SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.___________)
Filed by the Registrant |X|
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|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SECURITY TAX-EXEMPT FUND
(Name of Registrant as Specified In Its Charter)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
SECURITY TAX-EXEMPT FUND
TO BE HELD APRIL 24, 1998
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461
TO THE STOCKHOLDERS OF
- SECURITY TAX-EXEMPT FUND
Notice is hereby given that a special meeting of the stockholders of Security
Tax-Exempt Fund (the "Fund"), a Kansas corporation, will be held at the offices
of the Fund, Security Benefit Group Building, 700 SW Harrison Street, Topeka,
Kansas 66636-0001, on April 24, 1998 at 9:30 a.m. local time ("Meeting"), for
the following purposes:
1. To approve a Sub-Advisory Contract, as exhibited in the attached proxy
statement, between the Fund's investment manager, Security Management
Company, LLC, and Salomon Brothers Asset Management Inc.
2. a. To approve amendment of the Fund's Articles of Incorporation changing
the Fund's name to Security Municipal Bond Fund.
b. To consider a change in the Fund's fundamental policies to allow
investment of its assets in tax-exempt securities which may be subject
to alternative minimum tax.
3. To consider a change in the Fund's fundamental policies to increase the
percentage of Fund assets that may be invested in the securities of a single
issuer.
4. To approve a Class A Distribution Plan, as exhibited in the attached proxy
statement.
5. Contingent upon approval of Proposal No. 4, to approve an amendment of the
Investment Advisory Contract between Security Management Company, LLC and
the Fund to amend the limit on annual Fund expenses.
6. To transact such other business as may properly come before the Meeting or
any adjournments thereof, and to adjourn the Meeting from time to time.
The Board of Directors of the Fund has fixed the close of business on
February 25, 1998, as the record date for the determination of stockholders of
the Fund entitled to notice of and to vote at the Meeting.
THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF
SECURITY TAX-EXEMPT FUND. ANY FORM OF PROXY WHICH IS EXECUTED AND RETURNED,
NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED
AND RECEIVED IN TIME WILL BE VOTED AT THE MEETING.
By order of the Board of Directors of
Security Tax-Exempt Fund,
Topeka, Kansas AMY J. LEE
March 6, 1998 Secretary
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IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND AS EARLY AS POSSIBLE.
SECURITY TAX-EXEMPT FUND
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001
SPECIAL MEETING OF STOCKHOLDERS, APRIL 24, 1998
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Security Tax-Exempt Fund (the "Fund") and is revocable by timely submission to
the Secretary of the Fund of another proxy or of notice of revocation in proper
written form, or by voting the shares in person at the Meeting. A second proxy
form may be obtained from the Secretary of Security Tax-Exempt Fund. The cost of
soliciting proxies will be borne by Security Management Company, LLC, 700 SW
Harrison Street, Topeka, Kansas 66636-0001 ("SMC" or the "Investment Manager"),
which will be reimbursed by the Fund. SMC is the investment adviser and
administrator of the Fund. In addition to solicitations by mail, some of the
Investment Manager's officers and employees, without extra remuneration, may
conduct additional solicitation by telephone, telegraph and personal interviews.
Proxies are expected to be mailed on or about March 10, 1998.
VOTING SECURITIES
Only stockholders of record at the close of business on February 25, 1998 are
entitled to vote at the special Meeting. On that date, the outstanding number of
voting securities of the Fund was as follows: 2,099,996.525 Class A shares and
175,858.125 Class B shares, all of which are common stock of the Fund of the par
value of $0.10 per share. Each share is entitled to one vote.
Approval of the Sub-Advisory Contract, Proposal No. 1, approval of the name
change, Proposal No. 2a, approval of the amended fundamental policy no. 1,
Proposal No. 2b and approval of the amended fundamental policy no. 8, Proposal
No. 3, requires the affirmative majority vote of the outstanding shares of the
common stock of the Fund. The Class A and Class B shares of the Fund will be
voted together on Proposal Nos. 1, 2a, 2b and 3 due to the commonality of the
interest of the two classes of shares with respect to those proposals.
With respect to approval of the Class A Distribution Plan, Proposal No. 4,
and approval of the amendment of the Investment Advisory Contract, Proposal No.
5, the Class A and Class B shares of the Fund will vote separately because of
the differing interests in those proposals of the Class A and Class B
shareholders. Class A shareholders would be affected immediately by the
proposals, if approved, whereas Class B shareholders would not be affected until
their Class B shares convert to Class A shares automatically on the eighth
anniversary of their purchase. Approval of Proposal Nos. 4 and 5 requires the
affirmative majority vote of the shares of each class for approval with respect
to that class.
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THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 TO A
SHAREHOLDER UPON REQUEST. SUCH REQUESTS SHOULD BE DIRECTED TO AMY LEE, SECRETARY
OF THE FUND, BY WRITING THE FUND AT 700 SW HARRISON ST., TOPEKA, KANSAS
66636-0001, OR BY CALLING THE FUND'S TOLL-FREE TELEPHONE NUMBER 1-800-888-2461,
EXTENSION 3127.
A "majority vote" is defined as the vote of either 67 percent or more of
voting securities of the Fund (or, if applicable, the class) present at the
meeting in person or by proxy, or more than 50 percent of such outstanding
voting securities, whichever is less. With respect to Proposal No. 2a, a
majority vote is defined as the affirmative vote of a majority of the Fund's
outstanding voting securities.
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PROPOSAL CLASS OF SHAREHOLDERS ENTITLED TO VOTE
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1. Approval of Sub-Advisory Contract Class A and Class B shareholders
2a. Approval of Name Change Class A and Class B shareholders
2b. Approval of Fundamental Policy Amendment No. 1 Class A and Class B shareholders
3. Approval of Fundamental Policy Amendment No. 8 Class A and Class B shareholders
4. Approval of Class A Distribution Plan Class A and Class B shareholders - separately
5. Approval of Amendment of the Investment Advisory Contract Class A and Class B shareholders - separately
- --------------------------------------------------------------------------------------------------------------
The presence, in person or by proxy, of more than 50 percent of the
outstanding shares of the Fund or, with respect to Proposal Nos. 4 and 5, the
Class A and Class B shares, respectively, will be sufficient to establish a
quorum for the conduct of business at the Meeting. Shares held by stockholders
present in person or represented by proxy at the Meeting will be counted both
for the purpose of determining the presence of a quorum and for calculating the
votes cast on the proposals before the Meeting. Shares represented by timely and
properly executed proxies will be voted as specified. Executed proxies that are
unmarked will be voted in favor of the proposals presented at the Meeting. An
abstention on any proposal, either by proxy or by vote in person at the Meeting,
will be counted for purposes of establishing a quorum, but has the same effect
as a negative vote.
In the event that a sufficient number of votes to approve a proposal is not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of voting instructions, or for any
other purpose. A vote may be taken on any proposal prior to an adjournment if
sufficient votes have been received for approval. Any adjournment will require
the affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. Unless otherwise instructed, proxies will be voted in favor
of any adjournment. At any subsequent reconvening of the Meeting, proxies
(unless previously revoked) will be voted in the same manner as they would have
been voted at the Meeting.
PROPOSAL NO. 1
APPROVAL OF A SUB-ADVISORY CONTRACT BETWEEN SMC
AND SALOMON BROTHERS ASSET MANAGEMENT INC.
The Fund's stockholders are asked to approve a sub-advisory agreement between
SMC and Salomon Brothers Asset Management Inc. ("Salomon" or the "Sub-Adviser").
If this Proposal No. 1 is approved by the stockholders, Salomon will provide
sub-advisory services to the Fund pursuant to a sub-advisory contract between
SMC and Salomon (the "Sub-Advisory Contract"). The Fund's Board of Directors,
including a majority of the disinterested Directors, approved the Sub-Advisory
Contract at a meeting held on February 6, 1998.
2
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE SUB-ADVISORY CONTRACT.
EXISTING INVESTMENT ADVISORY CONTRACT
The Investment Manager has served as investment adviser of the Fund since its
inception in accordance with the terms of an Investment Advisory Contract dated
October 7, 1983, as amended (the "Advisory Contract"). The Advisory Contract was
approved initially by shareholders on April 24, 1984 and has not been submitted
to shareholders for approval since that date. The contract was renewed by
directors of the Fund (including a majority of directors who are not parties to
the contract or interested persons of any such party) on February 6, 1998. The
Advisory Contract will continue in effect until May 1, 1999, and from year to
year thereafter providing such continuance is specifically approved by the vote
of a majority of the Board of Directors of the Fund (including a majority of
such directors who are not parties to the contract or interested persons of any
such party) cast in person at a meeting specifically called for voting on such
renewal.
Under the Advisory Contract, the Investment Manager furnishes the Fund with
investment research and advice and an investment program, including decisions
regarding which securities to purchase and sell and what portion of assets to
hold uninvested. In addition, the Investment Manager arranges for the purchase
and sale of securities and other investments held by the Fund and provides for
the compilation and maintenance of records relating to its duties as required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). No
brokerage commissions were paid by the Fund to an affiliated broker for the year
ended December 31, 1997.
For its services, the Investment Manager receives from the Fund a fee equal
to 0.50 percent of the average net assets of the Fund, computed daily and
payable monthly. The Investment Manager received from the Fund advisory fees of
$115,812 during the year ended December 31, 1997.
The Advisory Contract provides that the aggregate annual expenses of every
character, exclusive of brokerage commissions, interest, taxes, extraordinary
expenses (such as litigation) and distribution fees paid under the Fund's Class
B Distribution Plan, but inclusive of the Investment Manager's compensation,
shall not exceed an amount equal to one percent of the Fund's average daily net
assets. The Investment Manager agrees to contribute such funds to the Fund or to
waive such portion of its compensation as may be necessary to insure that total
annual expenses will not exceed this amount. (It is proposed that this provision
of the Advisory Contract be amended. See "Proposal No. 5," page 13.)
The Advisory Contract may be terminated without penalty at any time upon
sixty days' notice by the Board of Directors of the Fund, by vote of the holders
of a majority of the outstanding voting securities of the Fund, or by the
Investment Manager. The Contract is terminated automatically in the event of its
assignment (as such term is defined in the Investment Company Act of 1940).
The Investment Manager also serves as the Fund's administrative and transfer
agent. For those services, the Investment Manager received from the Fund $20,846
and $15,105, respectively, during the year ended December 31, 1997.
PROPOSED SUB-ADVISORY CONTRACT
On behalf of the Fund, SMC proposes to enter into a sub-advisory contract
("Sub-Advisory Contract") with Salomon, a form of which is attached hereto as
Exhibit "A". The Sub-Advisory Contract was proposed by SMC and was unanimously
approved by the Board of Directors of the
3
Fund (including a majority of such directors who are not parties to such
contract or interested persons of any such party) on February 6, 1998. SMC
proposed the Sub-Advisory Contract because it believes that the Sub-Adviser has
expertise with respect to municipal securities that would be valuable in
managing the Fund's investments.
Under the Sub-Advisory Contract, the Sub-Adviser will furnish the Fund with
investment research and advice in connection with the Fund's investment in
securities and will effect purchases and sales of portfolio securities, subject
to the policies and control of the Board of Directors and the supervision of
SMC. For its services, the Sub-Adviser will receive from SMC an annual fee equal
to 0.22 percent of the average daily closing value of the net assets of the
Fund, computed on a daily basis and payable monthly. Under the terms of the
Sub-Advisory Contract, the Sub-Adviser is not subject to any liability to the
Fund or the Investment Manager connected with any services rendered under the
Sub-Advisory Contract except by reason of willful misfeasance, bad faith, or
gross negligence in the performance of its duties or by reason of a breach of
its duties under the Sub-Advisory Contract.
The Sub-Adviser has agreed to pay its expenses in connection with providing
the sub-advisory services, including any expenses associated with preparing
reports for the Fund's Board of Directors and expenses of travel by employees of
the Sub-Adviser in connection with such reports as well as any expenses that it
may incur in communicating with SMC.
Approval of the Sub-Advisory Contract will not increase or decrease any fee
or expense paid by the Fund or its stockholders because all fees under the
Sub-Advisory Contract are paid by SMC. The fees earned by SMC for providing
advisory services to the Fund will be reduced, however, by the amount paid to
the Sub-Adviser pursuant to the Sub-Advisory Contract.
During the fiscal year ended December 31, 1997, the Fund paid SMC a total of
$115,812 for services provided under the Advisory Contract. If the Sub-Advisory
Contract had been in effect during the 1997 fiscal year, SMC would have paid the
Sub-Adviser $50,957 for services provided under that contract.
It is expected that the Sub-Advisory Contract will become effective on May 1,
1998, provided that on the Meeting date it is approved by a majority vote of the
holders of the outstanding voting securities of the Fund. The contract will
continue in force until May 1, 1999, and from year to year thereafter, provided
such continuance is specifically approved by a majority of the Board of
Directors of the Fund (including a majority of such directors who are not
parties to the Sub-Advisory Contract or interested persons of any such party).
The Sub-Advisory Contract may be terminated without penalty upon sixty days'
written notice by either party or by vote of the Board of Directors or by vote
of a majority of the holders of the outstanding voting securities of the Fund.
The Sub-Advisory Contract will automatically terminate in the event of the
termination of the Advisory Contract between SMC and the Fund or in the event of
its assignment.
In recommending the approval of the Sub-Advisory Contract to the stockholders
of the Fund, the Board of Directors considered such factors as it deemed
reasonably necessary and appropriate, including (1) the nature and quality of
the services to be provided to the Fund; (2) the fairness of the compensation of
the Sub-Adviser; (3) the financial soundness of the Sub-Adviser to render all
necessary services to the Fund; (4) comparative industry advisory fee structures
and expense ratios for the Fund including, specifically, the relationship of the
proposed advisory fee rates to those typically charged similar mutual funds; (5)
the performance of a similar portfolio managed by the Sub-Adviser; and (6) the
total fees paid by the Fund, including 12b-1 plan fees. The Board gave equal
weight to each of the above factors when considering approval of the contract.
Based on the
4
considerations above, the Board believes that (a) Salomon has the expertise to
provide high-quality services to the Fund; (b) the advisory fee rates paid by
the Fund and paid by SMC under the Sub-Advisory Contract are fair, and similar
to those typically charged similar mutual funds; (c) the financial soundness of
Salomon is sufficient for Salomon to render all necessary services to be
provided under the Sub-Advisory Contract; and (d) approval of the Sub-Advisory
Contract will not change the total fees paid by the Fund because SMC pays all
fees under the Sub-Advisory Contract.
The Board of Directors of the Fund unanimously recommends approval of the
Sub-Advisory Contract by a vote in favor of Proposal No. 1. In the event that
the proposed contract is not approved, the Board of Directors will meet to
consider whether to present another sub-advisory contract for approval or to
have SMC continue to provide such advisory services.
THE PROSPECTIVE SUB-ADVISER
Salomon is located at 7 World Trade Center, New York, New York 10048. The
Sub-Adviser is a wholly-owned subsidiary of Salomon Brothers Holding Company
Inc. which is wholly owned by Salomon Smith Barney Holdings Inc. which, in turn,
is wholly owned by Travelers Group Inc. The Sub-Adviser and its affiliates
provide a broad range of fixed-income and equity investment advisory services to
various individuals and institutional clients located throughout the world,
including various investment companies. As of December 31, 1997, the Sub-Adviser
and such affiliates managed approximately $26 billion of assets.
The principal occupations, and positions with Salomon, of the principal
executive officer and each director of Salomon are as follows:
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NAME AND ADDRESS* PRINCIPAL OCCUPATION POSITIONS WITH SUB-ADVISER
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Thomas W. Brock** Chairman, Chief Executive Officer and Managing Chairman, Chief Executive Officer
Director of Sub-Adviser and Managing Director and Managing Director
and Member of the Management Board of Salomon
Brothers Inc.
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Michael S. Hyland President, Managing Director and Member of the President, Managing Director and
Board of Sub-Adviser and Managing Director of Member of the Board
Salomon Brothers Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Rodney B. Berens Managing Director and Member of the Board of Managing Director and Member of the Board
Sub-Adviser and Managing Director and Member
of the Management Board of Salomon Brothers Inc.
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Vilas V. Gadkari Managing Director and Member of the Board of Managing Director and Member of the Board
Victoria Plaza Sub-Adviser and Managing Director of Salomon
111 Buckingham Palace Road Brothers Inc.
London, England SW1W OSB
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Zachary Snow Secretary of Sub-Adviser and Managing Director Secretary
and Counsel of Salomon Brothers Inc.
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*The business address of each person listed above, other than Mr. Gadkari, is 7 World Trade Center, New York, New York 10048.
**Principal executive officer
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5
No officer or director of the Fund is an officer, employee or director of the
Sub-Adviser. No officer or director of the Fund owns any securities of, or has
any other material direct or indirect interest in, the Sub-Adviser or any of its
affiliates. No director of the Fund has any direct or indirect material interest
in any material transactions since January 1, 1997, or in any material proposed
transactions, to which the Sub-Adviser, any parent or subsidiary of the
Sub-Adviser, or any subsidiary of the parent of such entities was or is to be a
party. There is no arrangement or understanding in connection with the
Sub-Advisory Contract with respect to the composition of the Board of Directors
of the Fund or of the Sub-Adviser, or with respect to the selection or
appointment of any person to any office of either such company.
The Sub-Adviser acts as adviser for the portfolios of registered investment
companies with investment objectives similar to the Fund's investment objective
of seeking as high a level of interest income exempt from federal income taxes
as is consistent with preservation of stockholders' capital. Set forth below are
the names of such funds, together with information concerning the funds' net
assets and the fees paid to the Sub-Adviser for its services.
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RELATIONSHIP NET ASSETS AS ANNUAL RATE OF FEE WAIVERS OR
FUND NAME OF SUB-ADVISER OF 10-31-97 COMPENSATION REIMBURSEMENTS
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Municipal Partners Fund Inc. Adviser $83,911,229 0.36% of net assets None
Municipal Partners Fund II Inc. Adviser $84,710,984 0.36% of net assets None
National Municipal Bond Fund, Sub-Adviser $18,122,749 0.25% of net assets None
an investment portfolio of
North American Funds
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PROPOSAL NOS. 2A AND 2B
APPROVAL OF AMENDMENT OF THE ARTICLES OF INCORPORATION TO CHANGE
THE FUND'S NAME AND APPROVAL OF CHANGE IN FUNDAMENTAL POLICY
The Fund's Board of Directors approved amendment of the Articles of
Incorporation to change the Fund's name to Security Municipal Bond Fund. In
addition, the Fund's Board of Directors approved a change in the Fund's
fundamental policies to allow investment of its assets in tax-exempt securities
which may be subject to alternative minimum tax. The Board approved the changes
at its meeting of February 6, 1998.
The Fund's current fundamental investment policy no. 1 is as follows:
1. Not to invest more than 20% of its assets in securities which are not
tax-exempt securities, except for temporary defensive purposes.
As amended, the Fund's fundamental policy would read as follows:
1. Not to invest less than 80% of its assets in securities which are exempt
from regular federal income tax but which may be subject to alternative
minimum tax, except for temporary defensive purposes.
The Board of Directors determined that this change in the Fund's fundamental
investment policy, which would eliminate the requirement that the Fund invest 80
percent of its assets in tax-
6
exempt securities that are also exempt from the alternative minimum tax, could
be made only if it changed the Fund's name for the reasons discussed below.
The staff of the SEC takes the position that if a fund's name implies that
its distributions will be exempt from federal income tax, it should have a
fundamental policy requiring that during periods of normal market conditions,
the fund will (1) invest its assets so that 80 percent of income will be
tax-exempt, or (2) invest at least 80 percent of its assets in tax-exempt
securities. The SEC staff considers that securities or income are "tax-exempt"
only if they are also exempt from alternative minimum tax. The Board of
Directors proposes to change the Fund name and amend its fundamental policies to
allow investment in tax-exempt securities that may be subject to the alternative
minimum tax.
The Board of Directors believes that investment in private activity bonds,
which are subject to the alternative minimum tax, would be beneficial for the
Fund in light of the increased yields that may be available from investing in
such securities. Private activity bonds may be issued by or on behalf of public
authorities to finance various privately operated facilities and are not payable
from the unrestricted revenues of the issuer. As a result, the credit quality of
private activity bonds is frequently related directly to the credit standing of
private corporations or other entities. The Board determined that the
flexibility to invest more than 20 percent of the Fund's assets in private
activity bonds was in the best interests of the Fund and its shareholders. The
Board noted, however, that the Fund would no longer be appropriate for, or at a
minimum could be less attractive to, its shareholders who are subject to
alternative minimum tax. Based on the foregoing considerations, the Board of
Directors determined that changing the name of the Fund and its fundamental
investment policies is in the best interests of the Fund and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
CHANGE OF THE FUND'S NAME AND THE CHANGE IN FUNDAMENTAL POLICY.
PROPOSAL NO. 3
APPROVAL OF CHANGE IN FUNDAMENTAL POLICY
The Board of Directors proposes to amend the Fund's fundamental investment
policies to increase the percentage of the Fund's total assets which may be
invested in any one issuer. The proposed amendment would permit the Fund greater
flexibility to invest in securities considered by the Investment Manager or, if
Proposal No. 1 is approved, the Sub-Adviser, to present attractive investment
opportunities. Under the amended policy, the fund would be limited, with respect
to 75 percent of its total assets, to investing no more than 5 percent of its
total assets in the securities of any one issuer. However, no such limitation
would apply with respect to the remaining 25 percent of the Fund's assets.
The Fund's current fundamental investment policy no. 8 is as follows:
8. Not to invest more than 5% of its total assets in the securities of any one
issuer, except securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
As amended, the Fund's fundamental policy would read as follows:
8. Not to purchase a security if, as a result, with respect to 75% of the value
of its total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer, except securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
7
By allowing the Fund to invest a significantly larger portion of its assets
in the securities of a single issuer, this proposed change in fundamental
policy, while consistent with the Fund's status under applicable law as a
"diversified" investment company, could cause the Fund's net asset value per
share to be more affected by changes in the value of, and developments with
respect to, the securities of a single issuer or a smaller number of issuers.
The Board of Directors, however, believes that the advantages of this change
outweigh the risks. The Sub-Adviser recommended the proposed change in
fundamental policy to provide more flexibility in managing the Fund's portfolio.
This change would allow the Sub-Adviser to invest more than 5 percent of the
Fund's assets (up to 25 percent) in a single security. As a result, the
Sub-Adviser could elect to reduce the number of portfolio securities it
monitors, or take a larger position in a security that the Sub-Adviser believes
is attractive with respect to yield and duration. Such positions may make it
easier to achieve the duration that the Sub-Adviser believes is appropriate for
the Fund and also may allow the Sub-Adviser to anchor the portfolio's yield by
taking a larger position in a security with attractive yield and call features.
The Board of Directors, after consideration of the increased potential risks and
potential benefits associated with this change, determined that the proposed
change in fundamental investment policy is in the best interests of the Fund and
its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL
NO. 3.
PROPOSAL NO. 4
APPROVAL OF A CLASS A DISTRIBUTION PLAN
The holders of the Fund's shares are asked to approve a Class A Distribution
Plan (the "Plan") a form of which is attached hereto as Exhibit "B". The Board
of Directors of the Fund, including a majority of the Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or any related agreement (the "Independent
Directors"), approved the Plan at a meeting held on February 6, 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE CLASS A DISTRIBUTION PLAN.
As discussed under "Voting Securities" above, the Class A and Class B
stockholders have differing interests in this Proposal and, accordingly, the
Class A and Class B stockholders will vote separately with respect to approval
of the Plan. If this Proposal No. 4 is approved by a majority vote of the
stockholders of each class, the Plan will be implemented effective May 1, 1998.
If the Plan is approved by a majority vote of the holders of Class A shares of
the Fund but is not so approved by holders of Class B shares, the Board of
Directors will consider its options with respect to the Plan, including whether
to implement the Plan. If the Board determines to implement the Plan without the
approval of a majority vote of the Class B shares, the Fund will create a new
class of shares for Class B shareholders upon conversion. The new class of
shares would mirror Class A shares prior to implementation of the Plan.
The Plan provides that the Fund will pay the Fund's principal underwriter and
distributor, Security Distributors, Inc. (the "Distributor"), a distribution fee
charged against the assets of the Fund's Class A shares. The distribution fee is
an amount equal to 0.25 percent on an annual basis of the average daily net
assets of the Fund's Class A shares, calculated daily and payable monthly. The
distribution fee is to finance activities which are, or may be deemed to be
primarily intended to result in the sale of Fund shares. The Distributor is
reimbursed under the Plan for distribution-related expenses actually incurred.
The Distributor currently uses its own funds to engage in such activities,
8
and the distribution fees would supplement these expenditures and in some
instances may replace such expenditures. The distribution fees may be used to
pay for the following distribution-related activities: (1) preparation, printing
and distribution of the Prospectus and Statement of Additional Information in
connection with the offering of shares to the public; (2) printing of additional
copies of reports and other shareholder communications for use by the
Distributor as sales literature; (3) preparation, printing and distribution of
any other sales literature used in connection with the offering of Fund shares
to the public; (4) expenses incurred in advertising, promoting and selling
shares of the Fund to the public; (5) service fees to securities dealers for
answering shareholder inquiries, recordkeeping and similar services; and (6)
expenses incurred in promoting shares of the Fund to securities dealers,
including the costs of preparation of materials for presentations to dealers,
travel expenses, costs of entertainment and other similar expenses.
The Plan requires the Distributor to provide for review by the Board of
Directors quarterly reports of how distribution fees were spent during the
preceding quarter. The Plan provides that the Distributor must submit for Board
approval each year a budget outlining proposed distribution-related activities
to be financed under the Plan during the upcoming fiscal year.
The Plan states that it may not be amended to increase materially the amounts
to be paid by the Fund thereunder without a majority vote of the outstanding
voting securities of each class of shares for approval with respect to that
class, and all material amendments are required to be approved by the Board of
Directors of the Fund, including a majority of Independent Directors, cast in
person at a meeting called for that purpose. The Plan may be terminated at any
time by vote of a majority of Independent Directors or by a majority vote of the
outstanding Class A voting securities. In the event the Plan is terminated, it
provides that distribution fees paid to the Distributor up to the date of
termination would be retained by the Distributor, and any expenses incurred by
the Distributor in excess of those fees would be the sole responsibility of the
Distributor.
While the Plan is in effect, the selection and nomination of Independent
Directors of the Fund must be committed to the discretion of the Independent
Directors.
The Board of Directors recommends approval of the Class A Distribution Plan
primarily based upon the Directors' belief that the Plan is necessary for the
Fund to be competitive and to attract and retain assets. The Directors
anticipate that distribution fees would be used primarily to pay service fees to
broker/dealers to obtain certain administrative services for the Fund's Class A
stockholders. Those administrative services may include processing new account
applications and serving as the primary source of information to customers in
answering questions concerning the Fund and their transactions with the Fund.
Payment of service fees has become common in the mutual fund industry, and the
Board believes that because the Fund does not have a Distribution Plan, many
securities dealers assume that such service fees are not available with respect
to the Fund and that dealers will not be paid for providing ongoing services to
Fund shareholders. As a result, many such dealers may elect to make available to
their customers mutual funds that have distribution plans in place, rather than
the Fund. It is important to note that although many dealers assume that service
fees are not available, the Investment Manager currently pays a service fee to
securities dealers generally equal to 0.25 percent of the aggregate net asset
value of the dealer's Class A accounts opened after July 31, 1990. As a result,
if the Plan is adopted, the expense of service fees currently borne by the
Investment Manager will be paid by the Distributor from the Fund's distribution
fees.
The Directors also considered whether the Investment Manager would be willing
to pay service fees to securities dealers in the future. They noted that if the
proposed Sub-Advisory Contract were adopted, the Investment Manager's expense of
managing the Fund would increase by approximately
9
the amount of sub-advisory fees paid to Salomon, although the Investment Manager
also will realize a decrease in certain expenses associated with managing the
Fund. As a result, the Directors concluded that the Investment Manager may by
less willing to pay service fees in the future.
In addition to the considerations discussed above, the Board considered the
benefits of having available distribution fees for additional promotional
activities. The Fund's assets were approximately $25 million as of December 31,
1997 and have been at that asset level since approximately December 31, 1994.
The Board believes that those distribution fees could be used to promote the
Fund and the new Sub-Adviser and potentially to increase assets. An increase in
net assets may afford the adviser additional flexibility in managing the Fund,
management of which is sometimes complicated by its small asset size. Increased
assets also may ultimately result in lower per share expenses for the Fund. The
Directors, however, considered that the immediate effect of the Plan, if
adopted, would be an increase in Fund expenses in the amount of 0.25 percent of
the Fund's aggregate net assets attributable to Class A shares on an annual
basis. Class B shareholders would be affected by the increase in expenses upon
converting to Class A shares. The Operating and Expense Table below reflects the
effect of the distribution fee on the Fund's expenses.
TRANSACTION AND OPERATING EXPENSE TABLE
- ----------------------------------------------------------------------------------------------------------
PRO FORMA CURRENT
CLASS A SHAREHOLDER TRANSACTION EXPENSES EXPENSES(1) EXPENSES(2)
- ----------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................ 4.75% 4.75%
Maximum Sales Load Imposed on Reinvested Dividends............................ None None
Deferred Sales Load (as a percentage of original purchase price or redemption
proceeds, whichever is lower).............................................. None(3) None(3)
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees............................................................... 0.50% 0.50%
12b-1 Fees.................................................................... 0.25% 0.00%
Other Expenses (after expense reimbursement).................................. 0.33% 0.33%
---- ----
Total Fund Operating Expenses (after expense reimbursement)................... 1.08% 0.83%
==== ====
EXAMPLE
You would pay the following expenses on a 1 Year................ $ 58 $ 56
$1,000 investment, assuming (1) 5 percent 3 Years............... 80 73
annual return and (2) redemption at the end 5 Years............... 104 91
of each time period 10 Years............... 173 145
- ----------------------------------------------------------------------------------------------------------
(1) If the Class A Distribution Plan were adopted and the expense limitation were amended as discussed in
Proposal Nos. 4 and 5, the Fund's expenses for its Class A shares would be as set forth above as of
December 31, 1997.
(2) The Fund's current expenses for its Class A shares as of December 31, 1997, assuming no change in the
Fund's expenses or expense limitation.
(3) Purchases of Class A shares in amounts of $1,000,000 or more are not subject to an initial sales
load; however, a contingent deferred sales charge of 1 percent is imposed in the event of redemption
within one year of purchase.
- ----------------------------------------------------------------------------------------------------------
After consideration of the potential benefits and detriments of the Plan, and
noting its continuing duty to monitor the success of the Plan in attracting and
retaining Fund assets in connection with the
10
required annual consideration of the Plan, the Board of Directors determined
that adoption of the Plan was reasonably likely to benefit the Fund and its
shareholders.
PROPOSAL NO. 5
APPROVAL OF AN AMENDMENT TO THE ADVISORY CONTRACT
NOTE: CONSIDERATION OF PROPOSAL NO. 5 IS CONTINGENT UPON STOCKHOLDER APPROVAL
OF PROPOSAL NO. 4. IF PROPOSAL NO. 4 IS NOT APPROVED BY CLASS A STOCKHOLDERS,
PROPOSAL NO. 5 WILL NOT BE PRESENTED FOR CONSIDERATION AT THE MEETING, AND ANY
VOTES IN FAVOR OF PROPOSAL NO. 5 WILL BE NULL AND VOID WITH NO LEGAL EFFECT.
The Board of Directors proposes to amend the Advisory Contract, which is
discussed under "Existing Investment Advisory Contract," page 3. Under the
Advisory Contract, the Investment Manager has agreed to reimburse the Fund or to
waive such portion of its compensation as may be necessary to insure that the
Fund's total annual expenses do not exceed an amount equal to one percent of the
Fund's average daily net assets. For purposes of this expense limit, total
annual expenses do not include brokerage commissions, interest, taxes,
extraordinary expenses (such as litigation) and distribution fees paid under the
Fund's Class B Distribution Plan. The Board of Directors proposes also to
exclude fees paid under the Fund's proposed Class A Distribution Plan. The
combined effect of this amendment, if approved, and adoption of the Class A
Distribution Plan would be to increase the Fund's total expenses by 0.25 percent
of the Fund's average daily net assets attributable to its Class A shares. See
the "Transaction and Operating Expense Table" above.
The Board of Directors determined that amendment of the Advisory Contract's
expense limit was appropriate in light of its recommendation of approval of the
Class A Distribution Plan. The Directors considered that the expense limitation
was imposed originally to limit the level of the Fund's operating expenses, and
that the expense of a Distribution Plan was not contemplated in setting that
limit. The Advisory Contract is proposed to be amended by deleting paragraph
5.(b) and replacing it with the following (new language is underlined):
For each of the Fund's full fiscal years during the term of this
Agreement, the Management Company guarantees that the aggregate annual
expenses of every character (exclusive of interest and taxes,
extraordinary expenses (such as litigation), and distribution fees paid
under the Fund's CLASS A AND Class B Distribution PlanS, but inclusive of
the Management Company's compensation, incurred by the Fund shall not
exceed an amount equal to one percent of the average net assets of the
Fund for the year, such net assets to be calculated on a daily basis. The
Management Company agrees, on a monthly basis, to contribute to the Fund
such funds or to waive such portion of its fee as may be necessary to
insure that such aggregate annual expenses will not exceed said amount. If
this Agreement shall be effective for only a portion of one of the Fund's
fiscal years, then the maximum annual expenses shall be prorated for such
portion. Brokerage fees and commissions incurred in connection with the
purchase or sale of any securities by the Fund shall not be deemed to be
expenses within the meaning of this paragraph (b).
THE BOARD OR DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE AMENDMENT OF THE ADVISORY CONTRACT.
11
MORE INFORMATION ABOUT THE INVESTMENT MANAGER AND DISTRIBUTOR
Security Distributors, Inc. ("SDI"), 700 SW Harrison Street, Topeka, Kansas
66636-0001, is principal underwriter of the Fund. SDI is a wholly-owned
subsidiary of Security Benefit Group, Inc. which is a wholly-owned subsidiary of
Security Benefit Life Insurance Company ("SBL"). The Investment Manager is also
a wholly-owned subsidiary of SBL. For the fiscal year ended December 31, 1997,
the Fund paid $2,561 in sales commissions to SDI.
The principal occupations, and positions with SMC and the Fund, of the
principal executive officer and each officer and director of SMC are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS* PRINCIPAL OCCUPATION POSITION WITH SMC POSITION WITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
James R. Schmank** President and Managing Member President and Managing Vice President and Director
Representative of SMC Member Representative
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Cleland Senior Vice President and Managing Senior Vice President President and Director
Member Representative of SMC and Managing Member
Representative
- ------------------------------------------------------------------------------------------------------------------------------------
Donald A. Chubb, Jr. Business broker, Griffith & Blair Realtors None Director
2222 SW 29th Street
Topeka, KS 66611
- ------------------------------------------------------------------------------------------------------------------------------------
Donald L. Hardesty Chairman and Chief Executive Officer, None Director
900 NationsBank Tower Central Research and Consulting
Topeka, KS 66603
- ------------------------------------------------------------------------------------------------------------------------------------
Penny A. Lumpkin Vice President, Palmer Companies None Director
3616 Canterbury Town Road (Wholesalers, Retailers and Developers)
Topeka, KS 66610 and Bellairre Shopping Center (Leasing
and Shopping Center Management);
Secretary-Treasurer, Palmer News, Inc.
(Wholesale Distributors)
- ------------------------------------------------------------------------------------------------------------------------------------
Mark L. Morris, Jr. Retired; Former General Partner, Mark None Director
5500 SW 7th Street Morris Associates (Veterinary Research
Topeka, KS 66606 and Education)
- ------------------------------------------------------------------------------------------------------------------------------------
Maynard F. Oliverius President and Chief Executive Officer, None Director
1500 SW 10th Avenue Stormont-Vail Health Care
Topeka, KS 66604
- ------------------------------------------------------------------------------------------------------------------------------------
Mark E. Young Vice President, SMC; Assistant Vice Vice President Vice President
President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Jane A. Tedder Vice President and Senior Economist, SMC; Vice President Vice President
Vice President, Security Benefit Group,
Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee Secretary, SMC; Vice President, Associate Secretary Secretary
General Counsel and Assistant Secretary,
Security Benefit Group, Inc. and Security
Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
12
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS* PRINCIPAL OCCUPATION POSITION WITH SMC POSITION WITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood Assistant Vice President and Treasurer, Assistant Vice Treasurer
SMC; Assistant Vice President, Security President and
Benefit Group, Inc. and Security Benefit Treasurer
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher D. Swickard Assistant Secretary, SMC; Assistant Assistant Secretary Assistant Secretary
Vice President and Assistant Counsel,
Security Benefit Group, Inc. and
Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
*All located at 700 Harrison, Topeka, KS 66636 unless otherwise noted.
**Principal executive officer
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart shows the shares of common stock of the Fund beneficially
owned by directors and executive officers of the Fund.
- --------------------------------------------------------------------------------
NUMBER OF SHARES
BENEFICIALLY OWNED AS
NAME AND POSITION* OF DECEMBER 31, 1997 PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
Penny A. Lumpkin, Director 591.484 None 0.0271% None
All directors and executive
officers as a group 27979.824 None 1.284% None
- --------------------------------------------------------------------------------
*No director or "named executive officer" of the Fund beneficially owned any
shares of common stock of the Fund as of December 31, 1997, except as shown in
the above chart.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
Unless otherwise required under the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
stockholders. Stockholder proposals must be received at least 120 days prior to
the next meeting of stockholders, whenever held.
OTHER MATTERS
The audited financial statements of the Fund are found in the Annual Report
for the fiscal year ended December 31, 1997, which was mailed to stockholders on
or about February 28, 1998.
The Board of Directors of the Fund is not aware of any other matters to come
before the Meeting or any adjournments thereof other than those specified
herein. If any other matters should come before the Meeting, it is intended that
the persons named as proxies in the enclosed form(s) of proxy, or their
substitutes, will vote the proxy in accordance with their best judgment on such
matters.
By order of the Board of Directors of
Security Tax-Exempt Fund,
AMY J. LEE
Secretary
13
EXHIBIT A
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ____ day of February, 1998
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and SALOMON BROTHERS ASSET MANAGEMENT
INC. (the "Subadviser"), a New York corporation registered under the Investment
Advisers Act.
WITNESSETH:
WHEREAS, Security Tax-Exempt Fund (the "Fund"), a Kansas corporation, is
registered with the Securities and Exchange Commission (the "Commission") as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act");
WHEREAS, the Fund has, pursuant to an Advisory Agreement with the Adviser
(the "Advisory Agreement"), retained the Adviser to act as investment adviser
for and to manage its assets;
WHEREAS, the Advisory Agreement permits the Adviser to delegate certain of
its duties under the Advisory Agreement to other investment advisers, subject to
the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Fund to act as investment adviser for and to manage the Fund's Investments (as
defined below) and the Subadviser desires to render such services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Fund subject
to the supervision of the Adviser and the Board of Directors of the Fund and
subject to the terms of this Agreement; and the Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the Fund's
Investments.
2. DUTIES OF SUBADVISER.
(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions of
the Fund as set forth in its prospectus and statement of additional
information as currently in effect and as supplemented or amended from time
to time (collectively referred to hereinafter as the "Prospectus") and
subject to the directions of the Adviser and the Fund's Board to purchase,
hold and sell investments for the account of the Fund (hereinafter
"Investments") and to monitor on a continuous basis the performance of such
Investments. The Subadviser shall give the Fund the benefit of its best
efforts in rendering its services as Subadviser. The Subadviser may contract
with or consult with such banks, other securities firms, brokers or other
parties, without additional expense to the
Fund, as it may deem appropriate regarding investment advice, research and
statistical data, clerical assistance or otherwise.
(b) BROKERAGE. The Subadviser is authorized, subject to the supervision of
the Adviser and the Fund's Board to establish and maintain accounts on behalf
of the Fund with, and place orders for the purchase and sale of the Fund's
Investments with or through, such persons, brokers or dealers as Subadviser
may select and negotiate commissions to be paid on such transactions. The
Subadviser agrees that in placing such orders it shall attempt to obtain best
execution, provided that, the Subadviser may, on behalf of the Fund, pay
brokerage commissions to a broker which provides brokerage and research
services to the Subadviser in excess of the amount another broker would have
charged for effecting the transaction, provided (i) the Subadviser determines
in good faith that the amount is reasonable in relation to the value of the
brokerage and research services provided by the executing broker in terms of
the particular transaction or in terms of the Subadviser's overall
responsibilities with respect to the Fund and the accounts as to which the
Subadviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of 1934, as
amended, and any other applicable laws and regulations, and (iii) in the
opinion of the Subadviser, the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. It is
recognized that the services provided by such brokers may be useful to the
Subadviser in connection with the Subadviser's services to other clients. On
occasions when the Subadviser deems the purchase or sale of a security to be
in the best interests of a Fund as well as other clients of the Subadviser,
the Subadviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. The Subadviser will report on such allocations at
the request of the Adviser, the Fund or the Fund's Board providing such
information as the number of aggregated trades to which the Fund was a party,
the broker(s) to whom such trades were directed and the basis of the
allocation for the aggregated trades.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person of
the Subadviser will not purchase securities or other instruments from or sell
securities or other instruments to a Fund ("Principal Transactions");
PROVIDED, HOWEVER, the Subadviser may enter into a Principal Transaction with
a Fund if (i) the transaction is permissible under applicable laws and
regulations, including, without limitation, the Investment Company Act and
the Investment Advisers Act and the rules and regulations promulgated
thereunder, and (ii) the transaction receives the express written approval of
the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the Fund
with a copy of such Code of Ethics.
2
(d) BOOKS AND RECORDS. The Subadviser will maintain all books and records
required to be maintained pursuant to the Investment Company Act and the
rules and regulations promulgated thereunder with respect to transactions
made by it on behalf of the Fund including, without limitation, the books and
records required by Subsections (b)(1), (5), (6), (7), (9), (10) and (11) and
Subsection (f) of Rule 31a-1 under the Investment Company Act and shall
timely furnish to the Adviser all information relating to the Subadviser's
services hereunder needed by the Adviser to keep such other books and records
of the Fund required by Rule 31a-1 under the Investment Company Act. The
Subadviser will also preserve all such books and records for the periods
prescribed in Rule 31a-2 under the Investment Company Act, and agrees that
such books and records shall remain the sole property of the Fund and shall
be immediately surrendered to the Fund upon request. The Subadviser further
agrees that all books and records maintained hereunder shall be made
available to the Fund or the Adviser at any time upon reasonable request,
including telecopy, during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to time
as the Adviser or the Fund may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on Investments
held in the portfolio, all in such detail as the Adviser or the Fund may
reasonably request. The Subadviser will make available its officers and
employees to meet with the Fund's Board of Directors at the Fund's principal
place of business on due notice to review the Investments of the Fund.
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Fund or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule or
regulation thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Fund's
custodian, on each business day with information relating to all transactions
concerning the Fund's assets.
(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser and its
directors, officers, partners, employees and interested persons shall act in
conformity with the Fund's Articles of Incorporation, By-Laws, and currently
effective registration statement and with the written instructions and
directions of the Fund's Board and the Adviser, and shall comply with the
requirements of the Investment Company Act, the Investment Advisers Act, the
Commodity Exchange Act, the rules thereunder, and all other applicable
federal and state laws and regulations.
In carrying out its obligations under this Agreement, the Subadviser
shall ensure that the Fund complies with all applicable statutes and
regulations necessary to qualify the Fund as a Regulated Investment Company
under Subchapter M of the Code (or any successor provision), and shall notify
the Adviser immediately upon having a reasonable basis for believing that the
Fund has ceased to so qualify or that it might not so qualify in the future.
3
The Adviser has furnished the Subadviser with copies of each of the
following documents and will furnish the Subadviser at its principal office
all future amendments and supplements to such documents, if any, as soon as
practicable after such documents become available: (i) the Articles of
Incorporation of the Fund, (ii) the By-Laws of the Fund and (iii) the Fund's
registration statement under the Investment Company Act and the Securities
Act of 1933, as amended, as filed with the Commission.
(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to how
to vote such proxies as may be necessary or advisable in connection with any
matters submitted to a vote of shareholders of securities held by the Fund.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, an annual fee equal to 0.22 percent of the average daily
closing value of the net assets of the Fund, computed on a daily basis and
payable monthly. If this Agreement shall be effective for only a portion of a
year, then the Subadviser's compensation for said year shall be prorated for
such portion. For purposes of this paragraph 4, the value of the net assets of
the Fund shall be computed in the same manner at the end of the business day as
the value of such net assets is computed in connection with the determination of
the net asset value of the Fund's shares as described in the Fund's Prospectus.
Payment of the Subadviser's compensation for the preceding month shall be made
as promptly as possible after the end of each month.
5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the Fund's Board.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Fund as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the occurrence
of any event that would disqualify the Subadviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the
Investment Company Act;
(c) The Subadviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association;
4
(d) The Subadviser is a corporation duly organized and validly existing
under the laws of the State of New York with the power to own and possess its
assets and carry on its business as it is now being conducted;
(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized by
all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution, delivery
and performance by the Subadviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Subadviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Subadviser;
(f) This Agreement is a valid and binding agreement of the Subadviser;
(g) The Form ADV of the Subadviser previously provided to the Adviser is a
true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading;
7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association;
(c) The Adviser is a limited liability company duly organized and validly
existing under the laws of the State of Kansas with the power to own and
possess its assets and carry on its business as it is now being conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery and
performance by the Adviser of this Agreement do not contravene or constitute
a default under (i) any provision of applicable law, rule or regulation, (ii)
the Adviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
5
(f) The Form ADV of the Adviser previously provided to the Subadviser is a
true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading;
(g) The Adviser acknowledges that it received a copy of the Subadviser's
Form ADV at least 48 hours prior to the execution of this Agreement.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 7 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
9. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Subadviser or a breach of its duties hereunder,
the Subadviser shall not be subject to any liability to the Adviser or the
Fund or any of the Fund's shareholders, and, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser or a
breach of its duties hereunder, the Adviser shall not be subject to any
liability to the Subadviser, for any act or omission in the case of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of Investments; PROVIDED, HOWEVER,
that nothing herein shall relieve the Adviser and the Subadviser from any of
their obligations under applicable law, including, without limitation, the
federal and state securities laws and the CEA.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and the
Fund, and their respective officers and directors, for any liability and
expenses, including attorneys' fees, which may be sustained as a result of
the Subadviser's willful misfeasance, bad faith, gross negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The Adviser
shall indemnify the Subadviser and its officers and directors, for any
liability and expenses, including attorneys' fees, which may be sustained as
a result of the Adviser's willful misfeasance, bad faith, gross negligence,
breach of its duties hereunder or violation of applicable law, including,
without limitation, the federal and state securities laws or the CEA.
10. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall become effective upon the date first
above written, provided that this Agreement shall not take effect with
respect to the Fund unless it has first been approved (i) by a vote of a
majority of those directors of the Fund who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority of
the Fund's outstanding voting securities. This Agreement shall continue in
effect for a period of two years from the date hereof, subject thereafter to
being continued in force and effect from year to year with respect to
6
the Fund if specifically approved each year by either (i) the Board of
Directors of the Fund, or (ii) by the affirmative vote of a majority of the
Fund's outstanding voting securities. In addition to the foregoing, each
renewal of this Agreement with respect to the Fund must be approved by the
vote of a majority of the Fund's directors who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. Prior to voting on
the renewal of this Agreement, the Board of Directors of the Fund may request
and evaluate, and the Subadviser shall furnish, such information as may
reasonably be necessary to enable the Fund's Board of Directors to evaluate
the terms of this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of
any penalty:
(i) By vote of a majority of the Board of Directors of the Fund, or by
vote of a majority of the outstanding voting securities of the Fund, or by
the Adviser, in each case, upon sixty (60) days' written notice to the
Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall not
have been cured during the notice period, upon twenty (20) days written
notice;
(iii) By the Adviser immediately upon written notice to the Subadviser
if the Subadviser becomes unable to discharge its duties and obligations
under this Agreement; or
(iv) By the Subadviser upon 180 days written notice to the Adviser and
the Fund.
This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent or upon the termination of the Advisory
Agreement.
11. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Fund pursuant to the Advisory Agreement
and shall oversee and review the Subadviser's performance of its duties under
this Agreement.
12. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to the Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund.
13. CONFIDENTIALITY. Subject to the duties of the Adviser, the Fund and the
Subadviser to comply with applicable law, including any demand of any regulatory
or taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Fund and the actions of the
Subadviser, the Adviser and the Fund in respect thereof.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Fund) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the
7
other party, or transmitted by facsimile with acknowledgment of receipt, to the
parties at the following addresses or facsimile numbers, which may from time to
time be changed by the parties by notice to the other party:
(a) If to the Subadviser:
Salomon Brothers Asset Management Inc.
7 World Trade Center
New York, New York 10048
Attention: _________________________
Facsimile: (212) 783-3601
(b) If to the Adviser:
James R. Schmank
President
Security Management Company, LLC
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: James R. Schmank
Facsimile: (785) 431-3080
(c) If to Security Tax-Exempt Fund:
Amy J. Lee
Secretary
Security Tax-Exempt Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.
16. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall together constitute one and the same instrument.
17. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
18. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
8
19. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.
(b) MISCELLANEOUS. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the Investment Company Act shall be resolved by reference to
such term or provision of the Investment Company Act and to interpretations
thereof, if any, by the U.S. courts or, in the absence of any controlling
decisions of any such court, by rules, regulation or order of the Commission
validly issued pursuant to the Investment Company Act. Specifically, as used
herein, "investment company," "affiliated person," "interested person,"
"assignment," "broker," "dealer" and "affirmative vote of the majority of the
Fund's outstanding voting securities" shall all have such meaning as such
terms have in the Investment Company Act. The term "investment adviser" shall
have such meaning as such term has in the Investment Advisers Act and the
Investment Company Act, and in the event of a conflict between such Acts, the
most expansive definition shall control. In addition, where the effect of a
requirement of the Investment Company Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Commission,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SECURITY MANAGEMENT COMPANY, LLC
By:
----------------------------------
Name: James R. Schmank
Title: President
Attest:
------------------------------
Name: Amy J. Lee
Title: Secretary
SALOMON BROTHERS ASSET MANAGEMENT INC.
By:
------------------------------
Name:
Title:
Attest:
------------------------------
Name:
Title:
9
EXHIBIT B
SECURITY TAX-EXEMPT FUND
CLASS A
DISTRIBUTION PLAN
1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing by
Security Tax-Exempt Fund (the "Fund") of activities which are, or may be
deemed to be, primarily intended to result in the sale of class A shares of
the Fund (hereinafter called "distribution-related activities"). The
principal purpose of this Plan is to enable the Fund to supplement
expenditures by Security Distributors, Inc., the Distributor of its shares
(the "Distributor") for distribution-related activities. This Plan is
intended to comply with the requirements of Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act").
The Board of Directors, in considering whether the Fund should implement the
Plan, has requested and evaluated such information as it deemed necessary to
make an informed determination as to whether the Plan should be implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Fund for such purposes.
In voting to approve the implementation of the Plan, the Directors have
concluded, in the exercise of their reasonable business judgment and in
light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
2. COVERED EXPENSES.
(a) The Fund may make payments under this Plan, or any agreement relating
to the implementation of this Plan, in connection with any activities
or expenses primarily intended to result in the sale of class A shares
of the Fund, including, but not limited to, the following
distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus and
Statement of Additional Information and any supplement thereto
used in connection with the offering of the Fund's shares to the
public;
(ii) Printing of additional copies for use by the Distributor as
sales literature, of reports and other communications which were
prepared by the Fund for distribution to existing shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of the Fund's
shares to the public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Fund to the public;
(v) Any fees paid by the Distributor to securities dealers who have
executed a Dealer's Distribution Agreement with the Distributor
for account maintenance and personal service to shareholders of
the Fund (a "Service Fee");
(vi) Commissions to sales personnel for selling shares of the Fund
and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the Fund by
securities dealers, including the costs of preparation of
materials for presentations, travel expenses, costs of
entertainment, and other expenses incurred in connection with
promoting sales of Fund shares by dealers.
(b) Any payments for distribution-related activities shall be made pursuant
to an agreement. As required by the Rule, each agreement relating to
the implementation of this Plan shall be in writing and subject to
approval and termination pursuant to the provisions of Section 7 of
this Plan. However, this Plan shall not obligate the Fund or any other
party to enter into such agreement.
3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to this
Plan shall be subject to and be made in compliance with a written agreement
between the Fund and the Distributor containing a provision that the
Distributor shall furnish the Fund with quarterly written reports of the
amounts expended and the purposes for which such expenditures were made, and
such other information relating to such expenditures or to the other
distribution-related activities undertaken or proposed to be undertaken by
the Distributor during such fiscal year under its Distribution Agreement
with the Fund as the Fund may reasonably request.
4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the
"Agreement") contemplated by Section 2(a)(v) above shall permit payment of
Service Fees to securities dealers by the Distributor only in accordance
with the provisions of this paragraph and shall have the approval of the
majority of the Board of Directors of the Fund, including the affirmative
vote of a majority of those Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan ("Independent Directors"),
as required by the Rule. The Distributor may pay to the other party to any
such Agreement a Service Fee for distribution and marketing services
provided by such other party. Such Service Fee shall be payable (a) for the
first year, initially, in an amount equal to .25 percent annually of the
aggregate net asset value of the shares purchased by such other party's
customers or clients, and (b) for each year thereafter, quarterly, in
arrears in an amount equal to such percentage (not in excess of .000685
percent per day or .25 percent annually) of the aggregate net asset value of
the shares held by such other party's customers or clients at the close of
business each day as determined from time to time by the Distributor. The
distribution and marketing services contemplated hereby shall include, but
are not limited to, answering inquiries regarding the Fund, account
designations and addresses, maintaining the investment of such other party's
customers or clients in the Fund and similar services. In determining the
extent of such other
2
party's assistance in maintaining such investment by its customers or
clients, the Distributor may take into account the possibility that the
shares held by such customer or client would be redeemed in the absence of
such fee.
5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses
incurred by the Fund under Section 2 of this Plan (including Service Fees)
in any fiscal year of the Fund shall be one-quarter of one percent (.25%) of
the Fund's average daily net assets for such fiscal year. The payments to be
paid pursuant to this Plan shall be calculated and accrued daily and paid
monthly or at such other intervals as the Directors shall determine, subject
to any applicable restriction imposed by rules of the National Association
of Securities Dealers, Inc.
6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and
nomination of Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. Nothing herein shall prevent the
involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of the
Independent Directors.
7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each
Agreement relating to the implementation of this Plan shall go into effect
when approved.
(a) By vote of the Fund's Directors, including the affirmative vote of a
majority of the Independent Directors, cast in person at a meeting
called for the purpose of voting on the Plan or the Agreement;
(b) By a vote of holders of at least a majority of the outstanding voting
securities of each of the Class A shares and Class B shares of the
Fund; and
(c) Upon the effectiveness of an amendment to the Fund's registration
statement, reflecting this Plan, filed with the Securities and Exchange
Commission under the Securities Act of 1933.
This Plan and any Agreements relating to the implementation of this Plan
shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at
least annually by vote of the Fund's Directors, including the affirmative
vote of a majority of its Independent Directors, cast in person at a meeting
called for the purpose of voting on such continuance. This Plan and any
Agreements relating to the implementation of this Plan may be terminated, in
the case of the Plan, at any time or, in the case of any agreements upon not
more than sixty (60) days' written notice to any other party to the
Agreement by vote of a majority of the Independent Directors or by the vote
of the holders of a majority of the outstanding voting securities of the
Class A shares of the Fund. Any Agreement relating to the implementation of
this Plan shall terminate automatically in the event it is assigned. Any
material amendment to this Plan shall require approval by vote of the Fund's
Directors, including the affirmative vote of a majority of the Independent
Directors, cast in person at a meeting called for the purpose of voting on
such amendment and, if such amendment materially increases the limitations
on expenses payable
3
under the Plan, it shall also require approval by a vote of holders of at
least a majority of the outstanding voting securities of each class of
shares of the Fund for approval with respect to that class. As applied to
the respective classes of shares of the Fund the phrase "majority of the
outstanding voting securities" shall have the meaning specified in Section
2(a) of the 1940 Act. The provisions of the Plan are severable with respect
to each class of shares offered by the Fund.
In the event this Plan should be terminated by the shareholders or Directors
of the Fund, the payments paid to the Distributor pursuant to the Plan up to
the date of termination shall be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments will be the sole
responsibility of the Distributor.
8. RECORDS. The Fund shall preserve copies of this Plan and any related
Agreements and all reports made pursuant to Section 3 hereof, for a period
of not less than six (6) years from the date of this Plan, the first two
years in an easily accessible place.
SECURITY TAX-EXEMPT FUND
Date: By:
--------------------------------- ---------------------------------
4
[SBG LOGO]
The Security Benefit Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SECURITY TAX-EXEMPT FUND - CLASS A
Special Meeting of Shareholders
April 24, 1998
The undersigned hereby appoints John D. Cleland, Donald A. Chubb,
Jr., and Donald L. Hardesty, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated special meeting, and at all adjournments thereof,
all shares of
SECURITY TAX-EXEMPT FUND - CLASS A
held by the undersigned at the Special Meeting of Shareholders of
the Fund to be held at 9:30 AM, local time, on April 24, 1998, at
Security Benefit Group Building, 700 Harrison Street, Topeka,
Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the
proxy statement for the meeting, receipt of which is hereby
acknowledged, and in the proxies' discretion, upon such other
matters as may properly come before the meeting or any
adjournment thereof.
In order to avoid the additional expense of further solicitation
to your Fund, we strongly urge you to review, complete, and
return your ballot as soon as possible. Your vote is important
regardless of the number of shares you own. The Board of
directors recommends a vote for each of the following proposals.
These voting instructions will be voted as specified and in the
absence of specification will be treated as granting authority to
vote "FOR" each proposal.
NOTE: Please sign exactly as the name appears on this card. EACH
joint owner must sign the proxy. When signing as executor,
administrator, attorney, trustee or guardian, or as custodian for
a minor, please give the FULL title of such. If a corporation,
please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
SECURITY TAX-EXEMPT FUND - CLASS A
For address changes and/or comments, please check [ ]
this box and write them on the back where indicated.
Vote On Proposals
FOR AGAINST ABSTAIN
1. Approval of the Sub-Advisory Contract between
SMC and Salomon Brothers Asset Management Inc. [ ] [ ] [ ]
2. a. Approval of the amendment to the Articles of
Incorporation to change the Fund's name to
Security Municipal Bond Fund. [ ] [ ] [ ]
2. b. Approval of proposed amendment to the Fund's
fundamental investment policy no. 1. [ ] [ ] [ ]
3. Approval of proposed amendment to the Fund's
fundamental investment policy no. 8. [ ] [ ] [ ]
4. Approval of a Class A distribution plan. [ ] [ ] [ ]
5. Approval of the proposed amendment to the
Advisory Contract regarding Fund expenses. [ ] [ ] [ ]
___________________________________________ _________________________________
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
[SBG LOGO]
The Security Benefit Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SECURITY TAX-EXEMPT FUND - CLASS B
Special Meeting of Shareholders
April 24, 1998
The undersigned hereby appoints John D. Cleland, Donald A. Chubb,
Jr., and Donald L. Hardesty, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated special meeting, and at all adjournments thereof,
all shares of
SECURITY TAX-EXEMPT FUND - CLASS B
held by the undersigned at the Special Meeting of Shareholders of
the Fund to be held at 9:30 AM, local time, on April 24, 1998, at
Security Benefit Group Building, 700 Harrison Street, Topeka,
Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the
proxy statement for the meeting, receipt of which is hereby
acknowledged, and in the proxies' discretion, upon such other
matters as may properly come before the meeting or any
adjournment thereof.
In order to avoid the additional expense of further solicitation
to your Fund, we strongly urge you to review, complete, and
return your ballot as soon as possible. Your vote is important
regardless of the number of shares you own. The Board of
directors recommends a vote for each of the following proposals.
These voting instructions will be voted as specified and in the
absence of specification will be treated as granting authority to
vote "FOR" each proposal.
NOTE: Please sign exactly as the name appears on this card. EACH
joint owner must sign the proxy. When signing as executor,
administrator, attorney, trustee or guardian, or as custodian for
a minor, please give the FULL title of such. If a corporation,
please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- --------------------------------------------------------------------------------
SECURITY TAX-EXEMPT FUND - CLASS B
For address changes and/or comments, please check [ ]
this box and write them on the back where indicated.
Vote On Proposals
FOR AGAINST ABSTAIN
1. Approval of the Sub-Advisory Contract between
SMC and Salomon Brothers Asset Management Inc. [ ] [ ] [ ]
2. a. Approval of the amendment to the Articles of
Incorporation to change the Fund's name to
Security Municipal Bond Fund. [ ] [ ] [ ]
2. b. Approval of proposed amendment to the Fund's
fundamental investment policy no. 1. [ ] [ ] [ ]
3. Approval of proposed amendment to the Fund's
fundamental investment policy no. 8. [ ] [ ] [ ]
4. Approval of a Class A distribution plan. [ ] [ ] [ ]
5. Approval of the proposed amendment to the
Advisory Contract regarding Fund expenses. [ ] [ ] [ ]
___________________________________________ _________________________________
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------