UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
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[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
(Name of Registrant as Specified In Its Charter)
SECURITY EQUITY FUND
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June 16, 2008
Dear Shareholder:
The Board of Directors (the "Board") of Security Equity Fund, after careful
consideration of shareholder interests, unanimously approved changes to Security
Alpha Opportunity Fund(R) (the "Fund"), a series of Security Equity Fund (the
"Company") in a meeting held on May 9, 2008. We are writing to inform you that a
special shareholders' meeting will be held August 5, 2008 regarding certain of
these changes. The changes approved by the Board include:
o the addition of a global long/short investment manager to manage a
third sub-portfolio of the Fund, complementing the sub-portfolios
managed by the current long/short investment manager and the current
fixed income/S&P 500 futures manager;
o the reallocation of the Fund's assets among the two existing
sub-portfolios and the new global long/short sub-portfolio; and
o changes to permit the Fund to raise its percentage of investments in
foreign securities from its current level.
In connection with these changes, the Board also approved changes to the Fund's
investment advisory and sub-advisory arrangements, which are expected to result
in lower fees.
You are being asked to vote on (1) an amended investment management agreement
between the Investment Manager and the Company, on behalf of the Fund to provide
for a new fixed management fee structure that is likely to result in lower
management fees to the Fund and that will facilitate the payment of sub-advisory
fees to the Fund's sub-advisers, and (2) a new sub-advisory agreement between
the Investment Manager and Security Global Investors, LLC to manage the new
global long/short investment strategy of the Fund. If these two proposals are
approved, the changes to the principal investment strategies approved by the
Board will be implemented for the Fund on or about August 18, 2008. Your proxy
statement is enclosed.
You can vote in one of four ways:
o By mail with the enclosed proxy card - be sure to sign, date and
return it in the enclosed postage-paid envelope,
o Through the web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on August 5, 2008.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Your vote is extremely
important. Please read the enclosed information carefully before voting. If you
have questions, please call the Altman Group at 1-800-361-2782.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President, Chairman of the Board of Directors
SECURITY ALPHA OPPORTUNITY FUND(R)
A SERIES OF
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
1-800-888-2461
-----------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 5, 2008
-----------
To the Shareholders:
Notice is hereby given that Security Equity Fund (the "Company") will hold a
special meeting of shareholders of Security Alpha Opportunity Fund(R) (the
"Fund") on August 5, 2008, at the Company's offices, One Security Benefit Place,
Topeka, Kansas 66636-0001, at 1:00 p.m., Central Time, as adjourned from time to
time (the "Special Meeting") for the purposes listed below:
1. To approve an amended investment management agreement between the
Company and Security Investors, LLC (the "Investment Manager"), on
behalf of the Fund;
2. To approve a new investment sub-advisory agreement between the
Investment Manager and Security Global Investors, LLC ("SGI") pursuant
to which SGI will be appointed as an additional investment sub-adviser
to the Fund; and
3. To transact such other business as may properly come before the
Special Meeting.
After careful consideration, the Board of Directors of the Company (the "Board")
unanimously approved the amended investment management agreement and new
sub-advisory agreement and recommends that shareholders vote "FOR" Proposals 1
and 2.
Shareholders of record at the close of business on June 9, 2008 are entitled to
notice of, and to vote at, the Special Meeting.
Your attention is called to the accompanying Proxy Statement. If you do not
expect to attend the Special Meeting in person, you are requested to complete,
date, and sign the enclosed proxy card and return it promptly in the envelope
provided for that purpose. Your proxy card also provides instructions for voting
via telephone or the Internet if you wish to take advantage of these voting
options. Proxies may be revoked at any time by executing and submitting a
revised proxy, by giving written notice of revocation to the Company, or by
voting in person at the Special Meeting.
By Order of the Board,
/s/ Amy J. Lee
Amy J. Lee
Secretary
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF VOTES YOU HOLD.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS IMPORTANT
THAT YOUR PROXY CARD BE RETURNED PROMPTLY.
FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET BY FOLLOWING
THE ENCLOSED INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR VIA THE INTERNET, PLEASE
DO NOT RETURN YOUR PROXY CARD UNLESS YOU ELECT TO CHANGE YOUR VOTE.
SECURITY ALPHA OPPORTUNITY FUND(R)
A SERIES OF
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
1-800-888-2461
-----------
PROXY STATEMENT
-----------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 5, 2008
This proxy statement and enclosed proxy notice and proxy card are being
furnished in connection with the solicitation of proxies by the Board of
Directors (the "Board" or "Directors") of Security Equity Fund (the "Company")
for use at a special meeting of shareholders of Security Alpha Opportunity
Fund(R) (the "Fund"), on August 5, 2008, at the Company's offices, One Security
Benefit Place, Topeka, Kansas 66636-0001, at 1:00 p.m., Central Time, as
adjourned from time to time (the "Special Meeting"). The Board is soliciting
proxies from shareholders of the Fund with respect to shareholder consideration
of the following proposals:
1. To approve an amended investment management agreement ("Amended
Management Agreement") between the Company and Security Investors, LLC
(the "Investment Manager"), on behalf of the Fund;
2. To approve a new investment sub-advisory agreement ("SGI Sub-Advisory
Agreement") between the Investment Manager and Security Global
Investors, LLC ("SGI") pursuant to which SGI will be appointed as an
additional investment sub-adviser to the Fund; and
3. To transact such other business as may properly come before the
Special Meeting.
This proxy statement and the notice and proxy card are being first mailed to
shareholders on or about June 16, 2008.
INTRODUCTION
As manager for the Fund, the Investment Manager reviews and evaluates the Fund's
principal investment strategies and sub-advisory arrangements on an ongoing
basis. Based on the recommendations of the Investment Manager, at a meeting held
on May 9, 2008, the Board of Directors (the "Board") approved the following
changes to the investment strategies of the Fund: the creation of a third
investment sub-portfolio with a global long/short strategy (the "SGI
Sub-Portfolio") managed by SGI, as a new investment sub-adviser to the Fund; the
reallocation of the Fund's assets among the two existing sub-portfolios and the
SGI Sub-Portfolio; and changes to the Fund's principal investment strategies to
permit the Fund to invest up to 50% of its assets in foreign securities to
facilitate the management of the SGI Sub-Portfolio. In connection with these
changes, the Board also approved certain changes to the Fund's investment
management and sub-advisory arrangements.
Fund shareholders are being asked to approve the Amended Management Agreement,
which would provide for a new fixed management fee structure that is likely to
result in lower management fees to the Fund and that will facilitate the payment
of sub-advisory fees to the Fund's sub-advisers, and the SGI Sub-Advisory
Agreement pursuant to which SGI would serve as an additional investment
sub-adviser and would manage the SGI Sub-Portfolio.
CHANGES TO THE PRINCIPAL INVESTMENT STRATEGIES
Currently, the Fund's investment objective is to seek long-term growth of
capital by investing, under normal market conditions, approximately 50% of its
total assets according to a long/short strategy (the "Mainstream Sub-Portfolio")
managed by the Fund's current sub-adviser, Mainstream Investment Advisers, LLC
("Mainstream"), and 50% of its total assets, managed directly by the Investment
Manager, in a portfolio of equity securities, equity derivatives and fixed
income securities (the "Investment Manager Sub-Portfolio") that is intended to
closely track the performance of the S&P 500 Composite Stock Price Index (the
"S&P 500 Index"). While the Fund has the ability to invest up to 25% of its
assets in foreign securities, it has not yet done so. Mainstream and the
Investment Manager each currently manages its allocation of the Fund's assets
according to its respective strategy, and their trading decisions are made
independently.
At a meeting held on May 9, 2008, the Investment Manager proposed, and the Board
approved, certain changes to the Fund's principal investment strategies. The
Board approved the creation of the SGI Sub-Portfolio, which would be managed by
SGI according to a global long/short strategy and thus would invest in foreign
securities. In order to facilitate the management of the SGI Sub-Portfolio, the
Board approved an increase the percentage of the Fund's assets that may be
invested in foreign securities from 25% to 50% of the Fund's assets. The Board
also approved a new allocation of the Fund's assets whereby the Fund would have
approximately 37.5% of its assets allocated to the Mainstream Sub-Portfolio;
37.5% of its assets allocated to the SGI Sub-Portfolio; and 25% of its assets
allocated to the Investment Manager Sub-Portfolio.
The Investment Manager believes that the changes to the principal investment
strategies will allow the Fund to take greater advantage of opportunities
presented by investments outside of the United States and will better position
the Fund in the marketplace.
CHANGES TO THE FEE STRUCTURE
In connection with the foregoing changes, the Board approved the Amended
Management Agreement, which, if approved by shareholders, would eliminate the
performance-based investment management fee currently payable to the Investment
Manager. As further described below under the discussion of Proposal 1, the
Investment Manager currently receives a management fee from the Fund that has
two components. The first component is a monthly base fee equal to an annual
rate of 2.00% of the Fund's average daily net assets over the month (the
"asset-based component"). The second component is a performance adjustment that
either increases or decreases the base fee each month, depending on how the Fund
performed relative to the S&P 500 Index during the measuring period (the
"performance-based component"). The new management fee, based solely on a fixed
asset-based fee, should generally result in lower fees to the Fund and will
facilitate the implementation of the changes to the Fund's principal investment
strategies (notably because it will facilitate the computation and payment by
the Investment Manager of the sub-advisory fees payable to each sub-adviser),
reduce the administrative difficulties tied to the computation of
performance-based fees, and result in a level of Fund fees that is more
predictable.
If this proposal is approved, the investment sub-advisory agreement with
Mainstream (the "Mainstream Sub-Advisory Agreement") will be amended to provide
for the payment by the Investment Manager of a fixed sub-advisory fee instead of
a performance-based fee comparable to that currently payable by the Fund to the
Investment Manager. This amendment to the Mainstream Sub-Advisory Agreement does
not require shareholder approval.
CHANGES TO THE SUB-ADVISORY STRUCTURE
The Board believes that the appointment of SGI as a new sub-adviser to manage
the SGI Sub-Portfolio would be in the best interests of Fund shareholders. This
appointment is subject to shareholder approval. If the SGI Sub-Advisory
Agreement is approved by shareholders, effective on or about August 18, 2008,
SGI will be appointed as an investment sub-adviser to the Fund pursuant to the
terms of the agreement, as further described below under the discussion of
Proposal 2.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND APPROVE THE AMENDED
MANAGEMENT AND SGI SUB-ADVISORY AGREEMENTS.
2
PROPOSAL 1
APPROVAL OF THE AMENDED MANAGEMENT AGREEMENT
At its meeting, the Board determined that entering into the Amended Management
Agreement would be in the best interests of Fund shareholders. After careful
consideration and upon the recommendation of the Investment Manager and the
management of the Company, the Board, including a majority of Directors who are
not "interested persons" (as defined under the Investment Company Act of 1940
("1940 Act")) of the Company and who are not interested persons of any party to
the Amended Management Agreement (the "Independent Directors"), unanimously
approved the Amended Management Agreement, subject to shareholder approval.
Under the Amended Management Agreement, the Fund would no longer pay an
investment management fee with a performance-based component. Instead, the Fund
would pay the Investment Manager an annual fee of 1.25% of the Fund's average
daily net assets. For your reference, a form of the Amended Management Agreement
is attached as Exhibit A.
COMPARISON OF THE CURRENT MANAGEMENT AGREEMENT WITH THE AMENDED MANAGEMENT
AGREEMENT
The terms of the Amended Management Agreement are substantially identical to
those of the Current Management Agreement, except with respect to the fee
payable by the Fund (see below) and its term. Consequently, the Investment
Manager will continue to render substantially the same services to the Fund
pursuant to the Amended Management Agreement that it currently renders.
The Investment Manager. Security Investors, LLC, located at One Security Benefit
Place, Topeka, Kansas 66636-0001, currently serves as investment adviser to the
Fund pursuant to an investment management agreement, which became effective on
January 27, 2000, and amended and restated as of November 18, 2005 and amended
and restated as of February 8, 2008 (the "Current Management Agreement"). The
Current Management Agreement was approved by the Board for an initial term of
two years and is approved annually thereafter in accordance with applicable
requirements. The Current Management Agreement was last approved by the
Directors on November 9, 2007, and was last approved by shareholders on April
17, 2002. If the Amended Management Agreement is approved by shareholders, it
will continue for an initial term of two years and for subsequent one-year terms
so long as it is renewed annually in accordance with its terms (see discussion
under "Term and Continuance" below).
The name, address and principal occupation of the principal executive officer
and managing member of the Investment Manager is set forth in Exhibit B-1, as is
information regarding the ownership of the Investment Manager. A list of the
directors/officers of the Company who hold positions with the Investment Manager
is set forth in Exhibit B-2. Set forth in Exhibit B-3 is a list of other
registered investment companies with similar investment objectives as the Fund,
for which the Investment Manager acts as investment manager, adviser or
sub-adviser.
Duties of the Investment Manager. Under the Current and Amended Management
Agreements (together, the "Management Agreements"), the Investment Manager
manages the investment operations of the Fund and supervises the composition of
the Fund's portfolio, including the purchase, retention and disposition of
portfolio securities, subject to the Board's supervision. It is authorized to
enter into investment sub-advisory agreements for investment advisory services
in connection with the management of the Fund. The Investment Manager has
responsibility for all investment advisory services furnished pursuant to any
investment sub-advisory agreement. The Investment Manager bears: (a) all
expenses incurred by the Investment Manager or by the Fund in connection with
managing the ordinary course of the business of the Fund, other than those
assumed by the Fund; and (b) the fees payable to a sub-adviser pursuant to
investment sub-advisory agreements between the Investment Manager and any
sub-advisers.
Limitation of Liability. Under each Management Agreement, so long as the
Investment Manager provides the Fund the benefit of its best judgment and effort
in rendering investment advisory services, the Investment Manager is not be
liable for any errors of judgment or mistake of law, or for any loss arising out
of any investment if the investment is made with due care and in good faith. The
Investment Manager is not protected for losses arising by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its investment advisory duties.
3
Term and Continuance. Each Management Agreement provides for an initial term of
two years from the date of implementation. Thereafter, if not terminated, each
Management Agreement continues in effect for successive 12-month periods
thereafter, unless terminated, provided each such continuance is specifically
approved at least annually by (a) the vote of a majority of the entire Board of
the Company, or by the vote of holders of a majority of the outstanding voting
securities of the Fund, and (b) the vote of a majority of the Independent
Directors cast in person at a meeting of such Directors called for the purpose
of voting upon such approval.
Each Management Agreement may be terminated with respect to the Fund at any time
without payment of any penalty, by the Company upon the vote of either a
majority of the Company's Board or a majority of the Independent Directors or by
a majority of the outstanding voting securities of the Fund, or by the
Investment Manager, in each case on 60 days' written notice to the other party.
Each Management Agreement will terminate automatically in the event of its
"assignment" (as that term is defined under the 1940 Act).
DISCUSSION OF THE FEE STRUCTURE UNDER THE CURRENT AND AMENDED MANAGEMENT
AGREEMENTS
Management Fees under the Current Management Agreement. The Investment Manager
currently receives a management fee from the Fund that has two components. The
first component is the asset-based component, which is a monthly base fee equal
to an annual rate of 2.00% of the Fund's average daily net assets over the
month. The second component is the performance-based component, which is a
performance adjustment that either increases or decreases the asset-based
component fee each month, depending on how the Fund performed relative to the
S&P 500 Index during the "Measuring Period," which is a twelve-month period
ending on the last day of the month for which the management fee is calculated.
Each month, the positive (or negative) performance adjustment rate is equal to
0.75% multiplied by the ratio of the number of percentage points by which the
investment performance of the Fund (calculated by reference to Class A shares)
exceeds (or lags) the investment record of the S&P 500 Index over the Measuring
Period as compared to 15 percentage points. For example, for a month, if the
investment performance of the Fund is 6.6% and the investment record of the S&P
500 Index is 0%, the ratio would be 6.6 to 15, or 0.44, times 0.75%, for an
upward performance adjustment at an annual rate of 0.33% of average daily net
assets over the Measuring Period. Similarly, for a month, if the investment
performance of the Fund is -10.0% and the investment record of the S&P 500 Index
is 0%, the ratio would be 10 to 15, or 0.667, times 0.75%, for a downward
performance adjustment at an annual rate of 0.50% of average daily net assets
over the Measuring Period.
Consequently, each month, when the Fund's investment performance (calculated by
reference to Class A shares) matches the investment record of the S&P 500 Index
over the Measuring Period, the Investment Manager receives only the amount of
the asset-based component of the fee. Each month, if the investment performance
of the Fund's Class A shares exceeds the investment record of the S&P 500 Index
over the Measuring Period, the performance-based component of the fee increases
the fee paid to the Investment Manager, reaching a maximum monthly fee of 1/12th
of 2.00% of the Fund's average daily net assets over the month, plus 1/12th of
0.75% of the Fund's average daily net assets over the Measuring Period when the
Fund's investment performance is superior by 15 percentage points or more to the
investment record of the S&P 500 Index over the Measuring Period. Each month, if
the investment performance of the Fund's Class A shares trails the investment
record of the S&P 500 Index over the Measuring Period, the performance-based
component of the fee decreases the fee paid to the Investment Manager, reaching
a minimum monthly fee of 1/12th of 2.00% of the Fund's average daily net assets
over the month, less 0.75% of the Fund's average daily net assets over the
Measuring Period when the Fund's investment performance lags by 15 percentage
points or more the investment record of the S&P 500 Index over the Measuring
Period.
The performance-based component of the fee is calculated on the basis of the
"rolling" 12 month Measuring Period, so that a fee rate calculated on the basis
of investment performance over a 12 month period will apply only for that month,
and then will be subject to recalculation for the following month on the basis
of the Fund's investment performance over the Measuring Period ending that
month.
Under the fee arrangement set forth in the Current Management Agreement, it is
important to note that the controlling factor is not whether the Fund's
investment performance is positive or negative, but whether it exceeds or lags
the investment record of the S&P 500 Index. Accordingly, it is possible that the
Fund could pay the Investment Manager the
4
maximum advisory fee even though the Fund had negative investment performance
during the Measuring Period if the Fund's investment performance significantly
exceeded the investment record of the S&P 500 Index during the Measuring Period.
Similarly, the Fund could pay the Investment Manager the maximum advisory fee
even though the Investment Manager had negative performance in the sub-portfolio
it manages if overall Fund performance significantly exceeded the S&P 500 Index
due to the level of performance of Mainstream, the current sub-adviser to the
Fund. The "net advisory fee" is equal to the difference between the advisory fee
paid by the Fund and the sub-advisory fee paid by the Investment Manager to
Mainstream (which is not necessarily paid out of advisory fees received by the
Investment Manager). The Fund's investment performance is compared against the
investment record of the S&P 500 Index only on the basis of a rolling 12 month
period, and not on the basis of relative performance over a longer period. The
base fee, as adjusted may be higher than investment advisory fees typically paid
by mutual funds.
The following table includes examples showing the annual fees that the
Investment Manager would earn at various levels of investment performance of the
Fund and the S&P 500 Index assuming that the average daily net assets of the
Fund remain constant over the Measuring Period:
- ----------------------------------------------------------------------------------------------------------------------------
% POINT DIFFERENCE BETWEEN
PERFORMANCE OF CLASS A SHARES AND ANNUAL BASE PERFORMANCE ADJUSTMENT FROM BASE TOTAL MANAGEMENT FEE PAID
S&P 500 INDEX ADVISORY FEE(1) ADVISORY FEE (ANNUALIZED)(2) TO MANAGER (ANNUALIZED)(3)
- ----------------------------------------------------------------------------------------------------------------------------
15% 2.00% +0.75% 2.75%
- ----------------------------------------------------------------------------------------------------------------------------
10% 2.00% +0.50% 2.50%
- ----------------------------------------------------------------------------------------------------------------------------
5% 2.00% +0.25% 2.25%
- ----------------------------------------------------------------------------------------------------------------------------
0% 2.00% 0.00% 2.00%
- ----------------------------------------------------------------------------------------------------------------------------
-5% 2.00% -0.25% 1.75%
- ----------------------------------------------------------------------------------------------------------------------------
-10% 2.00% -0.50% 1.50%
- ----------------------------------------------------------------------------------------------------------------------------
-15% 2.00% -0.75% 1.25%
- ----------------------------------------------------------------------------------------------------------------------------
1 Calculated monthly (i.e., 1/12th of 2.00%) on the basis of average net assets over the month during which the fee is
calculated.
2 Calculated monthly on the basis of the Fund's average net assets over the Measuring Period.
3 By virtue of using a "rolling" Measuring Period and calculating the base fee and the performance adjustment on
different asset bases, the actual management fees paid by the Fund may
differ from the maximum and annual fee rates shown above, particularly if
the average daily net assets of the Fund do not remain constant during the
Measuring Period.
- ----------------------------------------------------------------------------------------------------------------------------
Management Fees under the Amended Management Agreement. Under the fee structure
set forth in the Amended Management Agreement, the Fund would no longer pay a
performance-based component and the fee structure would be a fixed management
fee paid at an annual rate of 1.25% of the Fund's average daily net assets.
The foregoing discussion is qualified in its entirety by reference to the Form
of Amended Management Agreement.
COMPARISON OF THE FEE STRUCTURE UNDER THE CURRENT AND AMENDED MANAGEMENT
AGREEMENTS
The management fee under the Amended Management Agreement is the minimum fee
payable under the Current Management Agreement, assuming that the average daily
net assets of the Fund remain constant over the performance period. (In fact,
under the Current Management Agreement, by virtue of using a "rolling"
Measurement Period and calculating the base fee and performance-based component
on different asset bases, the actual minimum management fee paid by the Fund
could be lower than 1.25% (i.e., the proposed management fee) if the average
daily net assets of the Fund decline over the Measurement Period and the Fund's
performance lags that of the Fund's index by more than 15 percentage points and
similarly, it could be higher than 2.75% if assets increase and performance is
superior to that of the Fund's index by more than 15 percentage points). Whether
the fee structure under the Current Management Agreement could in fact result in
higher fees than the fee structure under the Amended Management Agreement
depends on the Fund's past and future performance and growth in average net
assets. Based on current data, however, the proposed fixed management fee under
the Amended Management Agreement would be lower.
The following table compares the Fund's management fee as calculated under the
terms of the Current Management Agreement (including the performance-based
component) for the fiscal year ended September 30, 2007 and semi-annual
5
period ended March 31, 2008 (annualized) to the management fee the Fund would
have incurred if the Amended Management Agreement had been in effect during the
same periods. Management fees are expressed in dollars and as percentages of the
Fund's average net assets for the relevant periods:
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
PERIOD CURRENT MANAGEMENT AGREEMENT* AMENDED MANAGEMENT AGREEMENT* DIFFERENCE
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
Fiscal year ended September 30, 1.90% 1.25 % (0.65)%
2007
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
$631,487 $415,202 $216,285
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
Semi-annual period ended March 2.50% (annualized) 1.25% (annualized) 1.25%
31, 2008 $430,614 $215,307 $(215,307)
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
* Percentages expressed by reference to average daily net assets.
- ------------------------------------------------------------------------------------------------------------------------------------
FUND FEES AND EXPENSES
The following tables provide data concerning the Fund's management fees and
expenses as a percentage of the average net assets for the fiscal year ended
September 30, 2007 under the Current Management Agreement and the Amended
Management Agreement. The following tables also describe the fees and expenses
that may be incurred when you buy, hold, or sell Class A, Class B and Class C
shares of the Fund (although the shareholder fees in the immediate table below
will not change under this proposal):
Shareholder Fees (fees paid directly from your investment)
- ----------------------------------- ------------------------------- ------------------------------ ---------------------------------
CLASS A SHARES CLASS B SHARES(1) CLASS C SHARES
- ----------------------------------- -------------- ---------------- ------------- ---------------- ---------------- ----------------
CURRENT AMENDED CURRENT AMENDED CURRENT AMENDED
MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT
AGREEMENT AGREEMENT AGREEMENT AGREEMENT AGREEMENT AGREEMENT
- ----------------------------------- -------------- ---------------- ------------- ---------------- ---------------- ----------------
Maximum Sales Charge Imposed on 5.75% 5.75% None None None None
Purchases (as a % of offering
price)
- ----------------------------------- -------------- ---------------- ------------- ---------------- ---------------- ----------------
Maximum Deferred Sales Charge (as None(2) None(2) 5%(3) 5%(3) 1%(4) 1%(4)
a % of original purchase price or
redemption proceeds, whichever is
lower)
- ----------------------------------- -------------- ---------------- ------------- ---------------- ---------------- ----------------
Redemption Charge (as a % of 2%(5) 2%(5) None None None None
amount redeemed or exchanged)
- ------------------------------------------------------------------------------------------------------------------------------------
1 Class B shares convert tax-free to Class A shares automatically after eight
years.
2 Purchases of Class A shares in amounts of $1,000,000 or more are not
subject to an initial sales load; however, a deferred sales charge of 1% is
imposed in the event of redemption within one year of purchase.
3 5% during the first year, decreasing incrementally to 0% in the sixth and
following years.
4 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
5 A redemption charge of 2% will be assessed on any shares redeemed or
exchanged within 30 days after the date they were acquired. This charge
does not apply to (1) shares held in retirement plans purchased from the
Investment Manager or an affiliate or that are administered by the
Investment Manager or an affiliate, such as 401(k), 403(b), 457, Keogh,
SIMPLE IRA, SEP-IRA and money purchase pension accounts, (2) shares
purchased through the reinvestment of dividends or capital gains
distributions, (3) redemptions in an amount less than $10,000, or (4)
redemptions and/or exchanges made through pre-approved asset allocation
programs.
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that are deducted from the Fund's
assets)
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
CURRENT MANAGEMENT AGREEMENT AMENDED MANAGEMENT
AGREEMENT*
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
CLASS A
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Management fee 1.90%(1) 1.25%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Distribution (12b-1) fees 0.25% 0.25%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Other expenses 0.73% 0.73%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Total Annual Fund Operating Expenses 2.88% 2.23%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
6
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Fee Reduction (0.20)% (2) (0.28)%(3)
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Net Expenses 2.68% 1.95%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
CLASS B
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Management fee 1.90%(1) 1.25%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Distribution (12b-1) fees 1.00% 1.00%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Other expenses 0.69% 0.69%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Total Annual Fund Operating Expenses 3.59% 2.94%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Fee Reduction (0.20)% (2) (0.24)%(3)
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Net Expenses 3.39% 2.70%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
CLASS C
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Management fee 1.90%(1) 1.25%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Distribution (12b-1) fees 1.00% 1.00%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Other expenses 0.70% 0.70%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Total Annual Fund Operating Expenses 3.60% 2.95%
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Fee Reduction (0.20)% (2) (0.25)%(3)
- ---------------------------------------------------------------------- ------------------------------ -----------------------------
Net Expenses 3.40% 2.70%
- -----------------------------------------------------------------------------------------------------------------------------------
* Pro forma proposed fees reflect estimated fees and expenses of the Fund
after giving effect to the Amended Management Agreement as of September 30,
2007. Pro forma numbers are estimated in good faith and are hypothetical.
1 The Fund pays an advisory fee that will range from 1.25% to 2.75% of
average daily net assets based upon the Fund's performance relative to the
S&P 500 Index, assuming average daily assets remain constant during the
Measuring Period.
2 The Investment Manager has contractually agreed through January 31, 2009 to
waive fees and/or reimburse expenses to the extent necessary to limit the
ordinary operating expenses (excluding investment advisory fees,
distribution (12b-1) fees, brokerage costs, dividends on securities sold
short, acquired fund fees and expenses, interest, taxes, litigation,
indemnification and extraordinary expenses) ("Operating Expenses") of each
class of shares of the Fund to the indicated annual rate of 0.50% of
average daily net assets. The Investment Manager is entitled to
reimbursement by the Fund of fees waived or expenses reimbursed during any
of the previous 36 months beginning on the date of the expense limitation
agreement if on any day the estimated annualized Operating Expenses are
less than the indicated percentage.
3 The Investment Manager has contractually agreed through January 31, 2010 to
waive fees and/or reimburse Fund expenses to the extent necessary to limit
the ordinary operating expenses (including distribution (12b-1) fees, but
exclusive of brokerage costs, dividends on securities sold short, acquired
fund fees and expenses, interest, taxes, litigation, indemnification, and
extraordinary expenses) ("Operating Expenses") of the Fund to 1.95% for
Class A shares and 2.70% for Class B and C shares. The Investment Manager
is entitled to reimbursement by the Fund of fees waived or expenses
reimbursed during any of the previous 36 months beginning on the date of
the expense limitation agreement if on any day the estimated annualized
Operating Expenses are less than the indicated percentages.
- --------------------------------------------------------------------------------
Example: The examples below assume that you invest $10,000 in Fund for the time
periods indicated. Each Example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be as follows:
You would pay the following expenses if you redeemed your shares at the end of
each period.
- --------------------------------------------- ----------- ------------ ------------- -------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- ----------- ------------ ------------- -------------
CLASS A CLASS A CLASS A CLASS A CLASS A
- --------------------------------------------- ----------- ------------ ------------- -------------
Current Management Agreement $849 $1,416 $2,006 $3,595
- --------------------------------------------- ----------- ------------ ------------- -------------
Amended Management Agreement* 762 1,152 1,567 2,719
- --------------------------------------------- ----------- ------------ ------------- -------------
- --------------------------------------------- ----------- ------------ ------------- -------------
CLASS B
- --------------------------------------------- ----------- ------------ ------------- -------------
Current Management Agreement 862 1,400 2,059 3,686
- --------------------------------------------- ----------- ------------ ------------- -------------
Amended Management Agreement* 773 1,138 1,630 2,851
- --------------------------------------------- ----------- ------------ ------------- -------------
- --------------------------------------------- ----------- ------------ ------------- -------------
CLASS C
- --------------------------------------------- ----------- ------------ ------------- -------------
Current Management Agreement 463 1,103 1,864 3,862
- --------------------------------------------- ----------- ------------ ------------- -------------
Amended Management Agreement* 373 838 1,430 3,032
- --------------------------------------------- ----------- ------------ ------------- -------------
7
You would pay the following expenses if you did not redeem your shares.
- -------------------------------------------- ------------- ----------- ------------ --------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------- ------------- ----------- ------------ --------------
CLASS A
- -------------------------------------------- ------------- ----------- ------------ --------------
Current Management Agreement $849 $1,416 $2,006 $3,595
- -------------------------------------------- ------------- ----------- ------------ --------------
Amended Management Agreement* 762 1,152 1,567 2,719
- -------------------------------------------- ------------- ----------- ------------ --------------
- -------------------------------------------- ------------- ----------- ------------ --------------
CLASS B
- -------------------------------------------- ------------- ----------- ------------ --------------
Current Management Agreement 362 1,100 1,859 3,686
- -------------------------------------------- ------------- ----------- ------------ --------------
Amended Management Agreement* 273 838 1,430 2,851
- -------------------------------------------- ------------- ----------- ------------ --------------
- -------------------------------------------- ------------- ----------- ------------ --------------
CLASS C
- -------------------------------------------- ------------- ----------- ------------ --------------
Current Management Agreement 363 1,103 1,864 3,862
- -------------------------------------------- ------------- ----------- ------------ --------------
Amended Management Agreement* 273 838 1,430 3,032
- -------------------------------------------- ------------- ----------- ------------ --------------
*Pro forma proposed examples reflect estimated fees and expenses of the Fund
after giving effect to the Amended Management Agreement as of September 30,
2007. Pro forma numbers are estimated in good faith and are hypothetical.
EVALUATION BY THE BOARD
On May 9, 2008, at an in-person meeting of the Board at which a majority of the
Directors, including a majority of the Independent Directors, were in
attendance, the Board considered whether the Amended Management Agreement, SGI
Sub-Advisory Agreement and Mainstream Sub-Advisory Agreement (together, the
"Agreements") should be approved for a two-year period, subject to shareholder
approval. Following their review and consideration, the Directors determined
that the Agreements would enable shareholders of the Fund to continue to obtain
high quality services at a cost that is appropriate, reasonable, and in the best
interests of its shareholders. The Board, including the Independent Directors,
unanimously approved the Agreements. In reaching their decision, the Directors
requested and obtained from the Investment Manager, SGI and Mainstream such
information as they deemed reasonably necessary to evaluate the proposed
Agreements. The Directors also carefully considered information that they had
received throughout the year as part of their regular oversight of the Fund
(including information from the Investment Manager and Mainstream), as well as
information about SGI, which serves as investment sub-adviser to other series
within the Security Funds complex. The Directors had also previously obtained
and reviewed certain comparative information regarding performance of the Fund
relative to performance of other comparable mutual funds at its November 9, 2007
meeting, and the performance of other accounts and mutual funds managed by SGI
at its May 9, 2008 meeting. The Directors also received information about the
cost of changing the principal investment strategies of the Fund, including the
cost of soliciting proxies to approve Proposals 1 and 2, and the Board agreed
that half of the cost would be borne by the Fund and half by the Investment
Manager. In considering the Agreements, the Directors evaluated a number of
considerations that they believed, in light of the legal advice furnished to
them by counsel and independent legal counsel and their own business judgment,
to be relevant. They based their decisions on the following considerations,
among others, although they did not identify any consideration or particular
information that was controlling of their decisions:
The nature, extent and quality of the advisory service to be provided. The Board
of Directors concluded that the Investment Manager and Mainstream are capable of
continuing to provide high quality services to the Fund, as indicated by the
nature and quality of services provided in the past, their management
capabilities demonstrated with respect to other series of the Company, in the
case of the Investment Manager, and another mutual fund managed by the
Investment Manager and Mainstream, the professional qualifications and
experience of the Investment Manager's and Mainstream's portfolio managers, and
the Investment Manager's investment and management oversight processes. The
Directors also determined that the Investment Manager and Mainstream proposed to
provide investment and related services that were of the same quality and
quantity as services provided to the Fund in the past, and that these services
are appropriate in scope and extent in light of the Fund's operations, the
competitive landscape of the investment company business and investor needs.
In considering the capabilities of SGI, the Board took into account the fact
that SGI was created last year as an affiliate of the Investment Manager and was
formed for the initial purpose of acquiring the assets of Avera Global Partners
LP
8
("Avera") so that the key personnel of Avera could become the key personnel
of SGI, operating independently and retaining their autonomous investment
management capabilities. The Directors also noted that, since August 1, 2007,
SGI has served as a sub-adviser to Security Equity Fund Global Fund and SBL Fund
Series D (Global Series). The Board also considered the nature and quality of
the investment sub-advisory services anticipated to be provided by SGI to the
Fund. The Board concluded that SGI would be capable of providing high quality
services to the Fund, as indicated by the nature of services provided to other
accounts and mutual funds managed by SGI, SGI's management capabilities
demonstrated with respect to these other accounts and mutual funds, the
experience, capability and integrity of SGI's management, the financial
resources of SGI, and the professional qualifications and experience of SGI's
portfolio management team. The Board also concluded that SGI proposed to provide
services that are appropriate in scope and extent in light of the Fund's
investment objectives, policies and new investment strategies.
The investment performance of the Fund. The Directors concluded on the basis of
information supplied by Lipper and Morningstar at its last annual contract
renewal meeting in November 2007 that the Investment Manager and Mainstream had
achieved investment performance that was satisfactory relative to comparable
funds over trailing periods. On the basis of the Directors' assessment of the
nature, extent and quality of advisory services to be provided or procured by
the Investment Manager and Mainstream, the Directors concluded that the
Investment Manager and Mainstream are capable of generating a level of long-term
investment performance for the Investment Manager and Mainstream Sub-Portfolios
of the Fund, respectively, that is appropriate in light of the Fund's investment
objectives, policies and strategies and competitive with many other investment
companies. The Board noted that the proposed management fee under the Amended
Management Agreement is expected to generally result in lower management fees,
which could lower total operating expenses and could contribute to increased
Fund performance.
With respect to SGI, the Board reviewed comparative information regarding the
performance of SGI's portfolio managers in managing accounts that are reasonably
comparable to the proposed SGI Sub-Portfolio of the Fund. The Board noted that
accounts managed by SGI had performed satisfactorily over the past three years.
The Directors noted that SGI would only be responsible for managing the SGI
Sub-Portfolio of the Fund and noted the differences in investment styles and
strategy between Mainstream, the Investment Manager and SGI, and determined that
SGI's strategy, with its investment processes and experience with investing in
foreign securities, offered shareholders of the Fund a new and attractive
opportunity for seeking to achieve their investment goals. The Board concluded,
based in particular on the Directors' assessment of the nature, extent and
quality of investment sub-advisory services expected to be provided by SGI, and
SGI's performance in managing similar accounts and mutual funds, that SGI is
capable of generating a level of investment performance for the SGI
Sub-Portfolio of the Fund that is appropriate in light of the Fund's investment
objective and policies and competitive with other investment companies.
The cost of advisory and sub-advisory services provided and the level of
profitability. On the basis of the Board's review of the proposed management
fees to be charged by the Investment Manager for investment advisory services,
the Investment Manager's financial statements, the Investment Manager's
estimated net management income resulting from its management of the Fund under
the new fee arrangement, and the estimated profitability of the Investment
Manager's relationships with the Fund, the Directors concluded that the
anticipated level of profitability to the Investment Manager as to the Fund is
reasonable. The Board considered the anticipated impact that the new fixed
management fee arrangement would have on the Investment Manager's profitability.
It also compared the potential benefits to shareholders of having a fixed
management fee instead of a fee with a performance-based component. In
particular, the Board noted that: the proposed fee would be equal to the lowest
level of management fee payable under the Current Management Agreement (assuming
that asset levels remain constant over the Measuring Period), resulting in lower
management fees and reduced total operating expenses; the fixed fee would result
in a level of Fund expenses that is more predictable; a fixed fee is more common
among investment companies, which will facilitate fund comparisons; and a fixed
fee will facilitate payment of predictable sub-advisory fees by the Investment
Manager to sub-advisers. The Board noted that the fixed sub-advisory fee payable
to SGI would facilitate the implementation of the new investment strategies.
The Board concluded that the level of anticipated investment sub-advisory fees
payable under the SGI and Mainstream Sub-Advisory Agreement are appropriate in
light of the estimated expense ratios of the Fund and the competitiveness of the
Fund's expenses when compared to the expense ratios of comparable investment
companies (based on information prepared by the Investment Manager).
9
Whether fee levels reflect economies of scale and the extent to which economies
of scale would be realized as the Fund grows. The Directors concluded that the
Fund's new management fee of 1.25% of average daily net assets payable to the
Investment Manager appropriately reflects the current economic environment for
the Investment Manager and the competitive nature of the mutual fund market. The
Directors further determined that the Fund has yet to achieve meaningful
economies of scale, but that the proposed fixed management fee nevertheless
would generally be lower than the current fee and, thus, would benefit the Fund
and shareholders. The Directors also noted that they will have the opportunity
to periodically reexamine whether the Fund has achieved economies of scale and
the appropriateness of management fee payable by the Fund to the Investment
Manager (as well as the sub-advisory fees that the Investment Manager pays to
Mainstream and SGI) in the future if the Agreements become effective.
Benefits (such as soft dollars) to the Investment Manager, SGI and Mainstream
and their affiliates from their relationship with the Fund. The Directors
concluded during their prior contract renewal meeting that other benefits
described by the Investment Manager and Mainstream from their past or future
relationship with the Fund, including "soft dollar" benefits in connection with
brokerage transactions, are reasonable and fair, and consistent with industry
practice and the best interests of the Fund and its shareholders. In addition,
the Directors had also determined that the administration, transfer agency and
fund accounting fees paid by the Fund to the Investment Manager are reasonable,
fair and in the best interests of shareholders in light of the nature and
quality of the services provided, the associated costs, and the necessity of the
services for the Fund's operations and would remain the same under the proposed
arrangements. The Board noted that it had considered SGI's practices and
benefits in the past with other funds in the Security Funds complex and that it
would review SGI's benefits from its relationship with the Fund if the
Agreements become effective.
Other considerations. In approving the Agreements, the Directors determined that
the Investment Manager, SGI (with respect to other series in the Security Funds
complex for which SGI serves as sub-adviser) and Mainstream have made a
substantial commitment to the recruitment and retention of high quality
personnel, and maintain the financial, compliance and operational resources
reasonably necessary to manage the Fund in a professional manner that is
consistent with the best interests of the Fund and its shareholders. The
Directors also considered that the Agreements will permit the ongoing management
of the Fund with three sub-portfolios with distinct investment strategies, each
to be managed by specialized portfolio management personnel.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE AMENDED MANAGEMENT AGREEMENT.
UNMARKED, PROPERLY SIGNED AND DATED PROXIES WILL BE SO VOTED.
10
PROPOSAL 2
APPROVAL OF THE SGI
SUB-ADVISORY AGREEMENT
As discussed above, the Board approved changes to the Fund's principal
investment strategy, including the addition of the SGI Sub-Portfolio. It is
proposed that SGI be the investment sub-adviser responsible for managing the SGI
Sub-Portfolio of the Fund and that the Mainstream Sub-Advisory Agreement be
amended to provide for a fixed sub-advisory fee equal to that payable to SGI. At
its May 9, 2008 meeting, the Board approved the SGI Sub-Advisory and Mainstream
Sub-Advisory Agreements pursuant to which the Investment Manager will pay each
of SGI and Mainstream a fixed asset-based fee equal to 1.45% of the average
daily net assets in the SGI and Mainstream Sub-Portfolios of the Fund,
respectively, on an annual basis.
The Investment Manager and the Fund have received an order from the SEC that
permits them to retain investment sub-advisers or amend the terms of an existing
sub-advisory agreement without shareholder approval, except when the sub-adviser
is affiliated with the Investment Manager This order permits the Investment
Manager to amend the terms of the current sub-advisory agreement with Mainstream
upon Board approval but without shareholder approval because Mainstream is not
affiliated to the Investment Manager. However, SGI is affiliated with the
Investment Manager, so its appointment is subject to shareholder approval.
THE PROPOSED SGI SUB-ADVISORY AGREEMENT
Background Information on SGI. SGI, with its principal place of business at Two
Embarcadero Center, Suite 2350, San Francisco, CA 94111, is an investment
adviser registered as such with the U.S. Securities and Exchange Commission. SGI
is a recently-created subsidiary of Security Benefit Life Insurance Company
("Security Benefit") that was formed for the initial purpose of acquiring the
assets of Avera. The key personnel of Avera became the key personnel of SGI
effective June 15, 2007. As of March 31, 2008, SGI had approximately
$481,820,869 in assets under management. SGI currently provides investment
management and related services to retirement accounts, pooled investment
vehicles and mutual funds. The name, address and principal occupation of the
principal executive officer and each managing member of SGI are set forth in
Exhibit C. SGI is a wholly owned subsidiary of Security Benefit, which is in
turn controlled by Security Benefit Corporation. Security Benefit Corporation is
a wholly owned subsidiary of Security Benefit Mutual Holding Company. SGI may be
deemed to be an affiliated person of the Investment Manager. A list of the
directors/officers of the Company who hold positions with SGI is set forth in
Exhibit B-2. SGI does not manage any other registered investment companies with
investment objectives similar to those of the Fund.
The SGI Sub-Advisory Agreement. The following summary of the proposed SGI
Sub-Advisory Agreement summarizes the material terms of the SGI Sub-Advisory
Agreement and is qualified in its entirety by reference to the SGI Sub-Advisory
Agreement, a form of which is attached as Exhibit D.
The SGI Sub-Advisory Agreement provides that, subject to the Investment
Manager's and the Board's supervision, SGI is responsible for managing a portion
of the Fund's assets, including making investment decisions and placing orders
to purchase and sell securities for the Fund, all in accordance with the
investment objective and policies of the Fund as reflected in its current
prospectus and statement of additional information and as may be adopted from
time to time by the Board. In accordance with applicable requirements, SGI will
also maintain, and provide the Investment Manager with, all books and records
relating to the transactions it executes or that are otherwise required, and
render to the Fund and the Investment Manager such periodic and special reports
at any time upon reasonable request. The SGI Sub-Advisory Agreement provides
that, in the absence of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or breach of its duties thereunder, SGI will not
be liable for any act or omission in connection with its activities as
sub-adviser to the Fund.
Under its terms, the SGI Sub-Advisory Agreement will remain in full force and
effect for a period of up to two years from the date of its execution, and will
continue thereafter as long as its continuance is approved at least annually by
the Board or by vote of a majority of the outstanding shares of the Fund, as
well as by a majority of the Independent Directors by vote cast in person at a
meeting called for that purpose. However, the SGI Sub-Advisory Agreement may be
terminated at any time upon 60 days' written notice without the payment of any
penalty, either by vote of the Board or by vote of a
11
majority of the outstanding shares of the Fund. The Investment Manager may
terminate the SGI Sub-Advisory Agreement upon breach by SGI of its
representations or warranties, which shall not have been cured within 20 days of
receipt of written notice of such breach, or SGI becoming unable to discharge
its duties and obligations under the SGI Sub-Advisory Agreement. Additionally,
the SGI Sub-Advisory Agreement will terminate immediately in the event of its
assignment or upon the termination of the Fund's Advisory Agreement with the
Investment Manager. SGI may terminate the SGI Sub-Advisory Agreement on 120
days' written notice to the Investment Manager and the Fund.
Fees. Under the SGI Sub-Advisory Agreement, SGI will receive monthly
compensation from the Investment Manager (and not the Fund) at an annual rate of
1.45% of the average daily closing value of the net assets in the SGI
Sub-Portfolio of the Fund. During the fiscal year ended September 30, 2007, SGI
was not yet serving as a sub-adviser to the Fund, and thus the Investment
Manager did not pay or accrue an investment advisory fee to SGI.
Evaluation by the Board. A discussion of the Board's consideration of the SGI
Sub-Advisory Agreement is included under Proposal 1 in the section titled
"Evaluation by the Board." That discussion also includes the Board's approval of
the Mainstream Sub-Advisory Agreement.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE SGI SUB-ADVISORY AGREEMENT.
UNMARKED, PROPERLY SIGNED AND DATED PROXIES WILL BE SO VOTED.
OTHER BUSINESS
The Directors do not know of any matters to be presented at the Special Meeting
other than those set forth in this proxy statement. If other business should
properly come before the Special Meeting, proxies will be voted in accordance
with the judgment of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, PRINCIPAL UNDERWRITER, AND TRANSFER AGENT
The Investment Manager also serves as the Fund's administrator and transfer
agent. The principal underwriter/distributor is Security Distributors, Inc. (the
"Distributor"), located at One Security Benefit Place, Topeka, KS 66636-0001.
During the fiscal year ended September 30, 2007, the Fund paid the Investment
Manager $87,775 for administrative and transfer agent services, and the Fund
paid the Distributor $161,544 for distribution services. If the proposed Amended
Management and SGI Sub-Advisory Agreements are approved, the Investment Manager
and the Distributor will continue to render the same administrative, transfer
agency and distribution services to the Fund as they currently render. The
Investment Manager is wholly owned by its members, Security Benefit and Security
Benefit Corporation. Security Benefit, a life insurance company, incorporated
under the laws of Kansas, is controlled by Security Benefit Corporation.
Security Benefit Corporation is wholly-owned by Security Benefit Mutual Holding
Company, One Security Benefit Place, Topeka, Kansas 66636-0001. The Investment
Manager is an indirect, and the Distributor is a direct, wholly-owned subsidiary
of Security Benefit Corporation.
BACKGROUND INFORMATION ON MAINSTREAM.
Mainstream Investment Advisers, LLC, 101 West Spring Street, New Albany, Indiana
47150, is currently the only investment sub-adviser to the Fund and has served
as investment sub-adviser with regard to the Mainstream Sub-Portfolio of the
Fund pursuant to an investment sub-advisory agreement between the Investment
Manager and Mainstream dated July 1, 2003, which was last approved by the Board
at a meeting held on November 9, 2007. Pursuant to this agreement, Mainstream
furnishes investment advisory services, supervises and arranges for the purchase
and sale of securities on behalf of the Mainstream Sub-Portfolio of the Fund and
provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Company's Board and the Investment Manager. Amendments to the Mainstream
Sub-Advisory Agreement will be implemented only if Proposal 1 is approved.
12
AFFILIATIONS AND AFFILIATED BROKERAGE.
During the fiscal year ended September 30, 2007, the Fund paid no commissions on
portfolio brokerage transactions to brokers who may be deemed to be affiliated
persons of the Fund, the Investment Manager, Mainstream, SGI, or affiliated
persons of such persons ("Affiliated Brokers").
SHAREHOLDER REPORTS
Shareholders can find important information about the Fund in the Company's
annual report dated September 30, 2007, including financial reports for the
fiscal year ended September 30, 2007 and in the Company's semi-annual report
dated March 31, 2008. You may obtain copies of these reports without charge by
writing to the Company, or by calling the telephone number shown on the front
page of this proxy statement.
The Fund is subject to the informational requirements of the Securities Exchange
Act of 1934, and certain other federal securities statutes, and files reports
and other information with the SEC. Proxy materials, reports and other
information filed by the Fund can be inspected and copied at the Public
Reference Facilities maintained by the U.S. Securities and Exchange Commission
at 100 F Street, NE, Washington, DC 20549. The Commission maintains an Internet
web site (at http://www.sec.gov) which contains other information about the
Fund.
VOTING INFORMATION
Proxy Solicitation. The principal solicitation of proxies will be by the mailing
of this proxy statement on or about June 16, 2008, but proxies may also be
solicited by telephone and/or in person by representatives of the Company,
regular employees of the Investment Manager, their affiliate(s), or The Altman
Group, a private proxy services firm. If we have not received your vote as the
date of the Special Meeting approaches, you may receive a call from these
parties to ask for your vote. Arrangements will be made with brokerage houses
and other custodians, nominees, and fiduciaries to forward proxies and proxy
materials to their principals.
The costs of the Special Meeting, including the costs of retaining The Altman
Group, preparation and mailing of the notice, proxy statement and proxy, and the
solicitation of proxies, including reimbursement to broker-dealers and others
who forwarded proxy materials to their clients, will be borne one-half by the
Fund and one-half by the Investment Manager and/or its affiliates. The estimated
cost of the special meeting is approximately $21,300.
Shareholder Voting. Shareholders of the Fund who own shares at the close of
business on June 9, 2008 (the "Record Date") will be entitled to notice of, and
vote at, the Special Meeting. Shareholders are entitled to one vote for each
share held and fractional votes for fractional shares held. As of the Record
Date, there were issued and outstanding [ ] shares of the Fund, representing the
same number of votes. The persons who are known to have owned beneficially 5% or
more of the Fund's outstanding shares as of the Record Date are listed on
Exhibit E. As of the Record Date, the Directors and officers, as a group, owned
less than 1.00% of the outstanding shares of the Fund. As of the Record Date,
there were no persons who were known to control the Fund.
More than 50% of the Fund's shares, represented in person or by proxy, will
constitute a quorum for the Special Meeting and must be present for the
transaction of business at the Special Meeting. Only proxies that are voted,
abstentions and "broker non-votes" will be counted toward establishing a quorum.
"Broker non-votes" are shares held by a broker or nominee as to which
instructions have not been received from the beneficial owners or persons
entitled to vote, and the broker or nominee does not have discretionary voting
power. In the event that a quorum is not present at the Special Meeting, or a
quorum is present but sufficient votes to approve Proposals 1 and/or 2 are not
received, the persons named as proxies may propose one or more adjournments of
the Special Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of the Fund shares
represented at the Special Meeting in person or by proxy (excluding abstentions
and broker non-votes). The persons named as proxies will vote those proxies that
they are entitled to vote FOR Proposals 1 and 2 in favor of an adjournment of
the Special Meeting, and will vote those proxies required to be voted AGAINST
Proposals 1 and 2 against such adjournment. A shareholder vote may be taken on
any proposal prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
13
The person(s) named as proxies on the enclosed proxy card will vote in
accordance with your directions, if your proxy is received properly executed. If
we receive your proxy, and it is executed properly, but you give no voting
instructions with respect to any proposal, your shares will be voted FOR
Proposals 1 and 2. The duly appointed proxies may, in their discretion, vote
upon such other matters as may properly come before the Special Meeting.
In order that your shares may be represented at the Special Meeting, you are
requested to vote your shares by mail, the Internet or by telephone by following
the enclosed instructions. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT
RETURN YOUR PROXY CARD, UNLESS YOU LATER ELECT TO CHANGE YOUR VOTE. You may
revoke your proxy: (a) at any time prior to its exercise by written notice of
its revocation to the secretary of the Company prior to the Special Meeting; (b)
by the subsequent execution and return of another proxy prior to the Special
Meeting; or (c) by being present and voting in person at the Special Meeting and
giving oral notice of revocation to the chairman of the Special Meeting.
However, attendance in-person at the Special Meeting, by itself, will not revoke
a previously-tendered proxy.
Required Vote. Approval of Proposals 1 and 2 requires the vote of a "majority of
the outstanding voting securities" of the Fund, which means the vote of 67% or
more of the shares that are present at the Special Meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy, or
the vote of more than 50% of the Fund's outstanding shares, whichever is less.
Accordingly, assuming the presence of a quorum, abstentions and broker non-votes
have the effect of a negative vote on Proposals 1 and 2.
Shareholders Sharing the Same Address. As permitted by law, only one copy of
this proxy statement is being delivered to shareholders residing at the same
address, unless such shareholders have notified the Company of their desire to
receive multiple copies of the shareholder reports and proxy statements that the
Company sends. If you would like to receive an additional copy, please contact
the Company by writing to the Company's address, or by calling the telephone
number shown on the front page of this proxy statement. The Company will then
promptly deliver, upon request, a separate copy of the proxy statement to any
shareholder residing at an address to which only one copy was mailed.
Shareholders wishing to receive separate copies of the Company's shareholder
reports and proxy statements in the future, and shareholders sharing an address
that wish to receive a single copy if they are receiving multiple copies, should
also send a request as indicated.
SHAREHOLDER PROPOSALS
As a general matter, the Company does not hold annual meetings of shareholders.
Shareholders wishing to submit proposals for inclusion in a proxy statement for
a subsequent shareholders' meeting should send their written proposal to the
secretary of the Company, One Security Benefit Place, Topeka, Kansas 66636-0001.
Proposals must be received a reasonable time prior to the date of a meeting of
shareholders to be considered for inclusion in the proxy materials for the
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. Persons named as proxies for any subsequent
shareholders' meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, PROMPT EXECUTION AND
RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ Richard M. Goldman
Richard M. Goldman
President & Chairman of the Board
of Directors
14
LIST OF EXHIBITS
Exhibit A: Form of Amended Management Agreement
Exhibit B-1: Managing Member and Principal Executive Officer of the
Investment Manager
Exhibit B-2: Directors/Officers of the Company Who Hold Positions with the
Investment Manager and/or SGI
Exhibit B-3: Other Registered Investment Companies with Similar Investment
Objectives as the Fund, for which the Investment Manager Acts
as Investment Manager, Adviser or Sub-Adviser
Exhibit C: Principal Executive Officer and Managing Members of SGI
Exhibit D: Form of SGI Sub-Advisory Agreement between the Investment
Manager and SGI
Exhibit E: Beneficial Owners of 5% or More of the Outstanding Shares of
the Fund
15
EXHIBIT A
FORM OF AMENDED MANAGEMENT AGREEMENT
This Agreement, made and entered into this 27th day of January, 2000, and
amended and restated effective as of November 18, 2005 and amended and restated
as of February 8, 2008, by and between SECURITY EQUITY FUND, a Kansas
corporation (hereinafter referred to as the "Fund"), and SECURITY INVESTORS,
LLC, a Kansas limited liability company (hereinafter referred to as the
"Adviser") (formerly, Security Management Company, LLC);
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management investment
company registered under the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, the Adviser is willing to provide investment research and advice to the
Fund on the terms and conditions hereinafter set forth;
WHEREAS, this Agreement has last been amended and restated to reflect
non-material amendments, including a change in the Adviser's name, the
liquidation of three Series of the Fund, and the addition of three new Series of
the Fund;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. EMPLOYMENT OF THE ADVISER. The Fund hereby employs the Adviser to act as
investment adviser to the Fund with respect to the investment of its assets
and to supervise and arrange for the purchase of securities of the Fund and
the sales of securities held in the portfolio of the Fund, subject always
to the supervision of the Board of Directors of the Fund (or a duly
appointed committee thereof), during the period and upon and subject to the
terms and conditions described herein. The Adviser agrees to maintain
sufficient trained personnel and equipment and supplies to perform its
responsibilities under this Agreement and in conformity with the current
Prospectus(es) of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify.
The Adviser hereby accepts such employment and agrees to perform the
services required by this Agreement for the compensation herein provided.
2. ALLOCATION OF EXPENSES AND CHARGES.
(a) EXPENSES OF THE ADVISER. The Adviser shall pay all expenses in
connection with the performance of its services under this Agreement,
except as provided otherwise herein.
(b) EXPENSES OF THE FUND. Anything in this Agreement to the contrary
notwithstanding, the Fund shall pay or reimburse the Adviser for the
payment of the following described expenses of the Fund whether or not
billed to the Fund, the Adviser or any related entity:
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses;
(iv) any extraordinary expenses approved by the Board of Directors of
the Fund; and
(v) distribution fees paid under the Fund's Class A, Class B and
Class C Distribution Plans;
and, in addition to those expenses set forth above, the Fund shall pay all
of its expenses whether or not billed to the Fund, the Adviser or any
related entity.
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(c) EXPENSE CAP. For each of the Fund's full fiscal years that this
Agreement remains in force, the Adviser agrees that if total annual
expenses of each Series of the Fund identified below, exclusive of
interest, taxes, extraordinary expenses (such as litigation), brokerage
fees and commissions, and 12b-1 fees paid under a Fund's Class A, Class B
or Class C Distribution Plans, but inclusive of the Adviser's compensation,
exceeds the amount set forth below (the "Expense Cap"), the Adviser shall
contribute to such Series such funds or waive such portion of its fee,
adjusted monthly, as may be required to insure that the total annual
expenses of the Series shall not exceed the Expense Cap. If this Agreement
shall be effective for only a portion of a Series' fiscal year, then the
maximum annual expenses shall be prorated for such portion.
EXPENSE CAP
Select 25 Series, Class A, B and C - 1.75%
3. COMPENSATION OF THE ADVISER.
(a) As compensation for the investment advisory services to be rendered by
the Adviser to Global Series and Small Cap Growth Series, for each of the
years this Agreement is in effect, each of the foregoing Series shall pay
the Adviser an annual fee equal to 1.00% of its respective average daily
net assets. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to Equity Series and Select 25 Series, for each of the years this
Agreement is in effect, each of the foregoing Series shall pay the Adviser
an annual fee equal to 0.75% of its respective average daily net assets. As
compensation for the investment advisory services to be rendered by the
Adviser to Small Cap Value Series and Global Institutional Fund, for each
of the years this Agreement is in effect, each of the foregoing Series
shall pay the Adviser an annual fee equal to 0.90% of its respective
average daily net assets. Such fee shall be calculated daily and payable
monthly. As compensation for the investment advisory services to be
rendered by the Adviser to Mid Cap Value Institutional Fund, for each of
the years this Agreement is in effect, Mid Cap Value Institutional Fund
shall pay the Adviser an annual fee equal to 0.85% of average daily net
assets. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to Mid Cap Value Series for each of the years this Agreement is in
effect, the Mid Cap Value Series shall pay the Adviser an annual fee equal
to 1.00% of its average daily net assets of $200 million or less; plus an
annual rate of 0.75% of its average daily net assets of more than $200
million. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to Alpha Opportunity Series, Alpha Opportunity Series shall pay the
Adviser a fee as described in paragraphs 3(c) and 3(d) below. If this
Agreement shall be effective for only a portion of a year, then the
Adviser's compensation for said year shall be prorated for such portion.
For purposes of this Section 3, the value of the net assets of each Series
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(es).
(b) For each of the Fund's fiscal years this Agreement remains in force,
the Adviser agrees that if total annual expenses of any Series of the Fund,
exclusive of interest and taxes, extraordinary expenses (such as
litigation) and distribution fees paid under the Fund's Class A, Class B
and Class C Distribution Plans, but inclusive of the Adviser's
compensation, exceed any expense limitation imposed by state securities law
or regulation in any state in which shares of such Series of the Fund are
then qualified for sale, as such regulations may be amended from time to
time, the Adviser will contribute to such Series such funds or waive such
portion of its fee, adjusted monthly, as may be requisite to insure that
such annual expenses will not exceed any such limitation. If this Agreement
shall be effective for only a portion of any Series' fiscal year, 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 a Series shall not be deemed to be expenses within the
meaning of this paragraph (b).
(c) Total Fee. (1) During the first 12 months of operations of Alpha
Opportunity Series, the Series shall pay the Adviser an investment advisory
fee equal to 2.00% of average daily net assets, accrued daily and paid
monthly (without any adjustment of the type discussed below).
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(2) Thereafter, as compensation for the investment advisory services to be
rendered by the Adviser to Alpha Opportunity Series, the Series shall pay
the Adviser at the end of each calendar month, an advisory fee (the "Total
Fee") composed of: (i) a base fee equal to 2.00% (on an annual basis), of
the Alpha Opportunity Series' average daily net assets over the month (the
"Base Fee"); and (ii) a performance adjustment to the Base Fee as further
explained in (d) below (the "Performance Adjustment"). The Total Fee shall
be accrued daily and paid monthly, with such periodic adjustments as deemed
appropriate in accordance with applicable law and accounting standards.
(3) If the Adviser shall serve for less than the whole of any calendar
month, the Total Fee mentioned above shall be calculated on a pro rata
basis for the portion of the month for which the Adviser has served as
adviser.
(d) Calculation of Performance Adjustment. Each month, the rate of any
positive Performance Adjustment shall be equal to 0.75% multiplied by the
ratio of the number of percentage points by which the investment
performance of the Series (the "Investment Performance") exceeds the
investment record (the "Investment Record") of the Standard & Poor's 500
Composite Stock Price Index (the "Index") over the twelve-month period
ending on the last day of that month (the "Measuring Period") as compared
to 15 percentage points. For example, if the Investment Performance of the
Series was 6.6% and the Investment Record of the Index was 0%, the ratio
would be 6.6 to 15, or 0.44, times 0.75%, for an upward Performance
Adjustment rate of 0.33%.
Similarly, the rate of any negative Performance Adjustment shall be equal
to 0.75% multiplied by the ratio of the number of percentage points by
which the Investment Performance of the Series is less than the Investment
Record of the Index over the Measuring Period as compared to 15 percentage
points. For example, if the Investment Performance of the Series was -10.0%
and the Investment Record of the Index was 0%, the ratio would be 10 to 15,
or 0.667, times 0.75%, for a downward Performance Adjustment rate of 0.50%.
After the rate of the Performance Adjustment has been determined as
described above, the Adviser will determine the dollar amount of such
Performance Adjustment by multiplying the Performance Adjustment rate by
the average daily net assets of the Series during the Measuring Period and
dividing that number by the number of days in the Measuring Period and then
multiplying that amount by the number of days in the current month. The
dollar amount of the Total Fee then equals the dollar amount of the Base
Fee as adjusted by the dollar amount of the Performance Adjustment.
Each month, the maximum or minimum Performance Adjustment shall be equal to
1/12th of 0.75% of the average daily net assets of the Series during the
Measuring Period (subject to minor accounting adjustments to account for
the specific number of days in the month) when the Investment Performance
of the Series is superior or inferior to the Investment Record of the Index
by 15 percentage points or more over the Measuring Period. The maximum
Total Fee payable to the Adviser in any month is then equal to 1/12th of
2.00% of the Series' average daily net assets over that month (i.e., the
Base Fee), plus 1/12th of 0.75% of the Series' average daily net assets
over the Measuring Period (i.e., the maximum positive Performance
Adjustment); and the minimum Total Fee payable to the Adviser is equal to
1/12th of 2.00% of the Series' average daily net assets over that month
(i.e., the Base Fee), less 1/12th of 0.75% of the Series' average daily net
assets over the Measuring Period (i.e., the maximum negative Performance
Adjustment) (subject to accounting adjustments to account for the specific
number of days in the month).
The Investment Performance of the Series will be determined by reference to
Class A shares of the Series in accordance with Rule 205-1(a) under the
Investment Advisers Act of 1940 ("Advisers Act"). As such, it shall be
equal to the sum of: (i) the change in the net asset value of Class A
shares during the Measuring Period, (ii) the value of all cash
distributions made by the Series to holders of its Class A shares
accumulated to the end of the Measuring Period, and (iii) the value of
capital gains taxes per Class A share, if any, paid or payable on
undistributed realized long-term gains accumulated to the end of the
Measuring Period, and will be expressed as a percentage of the net asset
value per share of the Class A shares at the beginning of
A-3
the Measuring Period (for this purpose, the value of distributions per
share of realized capital gains, of dividends per share paid from
investment income and of capital gains taxes per share paid or payable on
undistributed realized long-term capital gains are treated as reinvested in
Class A shares at the net asset value per share in effect at the close of
business on the record date for the payment of such distributions and
dividends and the date on which provision is made for such taxes, after
giving effect to such distributions, dividends and taxes).
The Investment Record of the Index will be determined in accordance with
Rule 205-1(b) under the Advisers Act. As such, it shall be equal to the sum
of: (i) the change in the level of the Index during the Measuring Period,
and (ii) the value, computed consistently with the Index, of cash
distributions made by companies whose securities comprise the Index
accumulated to the end of the Measuring Period, and will be expressed as a
percentage of the Index at the beginning of the Measuring Period.
It is the intent of the parties to this Agreement that the Total Fee
arrangement comply with Section 205 of the Advisers Act, Rules 205-1 and
205-2 thereunder, as each may be amended from time to time (the "Fulcrum
Fee Provisions"). Any question in interpreting and implementing the Total
Fee arrangement shall be answered in accordance with the Fulcrum Fee
Provisions.
4. INVESTMENT ADVISORY DUTIES.
(a) INVESTMENT ADVICE. The Adviser shall regularly provide the Fund with
investment research, advice and supervision, continuously furnish an
investment program, recommend which securities shall be purchased and sold
and what portion of the assets of the Fund shall be held uninvested and
arrange for the purchase of securities and other investments for the Fund
and the sale of securities and other investments held in the portfolio of
the Fund. All investment advice furnished by the Adviser to the Fund under
this Section 4 shall at all times conform to any requirements imposed by
the provisions of the Fund's Articles of Incorporation and Bylaws, the 1940
Act, the Investment Advisors Act of 1940 and the rules and regulations
promulgated thereunder, and other applicable provisions of law, and the
terms of the registration statements of the Fund under the Securities Act
of 1933 ("1933 Act") and/or the 1940 Act, as may be applicable at the time,
all as from time to time amended. The Adviser shall advise and assist the
officers or other agents of the Fund in taking such steps as are necessary
or appropriate to carry out the decisions of the Board of Directors of the
Fund (and any duly appointed committee thereof) with regard to the
foregoing matters and the general account of the Fund's business.
(b) SUBADVISERS. Subject to the provisions of the 1940 Act and any
applicable exemptions thereto, the Adviser is authorized, but is under no
obligation, to enter into sub-advisory agreements (the "Sub-Advisory
Agreements") with one or more subadvisers (each a "Subadviser") to provide
investment advisory services to any series of the Fund. Each Subadviser
shall have investment discretion with respect to the assets of the series
assigned to that Subadviser by the Adviser. Consistent with the provisions
of the 1940 Act and any applicable exemption thereto, the Adviser may enter
into Sub-Advisory Agreements or amend Sub-Advisory Agreements without the
approval of the shareholders of the affected series.
(c) PORTFOLIO TRANSACTIONS AND BROKERAGE.
(i) Transactions in portfolio securities shall be effected by the
Adviser, through brokers or otherwise (including affiliated brokers),
in the manner permitted in this Section 4 and in such manner as the
Adviser shall deem to be in the best interests of the Fund after
consideration is given to all relevant factors.
(ii) In reaching a judgment relative to the qualification of a
broker to obtain the best execution of a particular transaction, the
Adviser may take into account all relevant factors and circumstances,
including the size of any contemporaneous market in such securities;
the importance to the Fund of speed and efficiency of execution;
whether the particular transaction is part of a larger intended change
of portfolio position in the same securities; the execution
capabilities required by the circumstances of the particular
transaction; the capital required by the transaction; the overall
capital
A-4
strength of the broker; the broker's apparent knowledge of or
familiarity with sources from or to whom such securities may be
purchased or sold; as well as the efficiency, reliability and
confidentiality with which the broker has handled the execution of
prior similar transactions.
(iii) Subject to any statements concerning the allocation of
brokerage contained in the Fund's Prospectus(es) or Statement(s) of
Additional Information, the Adviser is authorized to direct the
execution of portfolio transactions for the Fund to brokers who
furnish investment information or research service to the Adviser.
Such allocations shall be in such amounts and proportions as the
Adviser may determine. If the transaction is directed to a broker
providing brokerage and research services to the Adviser, the
commission paid for such transaction may be in excess of the
commission another broker would have charged for effecting that
transaction, if the Adviser shall have determined in good faith that
the commission is reasonable in relation to the value of the brokerage
and research services provided, viewed in terms of either that
particular transaction or the overall responsibilities of the Adviser
with respect to all accounts as to which it now or hereafter exercises
investment discretion. For purposes of the immediately preceding
sentence, "providing brokerage and research services" shall have the
meaning generally given such terms or similar terms under Section
28(e)(3) of the Securities Exchange Act of 1934, as amended.
(iv) In the selection of a broker for the execution of any
transaction not subject to fixed commission rates, the Adviser shall
have no duty or obligation to seek advance competitive bidding for the
most favorable negotiated commission rate to be applicable to such
transaction, or to select any broker solely on the basis of its
purported or "posted" commission rates.
(v) In connection with transactions on markets other than
national or regional securities exchanges, the Fund will deal directly
with the selling principal or market maker without incurring charges
for the services of a broker on its behalf unless, in the best
judgment of the Adviser, better price or execution can be obtained by
utilizing the services of a broker.
(d) LIMITATION OF LIABILITY OF THE ADVISER WITH RESPECT TO RENDERING
INVESTMENT ADVISORY SERVICES. So long as the Adviser shall give the Fund
the benefit of its best judgment and effort in rendering investment
advisory services hereunder, the Adviser shall not be liable for any errors
of judgment or mistake of law, or for any loss sustained by reason of the
adoption of any investment policy or the purchase, sale or retention of any
security on its recommendation shall have been based upon its own
investigation and research or upon investigation and research made by any
other individual, firm or corporation, if such recommendation shall have
been made and such other individual, firm or corporation shall have been
selected with due care and in good faith. Nothing herein contained shall,
however, be construed to protect the Adviser against any liability to the
Fund or its shareholders by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Section 4. As
used in this Section 4, the "Adviser" shall include directors, officers and
employees of the Adviser, as well as the Adviser itself.
5. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
the Adviser or any officer thereof from acting as investment adviser for
any other person, firm or corporation, nor shall it in any way limit or
restrict the Adviser or any of its directors, officers, stockholders or
employees from buying, selling, or trading any securities for their own
accounts or for the accounts of others for whom they may be acting;
provided, however, that the Adviser expressly represents that it will
undertake no activities which, in its judgment, will conflict with the
performance of its obligations to the Fund under this Agreement. The Fund
acknowledges that the Adviser acts as investment adviser to other
investment companies, and it expressly consents to the Adviser acting as
such; provided, however, that if in the opinion of the Adviser, particular
securities are consistent with the investment objectives of, and desirable
purchases or sales for the portfolios of one or more of such other
investment companies or series of such companies at approximately the same
time, such purchases or sales will be made on a proportionate basis if
feasible, and if not feasible, then on a rotating or other equitable basis.
6. AMENDMENT. This Agreement may be amended at any time, without shareholder
approval to the extent permitted by applicable law, by a writing signed by
each of the parties hereto. Any change in the Fund's registration
A-5
statements or other documents of compliance or in the forms relating to any
plan, program or service offered by its current Prospectus(es) which would
require a change in the Adviser's obligations hereunder shall be subject to
the Adviser's approval, which shall not be unreasonably withheld.
7. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall continue in
force with respect to a Series for an initial term of up to two years, and
then for successive 12-month periods thereafter, unless terminated,
provided each such continuance is specifically approved at least annually
by (a) the vote of a majority of the entire Board of Directors of the Fund,
or by the vote of the holders of a majority of the outstanding voting
securities of each series of the Fund (as defined in the 1940 Act), and (b)
the vote of a majority of the directors of the Fund who are not parties to
this Agreement or interested persons (as such terms are defined in the
Investment Company Act of 1940) of any such party cast in person at a
meeting of such directors called for the purpose of voting upon such
approval. In the event a majority of the outstanding shares of one series
vote for continuance of the Agreement, it will be continued for that series
even though the Agreement is not approved by either a majority of the
outstanding shares of any other series or by a majority of outstanding
shares of the Fund.
Upon this Agreement becoming effective, any previous Agreement between the
Fund and the Adviser providing for investment advisory services shall
concurrently terminate, except that such termination shall not affect any
fees accrued and guarantees of expenses with respect to any period prior to
termination.
This Agreement may be terminated at any time as to any series of the Fund
without payment of any penalty, by the Fund upon the vote of a majority of
the Fund's Board of Directors or, by a majority of the outstanding voting
securities of the applicable series of the Fund, or by the Adviser, in each
case on sixty (60) days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment (as such term
is defined in the 1940 Act).
8. SEVERABILITY. If any clause or provision of this Agreement is determined to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
9. APPLICABLE LAW. This Agreement shall be subject to and construed in
accordance with the laws of the State of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereto duly authorized on the day, month
and year first above written.
SECURITY EQUITY FUND
By
------------------------
Richard M. Goldman
Title: President
ATTEST:
- ---------------------------------------------
AMY J. LEE
- ---------------------------------------------
Secretary
SECURITY INVESTORS, LLC
By
------------------------
Richard M. Goldman
Title: President
A-6
ATTEST:
- ---------------------------------------------
AMY J. LEE
- ---------------------------------------------
Secretary
A-7
FORM OF AMENDMENT TO
INVESTMENT MANAGEMENT AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Investors, LLC (the
"Adviser") are parties to an Investment Management Agreement made and entered
into on January 27, 2000, and amended and restated effective as of November 18,
2005 and amended and restated as of February 8, 2008 (the "Agreement");
WHEREAS, on May 9, 2008, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as All Cap Value Series and
authorized changes to the Adviser's compensation in connection with the Alpha
Opportunity Series;
WHEREAS, the parties hereto wish to amend the Agreement to reflect the changes
authorized by the Board of Directors of the Fund;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
Section 3 of the Agreement is hereby deleted in its entirety and replaced with
the new Section 3 set forth below:
3. COMPENSATION OF THE ADVISER.
(a) As compensation for the investment advisory services to be rendered by
the Adviser to Global Series and Small Cap Growth Series, for each of the
years this Agreement is in effect, each of the foregoing Series shall pay
the Adviser an annual fee equal to 1.00% of its respective average daily
net assets. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to Equity Series and Select 25 Series, for each of the years this
Agreement is in effect, each of the foregoing Series shall pay the Adviser
an annual fee equal to 0.75% of its respective average daily net assets. As
compensation for the investment advisory services to be rendered by the
Adviser to Small Cap Value Series and Global Institutional Fund, for each
of the years this Agreement is in effect, each of the foregoing Series
shall pay the Adviser an annual fee equal to 0.90% of its respective
average daily net assets. Such fee shall be calculated daily and payable
monthly. As compensation for the investment advisory services to be
rendered by the Adviser to Mid Cap Value Institutional Fund, for each of
the years this Agreement is in effect, Mid Cap Value Institutional Fund
shall pay the Adviser an annual fee equal to 0.85% of average daily net
assets. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to Mid Cap Value Series for each of the years this Agreement is in
effect, the Mid Cap Value Series shall pay the Adviser an annual fee equal
to 1.00% of its average daily net assets of $200 million or less; plus an
annual rate of 0.75% of its average daily net assets of more than $200
million. Such fee shall be calculated daily and payable monthly. As
compensation for the investment advisory services to be rendered by the
Adviser to All Cap Value Series for each of the years this Agreement is in
effect, the All Cap Value Series shall pay the Adviser an annual fee equal
to 0.70% of its average daily net assets. Such fee shall be calculated
daily and payable monthly. As compensation for the investment advisory
services to be rendered by the Adviser to Alpha Opportunity Series for each
of the years this Agreement is in effect, the Alpha Opportunity Series
shall pay the Adviser an annual fee equal to 1.25% of its average daily net
assets. Such fee shall be calculated daily and payable monthly. If this
Agreement shall be effective for only a portion of a year, then the
Adviser's compensation for said year shall be prorated for such portion.
For purposes of this Section 3, the value of the net assets of each Series
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(es).
(b) For each of the Fund's fiscal years this Agreement remains in force,
the Adviser agrees that if total annual expenses of any Series of the Fund,
exclusive of interest and taxes, extraordinary expenses (such as
litigation) and distribution fees paid under the Fund's Class A, Class B
and Class C Distribution Plans, but inclusive of the Adviser's
compensation, exceed any expense limitation imposed by state
A-8
securities law or regulation in any state in which shares of such Series of
the Fund are then qualified for sale, as such regulations may be amended
from time to time, the Adviser will contribute to such Series such funds or
waive such portion of its fee, adjusted monthly, as may be requisite to
insure that such annual expenses will not exceed any such limitation. If
this Agreement shall be effective for only a portion of any Fund's fiscal
year, 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 a Series shall not be deemed to be expenses
within the meaning of this paragraph (b).
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Investment Management Agreement to be duly executed by their respective officers
thereto duly authorized as of August [18,] 2008.
SECURITY EQUITY FUND
By
------------------------
Richard M. Goldman
Title: President
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EXHIBIT B-1
MANAGING MEMBER AND PRINCIPAL EXECUTIVE OFFICER OF THE INVESTMENT MANAGER
The business address of the managing member and principal executive officer is
Connecticut Business Center, 6 Landmark Square #471, Stamford, CT 06901-2707.
- --------------------------------------------------------------------------------------------------------------
Name Position/Offices Held Principal Occupation/Position
with Investment Manager
- --------------------------------------------------------------------------------------------------------------
Richard M. Goldman President and Managing Senior Vice President, Security Benefit Corporation;
Member Representative Director, Security Distributors, Inc.; Director,
First Security Benefit Life Insurance and Annuity
Company of New York; President and Manager, Security
Global Investors, LLC; President and Chairman of the
Board, Security Funds
- --------------------------------------------------------------------------------------------------------------
Mr. Goldman serves as President and Chairman of the Board of Directors of
Security Equity Fund.
B-1
EXHIBIT B-2
DIRECTORS/OFFICERS OF THE COMPANY WHO HOLD POSITIONS WITH THE INVESTMENT
MANAGER AND/OR SGI
The business address of each of the following persons, other than Richard
Goldman, is One Security Benefit Place, Topeka, Kansas 66636-0001. Mr. Goldman's
address is Connecticut Business Center, 6 Landmark Square #471, Stamford, CT
06901-2707.
- -------------------------------- ------------------------------- -------------------------- --------------------------------
NAME POSITIONS/OFFICES HELD WITH POSITIONS/OFFICES HELD POSITIONS/OFFICES HELD WITH SGI
SECURITY ALPHA OPPORTUNITY WITH THE INVESTMENT
FUND MANAGER
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Richard M. Goldman President and Chairman of the President and Managing President and Manager
Board Member Representative
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Brenda M. Harwood Chief Compliance Officer and Chief Compliance Officer Chief Compliance Officer
Treasurer
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Cindy Shields Vice President Vice President
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Chris Phalen Vice President Vice President
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Amy J. Lee Secretary Secretary Secretary
- -------------------------------- ------------------------------- -------------------------- --------------------------------
Chris Swickard Assistant Secretary Assistant Secretary
- -------------------------------- ------------------------------- -------------------------- --------------------------------
B-2
EXHIBIT B-3
OTHER REGISTERED INVESTMENT COMPANIES WITH SIMILAR INVESTMENT OBJECTIVES AS THE
FUND, FOR WHICH THE INVESTMENT MANAGER ACTS AS INVESTMENT MANAGER,
ADVISER OR SUB-ADVISER
The following table provides information regarding SEC registered US mutual
funds for which the Investment Manager provides investment management, advisory
or sub-advisory services and that have an investment objective that is similar
to that of the Fund.
- ------------------------------- ----------------------------- --------------------- ------------------------------------------------
FUND CONTRACTUAL FEE NET ASSETS AS OF WAIVER/EXPENSE LIMITATION
APRIL 30, 2008
- ------------------------------- ----------------------------- --------------------- ------------------------------------------------
SBL Fund Series Z (Alpha Series Z's investment $48,674,409 The Investment Manager has contractually agreed
Opportunity Series) management fee is identical through April 30, 2010 to waive fees and/or
to that payable to the reimburse Series expenses to the extent
Investment Manager pursuant necessary to limit the ordinary operating
to the Current Management expenses (exclusive of brokerage costs,
Agreement* dividends on securities sold short, acquired
fund fees and expenses, interest, taxes,
litigation, indemnification, and extraordinary
expenses) ("Operating Expenses") of the Series
to 1.70%. The Investment Manager is entitled
to reimbursement by the Series of fees waived
or expenses reimbursed during any of the
previous 36 months beginning on the date
of the expense limitation agreement if on
any day the estimated annualized Operating
Expenses are less than the indicated
percentages.
- ------------------------------- ----------------------------- --------------------- ------------------------------------------------
*It is proposed in a separate proxy statement that Series Z adopt a new
contractual management fee identical to that proposed for the Fund under the
Amended Management Agreement
B-3
EXHIBIT C
PRINCIPAL EXECUTIVE OFFICER AND MANAGING MEMBER OF SGI
- ------------------------------------------ -------------------------------------------- --------------------------------------------
NAME AND ADDRESS POSITIONS/OFFICES HELD WITH SGI PRINCIPAL OCCUPATION/POSITION
- ------------------------------------------ -------------------------------------------- --------------------------------------------
Richard M. Goldman President and Manager Senior Vice President, Security Benefit
Corporation; Director, Security
Distributors, Inc.; Director, First
Connecticut Business Center, 6 Landmark Security Benefit Life Insurance and
Square #471 Annuity Company of New York; President and
Stamford, CT 06901-2707 Manager, Security Global Investors, LLC;
President and Chairman of the Board,
Security Funds
- ------------------------------------------ -------------------------------------------- --------------------------------------------
Kris A. Robbins Manager Chairman of the Board and Chief Executive
Officer, Security Benefit Corporation;
Chairman, President, and Chief Executive
One Security Benefit Place Officer, Security Benefit Life Insurance
Topeka, Kansas 66636-0001 Company; Chairperson and Chief Executive
Officer, First Security Benefit Life
Insurance and Annuity Company of New York.
- ------------------------------------------ -------------------------------------------- --------------------------------------------
No Officer or Director of the Fund owns securities or has any other material
indirect interest in SGI.
C-1
EXHIBIT D
FORM OF SGI SUB-ADVISORY AGREEMENT BETWEEN THE INVESTMENT MANAGER AND SGI
THIS AGREEMENT is made and entered into as of the __ day of ___________, 2008
between Security Investors, LLC (the "Adviser"), a Kansas limited liability
company, registered under the Investment Advisers Act of 1940, as amended (the
"Investment Advisers Act"), and Security Global Investors, LLC (the
"Subadviser"), a Kansas limited liability company registered under the
Investment Advisers Act.
WITNESSETH:
WHEREAS, SBL Fund and Security Equity Fund, Kansas corporations, are each
registered with the Securities and Exchange Commission (the "Commission") as
open-end management investment companies under the Investment Company Act of
1940, as amended (the "Investment Company Act");
WHEREAS, SBL Fund is authorized to issue shares of Series Z ("Series Z"), a
separate series of SBL Fund and Security Equity Fund is authorized to issue
shares of the Alpha Opportunity Series ("Alpha Opportunity Series"), a separate
series of Security Equity Fund (Series Z, and the Alpha Opportunity Series are
referred to herein individually as a "Fund" and collectively as the "Funds");
WHEREAS, each of the Funds 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 Agreements permit 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 to act
as investment adviser for and to manage a portion of each Funds' respective
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 the portion of the assets of the
Funds as determined by the Adviser from time to time, in each case subject to
the supervision of the Adviser and the Board of Directors of such Fund and
subject to the terms of this Agreement. The Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the
portion of each Fund's Investments (as defined below) allocated to it by the
Adviser.
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 each Fund as set forth in such Fund's 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 of Directors to purchase, hold and sell investments for the portion
of the assets of the Funds allocated to the Subadviser by the Adviser
(hereinafter "Investments") and to monitor on a continuous basis the
performance of such Investments. The Subadviser shall give the Funds 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 Funds,
as it may deem appropriate regarding investment advice, research and
statistical data, clerical assistance or otherwise.
D-1
The Subadviser acknowledges that each Fund may engage in certain
transactions in reliance on exemptions under Rule 10f-3, Rule 12d3-1, Rule
17a-10 and Rule 17e-1 under the Investment Company Act. Accordingly, the
Subadviser hereby agrees that it will not consult with any other subadviser
of a Fund, or an affiliated person of such other subadviser, concerning
transactions for such Fund in securities or other fund assets. The
Subadviser shall be limited to providing investment advice with respect to
only the discrete portion of each Fund's portfolio as may be determined
from time-to-time by the Adviser, and shall not consult with any other
subadviser as to any other portion of such Fund's portfolio concerning
transactions for the Fund in securities or other assets.
(b) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the respective Fund's Board to establish and
maintain accounts on behalf of each Fund with, and place orders for the
purchase and sale of each Fund's Investments with or through, such persons,
brokers or dealers as Subadviser may select which may include, to the
extent permitted by the Adviser and the respective Fund's Board, brokers or
dealers affiliated with the Subadviser or Adviser, and negotiate
commissions to be paid on such transactions. The Subadviser agrees that in
placing such orders for a Fund it shall attempt to obtain best execution,
provided that, the Subadviser may, on behalf of such 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 such 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 such Fund will be
reasonable in relation to the benefits to the Fund over the long term. In
reaching such determination, the Subadviser will not be required to place
or attempt to place a specific dollar value on the brokerage and/or
research services provided or being provided by such broker. 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 the 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 or Funds involved and to such
other clients. The Subadviser will report on such allocations at the
request of the Adviser, or the respective Fund's Board, providing such
information as the number of aggregated trades to which a 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 or an affiliated person of 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
or category of transactions 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
Funds with a copy of such Code of Ethics.
(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 solely with respect to
transactions made by it on behalf of the Funds 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 Funds required by Rule
31a-1 under the Investment Company Act. The Subadviser will also preserve
all such books and records for the periods
D-2
prescribed in part (e) of Rule 31a-2 under the Investment Company Act, and
agrees that such books and records shall remain the sole property of the
respective Fund and shall be immediately surrendered to the appropriate
Fund upon request. The Subadviser further agrees that all books and records
maintained hereunder shall be made available to the respective Fund or the
Adviser at any time upon reasonable request and notice, including telecopy,
during any business day.
(e) Information Concerning Investments and Subadviser. From time to
time as the Adviser or a Fund may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on
Investments held in the portfolios, all in such detail as the Adviser or
the applicable Fund may reasonably request. The Subadviser will make
available its officers and employees to meet with the Board of Directors of
a Fund 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 as is customarily
provided by a subadviser and may be required for each 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.
During the term of this Agreement, the Adviser agrees to furnish the
Subadviser at its principal office all registration statements, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of each Fund, or the public that
refer to the Subadviser for Subadviser's review and approval. The
Subadviser shall be deemed to have approved all such materials unless the
Subadviser reasonably objects by giving notice to the Adviser in writing
within five business days (or such other period as may be mutually agreed)
after receipt thereof. The Subadviser's right to object to such materials
is limited to the portions of such materials that expressly relate to the
Subadviser, its services and its clients. The Adviser agrees to use its
best efforts to ensure that materials prepared by its employees or agents
or its affiliates that refer to the Subadviser or its clients in any way
are consistent with those materials previously approved by the Subadviser
as referenced in this paragraph. Sales literature may be furnished to the
Sub-Adviser by first class or overnight mail, facsimile transmission
equipment or hand delivery.
(f) Custody Arrangements. The Subadviser shall provide each 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 each Fund's Articles of Incorporation, By-Laws, and
currently effective registration statement and with the written
instructions and directions of each Fund's Board and the Adviser, after
receipt of such documents, from the relevant Fund, and shall comply with
the requirements of the Investment Company Act, the Investment Advisers
Act, the Commodity Exchange Act (the "CEA"), 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 portion of the Funds allocated to it complies with
all applicable statutes and regulations necessary to qualify such portion
of each 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 such portion of a Fund
has ceased to so qualify or that it might not so qualify in the future.
In carrying out its obligations under this Agreement, the Subadviser
shall invest the portion of the assets of Series Z allocated to it by the
Adviser in such a manner as to ensure that such portion complies with the
diversification provisions of Section 817(h) of the Code (or any successor
provision) and the regulations issued thereunder relating to the
diversification requirements for variable insurance contracts and any
prospective amendments or other enacted modifications to Section 817 or
regulations thereunder. Subadviser shall notify the Adviser immediately
upon having a reasonable basis for believing that the portion of Series Z
allocated to the Subadvser has ceased to comply and will take all
reasonable steps to adequately diversify the assets of Series Z allocated
to, so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
D-3
(h) Information Concerning the Funds. 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 each Fund,
(ii) the By-Laws of each Fund, (iii) each Fund's registration statement
under the Investment Company Act and the Securities Act of 1933, as
amended, as filed with the Commission, and (iv) any written instructions of
the respective Fund's Board and the Adviser.
(i) 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 Investments held by
a 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 Funds or the Adviser in any way or
otherwise be deemed an agent of the Funds or the Adviser.
4. Compensation. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, the fee set forth in Exhibit A to this Agreement.
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 investment
management duties under this Agreement without the approval of the Adviser and
the appropriate Fund's Board.
6. Representations and Warranties of Subadviser. The Subadviser represents
and warrants to the Adviser and the Funds 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;
(d) The Subadviser is fully authorized under all applicable law to
serve as Subadviser to the Funds and to perform the services described
under this Agreement;
(e) The Subadviser 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;
(f) 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 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 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;
(g) This Agreement is a valid and binding agreement of the Subadviser;
D-4
(h) 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 as of its filing date, 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;
(i) The Subadviser has adopted compliance policies and procedures
reasonably designed to prevent violations of the Investment Advisers Act
and the rules thereunder, has provided the Adviser with a copy of such
compliance policies and procedures (and will provide them with any
amendments thereto), and agrees to assist the Funds in complying with the
Funds' compliance program adopted pursuant to Rule 38a-1 under the
Investment Company Act, to the extent applicable. The Subadviser
understands that the Boards of Directors of the Funds are required to
approve the Subadviser's compliance policies and procedures and
acknowledges that this Agreement is conditioned upon such Board approval;
and
(j) The Subadviser shall not divert any Fund's portfolio securities
transactions to a broker or dealer in consideration of such broker or
dealer's promotion or sales of shares of the Fund, any other series of
Security Equity Fund or SBL Fund, or any other registered investment
company.
7. Non-Exclusivity. The services of the Subadviser with respect to the
Funds are not deemed to be exclusive, and the Subadviser and its officers shall
be free to render investment advisory and administrative or other services to
others (including other investment companies) and to engage in other activities
so long as its duties hereunder are not impaired thereby.
8. 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 and the Advisory 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 and the Advisory Agreement are valid and binding
agreements of the Adviser;
(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 as of its filing date 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.
9. 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 8 hereof shall survive for the duration of this
D-5
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.
10. 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, to either Fund, or any of either 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 respective 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 Funds, and their respective officers and directors, for any liability
and expenses, including attorneys' fees, which may be sustained by the
Adviser, or the Funds, as a result of the Subadviser's willful misfeasance,
bad faith, or 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 partners, for any liability and expenses, including
attorneys' fees, which may be sustained as a result of the Adviser's, or
the Funds' willful misfeasance, bad faith, or gross negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA.
11. 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 a Fund unless it has first been approved by a vote of a
majority of those directors of SBL Fund and Security Equity Fund, as
applicable, 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. 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 each Fund
if specifically approved each year by the Board of Directors of the
applicable Fund or by the vote of a majority of the Fund's outstanding
voting securities. In addition to the foregoing, each renewal of this
Agreement with respect to each Fund must be approved by the vote of a
majority of the applicable 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 applicable
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
applicable Fund, or by vote of a majority of the outstanding voting
securities of the applicable 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 within twenty (20) days of the Subadviser's
receipt of written notice of such breach;
(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 120 days written notice to the
Adviser and the applicable Fund.
D-6
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.
12. Duties of the Adviser. The Adviser shall continue to have
responsibility for all services to be provided to the Funds pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement.
13. Amendment. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to a Fund
shall be approved by the Board of Directors of the applicable Fund or by a vote
of a majority of the outstanding voting securities of the applicable Fund.
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 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:
Security Global Investors, LLC
2 Embarcadero Center, Suite 2350
San Francisco, CA 94111
Attention: John Boich, Vice President and Head of Global Equity
Facsimile: (415) 274-7702
With a copy to:
Security Benefit Corporation
One Security Benefit Place
Topeka, KS 66636
Attention: General Counsel
Facsimile: (785) 438-3080
(b) If to the Adviser:
Security Investors, LLC
One Security Benefit Place
Topeka, KS 66636-0001
Attention: Richard Goldman, President
Facsimile: (785) 438-3080
(d) If to SBL Fund:
SBL Fund
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 438-3080
D-7
(d) If to Security Equity Fund:
Security Equity Fund
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 438-3080
15. Governing Law; Jurisdiction. Except as indicated in Section 19(b) of
this Agreement, this Agreement shall be governed by and construed in accordance
with the laws of the State of Kansas, without regard to its conflicts of law
provisions.
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.
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. 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.
D-8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
Security Investors, LLC
By:
------------------------------------------------------
Name: Richard M. Goldman
Title: President
Attest:
------------------------------------------------------
Name: Amy J. Lee
Title: Secretary
Security Global Investors, LLC
By:
------------------------------------------------------
Name: Richard M. Goldman
Title: President
Attest:
------------------------------------------------------
Name: Amy J. Lee
Title: Secretary
D-9
EXHIBIT A - COMPENSATION
For all services rendered by the Subadviser hereunder, Adviser shall pay to
Subadviser a fee (the "Subadvisory Fee") at an annual rate of 1.45% of that
portion of each Fund's net assets that the Adviser has allocated to Subadviser
for management ("Subadviser Assets").
For purposes of calculating the compensation to be paid hereunder, the
Subadviser Assets 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 each Fund's shares as described in the
then current prospectus for the applicable Fund.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than ten (10) business days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion.
D-10
EXHIBIT E
BENEFICIAL OWNERS OF 5% OR MORE OF THE OUTSTANDING SHARES OF THE FUND
As of the Record Date, the following persons are known to have owned
beneficially 5% or more of the outstanding shares of the Fund:
- ----------------------------------- -------------------------------- ------------------------------ --------------------------------
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF CLASS
OWNER BENEFICIAL OWNERSHIP
- ----------------------------------- -------------------------------- ------------------------------ --------------------------------
Security Equity Fund Alpha
Opportunity Fund
- ----------------------------------- -------------------------------- ------------------------------ --------------------------------
* As of the Record Date, the Directors and officers, as a group, owned less than
1.00% of the outstanding shares of the Fund.
E-1
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
1-800-888-2461
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS
AUGUST 5, 2008
The undersigned hereby appoint(s) Amy J. Lee, Donald A. Chubb, Jr. and Brenda M.
Harwood, or any one of them, proxies, each of them with full power of
substitution, to vote and act with respect to all shares of Security Alpha
Opportunity Fund(R) (the "Fund") which the undersigned is entitled to vote at
the Special Meeting of shareholders of the Fund to be held at the executive
offices of Security Equity Fund at One Security Benefit Place, Topeka, Kansas
66636 on August 5, 2008 at 1:00 p.m. Central Time, and at any adjournment(s) or
postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. This proxy card
will be voted as instructed. IF NO SPECIFICATION IS MADE, THE PROXY CARD WILL BE
VOTED "FOR" PROPOSALS 1 AND 2. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION,
TO VOTE UPON SUCH MATTERS AS MAY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS.
V FOLD AND DETACH HERE V
- --------------------------------------------------------------------------------
SECURITY ALPHA OPPORTUNITY FUND
(THE "FUND")
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 5, 2008
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS
Please vote, date and sign this proxy card and return it promptly in the
enclosed envelope. Please indicate your vote by an "x" in the appropriate boxes
below:
1. To approve an amended investment management agreement between
Security Equity Fund and Security Investors, LLC, on behalf of the
Fund; and
FOR AGAINST ABSTAIN
| | | | | |
2. To approve a new investment sub-advisory agreement between
Security Investors, LLC and Security Global Investors, LLC
pursuant to which Security Global Investors, LLC will be appointed
as an additional investment sub-adviser to the Fund;
FOR AGAINST ABSTAIN
| | | | | |
PLEASE VOTE BY |X|
CHECKING THE
APPROPRIATE BOX
AS IN THIS EXAMPLE
Signature: ______________________ Signature (if held jointly):__________
Date: ___________________________ Date: ________________________________
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign. By
signing this proxy card, you acknowledge that you have received the proxy
statement that the proxy card accompanies.
PROXY VOTING INSTRUCTIONS
Your mailed proxy statement provides details on important issues relating to
your Fund. THE BOARD OF DIRECTORS OF SECURITY EQUITY FUND RECOMMENDS THAT YOU
VOTE "FOR" THE PROPOSALS.
To make voting faster and more convenient for you, we are offering a variety of
ways to vote your proxy. You may vote using the Internet or by telephone instead
of completing and mailing the enclosed proxy card. The Internet and telephone
are generally available 24 hours a day and your vote will be confirmed and
posted immediately. Use whichever method is most convenient for you! If you
choose to vote via the Internet or by phone, you should not mail your proxy
card.
WAYS TO VOTE YOUR SHARES
Your vote is important no matter how many shares you own. Voting your shares
early will avoid costly follow-up mail and telephone solicitation.
Online 1. Click on www.proxyonline.com.
2. Enter the 12 digit control number.
3. Follow the instructions on the Web site.
4. Once you have voted, you do not need to mail your
proxy card.
By Phone 1. Call toll-free 1-866-628-9070.
2. Enter the 12 digit control number.
3. Follow the recorded instructions.
4. Once you have voted, you do not need to mail your
proxy card
By Mail Complete and sign your proxy card and mail it in
the postage-paid envelope received with your
shareholder mailing. To ensure your vote is validated
properly, please sign your proxy card as described in
the "Instructions for Signing Proxy Cards" section of
your proxy materials.
In Person The Shareholder Meeting will take place August
5, 2008, at 1:00 p.m., Central time, at the office of
Security Equity Fund, located at One Security Benefit
Place, Topeka, Kansas 66636.
V FOLD AND DETACH HERE V
- --------------------------------------------------------------------------------
Questions?
We urge you to spend time reviewing your proxy statement and the proposal
included in the package. Should you have any questions, we encourage you to call
1-800-361-2782 toll-free Monday through Friday from 9:30 a.m. to 10:00 p.m.
Eastern time. We have retained The Altman Group to assist our shareholders in
the voting process. If we have not received your proxy card or vote as the date
of the special meeting approaches, representatives from The Altman Group may
call you to remind you to exercise your vote.
YOUR PROXY VOTE IS IMPORTANT! PLEASE VOTE TODAY