurchase agreement is a contract under which a Fund would acquire a security for a
relatively short period (usually not more than seven days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Funds cost plus interest). Each of the Funds may
enter into repurchase agreements with respect to any portfolio securities that it may acquire consistent with its investment policies and restrictions. The Funds may enter into repurchase agreements to meet anticipated redemptions or pending
investment or reinvestment of Fund assets in portfolio securities. The Board of Directors of each Fund has delegated certain responsibilities in connection with repurchase agreements to the Investment Manager or as applicable, sub-adviser
(Sub-Adviser). Those responsibilities include monitoring and evaluating a Funds use of repurchase agreements, evaluating the creditworthiness of repurchase agreement counterparties and taking steps that are reasonably designed to
ensure that a Funds repurchase agreements are fully collateralized. Repurchase agreements subject the Funds to the risks that (1) they may not be able to liquidate the securities immediately upon the insolvency of the other party, or
(2) that amounts received in closing out a repurchase transaction might be deemed voidable preferences upon the bankruptcy of the other party.
Reverse Repurchase Agreements
Certain Funds may also invest in reverse repurchase agreement transactions which involve the sale of securities held by the Fund, with an agreement that the
Fund will repurchase such securities at an agreed upon price and date. The Fund may employ reverse repurchase agreements when necessary to meet unanticipated net redemptions so as to avoid liquidating other portfolio investments during unfavorable
market conditions. Under a reverse repurchase agreement, a Fund continues to receive any principal and interest payments on the underlying security during the term of the agreement. The Fund typically will segregate assets determined to be liquid
equal (on a daily mark-to-market basis) to its obligations under reverse repurchase agreements. However, reverse repurchase agreements involve the risk that the market value of securities retained by the Fund may decline below the repurchase price
of the securities sold by the Fund which it is obligated to repurchase. Reverse repurchase agreements are considered to be borrowings under the 1940 Act, and therefore are subject to a Funds fundamental policy on borrowing.
When Issued and Forward Commitment Securities
Purchase or sale of securities on a forward commitment basis may be used to hedge
against anticipated changes in interest rates and prices. The price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. When issued
securities and forward commitments may be sold prior to the settlement date, but the Funds will enter into when issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be; however, a
Fund may dispose of a commitment prior to settlement if the Investment Manager or Sub-Adviser, as applicable, deems it appropriate to do so. No income accrues on securities which have been purchased pursuant to a forward commitment or on a when
issued basis prior to delivery of the securities. If a Fund disposes of the right to acquire a when issued security prior to its acquisition or disposes of its right to deliver or receive against a forward commitment, it may incur a gain or loss. At
the time a Fund enters into a transaction on a when issued or forward commitment basis, it will segregate cash or liquid securities equal to the value of the when issued or forward commitment securities and will mark the segregated assets to market
daily. There is a risk that the securities may not be delivered and that the Fund may incur a loss.
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Equity Securities
Equity securities, such as common stock, represent an ownership interest, or
the right to acquire an ownership interest, in an issuer. Common stock generally takes the form of shares in a corporation. The value of a companys stock may fall as a result of factors directly relating to that company, such as decisions made
by its management or lower demand for the companys products or services. A stocks value also may fall because of factors affecting not just the company, but also companies in the same industry or in a number of different industries, such
as increases in production costs. The value of a companys stock also may be affected by changes in financial markets that are relatively unrelated to the company or its industry, such as changes in interest rates or currency exchange rates. In
addition, a companys stock generally pays dividends only after the company invests in its own business and makes required payments to holders of its bonds, other debt and preferred stock. For this reason, the value of a companys stock
will usually react more strongly than its bonds, other debt and preferred stock to actual or perceived changes in the companys financial condition or prospects. Stocks of smaller companies may be more vulnerable to adverse developments than
those of larger companies. Stocks of companies that the portfolio managers believe are fast-growing may trade at a higher multiple of current earnings than other stocks. The value of such stocks may be more sensitive to changes in current or
expected earnings than the values of other stocks.
Convertible Securities
A convertible security is a bond, debenture, note,
preferred stock, or other security that entitles the holder to acquire common stock or other equity securities of the same or a different issuer. A convertible security generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to non-convertible debt or preferred securities, as applicable. Convertible securities rank senior to common
stock in a corporations capital structure and, therefore, generally entail less risk than the corporations common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. Convertible securities are subordinate in rank to any senior debt obligations of the issuer, and, therefore, an issuers convertible securities entail more risk than its debt
obligations. Convertible securities generally offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because of the potential for capital appreciation. In addition, convertible securities are often
lower-rated securities.
Because of the conversion feature, the price of the convertible security will normally fluctuate in
some proportion to changes in the price of the underlying asset, and as such is subject to risks relating to the activities of the issuer and/or general market and economic conditions. The income component of a convertible security may tend to
cushion the security against declines in the price of the underlying asset. However, the income component of convertible securities causes fluctuations based upon changes in interest rates and the credit quality of the issuer.
Preferred Securities
Certain Funds may purchase preferred securities, which represent an equity interest in a company that generally
entitles the holder to receive, in preference to the holders of other stocks such as common stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the company. Some preferred stocks also entitle their holders to receive
additional liquidation proceeds on the same basis as holders of a companys common stock, and thus also represent an ownership interest in that company.
Preferred stocks may pay fixed or adjustable rates of return. Preferred stock is subject to issuer-specific and market risks applicable generally to equity securities. In addition, a companys
preferred stock generally pays dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, the value of the preferred stock will usually react more strongly than bonds and other debt to actual or
perceived changes in the companys financial condition or prospects. Preferred stock of smaller companies may be more vulnerable to adverse developments than preferred stock of larger companies.
American Depositary Receipts (ADRs)
Each of the Funds may purchase ADRs. ADRs are dollar-denominated receipts issued generally by U.S.
banks and which represent the deposit with the bank of a foreign companys securities. ADRs are publicly traded on exchanges or over-the-counter in the United States. Investors
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should consider carefully the substantial risks involved in investing in securities issued by companies of foreign nations, which are in addition to the usual risks inherent in domestic
investments. ADRs, European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) or other securities convertible into securities of issuers based in foreign countries are not necessarily denominated in the same
currency as the securities into which they may be converted. In general, ADRs, in registered form, are denominated in U.S. dollars and are designed for use in the U.S. securities markets, while EDRs (also referenced to as Continental Depositary
Receipts (CDRs)), in bearer form, may be denominated in other currencies and are designed for use in European securities markets. ADRs are receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement. GDRs are global receipts evidencing a similar arrangement. For purposes of the Funds investment policies, ADRs, EDRs and GDRs are deemed to have the same classification
as the underlying securities they represent. Thus, an ADR, EDR or GDR representing ownership of common stock will be treated as common stock.
Depositary receipts are issued through sponsored or unsponsored facilities. A sponsored facility is established jointly by the issuer of the underlying security and a depositary,
whereas a depositary may establish an unsponsored facility without participation by the issuer of the deposited security. Holders of unsponsored depositary receipts generally bear all the cost of such facilities, and the depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights to the holders of such receipts in respect of the deposited securities.
Restricted Securities
Each Fund may invest in restricted securities. Restricted securities cannot be sold to the public without
registration under the Securities Act of 1933 (1933 Act). Unless registered for sale, restricted securities can be sold only in privately negotiated transactions or pursuant to an exemption from registration. Restricted securities may be
considered illiquid and, therefore, are subject to the Funds limitation on illiquid securities.
Restricted securities
may involve a high degree of business and financial risk which may result in substantial losses. The securities may be less liquid than publicly traded securities. Although these securities may be resold in privately negotiated transactions, the
prices realized from these sales could be less than those originally paid for by a Fund. A Fund may invest in restricted securities, including securities initially offered and sold without registration pursuant to Rule 144A (Rule 144A
Securities) and securities of U.S. and non-U.S. issuers initially offered and sold outside the United States without registration with the SEC pursuant to Regulation S (Regulation S Securities) under the 1933 Act. Rule 144A
Securities and Regulation S Securities generally may be traded freely among certain qualified institutional investors, such as a Fund, and non-U.S. persons, but resale to a broader based of investors in the United Stated may be permitted only in
significantly more limited circumstances. A qualified institutional investor is defined by Rule 144A generally as an institution, acting for its own account or for the accounts of other qualified institutional investors, that in the aggregate owns
and invests on a discretionary basis at least $100 million in securities of issuers not affiliated with the institution. A dealer registered under the Securities Exchange Act of 1934 (1934 Act), acting for its own account or the accounts
of other qualified institutional investors, that in the aggregate owns and invests on a discretionary basis at least $10 million in securities of issuers not affiliated with the dealer may also qualify as a qualified institutional investor, as well
as a 1934 Act registered dealer acting in a riskless principal transaction on behalf of a qualified institutional investor.
The Funds Board of Directors is responsible for developing and establishing guidelines and procedures for determining the liquidity
of restricted securities. The Board of Directors has delegated this responsibility to the Investment Manager. In making the determination regarding the liquidity of restricted securities, the Investment Manager or Sub-Adviser, as applicable, will
consider the trading markets for the specific security taking into account the unregistered nature of a restricted security. In addition, the Investment Manager or Sub-Adviser may consider: (1) the frequency of trades and quotes; (2) the
number of dealers and potential purchasers; (3) dealer undertakings to make a market; and (4) the nature of the security and of the market place trades (e.g., the time
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needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). Investing in restricted securities could have the effect of increasing the amount of a
Funds assets invested in illiquid securities to the extent that qualified institutional buyers become uninterested, for a time, in purchasing these securities.
A Fund also may purchase restricted securities that are not eligible for resale pursuant to Rule 144A or Regulation S. The Funds may acquire such securities through private placement transactions,
directly from the issuer or from security holders, generally at higher yields or on terms more favorable to investors than comparable publicly traded securities. However, the restrictions on resale of such securities may make it difficult for a Fund
to dispose of such securities at the time considered most advantageous and/or may involve expenses that would not be incurred in the sale of securities that were freely marketable. Risks associated with restricted securities include the potential
obligation to pay all or part of the registration expenses in order to sell certain restricted securities. A considerable period of time may elapse between the time of the decision to sell a security and the time a Fund may be permitted to sell it
under an effective registration statement. If, during a period, adverse conditions were to develop, a Fund might obtain a less favorable price than prevailing when it decided to sell.
Real Estate Securities
Certain Funds may invest in equity securities of real estate investment trusts (REITs) and other real estate industry companies or companies with
substantial real estate investments, and therefore, such Funds may be subject to certain risks associated with direct ownership of real estate and with the real estate industry in general. These risks include, among others: possible declines in the
value of real estate; possible lack of availability of mortgage funds; extended vacancies of properties; risks related to general and local economic conditions; overbuilding; increases in competition, property taxes and operating expenses; changes
in zoning laws; costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters;
limitations on and variations in rents; and changes in interest rates. Investing in REITs has the effect of requiring shareholders to pay the operating expenses of both the Fund and the REIT.
REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate related loans or interests.
REITs are generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Internal Revenue Code of 1986, as amended (the Code). Finally, certain REITs may be self-liquidating in that a specific term of existence is provided for in the trust
document. Such trusts run the risk of liquidating at an economically inopportune time.
Zero Coupon Securities
Certain Funds may
invest in certain zero coupon securities that are stripped U.S. Treasury notes and bonds. These Funds also may invest in zero coupon and other deep discount securities issued by foreign governments and domestic and foreign corporations,
including certain Brady Bonds and other foreign debt and payment-in-kind securities. Zero coupon securities pay no interest to holders prior to maturity, and payment-in-kind securities pay interest in the form of additional securities. However, a
portion of the original issue discount on zero coupon securities and the interest on payment-in-kind securities will be included in the investing Funds income. Accordingly, for the Fund to qualify for tax treatment as a regulated
investment company and to avoid certain taxes, the Fund may be required to distribute an amount that is greater than the total amount of cash it actually receives. These distributions must be made from the Funds cash assets or, if necessary,
from the proceeds of sales of portfolio securities. The Fund will not be able to purchase additional income-producing securities with cash used to make such distributions, and its current income ultimately may be reduced as a result. Zero coupon and
payment-in-kind securities usually trade at a deep discount from their face or par value and will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities that make
current distributions of interest in cash.
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Risks of Private Investments in Public Companies
The Funds may also make private investments
in public companies whose stocks are quoted on stock exchanges or which trade in the over-the-counter securities market, a type of investment commonly referred to as a PIPE transaction. PIPE transactions may be entered into with smaller
capitalization public companies, which will entail business and financial risks comparable to those of investments in the publicly-issued securities of smaller capitalization companies, which may be less likely to be able to weather business or
cyclical downturns than larger companies and are more likely to be substantially hurt by the loss of a few key personnel. In addition, PIPE transactions will generally result in a Fund acquiring either restricted stock or an instrument convertible
into restricted stock. As with investments in other types of restricted securities, such an investment may be illiquid. A Funds ability to dispose of securities acquired in PIPE transactions may depend on the registration of such securities
for resale. Any number of factors may prevent or delay a proposed registration. Alternatively, it may be possible for securities acquired in a PIPE transaction to be resold in transactions exempt from registration in accordance with Rule 144 under
the 1933 Act, as amended, or otherwise under the federal securities laws. There can be no guarantee that there will be an active or liquid market for the stock of any small capitalization company due to the possible small number of stockholders. As
a result, even if a Fund is able to have securities acquired in a PIPE transaction registered or sell such securities through an exempt transaction, the Fund may not be able to sell all the securities on short notice, and the sale of the securities
could lower the market price of the securities. There is no guarantee that an active trading market for the securities will exist at the time of disposition of the securities, and the lack of such a market could hurt the market value of the
Funds investments. For more detail, please refer to the Restricted Securities section of this SAIs discussion of investment methods and risk factors.
Foreign Investment Risks
Investment in foreign securities involves risks and considerations not present in domestic investments. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. The securities of non-U.S. issuers generally are not registered with the SEC, nor are the issuers thereof usually
subject to the SECs reporting requirements. Accordingly, there may be less publicly available information about foreign securities and issuers than is available with respect to U.S. securities and issuers. Foreign securities markets, while
growing in volume, have for the most part substantially less volume than United States securities markets, and securities of foreign companies are generally less liquid and at times their prices may be more volatile than prices of comparable United
States companies. Foreign stock exchanges, brokers and listed companies generally are subject to less government supervision and regulation than in the United States. The customary settlement time for foreign securities may be longer than the
customary settlement time for United States securities. A Funds income and gains from foreign issuers may be subject to non-U.S. withholding or other taxes, thereby reducing its income and gains. In addition, with respect to some foreign
countries, there is the increased possibility of expropriation or confiscatory taxation, limitations on the removal of funds or other assets of the Fund, political or social instability, or diplomatic developments which could affect the investments
of the Fund in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, rate of savings and capital reinvestment,
resource self-sufficiency and balance of payments positions.
Brady Bonds
Certain Funds may invest in Brady Bonds,
which are debt restructurings that provide for the exchange of cash and loans for newly issued bonds. Brady Bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging
markets for new bonds in connection with debt restructuring under a debt restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady. Investors should recognize that Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history. Brady Bonds may be collateralized or uncollateralized, are issued in various currencies (primarily the U.S. dollar) and are actively traded in the secondary market for Latin American debt.
Some Funds invest only in collateralized Brady Bonds denominated in U.S. dollars. U.S. dollar-denominated, collateralized Brady Bonds,
which may be fixed rate par bonds or floating rate discount bonds, are collateralized in full as to principal by U.S. Treasury zero coupon bonds having the same maturity as the bonds.
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Interest payments on such bonds generally are collateralized by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments
or, in the case of floating rate bonds, initially is equal to at least one years rolling interest payments based on the applicable interest rate at the time and is adjusted at regular intervals thereafter.
Emerging Countries
Certain Funds may invest in securities in emerging markets. Investing in securities in emerging countries may entail
greater risks than investing in securities in developed countries. These risks include: (1) less social, political and economic stability; (2) the small current size of the markets for such securities and the currently low or nonexistent
volume of trading, which result in a lack of liquidity and in greater price volatility; (3) certain national policies which may restrict the Funds investment opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (4) foreign taxation; and (5) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property.
Political and Economic Risks
Investing in securities of non-U.S. companies may entail additional risks due to the potential political and
economic instability of certain countries and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment and on repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, a Fund could lose its entire investment in any such country.
An
investment in a Fund which invests in non-U.S. companies is subject to the political and economic risks associated with investments in emerging markets. Even though opportunities for investment may exist in emerging markets, any change in the
leadership or policies of the governments of those countries or in the leadership or policies of any other government which exercises a significant influence over those countries may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment opportunities which may currently exist.
Investors
should note that upon the accession to power of authoritarian regimes, the governments of a number of emerging market countries previously expropriated large quantities of real and personal property similar to the property which will be represented
by the securities purchased by the Fund. The claims of property owners against those governments were never finally settled. There can be no assurance that any property represented by securities purchased by the Fund will not also be expropriated,
nationalized, or otherwise confiscated. If such confiscation were to occur, the Fund could lose a substantial portion of its investments in such countries. The Funds investments would similarly be adversely affected by exchange control
regulation in any of those countries.
Political Instability
Certain countries in which the Funds may invest may have vocal
factions that advocate radical or revolutionary philosophies or support independence. Any disturbance on the part of such individuals could carry the potential for widespread destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of the Funds investment in those countries.
Foreign Investment Restrictions
Certain countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Funds. As illustrations, certain countries require governmental approval
prior to investments by foreign persons, or limit the amount of investment by foreign persons in a particular company, or limit the investments by foreign persons to only a specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals. Moreover, the national policies of certain countries may restrict investment opportunities in issuers or industries deemed sensitive to national interests. In addition, some
countries require governmental approval for the repatriation of investment income, capital or the proceeds of securities sales by foreign investors. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental
approval for repatriation, as well as by the application to it of other restrictions on investments.
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Non-Uniform Corporate Disclosure Standards and Governmental Regulation
Non-U.S. companies are
subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. companies. In particular, the assets, liabilities and profits appearing on the financial statements of
such a company may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. generally accepted accounting principles. Most of the foreign
securities will not be registered with the SEC or regulators of any foreign country, nor will the issuers thereof be subject to the SECs reporting requirements. Thus, there will be less available information concerning foreign issuers of such
securities held by Funds that invest in foreign securities than is available concerning U.S. issuers. In instances where the financial statements of an issuer are not deemed to reflect accurately the financial situation of the issuer, the applicable
Investment Manager or Sub-Adviser will take appropriate steps to evaluate the proposed investment, which may include on-site inspection of the issuer, interviews with its management and consultations with accountants, bankers and other specialists.
There is substantially less publicly available information about foreign companies than there are reports and ratings published about U.S. companies and the U.S. government. In addition, where public information is available, it may be less reliable
than such information regarding U.S. issuers.
Adverse Market Characteristics
Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S. issuers. In addition, foreign securities exchanges and brokers generally are subject to less governmental supervision and regulation than in the U.S., and foreign securities
exchange transactions usually are subject to fixed commissions, which generally are higher than negotiated commissions on U.S. transactions. In addition, foreign securities exchange transactions may be subject to difficulties associated with the
settlement of such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems
could cause it to miss attractive opportunities. Inability to dispose of a portfolio security due to settlement problems either could result in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability to the purchaser. The Investment Manager or Sub-Adviser, as applicable, will consider such difficulties when determining the allocation of the Funds assets.
Non-U.S. Withholding Taxes
A Funds investment income and gains from foreign issuers may be subject to non-U.S.
withholding and other taxes, thereby reducing the Funds investment income and gains.
Currency Risk
Because certain Funds,
under normal circumstances, may invest substantial portions of their assets in the securities of foreign issuers which are denominated in foreign currencies, the strength or weakness of the U.S. dollar against such foreign currencies will account
for part of the Funds investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Funds holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Funds net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is determined by several factors including the supply and demand for
particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the U.S., and other economic and financial conditions affecting the world
economy.
Although the Funds value assets daily in terms of U.S. dollars, the Funds do not intend to convert holdings of
foreign currencies into U.S. dollars on a daily basis. A Fund will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a
profit based on the difference (spread) between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to sell that currency to the dealer.
10
Futures and Options Transactions
Futures and Options on Futures.
Each Fund may invest in futures and related options (i) to attempt to gain exposure to a
particular market, index or instrument; (ii) to attempt to offset changes in the value of securities held or expected to be acquired or be disposed of; (iii) to attempt to minimize fluctuations in foreign currencies; (iv) for
bona
fide
hedging purposes; or (v) for other risk management purposes. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a
specified price.
An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a
position in a futures contract at a specified exercise price during the term of the option. A Fund will reduce the risk that it will be unable to close out a futures contract by only entering into futures contracts that are traded on a national
futures exchange regulated by the Commodities Futures Trading Commission (CFTC). To the extent a Fund uses futures and/or options on futures, it would do so in accordance with Rule 4.5 under the Commodity Exchange Act (CEA).
As of January 1, 2013, the Investment Manager is subject to registration and regulation as a commodity pool operator under the CEA with respect to its service as investment adviser to certain mutual funds. However, because rulemaking that would
be applicable to registered investment companies that are also commodity pools has not yet been adopted by the CFTC and SEC, the Investment Manager is not yet subject to the CFTC recordkeeping, reporting and disclosure requirements with respect to
those funds. Such requirements may cause the Investment Manager to incur additional expenses. Any final requirements remain uncertain. With respect to the Funds, Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund
have filed with the National Futures Association a notice claiming an exclusion from the definition of commodity pool operator under the CEA and the rules of the CFTC promulgated thereunder, with respect to the Funds operation.
Accordingly, the Funds are not subject to registration or regulation as a commodity pool or commodity pool operator. However, changes to a Funds investment strategies or investments may cause the Fund to lose the benefits of the exclusion and
may trigger additional CFTC regulation. If a Fund becomes subject to CFTC regulation, the Fund may incur additional expenses.
Each Fund may buy and sell index futures contracts with respect to any index traded on a recognized exchange or board of trade. An index
futures contract is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the close of trading of the contract and
the price at which the futures contract is originally struck. No physical delivery of the securities comprising the index is made. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the expiration of the contract. Generally, contracts are closed out prior to the expiration date of the contract.
When a Fund purchases or sells a futures contract, or sells an option thereon, the Fund is required to cover its position in
order to limit the risk associated with the use of leverage and other related risks. To cover its position, the Fund may maintain with its custodian bank (and marked-to-market on a daily basis), a segregated account consisting of cash or liquid
securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise cover its position in a manner consistent with the 1940 Act or the
rules and SEC interpretations thereunder. If a Fund continues to engage in the described securities trading practices and properly segregates assets, the segregated account will function as a practical limit on the amount of leverage which the Fund
may undertake and on the potential increase in the speculative character of the Funds outstanding portfolio securities. Additionally, such segregated accounts will generally assure the availability of adequate funds to meet the obligations of
the Fund arising from such investment activities.
Each Fund may also cover its long position in a futures contract by
purchasing a put option on the same futures contract with a strike price (
i.e.
, an exercise price) as high or higher than the price of the futures contract. In the alternative, if the strike price of the put is less than the price of the
futures contract, a Fund will maintain, in a segregated account, cash or liquid securities equal in value to the difference between the strike price of the
11
put and the price of the futures contract. Each Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract (or, in
the case of an index futures contract, a portfolio with a volatility substantially similar to that of the index on which the futures contract is based), or by taking positions in instruments with prices which are expected to move relatively
consistently with the futures contract. Each Fund may cover its short position in a futures contract by taking a long position in the instruments underlying the futures contract, or by taking positions in instruments with prices which are expected
to move relatively consistently with the futures contract.
Each Fund may cover its sale of a call option on a futures
contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option. In the alternative, if the long position in the underlying futures contract is established at a price greater
than the strike price of the written (sold) call, a Fund will maintain, in a segregated account, cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract. Each Fund may
also cover its sale of a call option by taking positions in instruments with prices which are expected to move relatively consistently with the call option. Each Fund may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put,
a Fund will maintain, in a segregated account, cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. Each Fund may also cover its sale of a put option by taking
positions in instruments with prices which are expected to move relatively consistently with the put option.
There are
significant risks associated with the Funds use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the ability of the Investment Manager or Sub-Adviser, as
applicable, to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates; (2) there may be an imperfect or no correlation between the changes in market value of the securities held by a
Fund and the prices of futures and options on futures; (3) there may not be a liquid secondary market for a futures contract or option; (4) trading restrictions or limitations may be imposed by an exchange; and (5) government
regulations may restrict trading in futures contracts and options on futures. In addition, some strategies reduce a Funds exposure to price fluctuations, while others tend to increase its market exposure.
Options.
Each Fund may purchase and write (sell) put and call options on securities and on stock indices listed on national
securities exchanges or traded in the OTC market as an investment vehicle for the purpose of realizing each Funds investment objective. A put option on a security gives the purchaser of the option the right to sell, and the writer of the
option the obligation to buy, the underlying security at any time during the option period. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security
at any time during the option period. The premium paid to the writer is the consideration for undertaking the obligations under the option contract.
A Fund may purchase and write put and call options on foreign currencies (traded on U.S. and foreign exchanges or OTC markets) to manage its exposure to exchange rates. Call options on foreign currency
written by a Fund will be covered, which means that a Fund will own an equal amount of the underlying foreign currency.
Put and call options on indices are similar to options on securities except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing
level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed
in dollars multiplied by a specified number. Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented by the index generally, rather than the price
movements in individual securities.
12
All options written on indices or securities must be covered. If a Fund writes an option on
a security, an index or a foreign currency, it will establish a segregated account containing cash or liquid securities in an amount at least equal to the market value of the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Each Fund may trade put and call options on securities, securities indices and currencies,
as the Investment Manager or Sub-Adviser, as applicable, determines is appropriate in seeking a Funds investment objective, and except as restricted by a Funds investment limitations. See Investment Restrictions.
The initial purchase (sale) of an option contract is an opening transaction. In order to close out an option position, a Fund
may enter into a closing transaction, which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable to effect
a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise.
Each Fund may purchase put and call options on securities to protect against a decline in the market value of the securities in its
portfolio or to anticipate an increase in the market value of securities that a Fund may seek to purchase in the future. A Fund purchasing put and call options pays a premium; therefore, if price movements in the underlying securities are such that
exercise of the options would not be profitable for a Fund, loss of the premium paid may be offset by an increase in the value of the Funds securities or by a decrease in the cost of acquisition of securities by the Fund.
A Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited
protection against decreases in its market value. When a Fund writes an option, if the underlying securities do not increase or decrease to a price level that would make the exercise of the option profitable to the holder thereof, the option
generally will expire without being exercised and the Fund will realize as profit the premium received for such option. When a call option of which a Fund is the writer is exercised, the Fund will be required to sell the underlying securities to the
option holder at the strike price, and will not participate in any increase in the price of such securities above the strike price. When a put option of which a Fund is the writer is exercised, the Fund will be required to purchase the underlying
securities at a price in excess of the market value of such securities.
Each Fund may purchase and write options on an
exchange or over-the-counter. OTC options differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC
options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by
reference to information from a market maker. It is the SECs position that OTC options are generally illiquid.
The
market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time
remaining until the expiration date.
Risks associated with options transactions include: (1) the success of a hedging
strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates; (2) there may be an imperfect correlation between the movement in prices of options and the
securities underlying them; (3) there may not be a liquid secondary market for options; and (4) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a rise in the market value of the
underlying security.
Swap Agreements
Each Fund may enter into swap agreements, including, but not limited to, total return
swaps, index swaps, interest rate swaps, and credit default swaps. A Fund may utilize swap agreements in an
13
attempt to gain exposure to the securities in a market without actually purchasing those securities, or to hedge a position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one-year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or swapped between the parties are calculated with respect to a notional amount,
i.e.
, the return on or increase in value of a particular dollar amount
invested in a basket of securities representing a particular index. Forms of swap agreements include (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that
interest rates exceed a specified rate, or cap, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or
floor, and (iii) interest rate dollars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
Another form of swap agreement is a credit default swap. A credit default swap enables a Fund to buy or sell protection against a defined
credit event of an issuer or a basket of securities. Generally, the seller of credit protection against an issuer or basket of securities receives a periodic payment to compensate against potential default events. If a default event occurs, the
seller must pay the buyer the full notional value of the reference obligation in exchange for the reference obligation. If no default occurs, the counterparty will pay the stream of payments and have no further obligations to the Fund selling the
credit protection.
In contrast, the buyer of a credit default swap would have the right to deliver a referenced debt
obligation and receive the par (or other agreed-upon) value of such debt obligation from the counterparty in the event of a default or other credit event (such as a credit downgrade) by the reference issuer, such as a U.S. or foreign corporation,
with respect to its debt obligations. In return, the buyer of the credit protection would pay the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the
counterparty would keep the stream of payments and would have no further obligations to the Fund purchasing the credit protection.
Each Fund also may enhance income by selling credit protection or attempt to mitigate credit risk by buying protection. Credit default swaps could result in losses if the creditworthiness of an issuer or
a basket of securities is not accurately evaluated.
Most swap agreements (but generally not credit default swaps) that a Fund
might enter into calculate the obligations of the parties to the agreement on a net basis. Consequently, a Funds obligations (or rights) under a swap agreement would generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each party to the agreement (the net amount). Other swap agreements, such as credit default swaps, may require initial premium (discount) payments as well as
periodic payments (receipts) related to the interest leg of the swap or to the default of a reference obligation.
A
Funds obligations under a swap agreement would be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty would be covered by segregating assets determined to be liquid.
Obligations under swap agreements so covered would not be construed to be senior securities for purposes of a Funds investment restriction concerning senior securities. Because they are two party contracts and because they may have
terms of greater than seven days, swap agreements may be considered to be illiquid for a Funds illiquid investment limitations. A Fund would not enter into any swap agreement unless the Investment Manager or Sub-Adviser, as applicable,
believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty, or in the case
of a credit default swap in which a Fund is selling credit protection, the default of a third party issuer.
Each Fund may
enter into swap agreements to invest in a market without owning or taking physical custody of the underlying securities in circumstances in which direct investment is restricted for legal reasons or is otherwise
14
impracticable. The counterparty to any swap agreement would typically be a bank, investment banking firm or broker-dealer. The counterparty would generally agree to pay a Fund the amount, if any,
by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends that would have been received on those stocks. The Fund would agree to pay to the counterparty a
floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to a Fund on any swap agreement
should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount.
Swap agreements typically are settled on a net basis (but generally not credit default swaps), which means that the two payment streams are netted out, with a Fund receiving or paying, as the case may be,
only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Other swap agreements, such as credit default swaps, may require initial premium (discount) payments as well as
periodic payments (receipts) related to the interest leg of the swap or to the default of a reference obligation. A Fund would earmark and reserve assets necessary to meet any accrued payment obligations when it is the buyer of a credit default
swap. In cases where a Fund is the seller of a credit default swap, if the credit default swap provides for physical settlement, the Fund would be required to earmark and reserve the full notional amount of the credit default swap.
Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap
agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If a swap counterparty defaults, a Funds risk of loss consists of the net amount of payments that such Fund is contractually entitled to
receive, if any. The net amount of the excess, if any, of a Funds obligations over its entitlements with respect to each equity swap would be accrued on a daily basis and an amount of cash or liquid assets, having an aggregate NAV at least
equal to such accrued excess will be maintained in a segregated account by the Funds custodian. Inasmuch as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable
law, the Funds and the Investment Manager or Sub-Adviser, as applicable, believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, would not treat them as being subject to a Funds borrowing
restrictions.
The swap market has grown substantially in recent years with a large number of banks and investment banking
firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments, which are traded in the OTC market. The
Investment Manager or Sub-Adviser, as applicable, under the supervision of the Board of Directors, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulatory developments will ultimately require the clearing
and exchange-trading of many OTC derivative instruments that the CFTC and SEC recently defined as swaps. Mandatory exchange-trading and clearing will occur on a phased-in basis based on the type of market participant and CFTC approval of
contracts for central clearing. The Investment Manager or Sub-Adviser, as applicable, will continue to monitor developments in this area, particularly to the extent regulatory changes affect the Funds ability to enter into swap agreements.
The use of swap agreements, including credit default swaps, is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio securities transactions. If a counterpartys creditworthiness declines, the value of the swap would likely decline. Moreover, there is no guarantee that a Fund could
eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
15
Hybrid Instruments
Certain Funds may invest in hybrid instruments. A hybrid instrument is a
type of potentially high-risk derivative that combines a traditional stock, bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or redemption, or interest rate of a hybrid is tied
(positively or negatively) to the price of some commodity, currency or securities index or another interest rate or some other economic factor (underlying benchmark). The interest rate or (unlike most fixed income securities) the
principal amount payable at maturity of a hybrid security may be increased or decreased, depending on changes in the value of the underlying benchmark. An example of a hybrid could be a bond issued by an oil company that pays a small base level of
interest with additional interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined level. Such a hybrid instrument would be a combination of a bond and a call option on oil.
Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, and increased total
return. Hybrids may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of the underlying benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the underlying
benchmark. These underlying benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed
rate or floating rate of interest. The purchase of hybrids also exposes the Funds to the credit risk of the issuer of the hybrids. These risks may cause significant fluctuations in the NAV of the Funds.
Certain hybrid instruments may provide exposure to the commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodity futures contracts, commodity options, or similar instruments. Commodity-linked hybrid instruments may be either equity or debt securities, and are considered hybrid
instruments because they have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable. The Funds would only invest
in commodity-linked hybrid instruments that qualify, under applicable rules of the CFTC, for an exemption from the provisions of the CEA.
Certain issuers of structured products such as hybrid instruments may be deemed to be investment companies as defined in the 1940 Act. As a result, the Funds investments in these products may be
subject to limits applicable to investments in investment companies and other restrictions contained in the 1940 Act.
Structured Notes. Certain Funds are permitted to invest in structured notes, which are debt obligations that also contain an embedded
derivative component with characteristics that adjust the obligations risk/return profile. Generally, the performance of a structured note will track that of the underlying debt obligation and the derivative embedded within it. A Fund has the
right to receive periodic interest payments from the issuer of the structured notes at an agreed-upon interest rate and a return of the principal at the maturity date.
Structured notes are typically privately negotiated transactions between two or more parties. A Fund bears the risk that the issuer of the structured note would default or become bankrupt which may result
in the loss of principal investment and periodic interest payments expected to be received for the duration of its investment in the structured notes.
In the case of structured notes on credit default swaps a Fund would be subject to the credit risk of the corporate credit instruments underlying the credit default swaps. If one of the underlying
corporate credit instruments defaults, the Fund may receive the security or credit instrument that has defaulted, or alternatively a cash settlement may occur, and the Funds principal investment in the structured note would be reduced by the
corresponding face value of the defaulted security.
16
The market for structured notes may be, or suddenly can become, illiquid. The other parties
to the transaction may be the only investors with sufficient understanding of the derivative to be interested in bidding for it. Changes in liquidity may result in significant, rapid, and unpredictable changes in the prices for structured notes. In
certain cases, a market price for a credit-linked security may not be available. The collateral for a structured note may be one or more credit default swaps, which are subject to additional risks. See Swap Agreements for a description
of additional risks associated with credit default swaps.
Spread
Transactions
A Fund may purchase covered spread options
from securities dealers. Such covered spread options are not presently exchange-listed or exchange-traded. The purchase of a spread option gives the Series the right to put, or sell, a security that it owns at a fixed dollar spread or fixed yield
spread in relationship to another security that the Fund does not own, but which is used as a benchmark. The risk to the Fund in purchasing covered spread options is the cost of the premium paid for the spread option and any transaction costs. In
addition, there is no assurance that closing transactions will be available. The purchase of spread options will be used to protect the Fund against adverse changes in prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. Such protection is only provided during the life of the spread option.
Derivatives Regulatory
Risk
The laws and regulations that apply to derivatives (
e.g.
, swaps, futures, etc.) and persons who use them (including the Fund, the Investment Manager and others) are rapidly changing in the U.S. and abroad. As a result, restrictions
and additional regulations may be imposed on these parties, trading restrictions may be adopted and additional trading costs are possible. The impact of these changes on any of the Fund and their investment strategies is not yet fully ascertainable.
In particular, the Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act will change the way in which
the U.S. financial system is supervised and regulated. Title VII of the Dodd-Frank Act sets forth a new legislative framework for OTC derivatives, including financial instruments, such as swaps, in which the Funds may invest. Title VII of the
Dodd-Frank Act makes broad changes to the OTC derivatives market, grants significant new authority to the SEC and the CFTC to regulate OTC derivatives and market participants, and will require clearing and exchange trading of many OTC derivatives
transactions. The CFTC and SEC recently finalized the definition of swap and security-based swap. These definitions provide the parameters around which contracts will be subject to further regulation under the Dodd-Frank Act.
Provisions in the Dodd-Frank Act include new capital and margin requirements and the mandatory use of clearinghouse
mechanisms for many OTC derivative transactions. The CFTC, SEC and other federal regulators have been tasked with developing the rules and regulations enacting the provisions of the Dodd-Frank Act. Because there is a prescribed phase-in period
during which most of the mandated rulemaking and regulations will be implemented, it is not possible at this time to gauge the exact nature and scope of the impact of the Dodd-Frank Act on any of the Funds. However, it is expected that swap dealers,
major market participants and swap counterparties will experience new and/or additional regulations, requirements, compliance burdens and associated costs. The new law and the rules to be promulgated may negatively impact a Funds ability to
meet its investment objective either through limits or requirements imposed on it or upon its counterparties. In particular, new position limits imposed on a Fund or its counterparties may impact that Funds ability to invest in futures,
options and swaps in a manner that efficiently meets its investment objective. New requirements even if not directly applicable to the Funds, including capital requirements, changes to the CFTC speculative position limits regime and mandatory
clearing, may increase the cost of a Funds investments and cost of doing business, which could adversely affect investors.
Short
Sales
Certain Funds may make short sales against the box in which a Fund enters into a short sale of a security it owns. At no time will more than 15% of the value of a Funds net assets be in deposits on short sales
against the box. If a Fund makes a short sale, the Fund does not immediately deliver from its own account the securities sold and does not receive the proceeds from the sale. To complete the sale, the Fund must borrow the security (generally from
the broker through which the short sale is made) in order to make delivery to the buyer.
17
The Fund must replace the security borrowed by purchasing it at the market price at the time of replacement or delivering the security from its own portfolio. The Fund is said to have a
short position in securities sold until it delivers them to the broker at which time it receives the proceeds of the sale.
Short sales by a Fund that are not made against the box create opportunities to increase the Funds return but, at the same time, involve specific risk considerations and may be
considered a speculative technique. Since the Fund in effect profits from a decline in the price of the securities sold short without the need to invest the full purchase price of the securities on the date of the short sale, the Funds NAV per
share tends to increase more when the securities it has sold short decrease in value, and to decrease more when the securities it has sold short increase in value, than would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium, dividends or interest the Fund may be required to pay in connection with the short sale. Short sales theoretically involve unlimited loss
potential, as the market price of securities sold short may continually increase, although a Fund may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions
the Fund might have difficulty purchasing securities to meet its short sale delivery obligations and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment
considerations would not favor such sales.
A Funds decision to make a short sale against the box may be a
technique to hedge against market risks when the Investment Manager or relevant Sub-Adviser believes that the price of a security may decline, causing a decline in the value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In such case, any future losses in the Funds long position would be reduced by a gain in the short position. The extent to which such gains or losses in the long position are reduced will depend upon the amount
of securities sold short relative to the amount of the securities the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes in the investment values or conversion premiums of such securities.
The Fund can close out its short position by purchasing and delivering an equal amount of the securities sold short, rather than by delivering securities already held by the Fund, because the Fund might want to continue to receive interest and
dividend payments on securities in its portfolio that are convertible into the securities sold short.
In the view of the
Commission, a short sale involves the creation of a senior security as such term is defined in the 1940 Act unless the sale is against the box and the securities sold short (or securities convertible into or exchangeable for
such securities) are segregated or unless a Funds obligation to deliver the securities sold short is covered by segregating with the Custodian cash, U.S. government securities or other liquid assets in an amount equal to the
difference between the market value of the securities sold short and any collateral required to be deposited with a broker in connection with the sale (not including the proceeds from the short sale), which difference is adjusted daily for changes
in the value of the securities sold short. The total value of the short sale proceeds, cash, U.S. government securities or other liquid assets deposited with the broker and segregated with the Custodian may not at any time be less than the market
value of the securities sold short. Each Fund will comply with these requirements.
Lending of Portfolio Securities
For the
purpose of realizing additional income, the Funds may make secured loans of Fund securities amounting to not more than 33 1/3% of its total assets. Securities loans are made to broker/dealers, institutional investors, or other persons pursuant to
agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities loaned, marked to market on a daily basis. The collateral received will consist of cash, U.S. government securities,
letters of credit or such other collateral as may be permitted under the investment program. While the securities are being loaned, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities,
as well as interest on the investment of the collateral or a fee from the borrower, although a portion can be payable to a collateral agent for certain services. When a Fund invests collateral, the Fund will bear the risk of loss and the risk of
loss depends on the nature and type of investment made with the collateral. Costs of underlying securities lending activities are not typically reflected in a Funds fee and expense rations. The Fund has a right
18
to call each loan and obtain the securities on five business days notice or, in connection with securities trading on foreign markets, within such longer period of time which coincides with
the normal settlement period for purchases and sales of such securities in such foreign markets. The Fund will not have the right to vote securities while they are being loaned, but it will call a loan in anticipation of any important vote. The
risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to persons deemed by the Investment Manager or Sub-Adviser, as applicable, to be of good standing and will not be made unless, in the judgment of the Investment Manager or Sub-Adviser, as applicable, the
consideration to be earned from such loans would justify the risk.
Leverage
Certain Funds may use leverage. Leveraging a Fund
creates an opportunity for increased net income but, at the same time, creates special risk considerations. For example, leveraging may exaggerate changes in the NAV of a Funds shares and in the yield on a Funds portfolio. Although the
principal of such borrowings will be fixed, a Funds assets may change in value during the time the borrowing is outstanding. Since any decline in value of a Funds investments will be borne entirely by the Funds shareholders (and
not by those persons providing the leverage to the Fund), the effect of leverage in a declining market would be a greater decrease in NAV than if the Fund were not so leveraged. Leveraging will create interest and other expenses for a Fund, which
can exceed the investment return from the borrowed funds. To the extent the investment return derived from securities purchased with borrowed funds exceeds the interest a Fund will have to pay, the Funds investment return will be greater than
if leveraging were not used. Conversely, if the investment return from the assets retained with borrowed funds is not sufficient to cover the cost of leveraging, the investment return of the Fund will be less than if leveraging were not used.
Under the 1940 Act, the Fund is required to maintain continuous asset coverage of 300% with respect to borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if it should decline to less than 300% due to market fluctuations or otherwise, even if such liquidations of the Funds holdings may be disadvantageous from an
investment standpoint.
Short-Term Instruments
When the Funds experience large cash inflows through the sale of securities and
desirable equity securities that are consistent with the Funds investment objectives are unavailable in sufficient quantities or at attractive prices, the Funds may hold short-term investments for a limited time pending availability of such
equity securities. Short-term instruments consist of: (1) short-term obligations issued or guaranteed by the U.S. government or any of its agencies or instrumentalities or by any of the states; (2) other short-term debt securities rated AA
or higher by S&P or Aa or higher by Moodys or, if unrated, of comparable quality in the opinion of the Investment Manager or relevant Sub-Adviser; (3) commercial paper; (4) bank obligations, including negotiable certificates of
deposit, time deposits and bankers acceptances; and (5) repurchase agreements. At the time the Funds invest in commercial paper, bank obligations, or repurchase agreements, the issuer or the issuers parent must have outstanding debt
rated AA or higher by S&P or Aa or higher by Moodys or outstanding commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moodys, or, if no such ratings are available, the instrument must be of comparable quality in
the opinion of the Investment Manager or relevant Sub-Adviser.
U.S. Government Securities
Consistent with its investment
objective and strategies, each Fund may invest in obligations issued or guaranteed by the U.S. government, including: (1) direct obligations of the U.S. Treasury and (2) obligations issued by U.S. government agencies and instrumentalities.
Included among direct obligations of the U.S. are Treasury Bills, Treasury Notes and Treasury Bonds, which differ in terms of their interest rates, maturities, and dates of issuance. Treasury Bills have maturities of less than one year, Treasury
Notes have maturities of one to 10 years and Treasury Bonds generally have maturities of greater than 10 years from the date of issuance. Included among the obligations issued by agencies and instrumentalities of the U.S. are: instruments that are
supported by the full faith and credit of the U.S., such as certificates issued by the Government National Mortgage Association (GNMA or Ginnie Mae); instruments that are supported by the right of the issuer to borrow from
the U.S. Treasury (such as securities of Federal Home Loan Banks); and instruments that are
19
supported solely by the credit of the instrumentality, such as Federal National Mortgage Association (FNMA or Fannie Mae) and Federal Home Loan Mortgage Corporation
(FHLMC or Freddie Mac). In September 2008, the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac, placing the two federal instrumentalities in conservatorship. Under the takeover, the U.S. Treasury
agreed to acquire $1 billion of senior preferred stock of each instrumentality and obtained warrants for the purchase of common stock of each instrumentality. Under these Senior Preferred Stock Purchase Agreements (SPAs), the U.S.
Treasury has pledged to provide up to $100 billion per instrumentality as needed, including the contribution of cash capital to the instrumentalities in the event their liabilities exceed their assets. In May 2009, the U.S. Treasury increased its
maximum commitment to each instrumentality under the SPAs to $200 billion per instrumentality. In December 2009, the U.S. Treasury further amended the SPAs to allow the cap on the U.S. Treasury's funding commitment to increase as necessary to
accommodate any cumulative reduction in Fannie Maes and Freddie Macs net worth through the end of 2012. At the start of 2013, the unlimited support the U.S. Treasury extended to the two companies will expire Fannie Mae's bailout
will be capped at $125 billion and Freddie Mac will have a limit of $149 billion. On August 17, 2012, the U.S. Treasury announced that it was again amending the Agreement to terminate the requirement that Fannie Mae and Freddie Mac each pay a
10% dividend annually on all amounts of received under the funding commitment. Instead, they will transfer to the U.S. Treasury on a quarterly basis all profits earned during a quarter that exceed a capital reserve amount of $3 billion. It is
anticipated that the new amendment would put Fannie Mae and Freddie Mac in a better position to service their debt.
Also in
December 2009, the U.S. Treasury amended the SPAs to provide Fannie Mae and Freddie Mac with some additional flexibility to meet the requirement to reduce their mortgage portfolios. The actions of the U.S. Treasury are intended to ensure that Fannie
Mae and Freddie Mac maintain a positive net worth and meet their financial obligations, preventing mandatory triggering of receivership. No assurance can be given that the U.S. Treasury initiatives will be successful. Other U.S. government
securities the Funds may invest in include (but are not limited to) securities issued or guaranteed by the Federal Housing Administration, Farmers Home Loan Administration, Export-Import Bank of the U.S., Small Business Administration, General
Services Administration, Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, Tennessee Valley Authority, District of Columbia Armory Board and Student Loan
Marketing Association. Because the U.S. government is not obligated by law to provide support to an instrumentality it sponsors, a Fund will invest in obligations issued by such an instrumentality only if the Investment Manager or Sub-Adviser, as
applicable, determines that the credit risk with respect to the instrumentality does not make its securities unsuitable for investment by the Fund.
A Fund may also invest in separately traded principal and interest components of securities guaranteed or issued by the U.S. government or its agencies, instrumentalities or sponsored enterprises if such
components trade independently under the Separate Trading of Registered Interest and Principal of Securities program (STRIPS) or any similar program sponsored by the U.S. government. STRIPS may be sold as zero coupon securities.
Liquidity
Investments are subject to liquidity risk when they are difficult to purchase or sell. Investments in illiquid
securities may reduce the returns of a Fund because it may be unable to sell the illiquid securities at an advantageous time or price.
Management
The Funds are subject to management risk because it is an actively managed investment portfolio. The Investment Manager or
Sub-Adviser, as applicable, and each individual portfolio manager will apply investment techniques and risk analysis in making decisions for a Fund, but there can be no guarantee that these decisions will produce the desired results. Furthermore,
active trading will increase the costs a Fund incurs because of higher brokerage charges or mark-up charges, which are passed on to shareholders of the Fund and as a result, may lower the Funds performance and have a negative tax impact.
Additionally, legislative, regulatory or tax developments may affect the investment techniques available to the Investment Manager or Sub-Adviser, as applicable, and each individual portfolio manager in connection with managing a Fund and may also
adversely affect the ability of a Fund to achieve its investment objectives.
20
I
NVESTMENT
R
ESTRICTIONS
Each of the Funds operates within
certain fundamental policies. These fundamental policies may not be changed without the approval of the lesser of (1) 67% or more of a Funds shares present at a meeting of shareholders if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy or (2) more than 50% of a Funds outstanding shares. Other restrictions in the form of operating policies are subject to change by a Funds Board of Directors without shareholder
approval; however, should any Fund with a name subject to Rule 35d-1 under the 1940 Act, change its policy of investing in at least 80% of its assets (net assets, plus the amount of any borrowing for investment purposes) in the type of investment
suggested by that Funds name, the Fund will provide shareholders at least 60 days notice prior to making the change, or such other period as is required by applicable law, as interpreted or modified by a regulatory authority having
jurisdiction from time to time. If a percentage restriction is adhered to at the time of an investment or transaction, a later increase or decrease in percentage resulting from changing values of portfolio securities or amount of total assets will
not be considered a violation of the following limitations, except with respect to the borrowing limitation. With regard to the borrowing limitation, each Fund will comply with the applicable restrictions of Section 18 of the 1940 Act. Any
investment restrictions that involve a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or
borrowings by, a Fund. Calculation of a Funds total assets for compliance with any of the following fundamental or operating policies or any other investment restrictions set forth in the Funds prospectus or Statement of Additional
Information will not include cash collateral held in connection with the Funds securities lending activities.
Fundamental Policies
The fundamental policies of the Funds are:
1.
|
Percent Limit on Assets Invested in Any One Issuer
Not to invest more than 5% of its total assets in the securities of any one issuer (other than obligations of,
or guaranteed by, the U.S. government, its agencies and instrumentalities), provided that this limitation applies only with respect to 75% of the Funds total assets. (This fundamental policy number one does not apply to the Large Cap Value
Fund, Large Cap Value Institutional Fund, or the Large Cap Concentrated Growth Fund.)
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2.
|
Percent Limit on Share Ownership of Any One Issuer
Not to purchase a security if, as a result, with respect to 75% of the value of the Funds total assets,
more than 10% of the outstanding voting securities of any issuer would be held by the Fund (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities). (This fundamental policy number two does not apply to
the Large Cap Value Fund, Large Cap Value Institutional Fund, or the Large Cap Concentrated Growth Fund.)
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3.
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Underwriting
Not to act as underwriter of securities issued by others, except to the extent that a Fund may be considered an underwriter within the meaning of
the 1933 Act in the disposition of restricted securities.
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4.
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Industry Concentration
Not to invest in an amount equal to 25% or more of the Funds total assets in a particular industry (other than securities of the
U.S. government, its agencies or instrumentalities).
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5.
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Real Estate
Not to purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund
from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business).
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6.
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Commodities
Not to purchase or sell physical commodities, except that a Fund may enter into futures contracts and options thereon.
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7.
|
Loans
Not to lend any security or make any other loan if, as a result, more than 33 1/3% of a Funds total assets would be lent to other parties, except
(i) through the purchase of a portion of an issue of debt securities in accordance with its investment objectives and policies or (ii) by engaging in repurchase agreements with respect to portfolio securities.
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8.
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Borrowing
Not to borrow money, except as permitted under the 1940 Act, and as interpreted or modified by regulatory authority having jurisdiction, from time to
time.
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21
9.
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Senior Securities
Not to issue senior securities, except as permitted under the 1940 Act, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time. (A senior security generally is an obligation of the Fund that has a claim to the Funds assets or earnings that takes precedence over the claims of the Funds shareholders.)
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For the purposes of Fundamental Policies two and four above, each governmental subdivision, i.e., state,
territory, possession of the United States or any political subdivision of any of the foregoing, including agencies, authorities, instrumentalities, or similar entities, or of the District of Columbia shall be considered a separate issuer if its
assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. In the case of an industrial development bond, if the security is backed only by the assets and revenues
of a non-governmental user, then such non-governmental user will be deemed to be the sole issuer. If an industrial development bond or government issued security is guaranteed by a governmental or other entity, such guarantee would be considered a
separate security issued by the guarantor.
For the purpose of Fundamental Policy four, industries are determined by reference
to the classifications of industries set forth in the Funds semiannual and annual reports.
For the purpose of
Fundamental Policy eight, if at any time the amount of total Fund assets less all liabilities and indebtedness (but not including the Funds borrowings) (asset coverage) is less than an amount equal to 300% of any such borrowings,
the Fund will reduce its borrowings within three days (not including Sundays and holidays) or such longer period as the SEC may prescribe by rules and regulations so that such asset coverage is again equal to 300% or more.
For the purposes of Fundamental Policies eight and nine, the term as permitted under the 1940 Act indicates that, unless
otherwise limited by non-fundamental policies, the Funds can borrow and issue senior securities to the extent permitted by the 1940 Act and interpretations thereof, and that no further action generally would be needed to conform the borrowing and
senior securities policies of the Funds to future change in the 1940 Act and interpretations thereof. Pursuant to the provisions of the 1940 Act and interpretations thereof, the Funds are permitted to borrow from banks and may also enter into
certain transactions that are economically equivalent to borrowing. Under the 1940 Act and interpretations thereof, a borrowing transaction will not be considered to constitute the issuance of a senior security by a Fund, and therefore
such transaction will not be subject to the limitations otherwise applicable to borrowings by a Fund, if the Fund: (1) maintains an offsetting financial position; (2) maintains liquid assets equal (as determined on a daily marked-to-market
basis) in value to the Funds potential economic exposure under the borrowing transaction; or (3) otherwise covers the transaction in accordance with applicable SEC guidance.
Operating Policies
The operating policies (
i.e.
, those that are non-fundamental) of the Funds are:
1.
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Loans
The Funds may not lend assets other than securities to other parties. (This limitation does not apply to purchases of debt securities or to repurchase
agreements.)
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2.
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Borrowing
The Funds may not borrow money or securities for any purposes, except that borrowing up to 10% of the Funds total assets from commercial banks is
permitted for emergency or temporary purposes. Alpha Opportunity Fund does not anticipate that it will borrow for the purpose of investing in securities, but may borrow up to 5% of the Funds total assets from commercial banks for emergency or
temporary purposes.
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3.
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Options
The Funds may buy and sell exchange-traded and over-the-counter put and call options, including index options, securities options, currency options and
options on futures, provided that a call or put may be purchased only if after such purchase, the value of all call and put options held by a Fund will not exceed 5% of the Funds total assets. The Funds may write only covered put and call
options.
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4.
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Oil and Gas Programs
The Funds may not invest in oil, gas, or mineral leases or other mineral exploration, or development of programs.
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22
5.
|
Investment Companies
Except in connection with a merger, consolidation, acquisition, or reorganization, the Funds may not invest in securities of other
investment companies, except in compliance with the 1940 Act, and the rules thereunder.
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6.
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Control of Portfolio Companies
The Funds may not invest in companies for the purpose of exercising management or control.
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7.
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Short Sales
The Funds, except Large Cap Value Fund, Large Cap Value Institutional Fund and Alpha Opportunity Fund, may not sell securities short, unless the Fund
owns or has the right to obtain securities equivalent in kind and amount to the securities sold short and provided that transactions in futures contracts and options are not deemed to constitute selling securities short.
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8.
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Margins
The Funds do not intend to purchase securities on margin, except that the Funds may obtain such short-term credits as are necessary for the clearance of
transactions and provided that margin payments in connection with futures contracts and options on futures contracts shall not constitute purchasing securities on margin.
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9.
|
Liquidity
The Funds may invest up to 15% of their net assets in illiquid securities, which are securities that may not be sold or disposed of in the ordinary
course of business within seven days at approximately the value at which the Fund was valuing the security.
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For
the purposes of Operating Policy two above, the policy on borrowing is not intended to limit the ability to pledge assets to secure loans permitted under the Funds policies.
D
ISCLOSURE
O
F
P
ORTFOLIO
H
OLDINGS
It is the policy of the Funds to
protect the confidentiality of their holdings and prevent the selective disclosure of non-public information about their portfolio holdings. The Funds service providers, to which the Funds may disclose non-public information about portfolio
holdings, are required to comply with this policy. No information concerning the portfolio holdings of any Fund may be disclosed to any unaffiliated third party, except as provided below. The policy does not require a delay between the date of the
information and the date on which the information is disclosed; however, recipients of non-public information will be subject to a confidentiality agreement and/or other restrictions on the use and dissemination of non-public portfolio holdings
information as described in more detail below. The Board has adopted formal procedures governing compliance with this policy.
A Fund or its duly authorized service providers may publicly disclose holdings of the Fund in accordance with regulatory requirements,
such as periodic portfolio disclosure in filings with the SEC. A summary or list of a Funds completed purchases and sales may only be made available only after the public disclosure of its portfolio holdings.
The Funds will publish a complete list of their month-end portfolio holdings on their website at www.guggenheiminvestments.com
generally within one to two days after the end of each following calendar month. Such information will remain online for four months, or as required by law. The day following such publication, the information is deemed to be publicly disclosed for
the purposes of the policies and procedures adopted by the Funds. A Fund may then forward the information to investors, consultants and others at their request.
Numerous mutual fund evaluation services such as Standard & Poors, Morningstar or Lipper, and due diligence departments of broker/dealers and wirehouses regularly analyze the portfolio
holdings of mutual funds in order to monitor and report on various attributes, including style, capitalization, maturity, yield, beta, etc. These services and departments then distribute the results of their analysis to the public, paid subscribers
and/or in-house brokers. In order to facilitate the review of the Funds by these services and departments, the Funds may at any time as deemed necessary, consistent with its policies and procedures, distribute (or authorize its service providers to
distribute) the Funds securities holdings to such services and departments before their public disclosure is required
23
or authorized, provided that: (1) the recipient does not distribute the portfolio holdings to third parties, other departments, or persons who are likely to use the information for purposes
of purchasing or selling the Funds (or any other fund that invests in one of the Funds) before the portfolio holdings become public information, and (2) the recipient signs a written confidentiality agreement, which includes provisions that
require the recipient to limit access to such information only to its employees who are subject to a duty not to trade on non-public information. Persons and entities unwilling to execute an acceptable confidentiality agreement may only receive
portfolio holdings information that has otherwise been publicly disclosed.
The Funds also may disclose portfolio holdings
information on an ongoing basis to certain service providers of the Funds and others, who either by agreement or because of their respective duties to the Funds are required to maintain the confidentiality of the information disclosed. The
Funds service providers and others who generally are provided such information in the performance of their contractual duties and responsibilities may include the Funds custodians, Investment Manager administrators, independent
registered public accountants, attorneys, officers and directors, and each of their respective affiliates. At this time, portfolio holdings information is shared as follows:
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|
|
|
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Individual/Entity
|
|
Frequency
|
|
Time Lag
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Morningstar
|
|
Monthly
|
|
1-10 calendar days
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Lipper
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Monthly
|
|
1-10 calendar days
|
Bloomberg
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|
Monthly
|
|
1-10 calendar days
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Thompson Financial
|
|
Quarterly
|
|
1-10 calendar days
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Standard
& Poors
|
|
Quarterly
|
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1-10 calendar days
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Vickers Stock Research
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Quarterly
|
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1-10 calendar days
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Institutional Shareholder Services
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Weekly
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1-5 business days
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In addition, the following entities receive this information on a daily basis: Factset (an analytical system used for
portfolio attribution and performance); UMB Bank, N.A. and State Street Bank and Trust Company (the Funds custodian banks); Interactive Data and Loan Pricing Corporation (the Funds pricing services); and InvestOne (Sungard) (the
Funds accounting system).
Neither the Funds nor their service providers receive any compensation from such services and
departments. Subject to such departures as the Funds chief compliance officer (CCO) believes reasonable and consistent with protecting the confidentiality of the Funds portfolio information, each confidentiality agreement
should generally provide that, among other things: the portfolio information is the confidential property of the respective Fund (and its service providers, if applicable) and may not be shared or used directly or indirectly for any purpose except
as expressly provided in the confidentiality agreement; the recipient of the portfolio information agrees to limit access to the portfolio information to its employees (and agents) who, on a need to know basis, are (1) authorized to have access
to the portfolio information and (2) subject to confidentiality obligations, including duties not to trade on non-public information, no less restrictive than the confidentiality obligations contained in the confidentiality agreement, and upon
written request, the recipient agrees to promptly return or destroy, as directed, the portfolio information.
Only the Board
or CCO may authorize disclosure of the Funds securities holdings. In addition to the Board, the CCO may, on a case-by-case basis, impose additional restrictions on the dissemination of portfolio information and waive certain requirements. To
the extent required by law, the CCO reports to the Board any violations of the Funds policies and procedures on disclosure of portfolio holdings.
Any disclosure of the Funds securities holdings must serve a legitimate business purpose of the Funds and must be in the best interest of the Funds shareholders. In making such a
determination, the CCO must conclude that the anticipated benefits and risks to the Funds and their shareholders justify the purpose of the disclosure. A further determination must be made to ensure that any conflicts of interest between the Funds,
their shareholders, and any third party are resolved prior to disclosure. The Funds reserve the right to request certifications from
24
senior officers of authorized recipients that the recipient is using the portfolio holdings information only in a manner consistent with the Funds policy and any applicable confidentiality
agreement. Neither the Funds nor the Investment Manager receive any compensation or other consideration in connection with these arrangements.
As an oversight procedure, the CCO reports all arrangements to disclose portfolio holdings information to the Funds Board of Directors on a periodic basis. If the Board determines that any such
arrangement is or would be inappropriate, the Funds will promptly terminate the disclosure arrangement.
M
ANAGEMENT
OF
THE
F
UNDS
Board
Responsibilities
The management and affairs of each of Security Large Cap Value Fund, Security Equity Fund and Security Mid Cap Growth Fund are overseen by its Board of Directors under the laws of the State of Kansas and the 1940 Act. The
Board is responsible for overseeing the management and affairs of the Funds. The Board has considered and approved contracts, as described below, under which certain companies provide essential management and administrative services to each of
Security Large Cap Value Fund, Security Equity Fund and Security Mid Cap Growth Fund. The day-to-day business of the Funds, including the day-to-day management of risk, is performed by third-party service providers, primarily the Investment Manager,
Guggenheim Distributors, LLC (formerly known as Rydex Distributors, LLC) (the Distributor) and, as applicable, a Sub-Adviser. The Board is responsible for overseeing the Funds service providers and, thus, has oversight
responsibility with respect to the risk management performed by those service providers. Risk management seeks to identify and mitigate the potential effects of risks, i.e., events or circumstances that could have material adverse effects on the
business, operations, shareholder services, investment performance or reputation of each of the Funds. The Board oversees the risk management of the Funds' operations, in part, by requesting periodic reports from and otherwise communicating with
various personnel of each of the Funds and their service providers, including in particular the Funds Chief Compliance Officer, and their independent accountants. The Board and, with respect to identified risks that relate to its purpose, the
Audit Committee, oversee efforts by management and service providers to manage risks to which the Funds may be exposed.
Under
the oversight of the Board, the service providers to the Funds employ a variety of processes, procedures and controls to identify risks relevant to the operations of each of the Funds and to lessen the probability of the occurrence of such risks
and/or to mitigate the effects of such events or circumstances if they do occur. Each service provider is responsible for one or more discrete aspects of the business of each of the Funds and, consequently, for managing the risks associated with
that activity.
The Board recognizes that not all risks that may affect the Funds can be identified, that it may not be
practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to seek to achieve each Fund's investment objective, and that the processes, procedures and
controls employed to address certain risks may be limited in their effectiveness. Moreover, despite the periodic reports the Board receives, it may not be made aware of all of the relevant information of a particular risk. Most of each Fund's
investment management and business affairs are carried out by or through the Investment Manager, Distributor and other service providers, including, as applicable, a Sub-Adviser, each of which has an independent interest in risk management, which
interest could differ from or conflict with that of each of Security Large Cap Value Fund, Security Equity Fund and Security Mid Cap Growth Fund. As a result of the foregoing and other factors, the Board's risk management oversight is subject to
limitations.
Directors and Officers
The Board of Directors of the Security Large Cap Value Fund,
Security Equity Fund and Security Mid Cap Growth Fund is composed of persons experienced in financial matters who meet throughout the year to oversee the activities of the Funds. In addition, the Directors review contractual arrangements with
companies that provide services to the Funds and review the Funds performance. The Directors and officers of the Funds and their principal occupations for at least the last five years are listed below. The Directors have various experience,
qualifications, attributes, and skills that allow the Board to operate effectively in governing the Funds and in protecting the interests of shareholders. Each Director has considerable familiarity with the Funds, its adviser
25
and distributor, and their operations, as well as the special responsibilities of investment company directors as a result of his or her substantial service as a Director of the Funds. The
following is a brief discussion of the specific experience, skills, attributes, and qualifications of each Director, which in each case led to the Board's conclusion that the Director should serve (or continue to serve) as a Director of the Funds.
Donald C. Cacciapaglia.
Mr. Cacciapaglia has served as a Director since 2012. Mr. Cacciapaglia has nearly 40
years of experience in the investment banking and financial services industries. Mr. Cacciapaglia is the President and Chief Operating Officer of Guggenheim Investments. Prior to 2010, Mr. Cacciapaglia served as Chairman and Chief
Executive Officer of Channel Capital Group, Inc., and its subsidiary broker-dealer Channel Capital Group LLC, a Guggenheim affiliated company. From 1996 until 2002, when he joined Chanel Capital Group, Mr. Cacciapaglia held the position of
Managing Director and Chief Operating Officer of the Investment Banking Group at PaineWebber. Before that, Mr. Cacciapaglia was Chief Operating Officer of the Short and Intermediate Trading Group at CS First Boston from 1995 to 1996. From 1977
to 1995, he held numerous positions at Merrill Lynch & Co., and was a Senior Analyst with the Federal Reserve Bank of New York from 1973 to 1977.
Donald A. Chubb, Jr.
Mr. Chubb has served as a Director since 1994 and has served as Chair of the Nominating Committee since 2005 and as Lead Independent Director since 2010. Mr. Chubb
has worked in the business brokerage and commercial real estate market for over 13 years. Prior he owned and operated electric sign companies and was a director of Fidelity Bank and Trust.
Harry W. Craig, Jr.
Mr. Craig has served as a Director since 2004 and as Chair of the Contract Renewal Committee since 2005.
Mr. Craig is the retired Chairman and Chief Executive Officer of Martin Tractor Company, Inc., a Caterpillar Dealership. Mr. Craig is currently the Chairman, Chief Executive Officer, and Director of The Craig Group, Inc. He is also the
Managing Member of Craig Family Investments, LLC. Mr. Craig was Trustee and Treasurer of Sunflower Foundation: Health Care for Kansans for eight years. Mr. Craig is a director, finance committee member, and past Chairman on the board of
Stormont-Vail HealthCare. Mr. Craig practiced as a lawyer prior to his business career.
Penny A. Lumpkin.
Ms. Lumpkin has served as a Director since 1993 and as Chair of the Audit Committee since 1995. Ms. Lumpkin has experience with various business and real estate ventures, currently as Partner of Vivians Gift Shop (corporate retail),
Vice President, Palmer Companies, Inc. (small business and shopping center development) and Senior Vice President, PLB (real estate equipment leasing).
Maynard F. Oliverius.
Mr. Oliverius has served as a Director since 1998. Mr. Oliverius is President and Chief Executive Officer of Stormont-Vail HealthCare. From 2005 through 2008
Mr. Oliverius was on the Board of Trustees of the American Hospital Association. Mr. Oliverius has a masters degree in Health Care Administration.
Dr. Jerry B. Farley.
Dr. Farley has served as a Director since 2005. Dr. Farley has over 38 years of experience in the administration of the academic, business and fiscal
operations of educational institutions. Dr. Farley has served as President of Washburn University since 1997. Prior to 1997, Dr. Farley worked in various executive positions for the University of Oklahoma and Oklahoma State University,
including Vice President of Community Relations and Economic Development, Vice President of Administration and Chief Financial Officer. Dr. Farley holds an MBA and a Ph.D. in Higher Education Administration and is a C.P.A. Dr. Farley
serves on the board of Westar Energy, Inc., a NYSE listed company, and CoreFirst Bank and Trust.
The Chairman of the Board of
Directors, Donald C. Cacciapaglia, is an interested person, as that term is defined by the 1940 Act, of the Funds. Donald A. Chubb, Jr., who is not an interested person of the Funds, serves as its Lead Independent Director. The Board has
determined that the leadership structure of the Funds is appropriate, given its specific characteristics and circumstances; in particular, the Board has considered that the Independent Directors constitute a substantial majority of the Board and are
advised by independent counsel experienced in 1940 Act matters, and the role of the Lead Independent Director is to act as a liaison between the Independent Directors and management and promote the open flow of information and views between Fund
26
management and the Independent Directors. In addition, the Board considered the benefits of having the Board meetings run by a member of management who is immersed in the Funds business on
a day-to-day basis and is a mutual fund participant. The Board also considered that the current structure and processes for developing Board meeting agendas and conducting Board meetings results in full and constructive discussions of Fund business
that focus the Directors on important issues facing the Funds.
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Age
|
|
Position(s)
held with
the Funds
|
|
Term of
Office and
Length
of
Time Served
1
|
|
Principal Occupation(s)
during the Past 5 Years
|
|
Number of
Portfolios
in
Fund
Complex
Overseen
by Director
|
|
Other
Directorships
held by Director
|
Independent
Directors
|
Donald A. Chubb, Jr.
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 12/14/46)
|
|
Lead
Independent
Director,
Chair
of
Nominating
Committee
|
|
Since 1994
|
|
Current: Business broker and manager of commercial real estate, Griffith &
Blair, Inc.
|
|
31
|
|
None
|
Harry W. Craig, Jr.
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 5/11/39)
|
|
Director,
Chair
of
Contract
Renewal
Committee
|
|
Since 2004
|
|
Current: Chairman, CEO, &
Director, The Craig Group, Inc.; Managing Member of Craig Family Investments, LLC.
Prior to November 2009, Chairman, CEO, Secretary & Director, The Martin Tractor Company, Inc.
|
|
31
|
|
None
|
Penny A. Lumpkin
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 8/20/39)
|
|
Director,
Chair of
Audit
Committee
|
|
Since 1993
|
|
Current: Partner, Vivians Gift Shop (Corporate Retail); Vice President,
Palmer Companies, Inc. (Small Business and Shopping Center Development); PLB (Real Estate Equipment Leasing).
|
|
31
|
|
None
|
Maynard F. Oliverius
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 12/18/43)
|
|
Director
|
|
Since 1998
|
|
Current: President and Chief Executive Officer, Stormont-Vail
HealthCare.
|
|
31
|
|
None
|
Jerry B. Farley
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 9/20/46)
|
|
Director
|
|
Since 2005
|
|
Current: President, Washburn University.
|
|
31
|
|
Westar Energy; CoreFirst
Bank & Trust
|
Directors who are Interested
Persons
|
Donald C. Cacciapaglia
2
135 East
57
th
Street, 9
th
Floor
New York, NY 10022
(DOC 7/1/51)
|
|
President,
Director
and
Chairman
of
the
Board
|
|
Since 2012
|
|
President and CEO, Security
Investors, LLC;
President and Chief Administrative Officer, Guggenheim
Investments. Prior to February 2010, Channel Capital Group, Inc.: Chairman and CEO.
|
|
228
|
|
Rydex Series Funds, Rydex Dynamic Trust, Rydex
Variable Trust, and Rydex
ETF Trust
|
|
1 Directors serve until the next annual meeting or their successors are
duly elected and qualified.
2 This Director is deemed to be
an interested person of the Funds under the 1940 Act by reason of his position with the Funds Administrator and/or the parent of the Administrator.
|
27
|
|
|
|
|
|
|
Name, Address and Age
|
|
Position(s)
held with
the Funds
|
|
Term of
Office and
Length
of
Time Served
1
|
|
Principal Occupation(s) during the Past
5 Years
|
Officers
|
Mark P. Bronzo
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 11/1/60)
|
|
Vice
President
|
|
Since 2008
|
|
Current:
Portfolio Manager, Security Investors, LLC.
Managing Director and Chief
Compliance Officer, Nationwide Separate Accounts LLC. (2003-2008)
|
Elisabeth Miller
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 06/06/1968)
|
|
Chief
Compliance
Officer
|
|
Since 2012
|
|
Current: Chief
Compliance Officer, Rydex Series Funds, Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust; Chief Compliance Officer, Security Equity Fund, Security Income Fund, Security Large Cap Value Fund, Security Mid Cap Growth Fund, and SBL Fund;
Chief Compliance Officer, Security Investors, LLC; and Chief Compliance Officer, Guggenheim Distributors, LLC
Senior Manager, Security Investors, LLC and Guggenheim Distributors, LLC (2004-2009)
|
Nikolaos Bonos
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 05/30/1963)
|
|
Treasurer
|
|
Since 2010
|
|
Current: Senior
Vice President, Security Investors, LLC; Chief Executive Officer & Manager, Rydex Specialized Products, LLC; Chief Executive Officer & President, Rydex Fund Services, LLC; Vice President, Rydex Holdings, LLC; Vice President & Treasurer,
Rydex Series Funds; Rydex ETF Trust; Rydex Dynamic Funds; and Rydex Variable Trust; and Vice President, Security Benefit Asset Management Holdings, LLC
Senior Vice President, Security Global Investors, LLC (2010-2011); and Senior Vice President, Rydex Advisors, LLC and Rydex Advisors II,
LLC
|
Joseph M. Arruda
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 09/05/1966)
|
|
Assistant
Treasurer
|
|
Since 2010
|
|
Current: Vice
President, Security Investors, LLC; Chief Financial Officer & Manager, Rydex Specialized Products, LLC; and Assistant Treasurer, Rydex Series Funds; Rydex Dynamic Funds; Rydex ETF Trust; and Rydex Variable Trust
Vice President, Security Global Investors, LLC (2010-2011); and Vice President, Rydex
Advisors, LLC and Rydex Advisors II, LLC (2010)
|
28
|
|
|
|
|
|
|
Name, Address and Age
|
|
Position(s)
held with
the Funds
|
|
Term of
Office and
Length
of
Time Served
1
|
|
Principal Occupation(s) during the Past
5 Years
|
Amy J. Lee
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 6/5/61)
|
|
Secretary
and Vice
President
|
|
Since
1987
(Secretary)
Since
2007
(Vice
President)
|
|
Current: Senior
Vice President & Secretary, Security Investors, LLC; Secretary & Chief Compliance Officer, Security Distributors, Inc.; Vice President, Associate General Counsel & Assistant Secretary, Security Benefit Life Insurance Company and Security
Benefit Corporation; Associate General Counsel, First Security Benefit Life Insurance and Annuity of New York; Vice President & Assistant Secretary, Rydex Series Funds, Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust; Vice
President & Secretary, Rydex Holdings, LLC Secretary, Advisor Research Center, Inc., Rydex Specialized Products, LLC, Guggenheim Distributors, LLC and Rydex Fund Services, LLC; and Assistant Secretary, Security Benefit Clinic and
Hospital
Senior Vice President & Secretary, Security Global Investors,
LLC (2007-2011); Senior Vice President & Secretary, Rydex Advisors, LLC and Rydex Advisors II, LLC (2010); and Director, Brecek & Young Advisors, Inc. (2004-2008)
|
Mark A. Mitchell
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 8/24/64)
|
|
Vice
President
|
|
Since
2003
|
|
Current:
Portfolio Manager, Security Investors, LLC
Vice President and Portfolio
Manager, Security Benefit Life Insurance Company (2003-2010)
|
Joseph C. OConnor
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 7/15/60)
|
|
Vice
President
|
|
Since
2008
|
|
Current:
Portfolio Manager, Security Investors, LLC.
Managing Director, Nationwide
Separate Accounts LLC. (2003-2008)
|
Daniel W. Portanova
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 10/2/60)
|
|
Vice
President
|
|
Since
2008
|
|
Current:
Portfolio Manager, Security Investors, LLC.
Managing Director, Nationwide
Separate Accounts LLC. (2003-2008)
|
James P. Schier
One Security Benefit Place
Topeka, KS 66636-0001
(DOB 12/28/57)
|
|
Vice
President
|
|
Since
1998
|
|
Current: Senior
Portfolio Manager, Security Investors, LLC
Vice President & Senior
Portfolio Manager, Security Benefit Life Insurance Company (1998-2010)
|
1 Officers serve until the next annual meeting or their successors are duly elected and
qualified.
|
C
OMMITTEES
Audit Committee
The Board of Directors has an Audit Committee, the purpose of which is to meet with the independent registered public accountants, to review the work of the auditors, and to oversee the handling by the Investment Manager of the accounting
functions for the Funds. The Audit Committee consists of the following Independent Directors: Messrs. Chubb, Craig, Farley and Oliverius and Ms. Lumpkin. The Audit Committee held two meetings during the fiscal year ended September 30,
2012.
29
Contract Renewal Committee
The Board of Directors has a Contract
Renewal Committee, the purpose of which is to meet in advance of the annual contract renewal meeting and review relevant information before voting on whether to renew a Funds investment advisory agreements. The Committee also considers whether
additional information should be requested from management in connection with the annual review of the Funds advisory agreements. The Contract Renewal Committee consists of the following Independent Directors: Messrs. Craig, Chubb, Farley and
Oliverius and Ms. Lumpkin. The Committee met once during the fiscal year ended September 30, 2012.
Nominating Committee
The Board of Directors has established a Nominating Committee for the purpose of
considering and presenting to the Board candidates it proposes for nomination to fill independent director vacancies on the Board. Specific qualifications of candidates for Board membership will be based on the needs of the Board at the time of
nomination. The Nominating Committee is willing to consider nominations received from shareholders and shall assess shareholder nominees in the same manner as it reviews its own nominees. A shareholder nominee for Director should be submitted in
writing to the Funds Secretary. Any such shareholder nomination should include, at a minimum, the following information as to each individual proposed for nominations as Director: such individuals written consent to be named in the proxy
statement as a nominee (if nominated) and to serve as a Director (if elected) and all information relating to such individual that is required to be disclosed in the solicitation of proxies for election of Directors, or is otherwise required, in
each case under applicable federal securities laws, rules and regulations. The Nominating Committee consists of Messrs. Chubb and Oliverius and Ms. Lumpkin. The Nominating Committee held no meetings during the fiscal year ended
September 30, 2012.
R
EMUNERATION
O
F
D
IRECTORS
A
ND
O
THERS
The Independent Directors of the Funds receive from the Family of Funds an annual retainer of $50,000 and a fee of $6,000 per meeting, plus reasonable travel costs, for each meeting of the board attended.
Mr. Chubb, the Lead Independent Director of the Funds, will receive an additional annual retainer of $5,000. In addition, the Independent Directors of the Funds will receive $8,000 per meeting of the Audit Committee and $3,500 per meeting of
any other Board committee, plus reasonable travel costs, for each Board committee meeting attended. An amount of $2,500 will be paid to Independent Directors who participate in a telephone board meeting for which there is an agenda, minutes, and a
duration of one hour or more. Each Fund pays proportionately its respective share of Independent Directors fees and expenses based on relative net assets.
The Investment Manager compensates its officers and directors who may also serve as officers or directors of the Funds. The Funds do not pay any fees to, or reimburse expenses of, directors who are
considered interested persons of the Funds. The aggregate compensation paid by the Funds to each of the directors during the fiscal year ended September 30, 2012, and the aggregate compensation paid to each of the independent
directors during the fiscal year ended September 30, 2012 by the Family of Funds, are set forth below. Each of the directors is a director of other registered investment companies in the Family of Funds, as defined on page 30 of this Statement
of Additional Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Names of Independent
Directors of the Fund
|
|
Aggregate Compensation
|
|
|
Pension
or
Retirement Benefits
Accrued as Part of
Fund Expenses
|
|
|
Estimated Annual
Benefits
Upon
Retirement
|
|
|
Total
Compensation
from the
Family
of
Funds,
Including the
Funds
|
|
|
Security
Large Cap
Value Fund
|
|
|
Security
Equity Fund
|
|
|
Security Mid
Cap Growth
Fund
|
|
|
|
|
Donald A. Chubb, Jr.
|
|
$
|
1,196.56
|
|
|
$
|
47,927.73
|
|
|
$
|
1,818.42
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
103,500.00
|
|
Harry W. Craig, Jr.
|
|
|
1,046.26
|
|
|
|
41,907.83
|
|
|
|
1,590.02
|
|
|
|
0
|
|
|
|
0
|
|
|
|
93,000.00
|
|
Penny A. Lumpkin
|
|
|
1,075.17
|
|
|
|
43,065.50
|
|
|
|
1,633.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
90,500.00
|
|
Maynard F. Oliverius
|
|
|
1,075.17
|
|
|
|
43,065.50
|
|
|
|
1,633.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
93,000.00
|
|
Jerry B. Farley
|
|
|
1,075.17
|
|
|
|
43,065.50
|
|
|
|
1,633.94
|
|
|
|
0
|
|
|
|
0
|
|
|
|
93,000.00
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Names of Directors
who are Interested
Persons of the Fund
|
|
Aggregate Compensation
|
|
|
Pension
or
Retirement Benefits
Accrued as Part of
Fund Expenses
|
|
|
Estimated Annual
Benefits
Upon
Retirement
|
|
|
Total
Compensation
from the Family
of
Funds,
Including the
Funds
|
|
|
Security
Large Cap
Value Fund
|
|
|
Security
Equity Fund
|
|
|
Security Mid
Cap Growth
Fund
|
|
|
|
|
Richard M. Goldman
1
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Donald C. Cacciapaglia
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
1
|
Mr. Goldman
is no longer a Director, effective as of April 16, 2012.
|
P
RINCIPAL
H
OLDERS
O
F
S
ECURITIES
On January 1, 2013, the Funds officers and directors (as a group) beneficially owned 1.43% of the outstanding Class A shares of the Alpha Opportunity Fund, 1.29% of the outstanding
Class A shares of the Small Cap Value Fund and less than 1% of the total outstanding shares of any remaining class of the Funds.
As of January 1, 2013, the following entities owned, of record and beneficially unless otherwise indicated, 5% or more of a class of a Funds outstanding securities:
|
|
|
|
|
|
|
|
|
Name of Shareholder
|
|
Fund Owned
|
|
Class Owned
|
|
Percentage
Owned
|
|
MICHAEL J ALLARD, AND IRENE M ALLARD CO-TRUSTEES, MICHAEL J ALLARD & IRENE M
ALLARD,
REV LIV TRUST
5640 CHICKADEE LN
CLARKSTON MI 48346-2903
|
|
Large Cap Core
|
|
Class C
|
|
|
5.65
|
|
SECURITY FINANCIAL RESOURCES
5801 SW 6TH AVE
TOPEKA KS
66636-1000
|
|
Large Cap Concentrated Growth
|
|
Class A
|
|
|
15.59
|
|
|
Large Cap Value
|
|
Class A
|
|
|
19.02
|
|
|
Mid Cap Growth
|
|
Class A
|
|
|
17.06
|
|
|
Mid Cap Value
|
|
Class A
|
|
|
13.5
|
|
|
Small Cap Growth
|
|
Class A
|
|
|
38.47
|
|
|
Small Cap Value
|
|
Class A
|
|
|
44.11
|
|
|
Alpha Opportunity
|
|
Class A
|
|
|
56.71
|
|
PERSHING LLC
PO BOX 2052
JERSEY CITY NJ 07303-2052
|
|
Large Cap Concentrated Growth
|
|
Class C
|
|
|
12.3
|
|
|
Mid Cap Growth
|
|
Class C
|
|
|
5.39
|
|
|
Mid Cap Value
|
|
Class B
|
|
|
12.61
|
|
|
Mid Cap Value
|
|
Class C
|
|
|
6.73
|
|
|
Alpha Opportunity
|
|
Class B
|
|
|
14.21
|
|
|
Alpha Opportunity
|
|
Class C
|
|
|
5.33
|
|
SECURITY BENEFIT CORP RET PROGRAMS
ONE SECURITY BENEFIT PL
TOPEKA KS
66636-1000
|
|
Large Cap Concentrated Growth
|
|
Class C
|
|
|
15.61
|
|
|
Large Cap Core
|
|
Class C
|
|
|
17.37
|
|
|
Large Cap Value
|
|
Class C
|
|
|
10.37
|
|
|
Mid Cap Growth
|
|
Class C
|
|
|
8.33
|
|
|
Small Cap Growth
|
|
Class C
|
|
|
18.52
|
|
|
Alpha Opportunity
|
|
Class C
|
|
|
6.05
|
|
SBL VARIABLE ANNUITY ACCOUNT XIV,
SECURITY BENEFIT LIFE INSURANCE CO
5801 SW 6TH
AVE
TOPEKA KS 66636-1000
|
|
Large Cap Core
|
|
Class A
|
|
|
11.21
|
|
|
Large Cap Value
|
|
Class A
|
|
|
20.65
|
|
|
Small Cap Growth
|
|
Class A
|
|
|
6.73
|
|
31
|
|
|
|
|
|
|
|
|
Name of Shareholder
|
|
Fund Owned
|
|
Class Owned
|
|
Percentage
Owned
|
|
BUDDY SONCHAR TRSTE, BTU BLOCK &
CONCRETE INC,
FBO LARRY BUCHANAN
PO BOX 335, SPRINGER
NM 87747-0335
|
|
Large Cap Value
|
|
Class C
|
|
|
5.86
|
|
SECURITY BENEFIT
CORPORATION
ONE SECURITY BENEFIT PL
TOPEKA KS 66636-1000
|
|
Large Cap Value Institutional
|
|
Institutional Class
|
|
|
98.58
|
|
|
Alpha Opportunity
|
|
Institutional Class
|
|
|
100
|
|
BUDDY SONCHAR TRSTE, BTU BLOCK & CONCRETE INC,
FBO ANDRELLITA ROMERO
1905 ARMIJO ST
LAS VEGAS, NM 87701-3687
|
|
Mid Cap Growth
|
|
Class C
|
|
|
6.18
|
|
|
Alpha Opportunity
|
|
Class C
|
|
|
9.39
|
|
NFS LLC, FBO RICHARD L KITE AND ANGIE V KITE
1302 ABINGTON PL
N TONAWANDA NY
14120-1970
|
|
Mid Cap Value
|
|
Class C
|
|
|
6.73
|
|
CHARLES SCHWAB & CO INC
101 MONTGOMERY ST
SAN FRANCISCO CA
94104-4151
|
|
Mid Cap Value Institutional
|
|
Institutional Class
|
|
|
28.1
|
|
SECURITY BENEFIT LIFE INS CO TRSTE, SBG PENSION PLAN
1 SW SECURITY BENEFIT PL
TOPEKA KS
66636-1000
|
|
Small Cap Growth
|
|
Class A
|
|
|
5.99
|
|
CHARLES SCHWAB & CO INC
9601 E PANORAMA CIR DEN2-02-052 ENGLEWOOD CO 80112-3441
|
|
Small Cap Value
|
|
Class A
|
|
|
12.73
|
|
KATHY HEMPHILL WALKER (SEP)
PO BOX 27849
PANAMA CITY FL
32411-7849
|
|
Alpha Opportunity
|
|
Class B
|
|
|
9.14
|
|
NFS LLC, FBO PATRICIA GOODMAN
6 TUMBLING BROOK RD
TOWACO NJ
07082-1022
|
|
Alpha Opportunity
|
|
Class B
|
|
|
7.4
|
|
STERLING TRUST CO CUST, FBO JAMES PATRICK FREENY
PO BOX 2526
WACO TX 76702-2526
|
|
Alpha Opportunity
|
|
Class C
|
|
|
9.31
|
|
32
D
IRECTORS
O
WNERSHIP
OF
S
ECURITIES
As of December 31, 2012, the Directors of the Funds beneficially owned shares of the Funds in the dollar ranges set forth below and also beneficially owned shares of other mutual funds in the family
of mutual funds overseen by the Directors in the dollar ranges set forth below:
|
|
|
|
|
|
|
Name of Independent
Director
|
|
Name of Fund
|
|
Dollar Range of
Equity Securities in
Fund
|
|
Aggregate Dollar
Range
of Equity Securities in all
Registered Investment
Companies Overseen by
Director in Family of
Investment Companies
|
Donald A. Chubb, Jr.
|
|
Security Large Cap Value
Fund
|
|
$1-10,000
|
|
Over $100,000
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
$10,001-50,000
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
None
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
None
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
$10,001-50,000
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
$10,001-50,000
|
|
|
Security Mid Cap Growth
Fund
|
|
$10,001-50,000
|
|
Harry W. Craig, Jr.
|
|
Security Large Cap Value
Fund
|
|
None
|
|
None
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
None
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
None
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
None
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
None
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
None
|
|
|
Security Mid Cap Growth
Fund
|
|
None
|
|
33
|
|
|
|
|
|
|
Name of Independent
Director
|
|
Name of Fund
|
|
Dollar Range
of Equity Securities
in
Fund
|
|
Aggregate Dollar
Range
of Equity Securities in all
Registered Investment
Companies Overseen by
Director in Family of
Investment Companies
|
Penny A. Lumpkin
|
|
Security Large Cap Value
Fund
|
|
$10,001-50,000
|
|
Over $100,000
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
$10,001-50,000
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
None
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
$10,001-50,000
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
$1-10,000
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
None
|
|
|
Security Mid Cap Growth
Fund
|
|
$10,001-50,000
|
|
Maynard F. Oliverius
|
|
Security Large Cap Value
Fund
|
|
None
|
|
Over $100,000
|
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
Over $100,000
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
Over $100,000
|
|
|
|
|
Security Mid Cap Growth
Fund
|
|
None
|
|
|
34
|
|
|
|
|
|
|
Name of Independent
Director
|
|
Name of Fund
|
|
Dollar Range of
Equity Securities
in
Fund
|
|
Aggregate Dollar
Range
of Equity Securities in all
Registered Investment
Companies Overseen by
Director in Family of
Investment Companies
|
Jerry B. Farley
|
|
Security Large Cap Value
Fund
|
|
None
|
|
Over $100,000
|
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
$50,001-100,000
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
Over $100,000
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
None
|
|
|
|
|
Security Mid Cap Growth
Fund
|
|
None
|
|
|
The following director, an interested person of the Funds, beneficially owned shares of the
Funds in the dollar ranges set forth below and also beneficially owned shares of other mutual funds in the family of mutual funds overseen by the directors in the dollar ranges set forth below:
|
|
|
|
|
|
|
Name of
Interested
Director
|
|
Name of Fund
|
|
Dollar Range of
Equity Securities
in Fund
|
|
Aggregate Dollar
Range
of Equity Securities in all
Registered Investment
Companies Overseen by
Director in Family of
Investment Companies
|
Donald C. Cacciapaglia
|
|
Security Large Cap Value
Fund
|
|
None
|
|
None
|
|
|
Security Large Cap Value
Fund, Large Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Core Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Alpha Opportunity Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Mid Cap Value Institutional Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Large Cap Concentrated Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Growth Fund
|
|
None
|
|
|
|
|
Security Equity Fund,
Small Cap Value Fund
|
|
None
|
|
|
|
|
Security Mid Cap Growth
Fund
|
|
None
|
|
|
35
H
OW
TO
P
URCHASE
S
HARES
Investors may purchase shares of the Funds through broker/dealers, banks, and other financial intermediaries that have an agreement with the Distributor or with Rydex Fund Services, LLC (the
Transfer Agent). The minimum initial investment is $100 with respect to Class A and C shares. The minimum subsequent investment for Class A and C shares is $100 unless made through an Automatic Investment Plan, which allows for
subsequent investments of $20 as described in the prospectus. An application may be obtained from the Transfer Agent.
Effective January 4, 2010, the Funds no longer accept subscriptions for shares from either existing shareholders or from new
shareholders in Class B shares, although such shareholders who have chosen to reinvest their Class B shares dividends and capital gains may continue to reinvest such dividends and capital gains into Class B shares (reinvestment
shares) and these reinvestment shares will be redeemed or rolled into Class A shares along with the Class B shares from which the dividend or capital gains were derived.
Large Cap Value Institutional Fund, Large Cap Core Fund, Alpha Opportunity Fund, Mid Cap Value Institutional Fund, Small Cap Growth Fund,
Small Cap Value Fund, Large Cap Concentrated Growth Fund and Mid Cap Growth Fund offer Institutional Class shares, which are offered primarily for direct investment by institutions such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations and corporations. Institutional Class shares may also be offered through certain authorized financial intermediaries that charge their customers transaction or other fees with respect to their customers investments in
the Funds. The minimum initial investment for Institutional Class shares is $2 million. The minimum initial investment amount may be waived for purchases of Institutional Class shares by the respective Fund.
Orders for the purchase of shares of the Funds will be confirmed at an offering price equal to the NAV per share next determined after
receipt and acceptance of the order in proper form by the Transfer Agent or the Distributor, generally as of the close of the NYSE on that day, plus the sales charge in the case of Class A shares. Orders received by financial intermediaries
prior to the close of the NYSE and received by the Distributor or Transfer Agent prior to the close of that business day will be confirmed at the offering price effective as of the close of the NYSE on that day. Dealers and other financial services
firms are obligated to transmit orders promptly. In addition, pursuant to contractual arrangements with the Distributor or Transfer Agent, orders received by a financial intermediary prior to the close of the NYSE may be sent on the next following
business day and receive the previous days price. Purchase orders by a fund of funds for which the Investment Manager or an affiliate serves as investment manager will be treated as received by a Fund at the same time that the corresponding
purchase orders are received in proper form by the fund of funds and accepted.
The Funds offer you the option to submit
purchase orders through your financial intermediary or send purchase orders by mail and send purchase proceeds by check, wire transfers or ACH. Purchases may also be made online; please visit www.guggenheiminvestments.com for more information. The
Funds do not accept cash or cash equivalents (such as travelers checks, money orders or bearer bonds), government checks, third-party checks, starter checks or checks drawn on a line of credit (including credit card convenience checks),
cashiers checks, and bank checks. The Funds reserve the right to refuse other payment instruments if, in the sole discretion of Fund management, it is deemed to be in the best interests of the Funds. Retirement contributions will be coded for
the year in which they are received unless otherwise instructed in writing at the time of contribution.
The Funds reserve the
right to withdraw all or any part of the offering made by a prospectus and to reject purchase orders.
If you do not specify
which fund(s) in the Family of Funds you want to purchase, your investment will be credited to the US Government Money Market Fund which is offered in a separate prospectus.
As a convenience to investors and to save operating expenses, the Funds do not issue certificates for Fund shares.
36
Cancelled Purchase Orders
The Transfer Agent will ordinarily cancel
your purchase order under the following circumstances:
|
|
|
If your bank does not honor your check for any reason
|
|
|
|
If the Transfer Agent does not receive your wire transfer
|
|
|
|
If the Transfer Agent does not receive your ACH transfer
|
|
|
|
If your bank does not honor your ACH transfer
|
If your purchase order is cancelled for any of these reasons, you will not be entitled to benefit from any increase in NAV that the Fund(s) may have experienced from the time of your order to the time of
its cancellation. In addition, if the Fund(s) NAV decreases in value from the time of your order to the time of its cancellation, the Fund(s) will hold you liable for any losses that it incurs as a result of your cancelled order.
A $50 returned check fee may be imposed on purchase checks returned for insufficient funds.
To obtain same day credit (to get that business days NAV) for your wire purchase order, you should call the Transfer Agent and
provide the following information prior to the cutoff time for the fund(s) you are purchasing:
|
|
|
Fed wire reference number
|
You will receive a confirmation number to verify that your purchase order has been accepted.
If you do not notify the Transfer Agent of the incoming wire, your purchase order may not be processed until the next business day following the receipt of the wire.
Alternative Purchase Options
As explained above, certain of the Funds offer four classes of shares described
below:
Class A Shares - Front-End Load Option.
Class A shares are sold with a
sales charge at the time of purchase. Class A shares are not subject to a sales charge when they are redeemed (except that shares sold in an amount of $1,000,000 or more without a front-end sales charge will be subject to a contingent deferred
sales charge of up to 1% in the event of a redemption within one year of the purchase).
Class B
Shares - Back-End Load Option.
Effective January 4, 2010, Class B shares were no longer open for new subscriptions of shares although such shareholders who have chosen to reinvest their Class B shares dividends and capital gains may
continue to reinvest such dividends and capital gains into Class B shares (reinvestment shares), and these reinvestment shares will be redeemed or rolled into Class A shares along with the Class B shares from which the dividend or
capital gains were derived.
Class B shares are subject to a deferred sales charge if they are redeemed within five years of
the date of purchase. Class B shares will automatically convert to Class A shares at the end of eight years after purchase.
Class C Shares.
Class C shares are sold without a sales charge at the time of purchase, but are subject to a contingent deferred sales charge if they are redeemed within
one year of the date of purchase.
37
Class C Shares - Level Load Option.
If your intermediary has entered into an
agreement to forego receipt of an initial 1.00% sales commission, the Distributor will waive any applicable deferred sales charge when you redeem your Class C shares.
Institutional Class Shares.
Institutional Class shares are sold without a sales charge at the time of purchase and are not subject to a contingent deferred sales charge.
Class A Shares
Class A shares are offered at NAV plus an initial sales charge as follows:
|
|
|
|
|
|
|
|
|
|
|
Amount of Purchase at Offering Price
|
|
Sales
Charge
|
|
Percentage
of
Offering
Price
|
|
|
Percentage
of Net
Amount
Invested
|
|
|
Percentage
Reallowable
to Dealers
|
Prior to the transfer agency conversion described in Custodians, Transfer Agent and Dividend-Paying Agent
|
Less than $50,000
|
|
|
5.75
|
%
|
|
|
6.10
|
%
|
|
5.00%
|
$50,000 but
less than $100,000
|
|
|
4.75
|
|
|
|
4.99
|
|
|
4.00
|
$100,000 but less than $250,000
|
|
|
3.75
|
|
|
|
3.90
|
|
|
3.00
|
$250,000 but less than
$500,000
|
|
|
2.75
|
|
|
|
2.83
|
|
|
2.25
|
$500,000 but less than $1,000,000
|
|
|
2.00
|
|
|
|
2.04
|
|
|
1.75
|
$1,000,000 and over*
|
|
|
None
|
|
|
|
None
|
|
|
(See below)
|
On or after the transfer agency conversion described in Custodians, Transfer Agent and Dividend-Paying Agent
|
Less
than $100,000
|
|
|
4.75
|
|
|
|
4.99
|
|
|
4.00
|
$100,000 but less than
$250,000
|
|
|
3.75
|
|
|
|
3.90
|
|
|
3.00
|
$250,000 but less than $500,000
|
|
|
2.75
|
|
|
|
2.83
|
|
|
2.25
|
$500,000
but less than $1,000,000
|
|
|
2.00
|
|
|
|
2.04
|
|
|
1.75
|
* For investments of $1 million or more, Class A shares are sold at NAV, without any up-front sales charge. However, a 1% CDSC based on the initial purchase price or current market value, whichever is
lower, will be applied to shares sold within 12 months of purchase.
|
Purchases of Class A shares of these Funds in amounts of $1,000,000 or more are at NAV (without a
sales charge), but are subject to a contingent deferred sales charge of 1% in the event of redemption within one year following purchase. For a discussion of the contingent deferred sales charge, see Calculation and Waiver of Contingent
Deferred Sales Charges. The Distributor will pay a commission to dealers on purchases of $1,000,000 or more as follows: 1.00% on sales up to $5,000,000, plus 0.50% on sales of $5,000,000 or more up to $10,000,000, and 0.10% on any amount of
$10,000,000 or more.
The Distributor will pay a commission to dealers on purchases of $1,000,000 or more as follows: 1.00% on
sales up to $5,000,000, plus 0.50% on sales of $5,000,000 or more up to $10,000,000, and 0.10% on any amount of $10,000,000 or more.
As discussed in the prospectus, the Funds have adopted a Distribution Plan for their Class A shares pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes each such Fund to pay as
compensation an annual fee to the Distributor of 0.25% of the average daily NAV of the Class A shares of such Funds to finance various activities relating to the distribution of such shares to investors and the provision of services to such
investors. These expenses include, but are not limited to, the payment of compensation in the form of a service fee as discussed below (including compensation to securities dealers and other financial institutions and organizations) to obtain
various administrative services for the Fund. These services include, among other things, processing new shareholder account applications and serving as the primary source of information to customers in answering questions concerning the Fund and
their transactions with the Fund.
38
Amounts paid by the Funds are currently used to pay dealers and other firms that make
Class A shares available to their customers a service fee for account maintenance and personal service to shareholders. The service fee is payable quarterly in the amount of 0.25%, on an annual basis, of Aggregate Account Value. Aggregate
Account Value is the average daily NAV of Class A accounts opened after July 31, 1990 that were sold by such dealers and other firms and remain outstanding on the books of the Funds. The service fee may also be used to pay for
sub-administration and/or sub-transfer agency services provided for the benefit of the Fund.
Class B Shares
Effective
January 4, 2010, Class B shares were no longer open for new subscriptions of shares. With certain exceptions, the Funds may impose a deferred sales charge on shares redeemed within five years of the date of purchase. No deferred sales charge is
imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is deducted from the redemption proceeds otherwise payable to you. The deferred sales charge is retained by the Distributor.
Whether a contingent deferred sales charge is imposed and the amount of the charge will depend on the number of years since the investor
made a purchase payment from which an amount is being redeemed, according to the following schedule:
|
|
|
|
|
|
|
Year Since Purchase Payment Was
Made
|
|
Contingent Deferred Sales Charge
|
|
First
|
|
|
5
|
%
|
Second
|
|
|
4
|
%
|
Third
|
|
|
3
|
%
|
Fourth
|
|
|
3
|
%
|
Fifth
|
|
|
2
|
%
|
Sixth and Following
|
|
|
0
|
%
|
Class B shares (including shares purchased through the reinvestment of dividends and other distributions
paid with respect to Class B shares) will automatically convert, on the eighth anniversary of the date such shares were purchased, to Class A shares which are subject to a lower distribution fee. This automatic conversion of Class B shares will
take place without imposition of a front-end sales charge or exchange fee. (Conversion of Class B shares represented by stock certificates will require the return of the stock certificates to the Investment Manager.) All shares purchased through
reinvestment of dividends and other distributions paid with respect to Class B shares (reinvestment shares) will be considered to be held in a separate subaccount. Each time any Class B shares (other than those held in the subaccount)
convert to Class A shares, a pro rata portion of the reinvestment shares held in the subaccount will also convert to Class A shares. Class B shares so converted will no longer be subject to the higher expenses borne by Class B shares.
Because the NAV per share of the Class A shares may be higher or lower than that of the Class B shares at the time of conversion, although the dollar value will be the same, a shareholder may receive more or fewer Class A shares than the
number of Class B shares converted. Under current law, it is the Funds opinion that such a conversion will not constitute a taxable event under federal income tax law. In the event that this ceases to be the case, the Board of Directors will
consider what action, if any, is appropriate and in the best interests of Class B shareholders.
Each Fund bears some of the
costs of selling its Class B shares under a Distribution Plan adopted with respect to its Class B shares (Class B Distribution Plan) pursuant to Rule 12b-1 under the 1940 Act. This Plan provides for payments of compensation to the
Distributor at an annual rate of 1.00% of the average daily NAV of Class B shares. Amounts paid by the Funds are used to pay dealers and other firms that make Class B shares available to their customers (1) a commission at the time of purchase
typically equal to 4.00% of the value of each share sold and (2) a service fee for account maintenance and personal service to shareholders payable for the first year, initially, and for each year thereafter, quarterly, in an amount equal to
0.25% annually of the average daily NAV of Class B shares sold by such dealers and other firms and remaining outstanding on the books of the Funds. The service fee may also be used to pay for sub-administration and/or sub-transfer agency services
provided for the benefit of the Fund. Class B shares are closed to new investors and investments. The Distributor may also use the fees payable under the Class B Distribution Plan to make payments to brokers and other financial intermediaries for
past sales and distribution efforts, as well as the provision of ongoing services to shareholders.
39
Class C Shares
Class C shares are offered at NAV, without an initial sales charge. With
certain exceptions, the Funds may impose a deferred sales charge on shares redeemed within one year of the date of purchase (If your intermediary has entered into an agreement to forego receipt of an initial 1.00% sales commission, the Distributor
will waive any applicable deferred sales charge when you redeem your Class C shares). No deferred sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is deducted from the redemption proceeds otherwise
payable to you and is retained by the Distributor.
Each Fund bears some of the costs of selling its Class C shares under a
Distribution Plan adopted with respect to its Class C shares (Class C Distribution Plan) pursuant to Rule 12b-1 under the 1940 Act. This Plan provides for payments of compensation to the Distributor at an annual rate of 1.00% of the
average daily NAV of Class C shares. Amounts paid by a Fund are used to pay dealers and other firms that make Class C shares available to their customers: (1) a commission at the time of purchase normally equal to 0.75% of the value of each
share sold, and for each year thereafter, quarterly, in an amount equal to 0.75% annually of the average daily NAV of Class C shares sold by such dealers and other firms and remaining outstanding on the books of the Fund and (2) a service fee
payable for the first year initially, and for each year thereafter, quarterly, in an amount equal to 0.25% annually of the average daily NAV of Class C shares sold by such dealers and other firms and remaining outstanding on the books of the Fund.
The service fee may also be used to pay for sub-administration and/or sub-transfer agency services provided for the benefit of the Fund. In the case a Fund or Class C shares are closed to new investors or investments, the Distributor also may use
the fees payable under the Class C Distribution Plan to make payments to brokers and other financial intermediaries for past sales and distribution efforts, as well as the provision of ongoing services to shareholders.
Institutional Class Shares
Shares are priced at the NAV next determined after receipt and acceptance of a purchase order by a Funds
transfer agent, Distributor or an authorized financial intermediary. Authorized financial intermediaries of the Funds may also designate further intermediaries to accept purchase and redemption orders on behalf of the Funds. A broker/dealer or other
financial intermediary may charge fees in connection with an investment in the Fund. The minimum initial investment is $2 million. Fund shares purchased directly from the Fund are not assessed such additional charges.
Specific eligibility requirements that apply to prospective investors of Institutional Class shares include:
|
|
|
Employee benefit plan programs that have at least $25 million in plan assets.
|
|
|
|
Broker/dealer managed account or wrap programs that charge an asset-based fee, have program assets of at least $50 million, and invest in the Funds via
omnibus accounts.
|
|
|
|
Registered investment adviser mutual fund wrap programs that charge an asset-based fee, have program assets of at least $50 million, and invest in the
Funds via omnibus accounts.
|
|
|
|
Section 529 college savings plan accounts pursuant to the Internal Revenue Code of 1986, as amended (the Code).
|
|
|
|
Funds of Funds advised by Security Investors, LLC or its affiliates;
|
|
|
|
Funds of Funds advised by unaffiliated investment advisers.
|
|
|
|
Institutions that invest the minimum initial investment amount in a Fund.
|
The Funds reserve the right to waive the minimum initial investment amount of $2 million or to grant other investors eligibility to
invest in the shares of the Funds at their discretion.
Minimum Account Balance
The Institutional
Class shares have a minimum account balance of $1 million. Due to the relatively high cost of maintaining accounts below the minimum account balance, the Funds with Institutional Class shares reserve the right to redeem shares if an account balance
falls below the minimum account balance for any reason. Investors will be given 60 days advance notice to reestablish the minimum account balance. If the account balance is not increased, the account may be closed, and the proceeds sent to the
investor. Fund shares will be redeemed at NAV on the day the account is closed.
40
Distribution Plans
The Large Cap Value, Large Cap Core, Alpha
Opportunity, Mid Cap Value, Large Cap Concentrated Growth, Small Cap Growth, Small Cap Value, and Mid Cap Growth Funds have adopted Distribution Plans pursuant to Rule 12b-1 under the 1940 Act. Each of these Funds has enacted a distribution plan
applicable to its Class A, Class B, and Class C shares with the exception of Small Cap Value Fund, which has only enacted a distribution plan applicable to its Class A and Class C shares.
Under these Distribution Plans, the Distributor is authorized to pay service fees and commissions to dealers and other firms that sell
(or have sold) shares of the applicable class, engage in advertising, prepare and distribute sales literature and engage in other promotional activities on behalf of the Fund. The Distributor is required to report in writing to the Board of
Directors regarding the payments made and services provided under the Plans, and the Board will review at least quarterly, the amounts and purposes of any payments made under each Plan. The Distributor is also required to furnish the Board with such
other information as may reasonably be requested in order to enable the Board to make an informed determination of whether the Plan should be continued.
Each Plan will continue from year to year, provided that such continuance is approved at least annually by a vote of a majority of the Board of Directors of the Fund, including a majority of the
independent directors cast in person at a meeting called for the purpose of voting on such continuance. Any agreement relating to the implementation of the Plan terminates automatically if it is assigned. The Plan may not be amended to increase
materially the amount of distribution payments thereunder without approval of the shareholders of the applicable class of the Fund.
Because all amounts paid pursuant to the Distribution Plan are paid to the Distributor, the Investment Manager and its officers, directors and employees all may be deemed to have a direct or indirect
financial interest in the operation of the Distribution Plan. None of the Independent Directors has a direct or indirect financial interest in the operation of the Distribution Plan.
Benefits from the Distribution Plan may accrue to the Fund and its shareholders from the growth in assets due to sales of shares to the
public and/or retention of existing fund assets, which may benefit shareholders by reducing per share expenses, permitting increased investment flexibility and diversification of such Funds assets, and facilitating economies of scale (e.g.,
block purchases) in the Funds securities transactions.
Rules established by the Financial Industry Regulatory Authority
(FINRA) limit the aggregate amount that a Fund may pay annually in distribution costs for the sale of its shares to 6.25% of gross sales of shares since the inception of the Distribution Plan, plus interest at the prime rate plus 1% on
such amount (less any contingent deferred sales charges paid by shareholders to the Distributor or distribution fee (other than service fees) paid by the Fund to the Distributor). The Distributor monitors this limit with regard to each of the
Funds share classes. The Distributor intends, but is not obligated, to continue to pay or accrue distribution charges incurred in connection with a Distribution Plan which exceed current annual payments permitted to be received by the
Distributor from the Funds. The Distributor intends to seek full payment of such charges from the Fund (together with annual interest thereon at the prime rate plus 1%) at such time in the future as, and to the extent that, payment thereof by the
Funds would be within permitted limits.
A Distribution Plan may be terminated at any time by vote of directors who are not
interested persons of the Fund as defined in the 1940 Act or by vote of a majority of the outstanding shares of the applicable class. In the event a Distribution Plan is terminated by the shareholders or the Funds Board of Directors, the
payments made to the Distributor pursuant to the Plan up to that time would be retained by the Distributor. Any expenses incurred by the Distributor in excess of those payments would be absorbed by the Distributor. The Funds make no payments in
connection with the sales of their shares other than the distribution fee paid to the Distributor.
41
Rule 12b-1 Plan Expenses
For the fiscal year ended
September 30, 2012, the following 12b-1 payments were made for each Fund to the Distributor under the Rule 12b-1 Distribution Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation to Distributor
2
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
Large Cap Value Fund
|
|
$
|
110,409
|
|
|
$
|
0
|
1
|
|
$
|
21,948
|
|
Large Cap Core Fund
|
|
|
440,201
|
|
|
|
51,560
|
|
|
|
17,294
|
|
Alpha Opportunity Fund
|
|
|
18,634
|
|
|
|
7,681
|
|
|
|
14,819
|
|
Mid Cap Value Fund
|
|
|
2,502,659
|
|
|
|
266,451
|
|
|
|
2,006,329
|
|
Large Cap Concentrated Growth Fund
|
|
|
64,826
|
|
|
|
28,670
|
|
|
|
31,038
|
|
Small Cap Growth Fund
|
|
|
30,789
|
|
|
|
11,993
|
|
|
|
17,328
|
|
Small Cap Value Fund
|
|
|
28,667
|
|
|
|
0
|
|
|
|
33,161
|
|
Mid Cap Growth Fund
|
|
|
177,437
|
|
|
|
30,559
|
|
|
|
43,766
|
|
The 12b-1 Plans are compensation plans which means that all amounts generated under the plans are paid to the
Distributor irrespective of the actual costs incurred by the Distributor in distributing the Funds. The Distributor is the Underwriter of the Funds. Because all the 12b-1 payments are made to the Distributor, the Funds that adopted the Distribution
Plans pay no fees directly for advertising, printing and mailing of prospectuses to prospective shareholders, compensation to broker/dealers, compensation to sales personnel, or interest carrying or other financing charges. The Distributor may use
part or all of the amounts received from the Funds to pay for these services and activities.
1
|
Effective August 1, 2007, Class B shares ceased charging 12b-1 fees. This fee may be reinstated at any time.
|
2
|
The Compensation to Distributor was paid to the Funds former underwriter, Security Distributors, Inc. Effective March 16, 2009, Guggenheim Distributors, LLC.
became a distributor of the Funds, and after October 16, 2009, all Compensation to Distributor will be paid solely to Guggenheim Distributors, LLC.
|
The 12b-1 Plans are compensation plans which means that all amounts generated under the plans are paid to the Distributor irrespective of the actual costs incurred by the Distributor in
distributing a Fund. The Distributor is the Underwriter of a Fund. Because all the 12b-1 payments are made to the Distributor, a Fund that adopted the Distribution Plans paid no fees directly for advertising, printing and mailing of prospectuses to
prospective shareholders, compensation to broker/dealers, compensation to sales personnel, or interest carrying or other financing charges. The Distributor may use part or all of the amounts received from a Fund to pay for these services and
activities.
Calculation and Waiver of Contingent Deferred Sales Charges
Any contingent deferred
sales charge imposed upon redemption of Class A shares (purchased in amounts of $1,000,000 or more), Class B shares or Class C shares is a percentage of the lesser of (1) the NAV of the shares redeemed or (2) the net cost of such
shares. No contingent deferred sales charge is imposed upon redemption of amounts derived from (1) increases in the value above the net cost of such shares due to increases in the NAV per share of the Fund; (2) shares acquired through
reinvestment of income dividends and capital gain distributions; or (3) Class A shares or Class C shares held for more than one year, or Class B shares held for more than five years. Upon request for redemption, shares not subject to the
contingent deferred sales charge will be redeemed first. Thereafter, shares held the longest will be the first to be redeemed.
The contingent deferred sales charge is waived: (1) following the death of a shareholder if redemption is made within one year after
death; (2) upon the disability (as defined in section 72(m)(7) Code of a shareholder prior to age 65 if redemption is made within one year after the disability, provided such disability occurred after the shareholder opened the account;
(3) in connection with required minimum distributions in the case of an IRA, SARSEP or Keogh or any other retirement plan qualified under Section 401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under Section 401(a) or 401(k) of the Code due to (i) returns of excess contributions to the plan, (ii) retirement of a participant in the plan, (iii) a loan from
42
the plan (repayment of loans, however, will constitute new sales for purposes of assessing the contingent deferred sales charge), (iv) financial hardship of a participant in the
plan, as that term is defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to time, (v) termination of employment of a participant in the plan, (vi) any other permissible withdrawal under the terms of the
plan. The contingent deferred sales charge will also be waived in the case of certain redemptions of Class B or Class C shares of the Funds pursuant to a systematic withdrawal plan. (See Systematic Withdrawal Plan)
Arrangements With Broker/Dealers and Others
The Investment Manager or Distributor, from time to time, will pay a
bonus to certain dealers whose representatives have sold or are expected to sell significant amounts of the Funds and/or certain other funds managed by the Investment Manager. Bonus compensation may include reallowance of the entire sales charge and
may also include, with respect to Class A shares, an amount which exceeds the entire sales charge and, with respect to Class C shares, an amount which exceeds the maximum commission. The Distributor, or the Investment Manager, may also provide
financial assistance to certain dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns, and/or shareholder services and programs regarding one or more of the
Funds managed by the Investment Manager. In addition, the Investment Manager or Distributor may sponsor training or education meetings at various locations. In connection with such meetings it is expected that the Investment Manager or Distributor
would pay the travel, lodging and other expenses of representatives of the dealers in attendance. The Funds Transfer Agent or Distributor may also pay certain transaction or order processing costs incurred by dealers who sell Fund shares
through clearing dealers. Certain of the foregoing arrangements may be financed by payments to the Distributor under a Rule 12b-1 Distribution Plan. These arrangements do not change the price an investor will pay for shares or the amount that the
Funds will receive from such sale. No compensation will be offered to the extent it is prohibited by the laws of any state or self-regulatory agency, such as the Financial Industry Regulatory Authority (FINRA). A dealer to whom
substantially the entire sales charge of Class A shares is reallowed may be deemed to be an underwriter under federal securities laws.
The Distributor also may pay banks and other financial services firms that facilitate transactions in shares of the Funds for their clients a transaction fee up to the level of the payments made allowable
to dealers for the sale of such shares as described above.
Other Distribution or Service Arrangements
The Investment Manager, Distributor or their affiliates, out of their own resources and not out of Fund assets (i.e., without additional cost to the Funds or their shareholders), may provide additional cash payments or non-cash compensation
to some, but not all, broker/dealers and other financial intermediaries (including payments to affiliates of the Investment Manager or Distributor) who sell shares of the Funds or render investor services to Fund shareholders (directly or indirectly
via sales of variable insurance contracts or the provision of services in connection with retirement plans). Such payments and compensation are in addition to any sales charges paid by investors or Rule 12b-1 plan fees, service fees and other fees
paid, directly or indirectly, by the Funds to such brokers and other financial intermediaries. These arrangements are sometimes referred to as revenue sharing arrangements. Revenue sharing arrangements are not financed by the Funds, and
thus, do not result in increased Fund expenses. They are not reflected in the fees and expenses listed in the fees and expenses sections of the Funds prospectuses, and they do not change the price paid by investors for the purchase of a
Funds shares or the amount received by a shareholder as proceeds from the redemption of Fund shares.
Such compensation
may be paid to intermediaries that provide services to the Funds and/or shareholders in the Funds, including (without limitation) shareholder servicing, marketing support and/or access to sales meetings, sales representatives and management
representatives of the intermediary. Such compensation may also be paid to intermediaries for inclusion of the Funds on a sales list, including a preferred or select sales list, in other sales programs, or as an expense reimbursement or compensation
in cases where the intermediary provides services to Fund shareholders. To the extent permitted by applicable law, the Distributor and other parties may pay or allow other incentives and compensation to such financial intermediaries. The Distributor
generally periodically assesses the advisability of continuing to make these payments.
43
These payments may take a variety of forms, including (without limitation) compensation for
sales, trail fees for shareholder servicing and maintenance of investor accounts, and finders fees. Revenue sharing payments may be structured: (1) as a percentage of net sales; (2) as a percentage of net assets; and/or
(3) as a fixed dollar-amount.
As of the date of this Statement of Additional Information, the Distributor and/or
Investment Manager have revenue sharing arrangements with the following financial intermediaries:
|
|
|
Financial Intermediary
|
|
Basis of Payment
|
Legend Equities Corporation
|
|
For calendar year, 0.10% of sales if less
than $10 million; 0.15% of sales if $10 million or more but less than $30 million; and 0.25% of sales if $30 million or more; plus 0.05% of assets.
|
NEXT Financial Group, Inc.
|
|
0.20% of sales
|
Retirement Plan Advisors
|
|
$8,000 per month up to assets under
management of $100 million; $10,000 per month after assets under management of $100 million
|
First Security Benefit Life Insurance and Annuity Company of New
York
|
|
0.25% of average daily net
assets
|
Security Benefit Life Insurance Company
|
|
0.25% of average daily net
assets
|
Security Financial Resources, Inc.
|
|
0.25% of average daily net
assets
|
The Distributor may enter into revenue sharing arrangements with other financial intermediaries and may
modify existing revenue sharing arrangements with the intermediaries indicated above.
In addition, while the Distributor
typically pays most of the sales charge applicable to the sale of fund shares to brokers and other financial intermediaries through which purchases are made, the Distributor may, on occasion, pay the entire sales charge.
From time to time, the Distributor and its affiliates may also pay non-cash compensation to brokers and other financial intermediaries in
the form of, for example: (1) occasional gifts; (2) occasional meals, tickets or other entertainment; and/or (3) sponsorship support of regional or national events. For example, representatives of the Distributor visit brokers and
other financial intermediaries on a regular basis to educate them about the Funds and to encourage the sale of Fund shares to their clients. The costs and expenses associated with these efforts may include travel, lodging, sponsorship at educational
seminars and conferences, entertainment and meals to the extent permitted by law.
The compensation or reimbursement received
by brokers and other financial intermediaries through sales charges, fees payable from the Funds, and/or revenue sharing arrangements for selling shares of the Funds may be more or less than the overall compensation or reimbursement on similar or
other products and may influence your broker or other financial intermediary to present and recommend the Funds over other investment options available in the marketplace. In addition, depending on the arrangements in place at any particular time,
your broker or other financial intermediary may have a financial incentive for recommending a particular class of Fund shares over other share classes.
Shareholders may obtain more information about these arrangements, including the conflicts of interests that such arrangements may create, from their brokers and other financial intermediaries and should
so inquire if they would like additional information. A shareholder may ask his/her broker or financial intermediary how he/she will be compensated for investments made in the Funds.
Although a Fund may use financial firms that sell Fund shares to effect transactions for the Funds portfolio, the Funds, the
Investment Manager, and the Funds Sub-Advisers will not consider the sale of Fund shares as a factor when choosing financial firms to effect those transactions.
44
Purchases At Net Asset Value
Class A shares of the Funds may
be purchased at NAV by (1) directors and officers of the Funds or other mutual funds managed by the Investment Manager or one or more of its affiliates; directors, officers and employees of the Funds Investment Manager or Distributor and
their affiliates; spouses or minor children of any such agents; as well as the following relatives of any such directors, officers and employees (and their spouses): spouses, grandparents, parents, children, grandchildren, siblings, nieces and
nephews; (2) any trust, pension, profit sharing or other benefit plan established by any of the foregoing corporations for persons described above; (3) retirement plans where third party administrators of such plans have entered into
certain arrangements with the Distributor or its affiliates; and (4) officers, directors, partners or registered representatives (and their spouses and minor children) of broker/ dealers who have a selling agreement with the Distributor. Such
sales are made upon the written assurance of the purchaser that the purchase is made for investment purposes and that the securities will not be transferred or resold except through redemption or repurchase by or on behalf of the Funds.
Class A shares of the Funds may be purchased at net asset value when the purchase is made on the recommendation of (1) a registered
investment adviser, trustee or financial intermediary who has authority to make investment decisions on behalf of the investor; or (2) a certified financial planner or registered broker/dealer who either charges periodic fees to its customers
for financial planning, investment advisory or asset management services, or provides such services in connection with the establishment of an investment account for which a comprehensive wrap fee is imposed. Class A shares may be
purchased at net asset value by customers of financial intermediaries that have a contractual arrangement with the Distributor or Investment Manager where such contract provides for the waiver of the front-end sales charge, including shares offered
in self-directed brokerage accounts that may or may not charge a transaction fee to its customers.
The Distributor must be
notified when a purchase is made that qualifies under any of the above provisions.
A shareholder of Large Cap Core Fund who
formerly invested in the Bondstock Investment Plans or Life Insurance Investors Investment Plans received Class A shares of Large Cap Core Fund in liquidation of the Plans. Such a shareholder may purchase Class A shares of Large Cap Core
Fund at NAV provided that such shareholder maintains his or her Large Cap Core Fund account.
Purchases for
Retirement Plans
Prior to February 1, 2012, Class A shares of the Funds could also be purchased at net asset value when the purchase was made by a retirement plan that would (1) buy shares of funds in the Family of Funds
worth $500,000 or more; (2) have 100 or more eligible employees at the time of purchase; (3) certify it expected to have annual plan purchases of shares of funds in the Family of Funds of $200,000 or more; (4) be provided
administrative services by certain third party administrators that had entered into a special service arrangement with funds in the Family of Funds relating to such plans; or (5) have at the time of purchase, aggregate assets of at least
$1,000,000. Any retirement plan that had such an arrangement in place effective as of February 1, 2012 may continue such arrangement for the life of the plan or until the Funds Board of Directors elects to terminate such arrangement,
whichever is earlier. Purchases made pursuant to this provision may be subject to a deferred sales charge of up to 1% in the event of a redemption within one year of the purchase.
45
A
UTOMATIC
I
NVESTMENT
P
LAN
Investors in
Class A and C shares of the Funds may purchase shares on a periodic basis under an Automatic Investment Plan which provides for an initial investment of $100 minimum, and subsequent investments of $20 minimum at any time. An Automatic
Investment Plan is a voluntary program, involving no obligation to make periodic investments, and is terminable at will. Payments are made by sending a check to the Distributor who (acting as an agent for the dealer) will purchase whole and
fractional shares of the Funds as of the close of business on the day such payment is received. A confirmation and statement of account will be sent to the investor following each investment. Certificates for whole shares will be issued upon
request. No certificates will be issued for fractional shares which may be withdrawn only by redemption for cash.
Investors
may choose to use an ACH to make their Fund purchases. There is no additional charge for using an Automatic Investment Plan. Withdrawals may occur up to three business days before the date scheduled to purchase Fund shares. An application may be
obtained from the Funds. Please visit the Customer Service section of the www.guggenheiminvestments.com web site to obtain the On Demand and Automatic Investment Request form.
S
YSTEMATIC
W
ITHDRAWAL
P
LAN
(Not available for Institutional
Funds or Institutional Class shares.) A Systematic Withdrawal Plan may be established by shareholders who wish to receive regularly scheduled payments. Please refer to the Systematic Withdrawal Plan Request form for additional payment options. The
form can be found within the Customer Service section of the www.guggenheiminvestments.com website. There is no service charge on the Plan.
Sufficient shares will be liquidated at NAV to meet the specified withdrawals. Liquidation of shares may deplete or possibly use up the investment, particularly in the event of a market decline. Payments
cannot be considered as actual yield or income since part of such payments is a return of capital and may constitute a taxable event to the shareholder. The maintenance of a Withdrawal Plan concurrently with purchases of additional shares of the
Fund would be disadvantageous because of the sales commission payable in respect to such purchases. During the withdrawal period, no payments will be accepted under an Automatic Investment Plan. Income dividends and capital gains distributions are
automatically reinvested at NAV.
A shareholder may establish a Systematic Withdrawal Plan with respect to Class B or Class C
shares without the imposition of the applicable contingent deferred sales charge, provided that such withdrawals do not in any 12-month period, beginning on the date the Plan is established, exceed 10% of the value of the account on that date
(Free Systematic Withdrawals). Free Systematic Withdrawals are not available if a Plan established with respect to Class B or Class C shares provides for withdrawals in excess of 10% of the value of the account in any Plan year, and, as
a result, all withdrawals under such a Plan would be subject to any applicable contingent deferred sales charge. Free Systematic Withdrawals will be made first by redeeming those shares that are not subject to the contingent deferred sales charge
and then by redeeming shares held the longest. The contingent deferred sales charge applicable to a redemption of Class B and Class C shares requested while Free Systematic Withdrawals are being made will be calculated as described under
Calculation and Waiver of Contingent Deferred Sales Charges. A Systematic Withdrawal Form may be obtained from the Funds.
The shareholder receives confirmation of each transaction showing the source of the payment and the share balance remaining in the Plan. A Plan may be terminated on written notice by the shareholder or by
the Fund, and it will terminate automatically if all shares are liquidated or withdrawn from the account.
46
I
NVESTMENT
M
ANAGEMENT
The Investment Manager, Security
Investors, LLC, located at 805 King Farm Boulevard, Suite 600, Rockville, Maryland, has served as investment adviser to Security Large Cap Value Fund, Security Equity Fund, and Security Mid Cap Growth Fund since April 1,
1964, January 1, 1964, and April 22, 1965, respectively. The Investment Manager also acts as investment adviser to Security Income Fund and SBL Fund, and since January 2011, to the Rydex ETF Trust, Rydex Series Funds, Rydex Dynamic
Funds and the Rydex Variable Trust. The Investment Manager is a wholly owned subsidiary of SBC. On July 30, 2010, Guggenheim SBC Holdings, LLC, an investor group managed by Guggenheim Partners, LLC (Guggenheim), acquired control of SBC.
On February 29, 2012, Guggenheim Capital, LLC, the parent company of Guggenheim, acquired Security Benefit Asset Management Holdings, LLC, the indirect holding company of Security Investors and certain affiliated businesses. Guggenheim is a global,
independent, privately held, diversified financial services firm with more than $100 billion in assets under supervision.
Investment
Management Agreement
Pursuant to the Investment Management Agreements (the Agreements), the Investment Manager has in place with each of Security Equity Fund Large Cap Core Fund, Alpha Opportunity Fund, Mid Cap Value
Fund, Mid Cap Value Institutional Fund, Large Cap Concentrated Growth Fund, Small Cap Growth Fund, and Small Cap Value Fund; Security Large Cap Value Fund Large Cap Value Fund and Large Cap Value Institutional Fund; and Security Mid Cap
Growth Fund Mid Cap Growth Fund, the Investment Manager furnishes investment advisory, statistical and research services to the Funds, supervises and arranges for the purchase and sale of securities on behalf of the Funds, and provides for
the compilation and maintenance of records pertaining to the investment advisory function.
The Investment Manager has agreed
to reimburse the Funds or waive a portion of its management fee for any amount by which the total annual expenses of the Funds (including management fees, but excluding interest, taxes, brokerage commissions, extraordinary expenses and Class A,
Class B and Class C distribution fees) for any fiscal year exceeds the level of expenses which the Funds are permitted to bear under the most restrictive expense limitation imposed by any state in which shares of the Funds are then qualified for
sale. (The Investment Manager is not aware of any state that currently imposes limits on the level of mutual fund expenses.)
In addition, the Investment Manager has agreed to reduce its advisory fees and make payments to the extent necessary to limit the
ordinary operating expenses (including distribution fees but not brokerage costs, dividends on securities sold short, interest, taxes, litigation, indemnification, acquired fund fees and expenses, or extraordinary expenses) of the Fund share Classes
listed below to the listed percentages of the Funds average daily net assets.
|
|
|
|
|
Fund
|
|
Class
|
|
Expense Cap
|
Large Cap Value Fund
|
|
A
|
|
1.15%
|
|
B
|
|
1.90%
|
|
C
|
|
1.90%
|
Mid Cap Value Institutional Fund
|
|
Institutional
|
|
0.90%
|
Alpha Opportunity Fund
|
|
A
|
|
2.11%
|
|
B
|
|
2.86%
|
|
C
|
|
2.86%
|
|
Institutional
|
|
1.86%
|
Large Cap Concentrated Growth Fund
|
|
A
|
|
1.35%
|
|
B
|
|
2.10%
|
|
C
|
|
2.10%
|
|
Institutional
|
|
1.10%
|
Small Cap Value Fund
|
|
A
|
|
1.30%
|
|
C
|
|
2.05%
|
|
Institutional
|
|
1..05%
|
47
Pursuant to these fee waiver/expense reimbursement arrangements, the Investment Manager is
entitled to reimbursement by the Fund of fees waived or expenses reimbursed during any of the previous 36 months beginning on the date of the expense limitation agreement if on any day the estimated annualized operating expenses are less than the
indicated percentages.
Separate fees are paid by each Fund to the Investment Manager for investment advisory, administrative
and transfer agency services.
|
|
|
Management Fees (Net of Waivers)
(expressed as a percentage of average net assets, calculated daily and paid
monthly)
|
Large Cap Value Fund
|
|
0.65%
|
Large Cap Value Institutional
Fund
|
|
0.65%
|
Large Cap Core Fund
|
|
0.75%
|
Mid Cap Value Institutional
Fund
|
|
0.75%
|
Mid Cap Growth Fund
|
|
0.75%
|
Large Cap Concentrated Growth
Fund
|
|
0.75%
|
Small Cap Value Fund
|
|
1.00%
|
Small Cap
Growth Fund
|
|
0.85%
|
Alpha Opportunity Fund
|
|
1.25%
|
Mid Cap
Value Fund
1
|
|
0.79%
|
1 Mid Cap Value Funds management fee is paid at an annual rate of 1.00% of the average daily net assets of $200 million or less, plus 0.75% of the average daily net assets of the Fund in
excess of $200 million.
|
The Funds Agreements are renewable annually by each Funds Board of Directors or by a vote of
a majority of the individual Funds outstanding securities and, in either event, by a majority of the Board who are not parties to the Agreement or interested persons of any such party. The Agreements provide that they may be terminated without
penalty at any time by either party on 60 days notice and are automatically terminated in the event of assignment.
Pursuant to a Fund Accounting and Administration Agreement with each Fund, as amended, the Investment Manager acts as the administrative
agent for the Funds and, as such, performs administrative functions and bookkeeping, accounting and pricing functions for the Funds. For these services, the Investment Manager receives, on an annual basis, a fee of:
|
1.
|
0.095% for the Large Cap Value Fund; Large Cap Value Institutional Fund; Large Cap Core Fund; Mid Cap Value Fund; Mid Cap Value Institutional Fund; Large Cap
Concentrated Growth Fund; Small Cap Growth Fund; Small Cap Value Fund; and Mid Cap Growth Fund, based on average daily net assets, or $25,000 per Fund per year, whichever is greater.
|
|
2.
|
0.15% for the Alpha Opportunity Fund, based on average daily net assets, or $25,000 per year, whichever is greater.
|
Pursuant to a Transfer Agency Agreement with each Fund, as amended, the Rydex Fund Services, LLC (the Transfer Agent) also
acts as the transfer agent for the Funds. As such, the Transfer Agent performs all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder
communications, and acting as the dividend disbursing agent. For these services, the Transfer Agent receives the following fees with respect to each Class of each Fund:
|
1.
|
Account Set-Up Charge
A fee of $4 to open an account on the Transfer Agents transfer agency system to hold shares of the Funds.
|
48
|
2.
|
Annual Maintenance Charge
An annual per account fee of (1) $8 per open account for regular accounts; (2) $6.50 per open account with respect to
accounts which are Matrix Level III pursuant to the National Securities Clearing Corporation networking systems; and (3) $5 per account for closed accounts that remain outstanding on the I Transfer Agents transfer agency system
(regardless of whether such accounts are regular or Matrix Level III).
|
|
3.
|
Transaction Charge
A per transaction charge of (1) $1.10 per transaction for regular accounts and (2) $0.60 per transaction for accounts that
are Matrix Level III.
|
Each Fund is also subject to a minimum fee per year of $25,000.
In addition, the Fund has agreed to reimburse the Transfer Agent for expenses the Transfer Agent pays to third-party administrators,
broker/dealers, banks, insurance companies or other entities for providing sub-transfer agency services to beneficial shareholders in the Fund.
Each Fund pays all of its respective expenses not assumed by the Transfer Agent or the Distributor, including organization expenses; directors fees; fees of the Funds custodian; taxes and
governmental fees; interest charges; any membership dues; brokerage commissions; expenses of preparing and distributing reports to shareholders; costs of shareholder and other meetings; Class A, Class B and Class C distribution fees; and legal,
auditing and accounting expenses. Each Fund also pays for the preparation and distribution of the prospectus to its shareholders and all expenses in connection with registration under federal and state securities laws. Each Fund pays nonrecurring
expenses that may arise, including litigation expenses affecting the Fund.
Prior to February 11, 2011 the Investment
Manager served as the Funds transfer agent and the Funds paid the Investment Manager in its role as transfer agent. Therefore the Funds did not pay the Transfer Agent any transfer agency service fees prior to February 11, 2011. During the
period February 11, 2011, the Funds paid the following amounts to the Transfer Agent and during the period October 1, 2010 through February 10, 2011, and the fiscal years ended September 30, 2010 and 2009, the Funds paid the
following amounts to the Investment Manager for transfer agency services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Year/
Period
|
|
Investment
Advisory
Fees
Paid to Investment
Manager
|
|
|
Investment Advisory
Fees Waived by
and
Reimbursements from
Investment Manager
|
|
|
Administrative
Service Fees Paid to
Investment
Manager
|
|
|
Transfer Agency
Service Fees Paid to
Transfer Agent
(or
Investment Manager
prior to 2/11/11)
|
|
Large Cap Value Fund
|
|
2012
|
|
$
|
318,827
|
|
|
$
|
243,289
|
|
|
$
|
46,597
|
|
|
$
|
154,938
|
|
|
2/11/11
9/30/11
|
|
|
353,619
|
|
|
|
204,153
|
|
|
|
51,682
|
|
|
|
63,675
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
71,768
|
|
|
2010
|
|
|
330,582
|
|
|
|
204,444
|
|
|
|
48,490
|
|
|
|
189,244
|
|
Large Cap Value Institutional Fund
|
|
2012
|
|
|
18,797
|
|
|
|
88,487
|
|
|
|
25,067
|
|
|
|
25,021
|
|
|
2/11/11
9/30/11
|
|
|
19,726
|
|
|
|
75,252
|
|
|
|
25,000
|
|
|
|
17,738
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
6,964
|
|
|
2010
|
|
|
18,163
|
|
|
|
61,962
|
|
|
|
17,610
|
|
|
|
19,008
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Year/
Period
|
|
Investment
Advisory
Fees
Paid to Investment
Manager
|
|
|
Investment Advisory
Fees Waived by
and
Reimbursements from
Investment Manager
|
|
|
Administrative
Service Fees Paid to
Investment
Manager
|
|
|
Transfer Agency
Service Fees Paid to
Transfer Agent
(or
Investment Manager
prior to 2/11/11)
|
|
Large Cap Core Fund
|
|
2012
|
|
$
|
1,372,286
|
|
|
$
|
0
|
|
|
$
|
173,821
|
|
|
$
|
348,406
|
|
|
2/11/11
9/30/11
|
|
|
1,482,362
|
|
|
|
0
|
|
|
|
187,763
|
|
|
|
140,484
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
161,957
|
|
|
2010
|
|
|
1,426,137
|
|
|
|
0
|
|
|
|
180,964
|
|
|
|
471,179
|
|
Alpha Opportunity Fund
|
|
2012
|
|
|
140,522
|
|
|
|
88,316
|
|
|
|
25,068
|
|
|
|
27,758
|
|
|
2/11/11
9/30/11
|
|
|
158,975
|
|
|
|
157,924
|
|
|
|
25,000
|
|
|
|
16,672
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
20,140
|
|
|
2010
|
|
|
169,597
|
|
|
|
176,815
|
|
|
|
31,659
|
|
|
|
47,661
|
|
Mid Cap Value Fund
|
|
2012
|
|
|
9,712,906
|
|
|
|
0
|
|
|
|
1,166,911
|
|
|
|
2,833,362
|
|
|
2/11/11
9/30/11
|
|
|
11,395,603
|
|
|
|
0
|
|
|
|
1,380,091
|
|
|
|
772,756
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
573,778
|
|
|
2010
|
|
|
8,950,803
|
|
|
|
0
|
|
|
|
1,071,380
|
|
|
|
1,939,114
|
|
Mid Cap Value Institutional Fund
|
|
2012
|
|
|
3,864,785
|
|
|
|
194,357
|
|
|
|
489,534
|
|
|
|
454,877
|
|
|
2/11/11
9/30/11
|
|
|
4,428,783
|
|
|
|
443,419
|
|
|
|
560,972
|
|
|
|
52,184
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
29,143
|
|
|
2010
|
|
|
2,914,159
|
|
|
|
209,976
|
|
|
|
369,590
|
|
|
|
283,742
|
|
Large Cap Concentrated Growth Fund
|
|
2012
|
|
|
239,302
|
|
|
|
0
|
|
|
|
30,311
|
|
|
|
156,709
|
|
|
2/11/11
9/30/11
|
|
|
297,791
|
|
|
|
140,783
|
|
|
|
37,720
|
|
|
|
68,616
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
70,438
|
|
|
2010
|
|
|
297,673
|
|
|
|
150,104
|
|
|
|
37,857
|
|
|
|
198,581
|
|
Small Cap Growth Fund
|
|
2012
|
|
|
129,653
|
|
|
|
0
|
|
|
|
25,068
|
|
|
|
74,386
|
|
|
2/11/11
9/30/11
|
|
|
143,919
|
|
|
|
0
|
|
|
|
25,000
|
|
|
|
36,899
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
27,146
|
|
|
2010
|
|
|
122,319
|
|
|
|
0
|
|
|
|
25,866
|
|
|
|
87,581
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Year/
Period
|
|
Investment
Advisory
Fees
Paid to Investment
Manager
|
|
|
Investment Advisory
Fees Waived by
and
Reimbursements from
Investment Manager
|
|
|
Administrative
Service Fees Paid to
Investment
Manager
|
|
|
Transfer Agency
Service Fees Paid to
Transfer Agent
(or
Investment Manager
prior to 2/11/11)
|
|
Small Cap Value Fund
|
|
2012
|
|
$
|
296,317
|
|
|
$
|
175,113
|
|
|
$
|
29,876
|
|
|
$
|
73,349
|
|
|
2/11/11
9/30/11
|
|
|
114,840
|
|
|
|
118,145
|
|
|
|
25,000
|
|
|
|
24,932
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
8,626
|
|
|
2010
|
|
|
78,268
|
|
|
|
90,347
|
|
|
|
19,331
|
|
|
|
21,303
|
|
Mid Cap Growth Fund
|
|
2012
|
|
|
588,098
|
|
|
|
0
|
|
|
|
74,491
|
|
|
|
228,470
|
|
|
2/11/11
9/30/11
|
|
|
657,268
|
|
|
|
0
|
|
|
|
83,253
|
|
|
|
98,114
|
|
|
10/1/10
2/10/11
|
|
|
|
|
|
85,526
|
|
|
2010
|
|
|
610,509
|
|
|
|
0
|
|
|
|
77,511
|
|
|
|
293,786
|
|
51
S
UB
-A
DVISER
The Investment Manager has
entered into a sub-advisory agreement with Mainstream Investment Advisers, LLC (Mainstream), 101 West Spring Street, New Albany, Indiana 47150, to provide investment advisory services with regard to a portion of the total assets of the
Alpha Opportunity Fund. Pursuant to this agreement, Mainstream furnishes investment advisory services, supervises and arranges for the purchase and sale of securities on behalf of a portion of the assets of the Alpha Opportunity Fund and provides
for the compilation and maintenance of records pertaining to such investment advisory services, subject to the control and supervision of the Funds Board of Directors and the Investment Manager. For such services, the Investment Manager pays
Mainstream an annual fee equal to 1.45% of that portion of the Alpha Opportunity Funds average daily net assets managed by Mainstream. Mainstream is a limited liability company controlled by its members, including William Jenkins and William
Gernert. Mainstream, which focuses on providing advisory services to high net worth individuals and institutional investors, and managed approximately $239.4 million in assets as of September 30, 2012. The Alpha Opportunity Fund is the first
registered investment company managed (at least in part) by Mainstream.
Alpha Opportunity Funds assets are usually
reallocated between Mainstream and the Investment Manager on a monthly basis as described in the prospectus so that the Fund returns to the target allocation. This procedure ensures that the Investment Manager cannot make allocation decisions that
favor the Investment Manager over Mainstream.
During the fiscal years ended September 30, 2012, 2011 and 2010 the
Investment Manager paid the following amounts to the investment sub-advisers for their services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Year
|
|
|
Sub-Advisory Fees Paid to Sub-Adviser
|
|
|
Sub-Advisory Fees Waived by Sub-Adviser
|
|
Alpha Opportunity Fund
1
|
|
|
2012
|
|
|
$
|
56,908
|
|
|
$
|
0
|
|
|
|
2011
|
|
|
|
98,887
|
|
|
|
0
|
|
|
|
2010
|
|
|
|
159,414
|
|
|
|
0
|
|
1
|
The amounts of investment sub-advisory fees paid prior to August 18, 2008 were based on the amounts paid to Mainstream only, pursuant to different sub-advisory fee
arrangements. Effective August 18, 2008 through January 14, 2011, the investment sub-advisory fees payable to the sub-advisers included Mainstream and Security Global Investors, LLC (SGI.). SGIs business was merged with the
Investment Manager as of January 14, 2011.
|
52
C
ODE
OF
E
THICS
The Funds, the Investment Manager
and the Distributor each has adopted a written code of ethics (the Code of Ethics) which governs the personal securities transactions of access persons of the Funds. Access persons may invest in securities, including
securities that may be purchased or held by the Funds, provided that they obtain prior clearance before engaging in securities transactions, subject to certain de minimis exceptions. Access persons include officers and directors of the Funds and
Investment Manager and employees that participate in, or obtain information regarding, the purchase or sale of securities by the Funds or whose job relates to the making of any recommendations with respect to such purchases or sales. All access
persons must report their personal securities transactions within thirty days of the end of each calendar quarter.
Subject to
certain de minimis exceptions for access persons not involved in the fund accounting or asset management activities of the Investment Manager, access persons will not be permitted to effect transactions in a security if it: (1) is being
considered for purchase or sale by the Funds; (2) is being purchased or sold by the Funds; or (3) is being offered in an initial public offering. Portfolio managers, research analysts and traders are also prohibited from purchasing or
selling a security within seven calendar days before or after any fund in the Family of Funds or other fund managed by an affiliated investment adviser trades in that security. Any material violation of the Code of Ethics is reported to the Board of
the Funds. The Board also reviews the administration of the Code of Ethics on an annual basis and approves any material changes to the Code of Ethics Pursuant to the requirements of Rule 17j-1 of the 1940 Act. In addition, each Sub-Adviser has
adopted its own code of ethics to which the personal securities transactions of its portfolio managers and other access persons are subject. The Code of Ethics is on public file with the SEC and is available from the Commission.
P
ORTFOLIO
M
ANAGERS
Other Accounts
Managed by Portfolio Managers
Each Portfolio Manager may also manage other registered investment companies, other pooled investment vehicles and other accounts, and each portfolio manager may own shares of the Fund he/she manages.
Including the Funds, as of September 30, 2012, the portfolio managers are responsible for the day-to-day management of certain other accounts, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered Investment
Companies
|
|
|
Other Pooled Investment
Vehicles
|
|
|
Other Accounts
|
|
Portfolio Manager
|
|
Number
|
|
|
Total Assets
|
|
|
Number
|
|
|
Total Assets
|
|
|
Number
|
|
|
Total Assets
|
|
Mark
Bronzo
|
|
|
4
|
|
|
$
|
277,900,000
|
|
|
|
7
|
|
|
$
|
11,980,000
|
|
|
|
94
|
|
|
$
|
29,581,281
|
|
Michael Byrum
|
|
|
145
|
|
|
$
|
14,570,590,000
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
1
|
|
|
$
|
91,180,000
|
|
Charles F. Craig
|
|
|
2
|
|
|
$
|
9,900,000
|
|
|
|
3
|
|
|
$
|
229,500,000
|
|
|
|
3
|
|
|
$
|
114,000
|
|
Michael Dellapa
|
|
|
141
|
|
|
$
|
14,464,160,000
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
1
|
|
|
$
|
91,180,000
|
|
Ryan
Harder
|
|
|
144
|
|
|
$
|
13,535,730,000
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
1
|
|
|
$
|
91,180,000
|
|
William H. Jenkins
|
|
|
2
|
|
|
$
|
9,900,000
|
|
|
|
3
|
|
|
$
|
229,500,000
|
|
|
|
0
|
|
|
$
|
0
|
|
Mark
Mitchell
|
|
|
8
|
|
|
$
|
694,840,000
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
0
|
|
|
$
|
0
|
|
Joseph OConnor
|
|
|
4
|
|
|
$
|
262,230,000
|
|
|
|
5
|
|
|
$
|
8,640,000
|
|
|
|
0
|
|
|
$
|
0
|
|
James
Schier
|
|
|
7
|
|
|
$
|
2,149,850,676
|
|
|
|
3
|
|
|
$
|
19,030,000
|
|
|
|
17
|
|
|
$
|
762,100,000
|
|
As of September 30, 2012, James Schier owned between $100,001 and $500,000 of the Mid Cap Value
Fund, between $100,001 and $500,000 of the Small Cap Value Fund, and between $10,001 and $50,000 of the High Yield Fund; and Mark Bronzo owned between $1 and $10,000 of the Large Cap Concentrated Growth Fund and between $1 and $10,000 of the Mid Cap
Growth Fund.
53
The following table identifies, as of September 30, 2012, the number of and total
assets of the companies, vehicles and accounts with respect to which the advisory fee is based on performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Manager
1
|
|
Registered Investment
Companies
|
|
|
Other Pooled Investment
Vehicles
|
|
|
Other Accounts
|
|
|
Number
|
|
|
Total Assets
|
|
|
Number
|
|
|
Total Assets
|
|
|
Number
|
|
|
Total Assets
|
|
William H. Jenkins
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
$
|
229,500,000
|
|
|
|
0
|
|
|
|
0
|
|
Charles F. Craig
|
|
|
0
|
|
|
|
0
|
|
|
|
3
|
|
|
$
|
229,500,000
|
|
|
|
0
|
|
|
|
0
|
|
1 Portfolio Managers not listed in this table do not manage any registered investment companies, other
pooled investment vehicles, or other accounts with a performance based advisory fee
|
|
Information Regarding Conflicts of Interest and Compensation of Portfolio Managers
Security Investors, LLC
Conflicts of Interest
.
From time to time, potential conflicts of interest may arise between a portfolio managers management of the investments of the Funds on the one hand and the
management of other registered investment companies, pooled investment vehicles and other accounts (collectively, other accounts) on the other. The other accounts might have similar investment objectives or strategies as a Fund, track
the same indices the Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Funds. The other accounts might also have different investment objectives or strategies than the Fund.
Allocation of Limited Time and Attention
.
A portfolio manager who is responsible for managing multiple
funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts
overseen by a particular portfolio manager have different investment strategies.
Knowledge and Timing of Fund
Trades
.
A potential conflict of interest may arise as a result of the portfolio managers day-to-day management of a Fund. Because of his or her position with a Fund, the portfolio manager knows the size, timing and possible market
impact of the Funds trades. It is theoretically possible that the portfolio manager could use this information to the advantage of other accounts and to the possible detriment of the Fund.
Investment Opportunities
.
A potential conflict of interest may arise as a result of the portfolio managers management
of a number of accounts with comparable investment guidelines. An investment opportunity may be suitable for both a Fund and other accounts managed by the portfolio manager, but may not be available in sufficient quantities for both a Fund and the
other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by the Fund and another account. The Investment Manager has adopted policies and procedures reasonably designed to allocate investment
opportunities on a fair and equitable basis over time.
Selection of Brokers/Dealers.
Portfolio managers may be
able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Funds and/or accounts that they supervise. In addition to executing trades, some brokers and dealers provide portfolio
managers with brokerage and research services (as those terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might otherwise be available. These services may be more beneficial to
certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage
and research services provided to a Fund, a portfolio managers decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he/she manages.
54
Performance Fees.
A portfolio manager may advise certain accounts with respect
to which the advisory fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the manager may have an incentive to allocate the investment opportunities that
he/she believes might be the most profitable to accounts with a heavily performance-oriented fee.
Compensation
Information.
The Investment Manager compensates each portfolio manager for his/her management of the Funds. The portfolio managers' compensation consists of an annual salary and the potential for two discretionary awards through a short-term
incentive plan and a long-term incentive plan.
The short-term incentive award is designed to create an annual pool funded
through the retention of a percentage of revenue on those assets managed by the investment team. Senior management then determines individual allocations based primarily on contribution to pre-tax investment performance over the most recent one year
period as well as a number of more subjective factors, including enhancements to existing products, creation of new products and concepts, support of sales, marketing and client service, and contributions to the advancement of the organization as a
whole.
Certain portfolio managers are also incented through a long-term incentive plan, which is designed to reward the
portfolio managers on the growth of the business as a whole. This pool funds over a three year timeframe based on the operating income growth of the business. Units, which represent the percentage of the pool, are allocated over time to individuals
based upon the portfolio managers' contributions to the company's success as determined by management.
The Investment Manager
also has a relocation plan for personnel that include its portfolio managers, which provides the following benefits:
|
A.
|
Costs associated with the transportation and storage of household goods;
|
|
B.
|
Reasonable and customary charges associated with the sale of the previous, primary residence (not to exceed $30,000);
|
|
C.
|
Temporary living expenses (not to exceed 60 days);
|
|
D.
|
Pre-move travel for associate and spouse to locate new housing;
|
|
E.
|
Costs for associate and his or her dependents to travel from the old location to the new residence.
|
Reimbursements for expenses that are not tax deductible will be grossed up (at the IRS supplemental tax rates) by the
Investment Manager to minimize the associates tax liability. Tax deductible expenses paid by the Investment Manager will not be grossed up.
Mainstream Investment Advisers, LLC
Conflicts of Interests.
Mainstream may conduct any other business in addition to managing and advising the Fund. Without limiting the generality of the foregoing, Mainstream and its affiliates may act as investment adviser or investment manager for other registered
investment companies, pooled investment vehicles, and other accounts. Mainstream and its affiliates may also manage funds or capital for others, may have, make and maintain investments in its own name or through other entities, may serve as a
consultant, partner or stockholder of one or more registered investment companies, pooled investment vehicles, other accounts, partnerships, securities firms, or advisory firms and may act as a director, officer, and/or employee of any corporation,
trustee of any trust, executor or administrator of any estate, or an administrative officer of any other business entity.
Mainstream may also be a general partner of, or investment adviser to, other registered investment companies, pooled investment vehicles
and accounts with an investment strategy and objective similar to the Fund. Principals and officers of Mainstream may from time to time maintain a separate account or participate as a limited partner in a pooled investment vehicle for which
Mainstream serves as investment adviser contemporaneously with Mainstream's management of the Fund.
55
Mainstream typically aggregates orders for client portfolios with respect to the purchase
and sale of securities for client portfolios using similar strategies, including securities of issuers conducting initial public offerings. Where trades are aggregated, the transactions, as well as the expenses incurred in the transactions, will be
allocated by Mainstream according to a policy designed to ensure that such allocation is equitable and consistent with Mainstream's fiduciary duty to its clients.
Compensation.
Mr. Jenkins is the largest equity owner of Mainstream. Mainstream compensates Mr. Jenkins and the other portfolio managers pursuant to salaries established at the beginning
of each calendar year by the equity members of Mainstream. Mr. Jenkins also receives his pro rata portion of the net income of Mainstream based upon his equity ownership in Mainstream. Other portfolio managers receive bonuses based on company
performance. All equity owners participate in Mainstreams retirement plan, which is open to all eligible employees and does not discriminate in favor of Mr. Jenkins.
P
ROXY
V
OTING
The Board of Directors of each Fund has delegated to the Investment Manager and each Sub-Adviser, with respect to the Funds that receive
investment advice from a Sub-Adviser, the final authority and responsibility for voting proxies with respect to each Funds underlying securities holdings.
The Investment Managers Proxy Voting Policies and Procedures are designed to ensure that proxies are voted in the best interests of the applicable Fund client.
The Investment Manager has adopted Proxy Voting Guidelines which it uses in voting specific proposals. However, the vote entered on a
Funds behalf with respect to a particular proposal may differ from the Proxy Voting Guidelines if it is determined to be in the best interest of the Funds. In addition, the manner in which specific proposals are to be voted may differ based on
the type of fund that it manages. For example, a specific proposal may be considered on a case-by-case basis for one fund, while all other funds may always vote in favor of the proposal. The Proxy Voting Guidelines cannot provide an exhaustive list
of all the issues that may arise, nor can the Investment Manager anticipate all future situations. The Guidelines cover such agenda items as the election of directors, ratification of auditors, management and director compensation, anti-takeover
mechanisms, mergers and corporate restructuring, and social and corporate policy issues.
The Investment Manager has delegated
to an independent third party (the Service Provider) the responsibility to review proxy proposals and to vote proxies in a manner consistent with the Proxy Voting Guidelines. The Service Provider notifies the Investment Manager of all
proxy proposals that do not fall within the Proxy Voting Guidelines (i.e., proposals which are either not addressed in the Proxy Voting Guidelines or proposals for which the Investment Manager has indicated that a decision will be made on a
case-by-case basis), and the Investment Manager then directs the Service Provider how to vote on that particular proposal.
The Investment Manager may occasionally be subject to conflicts of interest in the voting of proxies. Accordingly each has adopted
procedures to identify potential conflicts and to ensure that the vote made is in the best interest of the Fund and is not a result of the conflict.
Pursuant to such procedures, the Investment Manager may resolve a conflict in a variety of ways, including the following: voting in accordance with its established voting guidelines; voting in accordance
with the recommendation of an independent fiduciary appointed for that purpose; or abstaining. Ultimately, if the Investment Manager cannot resolve a conflict of interest, it will seek guidance from the Board of Directors of the relevant Fund.
Proxy materials from an issuer or its information agent are forwarded to registered owners of record, typically the
Funds custodian bank. The Investment Manager may be unable to vote or may determine not to
56
vote a proxy on behalf of one or more Funds. For example, the Investment Manager will generally abstain from voting a proxy in circumstances where, in its respective judgment, the costs exceed
the expected benefits to the Fund.
With respect to the portion of the Alpha Opportunity Fund that it sub-advises, Mainstream
has retained Broadbridge Investor Communication Solutions, Inc. to provide proxy voting services to ensure that proxies are voted in the best interests of the Funds shareholders. Proxies are voted according to Glass, Lewis & Co.
recommendations and guidelines in a manner that generally supports management while carefully limiting risk to investors. In the event a vote is needed on an issue that falls outside of recommended guidelines, the appropriate Mainstream portfolio
manager would decide how to vote the proxy in the best interest of the Fund. If conflicts of interest are discovered, Mainstream may, after careful consideration, refrain from voting the proxies.
The Funds will be required to file SEC Form N-PX, with their complete proxy voting records for the 12 months ended June 30th, no
later than August 31st of each year. Once filed, the Form will be available without charge: (1) from the Funds, upon request by calling 1-800-820-0888, and (2) on the SECs website at www.sec.gov.
D
ISTRIBUTOR
Guggenheim Distributors, LLC
(formerly known as Rydex Distributors, LLC) (the Distributor), 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850, a Maryland corporation serves as the principal underwriter for shares of the Funds pursuant to Distribution
Agreements. The Distributor acts in such capacity on a best-efforts basis and offers shares of the Funds on a continuous basis. The Distributor also acts as principal underwriter for Security Income Fund, Rydex Series Funds, Rydex Dynamic Funds,
Rydex Variable Trust, and Rydex ETF Trust and as co-underwriter for SBL Fund.
The Distributor receives a maximum commission
on sales of Class A shares of 5.75% and allows a maximum discount of 5% from the offering price to authorized dealers on the Fund shares sold. The discount is the same for all dealers, but the Distributor at its discretion may increase the
discount for specific periods.
The Distributor does not receive any compensation from Alpha Opportunity Fund, Large Cap Value
Institutional Fund, Mid Cap Value Institutional Fund and Small Cap Value Fund for the distribution of Institutional Class shares.
For the fiscal years ended September 30, 2012, 2011 and 2010, the Distributor and/or Funds former distributor, Security Distributors, Inc. (1) received gross underwriting commissions on
Class A shares, (2) retained net underwriting commissions on Class A shares, and (3) received contingent deferred sales charges on redemptions of Class B and Class C shares in the amounts set forth in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Distributors, Inc.
Gross Underwriting Commissions
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Large Cap Value Fund
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
6,748
|
|
Alpha Opportunity Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Large Cap Core Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
5,714
|
|
Mid Cap Value Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
57,738
|
|
Large Cap Concentrated Growth Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
1,132
|
|
Small Cap Growth Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
1,420
|
|
Small Cap Value Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
972
|
|
Mid Cap Growth Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
6,010
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Distributors, Inc.
Net Underwriting Commissions
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Large Cap Value Fund
|
|
$ 0
|
|
$ 0
|
|
$
|
5,586
|
|
Alpha Opportunity Fund
|
|
0
|
|
0
|
|
|
0
|
|
Large Cap Core Fund
|
|
0
|
|
0
|
|
|
4,744
|
|
Mid Cap Value Fund
|
|
0
|
|
0
|
|
|
53,880
|
|
Large Cap Concentrated Growth Fund
|
|
0
|
|
0
|
|
|
856
|
|
Small Cap Growth Fund
|
|
0
|
|
0
|
|
|
991
|
|
Small Cap Value Fund
|
|
0
|
|
0
|
|
|
961
|
|
Mid Cap Growth Fund
|
|
0
|
|
0
|
|
|
5,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Distributors, Inc.
Compensation on Redemptions
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Large Cap Value Fund
|
|
$ 0
|
|
$ 0
|
|
$
|
1,582
|
|
Alpha Opportunity Fund
|
|
0
|
|
0
|
|
|
31
|
|
Large Cap Core Fund
|
|
0
|
|
0
|
|
|
146
|
|
Mid Cap Value Fund
|
|
0
|
|
0
|
|
|
6,780
|
|
Large Cap Concentrated Growth Fund
|
|
0
|
|
0
|
|
|
476
|
|
Small Cap Growth Fund
|
|
0
|
|
0
|
|
|
14
|
|
Small Cap Value Fund
|
|
0
|
|
0
|
|
|
0
|
|
Mid Cap Growth Fund
|
|
0
|
|
0
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guggenheim Distributors, LLC
Gross Underwriting Commissions
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Large Cap Value Fund
|
|
$
|
28,282
|
|
|
$
|
67,530
|
|
|
$
|
55,466
|
|
Alpha Opportunity Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Large Cap Core Fund
|
|
|
47,263
|
|
|
|
40,974
|
|
|
|
47,263
|
|
Mid Cap Value Fund
|
|
|
279,436
|
|
|
|
1,165,569
|
|
|
|
279,436
|
|
Large Cap Concentrated Growth Fund
|
|
|
12,074
|
|
|
|
22,900
|
|
|
|
12,074
|
|
Small Cap Growth Fund
|
|
|
9,457
|
|
|
|
9,425
|
|
|
|
9,457
|
|
Small Cap Value Fund
|
|
|
3,409
|
|
|
|
7,017
|
|
|
|
3,409
|
|
Mid Cap Growth Fund
|
|
|
26,842
|
|
|
|
33,839
|
|
|
|
26,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guggenheim Distributors, LLC
Net Underwriting Commissions
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Large Cap Value Fund
|
|
$
|
15,673
|
|
|
$
|
62,221
|
|
|
$
|
9,344
|
|
Alpha Opportunity Fund
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Large Cap Core Fund
|
|
|
28,394
|
|
|
|
39,633
|
|
|
|
5,956
|
|
Mid Cap Value Fund
|
|
|
106,689
|
|
|
|
240,305
|
|
|
|
37,948
|
|
Large Cap Concentrated Growth Fund
|
|
|
12,275
|
|
|
|
17,464
|
|
|
|
0
|
|
Small Cap Growth Fund
|
|
|
5,605
|
|
|
|
9,075
|
|
|
|
1,372
|
|
Small Cap Value Fund
|
|
|
3,452
|
|
|
|
1,390
|
|
|
|
1,154
|
|
Mid Cap Growth Fund
|
|
|
14,325
|
|
|
|
27,112
|
|
|
|
4,566
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Guggenheim Distributors, LLC
Compensation on Redemptions
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Large Cap Value Fund
|
|
$
|
3,933
|
|
|
$
|
215
|
|
|
$
|
9,213
|
|
Alpha Opportunity Fund
|
|
|
91
|
|
|
|
1
|
|
|
|
2,766
|
|
Large Cap Core Fund
|
|
|
4,154
|
|
|
|
26
|
|
|
|
0
|
|
Mid Cap Value Fund
|
|
|
23,877
|
|
|
|
26,580
|
|
|
|
77,166
|
|
Large Cap Concentrated Growth Fund
|
|
|
2,931
|
|
|
|
113
|
|
|
|
6,627
|
|
Small Cap Growth Fund
|
|
|
1,108
|
|
|
|
62
|
|
|
|
1,882
|
|
Small Cap Value Fund
|
|
|
295
|
|
|
|
1,545
|
|
|
|
122
|
|
Mid Cap Growth Fund
|
|
|
2,570
|
|
|
|
504
|
|
|
|
6,396
|
|
The Distributor, on behalf of the Funds, may act as a broker in the purchase and sale of securities not
effected on a securities exchange, provided that any such transactions and any commissions shall comply with requirements of the 1940 Act and all rules and regulations of the SEC. The Distributor has not acted as a broker and thus received no
brokerage commissions.
Each Funds Distribution Agreement is renewable annually either by its Board of Directors or by
the vote of a majority of the Funds outstanding securities, and, in either event, by a majority of the Board who are not parties to the contract or interested persons of any such party. The contract may be terminated by either party upon 60
days written notice.
A
LLOCATION
OF
P
ORTFOLIO
B
ROKERAGE
Transactions in portfolio securities shall be effected in such manner as deemed to be in the best interests of the respective Funds. In reaching a judgment relative to the qualifications of a
broker/dealer (broker) to obtain the best execution of a particular transaction, all relevant factors and circumstances will be taken into account by the Investment Manager or relevant Sub-Adviser, including the overall reasonableness of
commissions paid to a broker, the firms general execution and operational capabilities, its responsiveness (which may include such things as the brokers willingness to commit capital and whether the brokers representatives are
accommodating), and its reliability and financial condition. Subject to the foregoing considerations, the execution of portfolio transactions may be directed to brokers who furnish investment information or research services to the Investment
Manager or relevant Sub-Adviser. Such investment information and research services include advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities and purchasers or
sellers of securities, and furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and performance of accounts. Such investment information and research services may be furnished by
brokers in many ways, including: (1) on-line database systems and the equipment for which is provided by the broker that enable the Investment Manager to have real-time access to market information, including quotations; (2) economic
research services, such as publications, chart services and advice from economists concerning macroeconomic information; and (3) analytical investment information concerning particular corporations.
In some cases, the computer and other equipment furnished by the broker may have additional uses that are not related to the investment
services and research information. In such cases, the Investment Manager or Sub-Adviser must allocate the value of the computer and other equipment into research and non-research categories. Since that portion allocable to research can be paid from
Fund brokerage commissions rather than being paid by the Investment Manager or Sub-Adviser, the Investment Manager or Sub-Adviser will have a conflict of interest in making the allocation. Finally, the investment services or research information
provided to the Investment Manager or Sub-Adviser may be produced by parties other than the broker effecting the portfolio transaction.
If a transaction is directed to a broker supplying investment services or research information, the transaction charges (i.e., a commission or a charge that is deemed to be the equivalent of a commission)
paid for such transaction may be in excess of the transaction charges another broker would have charged for effecting that
59
transaction provided that the Investment Manager or relevant Sub-Adviser shall have determined in good faith that the transaction charges are reasonable in relation to the value of the investment
information or the research services provided, viewed in terms of either that particular transaction or the overall responsibilities of the Investment Manager or relevant Sub-Adviser with respect to all accounts as to which it exercises investment
discretion. The Investment Manager or relevant Sub-Adviser may use all, none, or some of such information and services in providing investment advisory services to each of the mutual funds under its management, including the Funds. Portfolio
transactions may also be placed with the Distributor or with a Sub-Advisers affiliated broker (including transactions in which the security is being underwritten by an affiliated broker) to the extent and in the manner permitted by applicable
law.
In addition, brokerage transactions may be placed with broker/dealers who sell shares of the Funds managed by the
Investment Manager who may or may not also provide investment information and research services.
The Funds may also buy
securities from, or sell securities to, dealers acting as principals or market makers. Except as noted below, the Investment Manager generally will not purchase investment information or research services in connection with such principal
transactions. The Investment Manager and relevant Sub-Adviser, however, may purchase investment information or research services in connection with riskless principal transactions that are reported pursuant to certain FINRA rules that ensure
transparency as to security price and transaction charges, or in connection with transactions in other markets having regulations that ensure comparable transparency of security prices and charges. In addition, the Investment Manager and relevant
Sub-Adviser may obtain investment information or research services in connection with investments in underwritten fixed price offerings consistent with certain FINRA rules.
The Investment Manager may enter into agreements with certain brokers, called Commission Sharing Agreements, pursuant to which the Investment Manager may place trades on behalf of its clients,
including the Alpha Opportunity Fund, with these brokers for negotiated brokerage commission rates. In turn, under the terms of the agreements, the brokers retain a portion of the brokerage commissions to cover the trades execution costs and
then credit a negotiated portion of the brokerage commissions to accounts used by the brokers to pay other firms for research products or services for the benefit of the Investment Manager and its clients, including the Alpha Opportunity Fund.
Securities held by the Funds may also be held by other investment advisory clients of the Investment Manager and/or relevant
Sub-Adviser, including other investment companies. In addition, SBL, an affiliate of the Investment Manager, may also hold some of the same securities as the Funds. When selecting securities for purchase or sale for a Fund, the Investment Manager
and/or relevant Sub-Adviser may at the same time be purchasing or selling the same securities for one or more of such other accounts. Subject to the Investment Managers obligation to seek best execution, such purchases or sales may be executed
simultaneously or bunched. It is the policy of the Investment Manager not to favor one account over the other. Any purchase or sale orders executed simultaneously are allocated at the average price and as nearly as practicable on a pro
rata basis (transaction costs will also be shared on a pro rata basis) in proportion to the amounts ordered to be purchased or sold by each account. In those instances where it is not practical to allocate purchase or sale orders on a pro rata
basis, the allocation will be made on a rotating or other equitable basis. While it is conceivable that in certain instances this procedure could adversely affect the price or number of shares involved in the Funds transaction, it is believed
that the procedure generally contributes to better overall execution of the Funds portfolio transactions. The Board of Directors of the Funds has adopted guidelines governing this procedure and will monitor the procedure to determine that the
guidelines are being followed and that the procedure continues to be in the best interest of the Fund and its shareholders. With respect to the allocation of initial public offerings (IPO), the Investment Manager may determine not to
purchase such offerings for certain of its clients (including investment company clients) due to the limited number of shares typically available to the Investment Manager in an IPO.
60
The following table sets forth the brokerage fees paid by the Funds during the last three
fiscal years and certain other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
1
|
|
Year
|
|
|
Fund Total
Brokerage
Commissions
Paid
|
|
|
Fund Brokerage Commissions
Paid to
Security Distributors, Inc.
and Guggenheim Distributors,
LLC, the former and current
Underwriters
|
|
|
Fund Transactions Directed to
and Commissions Paid to
Broker/Dealers who also
Performed Services
|
|
|
|
|
|
Transactions
|
|
|
Brokerage
Commissions
|
|
Security Large Cap
Value Fund
|
|
|
2012
|
|
|
$
|
28,999
|
|
|
$
|
0
|
|
|
$
|
4,096,605
|
|
|
$
|
6,412
|
|
|
|
2011
|
|
|
|
37,307
|
|
|
|
0
|
|
|
|
4,471,181
|
|
|
|
5,447
|
|
|
|
2010
|
|
|
|
31,690
|
|
|
|
0
|
|
|
|
3,423,828
|
|
|
$
|
4,820
|
|
Security Large Cap
Value Institutional Fund
|
|
|
2012
|
|
|
|
1,546
|
|
|
|
0
|
|
|
|
238,876
|
|
|
|
377
|
|
|
|
2011
|
|
|
|
1,968
|
|
|
|
0
|
|
|
|
303,120
|
|
|
|
360
|
|
|
|
2010
|
|
|
|
1,797
|
|
|
|
0
|
|
|
|
166,624
|
|
|
|
241
|
|
Security Equity Fund
Large Cap Core Fund
|
|
|
2012
|
|
|
|
316,480
|
|
|
|
0
|
|
|
|
83,741,243
|
|
|
|
66,145
|
|
|
|
2011
|
|
|
|
365,147
|
|
|
|
0
|
|
|
|
50,305,407
|
|
|
|
50,485
|
|
|
|
2010
|
|
|
|
422,057
|
|
|
|
0
|
|
|
|
58,105,997
|
|
|
|
48,347
|
|
Security Equity Fund
Alpha Opportunity Fund
|
|
|
2012
|
|
|
|
59,561
|
|
|
|
0
|
|
|
|
43,280,992
|
|
|
|
21,200
|
|
|
|
2011
|
|
|
|
61,350
|
|
|
|
0
|
|
|
|
41,066,820
|
|
|
|
14,389
|
|
|
|
2010
|
|
|
|
95,118
|
|
|
|
0
|
|
|
|
40,245,059
|
|
|
|
6,793
|
|
Security Equity Fund
Mid Cap Value Fund
|
|
|
2012
|
|
|
|
1,634,935
|
|
|
|
0
|
|
|
|
148,609,324
|
|
|
|
236,239
|
|
|
|
2011
|
|
|
|
1,594,922
|
|
|
|
0
|
|
|
|
226,128,854
|
|
|
|
371,765
|
|
|
|
2010
|
|
|
|
1,335,939
|
|
|
|
0
|
|
|
|
116,600,020
|
|
|
|
226,022
|
|
Security Equity Fund
Mid Cap Value Institutional Fund
|
|
|
2012
|
|
|
|
677,913
|
|
|
|
0
|
|
|
|
54,550,442
|
|
|
|
86,223
|
|
|
|
2011
|
|
|
|
680,221
|
|
|
|
0
|
|
|
|
100,768,803
|
|
|
|
167,325
|
|
|
|
2010
|
|
|
|
535,650
|
|
|
|
0
|
|
|
|
42,462,042
|
|
|
|
83,588
|
|
Security Equity Fund
Large Cap Concentrated Growth Fund
|
|
|
2012
|
|
|
|
95,608
|
|
|
|
0
|
|
|
|
36,564,811
|
|
|
|
26,495
|
|
|
|
2011
|
|
|
|
21,330
|
|
|
|
0
|
|
|
|
20,995,473
|
|
|
|
19,584
|
|
|
|
2010
|
|
|
|
156,787
|
|
|
|
0
|
|
|
|
23,745,875
|
|
|
|
19,450
|
|
Security Equity Fund
Small Cap Growth Fund
|
|
|
2012
|
|
|
|
39,957
|
|
|
|
0
|
|
|
|
11,014,855
|
|
|
|
14,293
|
|
|
|
2011
|
|
|
|
54,836
|
|
|
|
0
|
|
|
|
10,368,658
|
|
|
|
11,733
|
|
|
|
2010
|
|
|
|
47,916
|
|
|
|
0
|
|
|
|
7,218,048
|
|
|
|
11,204
|
|
Security Equity Fund
Small Cap Value Fund
|
|
|
2012
|
|
|
|
88,870
|
|
|
|
0
|
|
|
|
9,578,254
|
|
|
|
27,544
|
|
|
|
2011
|
|
|
|
33,534
|
|
|
|
0
|
|
|
|
3,183,336
|
|
|
|
6,923
|
|
|
|
2010
|
|
|
|
30,251
|
|
|
|
0
|
|
|
|
1,411,539
|
|
|
|
4,237
|
|
Security Mid Cap Growth Fund
|
|
|
2012
|
|
|
|
217,418
|
|
|
|
0
|
|
|
|
37,654,726
|
|
|
|
29,243
|
|
|
|
2011
|
|
|
|
292,815
|
|
|
|
0
|
|
|
|
40,008,237
|
|
|
|
40,216
|
|
|
|
2010
|
|
|
|
283,478
|
|
|
|
0
|
|
|
|
19,044,688
|
|
|
|
20,925
|
|
61
H
OW
N
ET
A
SSET
V
ALUE
I
S
D
ETERMINED
The per share NAV of each Fund is determined by dividing the total value of its securities and other assets, less liabilities, by the total number of shares outstanding. The public offering price for each
Fund is its NAV per share plus, in the case of Class A shares, the applicable sales charge. The NAV and offering price are computed once daily as of the close of regular trading hours on the NYSE (normally 4:00 p.m. Eastern Time) on each day
the Exchange is open for trading, which is Monday through Friday, except for the following dates when the Exchange is closed in observance of federal holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The offering price determined at the close of
business on the NYSE on each day on which the Exchange is open will be applicable to all orders for the purchase of Fund shares received and accepted by the dealer prior to such close of business and transmitted to the Distributor or Investment
Manager prior to the close of their business day (normally 4:00 p.m. Eastern Time unless the NYSE closes early). In addition, pursuant to contractual arrangements with the Distributor or Transfer Agent, orders received by a financial intermediary
prior to the close of the NYSE may be sent on the next following business day and receive the previous days price.
Orders received and accepted by the dealer or other financial intermediary after the close of business of the NYSE or on a day when the
NYSE is closed will be filled on the basis of the offering price determined as of the close of business of the NYSE on the next day on which the NYSE is open. It is the responsibility of the dealer to promptly transmit orders to the Funds and to
conform to the policies set forth above.
In determining NAV, securities listed or traded on a national securities exchange
are valued on the basis of the last sale price. 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 are
no sales on a particular day, then the securities shall be valued at the last bid price. All other securities, held by the Funds, for which market quotations are available are valued on the basis of the last current bid price. If there is no bid
price, or if the bid price is deemed to be unsatisfactory by the Board of Directors or the Investment Manager, then the securities shall be valued in good faith by such method as the Board of Directors determines will reflect their fair market
value. Valuations of the Funds securities are supplied by a pricing service approved by the Board of Directors.
In
addition, if between the time trading ends on a particular security and the close of trading on the NYSE, events occur that materially affect the value of the security, the Funds may value the security at its fair value as determined in good faith
by the Investment Manager under procedures approved by the Board of Directors. In such a case, the Funds NAV will be subject to the judgment of the Investment Manager rather than being determined by the market.
Because the expenses of distribution are borne by Class A shares through a front-end sales charge, by Class B and Class C shares
through an ongoing distribution fee, and Institutional Class shares do not have distribution expenses paid by the Funds, the expenses attributable to each class of shares will differ, resulting in different NAVs.
62
H
OW
TO
R
EDEEM
S
HARES
Shareholders may turn in their shares directly to the Transfer Agent for redemption at NAV (which may be more or less than the investors cost, depending upon the market value of the portfolio
securities at the time of redemption). The redemption price in cash will be the NAV next determined after the time when such shares are tendered for redemption less any applicable contingent deferred sales charge. Orders by a fund of funds for which
the Investment Manager or an affiliate serves as investment manager will be treated as received by a Fund at the same time that the corresponding orders are received in proper form by the fund of funds.
Shares will be redeemed on request of the shareholder in proper order to the Transfer Agent. A request is made in proper order by
submitting the following items to the Transfer Agent: (1) a written request for redemption signed by all registered owners exactly as the account is registered, including fiduciary titles, if any, and specifying the account number and the
dollar amount or number of shares to be redeemed; (2) a guarantee of all signatures on the written request or on the share certificate or accompanying stock power; (3) any share certificates issued for any of the shares to be redeemed; and
(4) any additional documents which may be required by the Transfer Agent for redemption by corporations or other organizations, executors, administrators, trustees, custodians or the like. Transfers of shares are subject to the same
requirements. A signature guarantee is not required for redemptions of $25,000 or less ($100,000 or less for Institutional Class shares), requested by and payable to all shareholders of record for an account, to be sent to the address of record. The
signature guarantee must be provided by an eligible guarantor institution, such as a bank, broker, credit union, national securities exchange or savings association. The Transfer Agent reserves the right to reject any signature guarantee pursuant to
its written procedures, which may be revised in the future. To avoid delay in redemption or transfer, shareholders having questions should contact the Transfer Agent.
The Articles of Incorporation of Security Equity Fund and Security Large Cap Value Fund provide that the Board of Directors, without the vote or consent of the shareholders, may adopt a plan to redeem at
NAV all shares in any shareholder account in which there has been no investment (other than the reinvestment of income dividends or capital gains distributions) for the last six months and in which there are fewer than 25 shares or such fewer number
of shares as may be specified by the Board of Directors. Any plan of involuntary redemption adopted by the Board of Directors shall provide that the plan is in the economic best interests of the Fund or is necessary to reduce disproportionately
burdensome expenses in servicing shareholder accounts. Such plan shall further provide that prior notice of at least six months shall be given to a shareholder before involuntary redemption, and that the shareholder will have at least six months
from the date of the notice to avoid redemption by increasing his or her account to at least the minimum number of shares established in the Articles of Incorporation, or such fewer shares as are specified in the plan.
The amount due on redemption will be the NAV of the shares next computed after the redemption request in proper order is received by a
Fund or its agent, less any applicable deferred sales charge. Payment of the redemption price will be made by check (or by wire at the sole discretion of the Transfer Agent if wire transfer is requested, including name and address of the bank and
the shareholders account number to which payment is to be wired) within seven days after receipt of the redemption request in proper order. The check will be mailed to the shareholders registered address (or as otherwise directed).
Remittance by wire (to a commercial bank account in the same name(s) as the shares are registered) or by express mail, if requested, will be at a charge of $20, which will be deducted from the redemption proceeds. Redemption proceeds can be sent by
ACH, free of charge, to the shareholders bank account.
When investing in the Funds, shareholders are required to
furnish their tax identification number and to state whether or not they are subject to withholding for prior underreporting, certified under penalties of perjury as prescribed by the Internal Revenue Code.
Payment in cash of the amount due on redemption, less any applicable deferred sales charge, for shares redeemed will be made within seven
days after tender, except that the Funds may suspend the right of redemption
63
during any period when trading on the NYSE is restricted or such Exchange is closed for other than weekends or holidays, or any emergency is deemed to exist by the SEC. When a redemption request
is received in good order, the redemption proceeds are deposited into a redemption account established by the Distributor, and the Distributor sends a check in the amount of redemption proceeds to the shareholder. The Distributor earns interest on
the amounts maintained in the redemption account. Conversely, the Distributor may cause payments to be made to the Funds in the case of orders for purchase of Fund shares before it actually receives federal funds.
In addition to the foregoing redemption procedure, the Funds repurchase shares from brokers and other financial intermediaries at the
price determined as of the close of business on the day such offer is confirmed. The Distributor and the Transfer Agent has been authorized, as agent, to make such repurchases for the Funds account. Dealers may charge a commission or other fee
on the repurchase of shares.
The repurchase or redemption of shares held in a tax-qualified retirement plan must be effected
through the trustee of the plan and may result in adverse tax consequences. (See Purchases for Retirement Plans)
At various times the Funds may be requested to redeem shares for which they have not yet received good payment. Accordingly, the Funds
may delay the mailing of a redemption check until such time as they have assured themselves that good payment (e.g., cash or certified check on a U.S. bank) has been collected for the purchase of such shares, which may take up to 15 days from the
purchase date.
The Funds have agreed to redeem shares of each Fund solely in cash up to the lesser of $250,000 or 1.00% of
the NAV of the Fund during any 90-day period for any one shareholder. The Funds reserve the right to pay other redemptions, either total or partial, by a distribution in-kind of securities (instead of cash) from the applicable Fund's portfolio
(redemption in kind). The securities distributed in such a redemption in kind distribution would be valued at the same value as that assigned to them in calculating the NAV of the shares being redeemed. In the event a shareholder were to
receive a redemption in kind of portfolio securities of the Funds, it would be the responsibility of the shareholder to dispose of the securities. The shareholder would be at risk that the value of the securities would decline prior to their sale,
that it would be difficult to sell the securities, and that brokerage fees could be incurred.
Telephone
Redemptions
A shareholder may redeem uncertificated shares. The proceeds of a telephone redemption will be sent to the shareholder at his or her address as set forth in the application or in a subsequent written authorization with a
signature guarantee. Once authorization has been received by the Transfer Agent, a shareholder may redeem uncertificated shares. The proceeds of a telephone redemption will be sent to the shareholder at his or her address as set forth in the
application or in a subsequent written authorization with a signature guarantee. Once authorization has been received by the Transfer Agent, a shareholder may redeem shares by calling the Funds at (800) 820-0888, on weekdays (except holidays)
between 8:30 a.m. and 5:30 p.m. Eastern Time. Redemption requests received by telephone after the close of the NYSE (normally 4:00 p.m. Eastern Time) will be treated as if received on the next business day. Telephone redemptions are not accepted for
retirement accounts. A shareholder who authorizes telephone redemptions authorizes the Transfer Agent to act upon the instructions of any person identifying himself as the owner of the account or the owners broker. The Transfer Agent has
established procedures to confirm that instructions communicated by telephone are genuine and will be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Transfer Agents
procedures require that any person requesting a redemption by telephone provide the account registration and number, the owners tax identification number, and the dollar amount or number of shares to be redeemed, and such instructions must be
received on a recorded line. Neither the Fund, the Transfer Agent, nor the Distributor will be liable for any loss, liability, cost or expense arising out of any redemption request, provided that the Transfer Agent complied with its procedures.
Thus, a shareholder who authorizes telephone redemptions may bear the risk of loss from a fraudulent or unauthorized request. The telephone redemption privilege may be changed or discontinued at any time by the Transfer Agent or the Funds.
During periods of severe market or economic conditions, telephone redemptions may be difficult to implement, and shareholders
should make redemptions by mail as described under How to Redeem Shares.
64
H
OW
TO
E
XCHANGE
S
HARES
Shareholders of the Funds may exchange their shares for the same class of shares of another of the Funds or for shares of certain other mutual funds, including funds in the Family of Funds, or as
described below. Effective as of the transfer agency conversion, you may exchange shares for the same class of shares of the series of Rydex Series Funds and the Rydex Dynamic Funds (together with the Funds, the Family of Funds).
Exchanges may be made only in those states where shares of the fund into which an exchange is to be made are available for sale. Such transactions generally have the same tax consequences as ordinary sales and purchases and are not tax-free
exchanges.
Class A, Class B, Class C and Institutional Class shares of the Funds may be exchanged for Class A,
Class B, Class C and Institutional Class shares, respectively, of another of the available funds. Shareholders of Class A shares may exchange their shares for Institutional Class shares if the shareholders meet the minimum initial investment
and the specific eligibility requirements. Shareholders of Institutional Class shares may exchange their shares for Class A shares of the funds in the Family of Funds. The Class A shares will subject to all of the Class A Share
conditions, including any applicable sales charges. No exchanges of Class C shares are allowed with a Fund that does not offer such Class of shares. Any contingent deferred sales charge applicable to exchanged Class A, Class B or Class C shares
will be calculated from the date of the initial purchase. Such transactions generally have the same tax consequences as ordinary sales and purchases. No service fee is presently imposed on such an exchange. They are not tax-free exchanges.
Exchanges are made promptly upon receipt of a properly completed Exchange Authorization form and (if issued) share
certificates in good order for transfer. If the shareholder is a corporation, partnership, agent, fiduciary or surviving joint owner, additional documentation of a customary nature, such as a stock power and guaranteed signature, will be required.
(See How to Redeem Shares)
The exchange privilege is not intended as a vehicle for short-term or excessive
trading. At the discretion of the management of the Funds, upon notice to shareholders, this privilege may be changed or discontinued at any time.
Before exchanging your shares for shares of another mutual fund in the Family of Funds that is distributed by the Distributor and offered through another prospectus, you should request the prospectus of
the mutual fund into which you are contemplating exchanging your shares and review it carefully, as the other mutual fund may be subject to fees, charges or expenses that are different from the shares that you are exchanging.
Exchange By Telephone
A shareholder may exchange shares by telephone by calling the Funds at
(800) 820-0888, on weekdays (except holidays) between the hours of 8:30 a.m. and 5:30 p.m. Eastern Time. Exchange requests received after the close of the NYSE (normally 4:00 p.m. Eastern Time) will be treated as if received on the next
business day. Shares which are held in certificate form may not be exchanged by telephone.
The Transfer Agent has established
procedures to confirm that instructions communicated by telephone are genuine and be liable for any losses due to fraudulent or unauthorized instructions if it fails to comply with its procedures. The Transfer Agents procedures require that
any person requesting an exchange by telephone provide the account registration and number, the tax identification number, the dollar amount or number of shares to be exchanged, and the names of the fund(s) in the Family of Funds from which and into
which the exchange is to be made, and such instructions must be received on a recorded line. Neither the Funds, the Transfer Agent nor the Distributor will be liable for any loss, liability, cost or expense arising out of any request, including any
fraudulent request, provided the Transfer Agent complied with its procedures. Thus, a shareholder who authorizes telephone exchanges may bear the risk of loss from a fraudulent or unauthorized request. This telephone exchange privilege may be
changed or discontinued at any time at the discretion of the management of the Funds. In particular, the Funds may set limits on the amount and frequency of such exchanges, in general or as to any individual who abuses such privilege.
65
D
IVIDENDS
AND
T
AXES
It is each
Funds policy to pay dividends from net investment income as from time to time declared by the Board of Directors and to distribute realized capital gains (if any) in excess of any capital losses and capital loss carryovers, at least once a
year. Because Class A shares of the Funds bear most of the costs of distribution of such shares through payment of a front-end sales charge and Institutional Class shares bear no distribution expenses, while Class B and Class C shares of the
Funds bear such costs through a higher distribution fee, expenses attributable to Class B and Class C shares, generally, will be higher and as a result, income distributions paid by the Funds with respect to Class B and Class C shares generally will
be lower than those paid with respect to Class A and Institutional Class shares. Because the value of a share is based directly on the amount of the net assets rather than on the principle of supply and demand, any distribution of capital gains
or payment of an income dividend will result in a decrease in the value of a share equal to the amount paid. All such dividends and distributions are automatically reinvested on the payable date in shares of the Funds at NAV as of the record date
(reduced by an amount equal to the amount of the dividend or distribution), unless the Transfer Agent is previously notified in writing by the shareholder that such dividends or distributions are to be received in cash. A shareholder may request
that such dividends or distributions be directly deposited to the shareholders bank account. A shareholder who elected not to reinvest dividends or distributions paid with respect to Class A shares may, at any time within 30 days after
the payment date, reinvest a dividend check without imposition of a sales charge.
The Funds will not pay dividends or
distributions of less than $25 in cash but will automatically reinvest them. Distributions of net investment income and any short-term capital gains by the Funds are taxable as ordinary income whether received in cash or reinvested in additional
shares.
Tax Considerations
The following summarizes certain federal income tax considerations
generally affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Funds or their shareholders, and the discussion here is not intended as a substitute for careful tax planning. The
discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, possibly with retroactive effect. Prospective investors should
consult their own tax advisers with regard to the federal tax consequences of the purchase, ownership, and disposition of Fund shares, as well as the tax consequences arising under the laws of any state, foreign country, or other taxing
jurisdiction.
Each Fund intends to qualify annually and to elect to be treated as a regulated investment company under the
Code. To qualify as a regulated investment company, each Fund must, among other things: (i) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the
sale or other disposition of stock, securities or foreign currencies, net income derived from an interest in a qualified publicly traded partnership, or other income derived with respect to its business of investing in such stock, securities, or
currencies (Qualifying Income Test); (ii) diversify its holdings so that, at the end of each quarter of the taxable year (or within 30 days after such quarter), (a) at least 50% of the market value of the Funds assets is
represented by cash, cash items, U.S. government securities, the securities of other regulated investment companies, and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Funds total assets and 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than
U.S. government securities or the securities of other regulated investment companies), of two or more issuers which the Fund controls (as that term is defined in the relevant provisions of the Code) and which are determined to be engaged in the same
or similar trades or businesses or related trades or businesses, or of one or more qualified publicly traded partnerships; and (iii) distribute at least 90% of the sum of its investment company taxable income (which includes, among other items,
dividends, interest, and net short-term capital gains in excess of any net long-term capital losses), determined without regard to the deduction for dividend paid, and its net tax-exempt interest each taxable year.
66
The Treasury Department is authorized to promulgate regulations under which foreign currency
gains would constitute qualifying income for purposes of the Qualifying Income Test only if such gains are directly related to investing in securities (or options and futures with respect to securities). To date, no such regulations have been
issued.
Certain requirements relating to the qualification of a Fund as a regulated investment company may limit the extent
to which a Fund will be able to engage in certain investment practices, including transactions in futures contracts and other types of derivative securities transactions. In addition, if a Fund were unable to dispose of portfolio securities due to
settlement problems relating to foreign investments or due to the holding of illiquid securities, the Funds ability to qualify as a regulated investment company might be affected.
A Fund qualifying as a regulated investment company generally will not be subject to federal income tax on its investment company taxable
income and net capital gains (any net long-term capital gains in excess of the net short-term capital losses), if any, that it distributes to shareholders. Each Fund intends to distribute to its shareholders, at least annually, all or substantially
all of its investment company taxable income and any net capital gains.
Generally, regulated investment companies, like the
Funds, must distribute amounts on a timely basis in accordance with a calendar year distribution requirement in order to avoid a nondeductible 4% federal excise tax. Generally, to avoid the tax, a regulated investment company must distribute during
each calendar year: (i) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) at least 98.2% of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for the 12-month period ending on October 31 of the calendar year, and (iii) all ordinary income and capital gains for previous years that were not distributed or taxed during such years. To avoid application of the excise
tax, each Fund intends to make its distributions in accordance with the calendar year distribution requirement. A distribution will be treated as paid on December 31 of the calendar year if it is declared by a Fund in October, November or
December of that year to shareholders of record on a date in such a month and paid by the Fund during January of the following calendar year. Such distributions are taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
If a Fund were unable to distribute an
amount equal to substantially all of its investment company taxable income (as determined for U.S. tax purposes) within applicable time periods, the Fund would not qualify for the favorable federal income tax treatment afforded regulated investment
companies, or, even if it did so qualify, it might become liable for federal taxes on undistributed income. In addition, the ability of a Fund to obtain timely and accurate information relating to its investments is a significant factor in complying
with the requirements applicable to regulated investment companies in making tax-related computations. Thus, if a Fund were unable to obtain accurate information on a timely basis, it might be unable to qualify as a regulated investment company, or
its tax computations might be subject to revisions (which could result in the imposition of taxes, interest and penalties).
All dividends from net investment income, together with distributions of any realized net short-term capital gains, whether paid direct
to the shareholder or reinvested in shares of the Funds, are generally taxable as ordinary income.
For federal income tax
purposes, dividends paid by the Funds from net investment income may qualify for the corporate stockholders dividends received deduction to the extent the relevant Fund reports the amount distributed as a qualified dividend. The aggregate
amount reported as a qualified dividend by a Fund cannot exceed the aggregate amount of dividends received by such Fund from domestic corporations for the taxable year. The corporate dividends received deduction will be limited if the shares with
respect to which the dividends are received are treated as debt-financed or are deemed to have been held less than 46 days. In addition, a corporate stockholder must hold Fund shares for at least 46 days to be eligible to claim the dividends
received deduction.
67
The excess of net long-term capital gains over short-term capital losses realized and
distributed by the Funds or reinvested in Fund shares will generally be taxable to shareholders as long-term capital gain. Net capital gains from assets held for one year or less will be taxed as ordinary income. Distributions will be subject to
these capital gains rates regardless of how long a shareholder has held Fund shares. Advice as to the tax status of each years dividends and distributions will be mailed annually. A purchase of shares shortly before payment of a dividend or
distribution may be disadvantageous because the dividend or distribution to the purchaser has the effect of reducing the per share NAV of the shares by the amount of the dividends or distributions. In addition, all or a portion of such dividends or
distributions (although in effect a return of capital) may be taxable.
For taxable years beginning after December 31,
2012, the maximum individual rate applicable to qualified dividend income and long-term capital gains is either 15% or 20%, depending on whether the individuals income exceeds certain threshold amounts. The aggregate amount
designated as qualified dividend income by a Fund cannot exceed the aggregate amount of dividends received by such Fund from domestic corporations and certain qualified foreign corporations for the taxable year. Qualified dividend income will be
limited if the shares with respect to which the dividends are received are deemed to have been held less than 61 days. The rate reductions do not apply to corporate taxpayers or to foreign shareholders. Each Fund will be able to separately report
distributions of any qualifying long-term capital gains or qualifying dividends earned by the Fund that would be eligible for the lower maximum rate. A Fund shareholder would also have to satisfy a more than 60-day holding period with respect to any
distributions of qualifying dividends in order to obtain the benefit of the lower rate. Distributions from income derived from interest on bonds and other debt instruments will not generally qualify for the lower rates. Further, because many
companies in which the Funds invest do not pay significant dividends on their stock, the Funds may not derive significant amounts of qualifying dividend income that would be eligible for the lower rate on qualifying dividends.
For taxable years beginning after December 31, 2012, an additional 3.8% Medicare tax will be imposed on certain net investment
income (including ordinary dividends and capital gain distributions received from a Fund and net gains from redemptions or other taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such persons
modified adjusted gross income (in the case of an individual) or adjusted gross income (in the case of an estate or trust) exceeds certain threshold amounts.
Generally, gain or loss realized upon the sale or redemption of shares (including the exchange of shares for shares of another fund) will
be capital gain or loss if the shares are capital assets in the shareholders hands and will be taxable to shareholders as long-term capital gains or losses if the shares had been held for more than one year at the time of sale or redemption.
Net capital gains on shares held for less than one year will be taxable to shareholders as short-term capital gains. Investors should be aware that any loss realized upon the sale, exchange or redemption of shares held for six months or less will be
treated as a long-term capital loss to the extent of any distribution of long-term capital gain to the shareholder with respect to such shares. In addition, any loss realized on a sale, exchange or redemption of shares will be disallowed to the
extent the shares disposed of are replaced within a period of 61 days, beginning 30 days before and ending 30 days after the date the shares are disposed of, such as pursuant to the reinvestment of dividends. In such case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Under certain circumstances, the sales charge incurred in acquiring
Class A shares of the Funds may not be taken into account in determining the gain or loss on the disposition of those shares. This rule generally applies in circumstances when shares of the Fund are disposed of within 90 days after the date
they were purchased and new shares in a regulated investment company are acquired before January 31 of the calendar year following the calendar year in which the original stock was disposed of without a sales charge or at a reduced sales
charge. In that case, the gain or loss recognized on the exchange will be determined by excluding from the tax basis of the shares exchanged all or a portion of the sales charge incurred in acquiring those shares. This exclusion applies to the
extent that the otherwise applicable sales charge with respect to the newly acquired shares is reduced as a result of having incurred the sales charge initially. Instead, the portion of the sales charge affected by this rule will be treated as an
amount paid for the new shares.
68
Cost Basis Reporting
Shares acquired on or after January 1, 2012 are generally considered
covered shares. The Funds must report cost basis information to you and the Internal Revenue Service (IRS) when covered shares are redeemed. The Funds will use a default average cost method for reporting your cost basis for covered
shares, unless you instruct us otherwise in writing, to use another method. If you wish to choose another default cost basis method for your account you may select among: FIFO (first-in-first-out), LIFO (last-in-first-out)
and HIFO (highest-cost-in-first-out). For redemptions of shares acquired before January 1, 2012 (non-covered shares), the Funds are not required to report cost basis information to you or the IRS.
Accounts opened through a financial intermediary may be subject to different cost basis policies. For more information about your financial
intermediarys rules and procedures, you should contact your financial intermediary directly.
Fund shareholders should consult with
their tax advisors to determine the best IRS-accepted cost basis method for their tax situation and to obtain more information about how the new cost basis rules apply to their particular circumstances.
Back-up Withholding
Each Fund generally will be required to withhold federal income tax at a rate of 28%
(back-up withholding) from dividends paid (other than exempt-interest dividends), capital gain distributions and redemption proceeds to shareholders if (1) the shareholder fails to furnish the applicable Fund with the
shareholders correct taxpayer identification number or social security number; (2) the IRS notifies the shareholder or the applicable Fund that the shareholder has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect; or (3) when required to do so, the shareholder fails to certify that he or she is not subject to back-up withholding. Any amounts withheld may be credited against the shareholders federal income
tax liability.
Passive Foreign Investment Companies
Some of the Funds may invest in stocks of
foreign companies that are classified under the Code as passive foreign investment companies (PFICs). In general, a foreign company is classified as a PFIC if at least one half of its assets constitutes investment-type assets or 75% or
more of its gross income is investment-type income. Under the PFIC rules, an excess distribution received with respect to PFIC stock is treated as having been realized ratably over a period during which the Fund held the PFIC stock. The
Fund itself will be subject to tax on the portion, if any, of the excess distribution that is allocated to the Funds holding period in prior taxable years (an interest factor will be added to the tax, as if the tax had actually been payable in
such prior taxable years) even though the Fund distributes the corresponding income to shareholders. Excess distributions include any gain from the sale of PFIC stock as well as certain distributions from a PFIC. All excess distributions are taxable
as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC stock. Under an election that
may be available, a Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether any distributions are received from the PFIC. If this election is made, the special
rules, discussed above, relating to the taxation of excess distributions, would not apply. In addition, another election may be available that would involve marking to market a Funds PFIC stock at the end of each taxable year (and on certain
other dates prescribed in the Code) with the result that unrealized gains are treated as though they were realized. If this election were made, tax at the Fund level under the PFIC rules would be eliminated, but a Fund could, in limited
circumstances, incur nondeductible interest charges. A Funds intention to qualify annually as a regulated investment company may limit the Funds elections with respect to PFIC stock.
Although not required to do so, it is likely that the Funds will choose to make the mark to market election with respect to PFIC stock
acquired and held. If this election is made, the Funds may be required to make ordinary dividend distributions to their shareholders based on the Funds unrealized gains for which no cash has been generated through disposition or sale of the
shares of PFIC stock.
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Because the application of the PFIC rules may affect, among other things, the character of
gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC stock, as well as subject a Fund itself to tax on certain income from PFIC stock, the amount that must be distributed to shareholders and which will
be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not invest in PFIC stock.
Options, Futures, Forward Contracts and Swap Agreements
Certain options, futures contracts, and forward contracts in which a Fund may invest may be Section
1256 contracts. Gains or losses on Section 1256 contracts generally are considered 60% long-term and 40% short-term capital gains or losses; however, foreign currency gains or losses arising from certain Section 1256 contracts may be
treated as ordinary income or loss. Also, Section 1256 contracts held by a Fund at the end of each taxable year (and at certain other times as prescribed pursuant to the Code) are marked to market with the result that unrealized
gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result
in straddles for U.S. federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by a Fund. The transactions may increase the amount of short-term capital gain realized by a Fund which is taxed
as ordinary income when distributed to shareholders. In addition, losses realized by a Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for
the taxable year in which such losses are realized. Certain carrying charges (including interest expense) associated with positions in a straddle may be required to be capitalized rather than deducted currently. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences of transactions in options, futures, forward contracts, swap agreements and other financial contracts to a Fund are not entirely clear.
A Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the
elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected straddle positions.
Because application of the
straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or decreased as compared to a fund that did not engage in such hedging transactions.
Because only a few regulations regarding the treatment of swap agreements and related caps, floors and collars have been implemented, the tax consequences of such transactions are not entirely clear. The
Funds intend to account for such transactions in a manner deemed by them to be appropriate, but the Internal Revenue Service might not necessarily accept such treatment. If it did not, the status of a Fund as a regulated investment company might be
affected or taxes and interest may be imposed upon the examination and challenged by the Internal Revenue Service.
The
requirements applicable to a Funds qualification as a regulated investment company may limit the extent to which a Fund will be able to engage in transactions in options, futures contracts, forward contracts, swap agreements and other
financial contracts.
Market Discount
If a Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated redemption price over the purchase amount is market discount. If the amount of market discount is more than a
de minimis
amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in each taxable year in which the Fund owns an interest in such debt security and receives a principal payment on it. In particular, the Fund will be required to allocate
that principal payment first to a portion of the market discount on the debt security that has accrued but has not previously been
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includable in income. In general, the amount of market discount that must be included for each period is equal to the lesser of (i) the amount of market discount accruing during such period
(plus any accrued market discount for prior periods not previously taken into account) or (ii) the amount of the principal payment with respect to such period. Generally, market discount accrues on a daily basis for each day the debt security
is held by a Fund at a constant rate over the time remaining to the debt securitys maturity or, at the election of the Fund, at a constant yield to maturity which takes into account the semi-annual compounding of interest. Gain realized on the
disposition of a market discount obligation must be recognized as ordinary interest income (not capital gain) to the extent of the accrued market discount. A Fund may elect to include market discount in income currently. If this election
is made, it will apply to all debt securities that the Fund holds which have market discount.
Original Issue
Discount
Certain debt securities acquired by the Funds may be treated as debt securities that were originally issued at a discount. Very generally, original issue discount is defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income on account of such discount is actually received by a Fund, original issue discount that accrues on a debt security in a given year generally is treated for federal
income tax purposes as interest, and, therefore, such income would be subject to the distribution requirements applicable to regulated investment companies.
Some debt securities may be purchased by the Funds at a discount that exceeds the original issue discount on such debt securities, if any. This additional discount represents market discount for federal
income tax purposes (see above).
Constructive Sales
These rules may affect timing and character of
gain if a Fund engages in transactions that reduce or eliminate its risk of loss with respect to appreciated financial positions. If the Fund enters into certain transactions in property while holding substantially identical property, the Fund would
be treated as if it had sold and immediately repurchased the property and would be taxed on any gain (but not loss) from the constructive sale. The character of gain from a constructive sale would depend upon the Funds holding period in the
property. Loss from a constructive sale would be recognized when the property was subsequently disposed of, and its character would depend on the Funds holding period and the application of various loss deferral provisions of the Code.
Foreign Taxation
Income received by a Fund from sources within a foreign country may be subject to
withholding and other taxes imposed by that country. Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes.
The payment of such taxes will reduce the amount of dividends and distributions paid to the Funds shareholders. If more than 50% of the value of a Funds total assets at the close of its
taxable year consists of securities of foreign corporations, that Fund will be eligible and may elect to treat a proportionate amount of certain foreign taxes paid by it as a distribution to each shareholder which would generally permit each
shareholder (1) to credit this amount (subject to applicable limitations) or (2) to deduct this amount for purposes of computing its U.S. federal income tax liability. The Fund will notify you if it makes this election.
Furthermore, the amount of the foreign tax credit that is available may be limited to the extent that dividends from a foreign
corporation qualify for the lower tax rate on qualifying dividends.
Foreign Currency
Transactions
Under the Code, gains or losses attributable to fluctuations in exchange rates, which occur between the time a Fund accrues income or other receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that a Fund actually collects such receivables or pays such liabilities, generally are treated as ordinary income or ordinary loss. Similarly, on disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and options, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains or losses, referred to under the Code as Section 988 gains or losses, may increase or decrease the amount of a Funds investment company taxable income to be distributed to its
shareholders as ordinary income.
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Foreign Shareholders
Taxation of a shareholder who, as to the
United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership (foreign shareholder) depends on whether the income from the Fund is effectively connected with a U.S.
trade or business carried on by such shareholder. If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income dividends (including distributions of any net short-term
capital gains) will generally be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Note that the preferential rate of tax applicable to certain dividends (discussed above) does not apply
to dividends paid to foreign shareholders. Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of the fund, and distributions of net long-term capital gains that are designated as
capital gain dividends. If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends and any gains realized upon the sale of shares of
the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
For
taxable years beginning before January 1, 2014 (unless further extended by Congress), properly designated dividends received by a nonresident alien or foreign entity are generally exempt from U.S. federal withholding tax when they (a) are
paid in respect of a Funds qualified net interest income (generally, the Funds U.S. source interest income, reduced by expenses that are allocable to such income), or (b) are paid in connection with a Funds
qualified short-term capital gains (generally, the excess of the Funds net short-term capital gain over the Funds long-term capital loss for such taxable year). However, depending on the circumstances, a Fund may designate
all, some or none of the Funds potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and a portion of the Fund's distributions (e.g. interest from non-U.S. sources or any foreign
currency gains) would be ineligible for this potential exemption from withholding. There can be no assurance as to whether or not legislation will be enacted to extend this exemption.
Effective January 1, 2014, the Funds will be required to withhold U.S. tax (at a 30% rate) on payments of dividends and (effective
January 1, 2017) redemption proceeds made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned
foreign investment accounts. Shareholders may be requested to provide additional information to the Funds to enable the Funds to determine whether withholding is required.
The tax consequences to a foreign shareholder entitled to claim the benefits of any applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own
tax advisers with respect to the particular tax consequences to them of an investment in the Funds, including the applicability of foreign taxes and the potential applicability of the U.S. estate tax.
Other Taxes
The foregoing discussion is general in nature and is not intended to provide an exhaustive
presentation of the tax consequences of investing in a Fund. Distributions may also be subject to additional state, local and foreign taxes, depending on each shareholders particular situation. Depending upon the nature and extent of a
Funds contacts with a state or local jurisdiction, the Fund may be subject to the tax laws of such jurisdiction if it is regarded under applicable law as doing business in, or as having income derived from, the jurisdiction. Shareholders are
advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund.
72
O
RGANIZATION
The Articles of Incorporation of
each Fund provide for the issuance of an indefinite number of shares of common stock in one or more classes or series. Security Equity Fund has authorized capital stock of $0.25 par value and issues its shares in seven series: Large Cap Core Fund,
Alpha Opportunity Fund, Mid Cap Value Fund, Mid Cap Value Institutional Fund, Large Cap Concentrated Growth Fund, Small Cap Growth Fund, and Small Cap Value Fund. The shares of each series of Security Equity Fund represent a pro rata beneficial
interest in that Funds net assets and in the earnings and profits or losses derived from the investment of such assets. Security Large Cap Value Fund has authorized capital stock of $1.00 par value and issues its shares in two series: Large
Cap Value Fund and Large Cap Value Institutional Fund. Mid Cap Growth Fund has authorized capital stock of $0.50 par value. Mid Cap Growth Fund has not issued shares in any additional series at the present time.
Each of the Funds may issue different classes of shares which participate proportionately based on their relative NAVs in dividends and
distributions and have equal voting, liquidation and other rights except that (1) expenses related to the distribution of each class of shares or other expenses that the Board of Directors may designate as class expenses from time to time are
borne solely by each class; (2) each class of shares has exclusive voting rights with respect to any Distribution Plan adopted for that class; (3) each class has different exchange privileges; and (4) each class has a different
designation. When issued and paid for, the shares will be fully paid and non-assessable by the Funds. Shares may be exchanged as described under How to Exchange Shares, but will have no other preference, conversion, exchange or
preemptive rights. Shares are transferable, redeemable and assignable and have cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of the series of each of Security Equity Fund, Security Large Cap Value Fund, and Security Mid Cap Growth Fund vote together, with each
share having one vote. On other matters affecting only a particular Fund, such as the investment advisory contract or a Funds fundamental policies, only shares of that Fund are entitled to vote, and a majority vote of the shares of that Fund
is required for approval of the proposal, except as otherwise required by law.
The Funds do not generally hold annual
meetings of shareholders and will do so only when required by law. Shareholders may remove directors from office by vote cast in person or by proxy at a meeting of shareholders. Such a meeting will be called at the written request of 10% of the
outstanding shares of each of Security Large Cap Value Fund, Security Equity Fund or Security Mid Cap Growth Fund.
C
USTODIANS
, T
RANSFER
A
GENT
AND
D
IVIDEND
-P
AYING
A
GENT
State Street Bank and Trust Company, 225 Franklin, Boston, Massachusetts 02110, acts as custodian for the portfolio securities of Alpha Opportunity Fund including those held by foreign banks and foreign
securities depositories which qualify as eligible foreign custodians under the rules adopted by the SEC.
UMB Bank, N.A., 928
Grand Avenue, Kansas City, Missouri 64106, acts as the custodian for the portfolio securities of Large Cap Value Fund, Large Cap Value Institutional Fund, Large Cap Core Fund, Mid Cap Value Fund, Mid Cap Value Institutional Fund, Large Cap
Concentrated Growth Fund, Small Cap Growth Fund, Small Cap Value Fund, and Mid Cap Growth Fund.
Effective February 21, 2011,
Rydex Fund Services, LLC, an affiliate of the Investment Manager, serves as the transfer and dividend-paying agent for each of the Funds (the transfer agency conversion).
I
NDEPENDENT
R
EGISTERED
P
UBLIC
A
CCOUNTING
F
IRM
The firm of Ernst &
Young LLP, 155 North Wacker Drive, Chicago, Illinois 60606, has been selected by the Funds Board of Directors to serve as the Funds independent registered public accounting firm and, as such, will audit the Funds financial
statements and perform other audit-related and tax services.
73
F
INANCIAL
S
TATEMENTS
The financial statements of the
Funds, which are contained in the Funds September 30, 2012 Annual Report, are incorporated herein by reference. A copy of the Annual Report is provided to every person requesting a Statement of Additional Information.
Family of Funds
, for disclosure purposes in this prospectus, includeSeries of Security Equity Fund: Guggenheim Large Cap Core Fund,
Guggenheim Alpha Opportunity Fund, Guggenheim MSCI EAFE Equal Weight Fund, Guggenheim Global Institutional Fund, Guggenheim Mid Cap Value Fund, Guggenheim Mid Cap Value Institutional Fund, Guggenheim Small Cap Growth Fund, Guggenheim Small Cap Value
Fund, and Guggenheim Large Cap Concentrated Growth Fund; Series of Security Large Cap Value Fund: Guggenheim Large Cap Value Fund and Guggenheim Large Cap Value Institutional Fund; Security Mid Cap Growth Fund (aka Guggenheim Mid Cap Growth
Fund); Series of Security Income Fund: Guggenheim High Yield Fund, Guggenheim Investment Grade Bond Fund (formerly, Guggenheim U.S. Intermediate Bond Fund), Guggenheim Municipal Income Fund, Guggenheim Total Return Bond Fund, Guggenheim Macro
Opportunities Fund, and Guggenheim Floating Rate Strategies Fund; the Rydex Series Funds; and the Rydex Dynamic Funds.
74