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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[ ] Soliciting Material Pursuant to ss.240.14a-12
(Name of Registrant as Specified In Its Charter)
SECURITY EQUITY FUND
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June 18, 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 Security Investors, LLC (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 18, 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 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 in 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. These changes do not require shareholder approval.
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 the Amended Management Agreement is approved by shareholders, 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, because it is
authorized under an order that the Investment Manager has received from the U.S.
Securities and Exchange Commission ("SEC") (see discussion under Proposal 2 of
this proxy statement for additional information about this order).
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.
2
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND APPROVE THE AMENDED
MANAGEMENT AND SGI SUB-ADVISORY AGREEMENTS.
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 (as defined below), 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
July 7, 2003 (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 July 7, 2003. 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 Management Agreement and the
Amended Management Agreement (each, a "Management Agreement" and 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,
3
bad faith or gross negligence in the performance of its duties or by reason of
its reckless disregard of its investment advisory duties.
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 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 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.
4
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 maximum management 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 and could pay the Investment
Manager the minimum management fee even though the Fund had positive investment
performance during the Measuring Period if the Fund's investment performance
significantly underperformed the investment record of the S&P 500 Index during
the Measuring Period. Similarly, the Fund could pay the Investment Manager the
maximum management 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 and could pay the Investment
Manager the minimum management fee even though the Investment Manager had
positive performance in the sub-portfolio it manages if overall Fund performance
significantly underperformed the S&P 500 Index due to the level of performance
of Mainstream. The "net management fee" is equal to the difference between the
management fee paid by the Fund and the sub-advisory fee paid by the Investment
Manager to Mainstream (which is not necessarily paid out of management 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
management 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 ANNUAL BASE TOTAL MANAGEMENT FEE PAID
PERFORMANCE OF CLASS A SHARES AND MANAGEMENT PERFORMANCE ADJUSTMENT FROM BASE TO INVESTMENT MANAGER
S&P 500 INDEX FEE(1) MANAGEMENT FEE (ANNUALIZED)(2) (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
Amended Management Agreement, a form of which is attached as Exhibit A.
5
COMPARISON OF THE FEE STRUCTURE UNDER THE 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 Amended Management Agreement could in fact result in
higher fees than the fee structure under the Current 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. Fee arrangements with a
performance-based component, such as the fee arrangement in place under the
Current Management Agreement, are intended to create an incentive for an
investment manager to generate positive performance for a fund. A fixed-fee
arrangement does not have the same direct incentive (although an investment
manager remains subject to the same duties).
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 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% (65) basis points
2007
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
$631,487 $415,202 $(216,285) - (34.25)%
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
Semi-annual period ended March 2.50% (annualized) 1.25% (annualized) (125) basis points
31, 2008
- ----------------------------------- --------------------------------- -------------------------------- -----------------------------
$430,614 $215,307 $(215,307) - (50)%
- ------------------------------------------------------------------------------------------------------------------------------------
* 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.
6
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) and service fees 0.25% 0.25%
- ----------------------------------------- ------------------------------ -------------------
Other expenses 0.73% 0.73%
- ----------------------------------------- ------------------------------ -------------------
Total Annual Fund Operating Expenses 2.88% 2.23%
- ----------------------------------------- ------------------------------ -------------------
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) and service 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) and service 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 a management 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 management
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.
7
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
- ------------------------------- ----------- ----------- ----------- ------------
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
- ------------------------------- ----------- ----------- ----------- ------------
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
8
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
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 ("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 Sub-Portfolio and the
Mainstream Sub-Portfolio 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 management 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
9
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 Sub-Advisory Agreement and the 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).
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 the 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 Agreement and
the Mainstream Sub-Advisory Agreement 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 Sub-Portfolio and the Mainstream
Sub-Portfolio 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 Mainstream Sub-Advisory Agreement 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 801
Montgomery Street, 2nd Floor, San Francisco, CA 94133-5164, is an investment
adviser registered as such with the SEC. 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 Amended Management 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 the Mainstream Sub-Advisory Agreement 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.
Proxy materials, reports and other information filed by the Fund can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC 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 18, 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 retaining The Altman Group 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 3,721,478.263 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.
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
13
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.
If both Proposals 1 and 2 are not approved by shareholders, the Current
Management Agreement and the Mainstream Sub-Advisory Agreement will remain
unchanged, but the Board will evaluate other long-term options. If only Proposal
1 is approved by shareholders, it is anticipated that the Amended Management
Agreement and related changes to the Mainstream Sub-Advisory Agreement will be
implemented and the Board will consider other long-term options with the Fund
(the principal investment strategies of the Fund should thus not change in the
short-term but may change after the Board has considered other options). If only
Proposal 2 is approved by shareholders, the implementation of the SGI
Sub-Advisory Agreement may be delayed until the Board can consider other options
with respect to Proposal 1.
Shareholders Sharing the Same Address. As permitted by law, only one copy of
this proxy statement may be 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.
14
By Order of the Board of Directors,
/s/ Richard M. Goldman
----------------------
Richard M. Goldman
President & Chairman of the Board of Directors
15
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
16
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 July 11, 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
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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
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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
--------------------------------
Thomas A. Swank
Title: President
ATTEST:
- ------------------------------------------
AMY J. LEE
- ------------------------------------------
Secretary
SECURITY INVESTORS, LLC
By
--------------------------------
Richard M. Goldman
Title: President
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ATTEST:
- ------------------------------------------
AMY J. LEE
- ------------------------------------------
Secretary
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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 July 11, 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
A-9
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
Connecticut Business Center, 6 Corporation; Director, Security
Landmark Square #471 Distributors, Inc.; Director, First
Stamford, CT 06901-2707 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
- ------------------------------------- ---------------------------------------------- --------------------------------------------
Kris A. Robbins Manager Chairman of the Board and Chief Executive
One Security Benefit Place Officer, Security Benefit Corporation;
Topeka, Kansas 66636-0001 Chairman, President, and Chief Executive
Officer, Security Benefit Life Insurance
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 AMOUNT OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
BENEFICIAL OWNER
- ----------------------------------- --------------------------------- -------------------------------- ---------------------
Security Equity Fund Alpha Security Distributors, Inc. 1,249,204.017 34%
Opportunity Fund Topeka, Kansas
- ----------------------------------- --------------------------------- -------------------------------- ---------------------
Security Benefit Corporation 511,399.132 14%
Topeka, Kansas
- ----------------------------------- --------------------------------- -------------------------------- ---------------------
* 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.
- FOLD AND DETACH HERE -
.................................................................................
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.
- FOLD AND DETACH HERE -
- --------------------------------------------------------------------------------
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