June 13, 2008
VIA EDGAR
Division of Investment Management
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attn: Valerie Lithotomos
Sonny Oh
Re: Security Equity Fund (File No. 811-01136)
SBL Fund (File No. 811-02753) (the "Companies")
Dear Ms. Lithotomos and Mr. Oh:
On behalf of the Companies, we are transmitting for filing pursuant to Rule
14a-6 under the Securities Act of 1934 ("1934 Act") definitive proxy statements,
forms of proxies and other soliciting materials ("Proxy Materials") relating to
Special Meetings of Shareholders of Security Alpha Opportunity Fund and Series Z
(Alpha Opportunity Series) (together, the "Funds"), which are series of the
Companies. No fees are required with these filings.
We wish to respond by this letter to comments of the U.S. Securities and
Exchange Commission ("SEC") staff on the preliminary Proxy Materials filed
pursuant to Rule 14a-6 under the 1934 Act on May 29, 2008. The SEC staff's
comments were conveyed orally by Valerie Lithotomos and Sonny Oh at the Division
of Investment Management via separate telephone conferences with Julien
Bourgeois at Dechert LLP on June 9, 2008 and by Ms. Lithotomos and Richard Forti
on June 11, 2008. Throughout this letter, capitalized terms have the same
meaning as in the Proxy Materials, unless otherwise noted. A summary of the SEC
staff's comments, followed by the responses of the Funds, is set forth below:
1. Comment: Please confirm that the proxy statement properly reflects all
defined terms.
Response: We have reviewed and revised the proxy statement to make the
necessary changes to the defined terms.
2. Comment: On page 2 of the proxy statements under the heading "Changes to
the Principal Investment Strategies," please disclose that shareholder
approval is not required to institute the changes to the principal
investment strategies.
Response: We have implemented the requested change to the disclosure.
3. Comment: Please clarify at the beginning of the proxy statement why
shareholder approval is not needed with respect to the changes to the
Mainstream Sub-Advisory Agreement.
Response: We have implemented the requested change to the disclosure.
4. Comment: Under the headings titled "Comparison of the Current Advisory
Agreement with the Amended Advisory Agreement" and "Comparison of the
Current Management Agreement with the Amended Management Agreement" on page
3 of the proxy statements, please confirm when the Current Advisory
Agreement and Current Management Agreement were last approved by
shareholders.
Response: We have revised the disclosure to indicate the appropriate date
the Current Advisory Agreement and Current Management Agreement were last
approved by shareholders.
5. Comment: Under the discussion of the fee structure under the Current and
Amended Advisory/Management Agreements, please discuss that each Fund could
pay the Investment Manager the minimum advisory fee even though the
Investment Manager had positive performance in the sub-portfolio it manages
if overall Fund performance significantly underperforms the S&P 500 Index
due to the level of performance of the Fund.
Response: We have implemented the requested change to the disclosure.
6. Comment: On page 5 of the proxy statements, please include additional
information in the table disclosing the total annual fees that the
Investment Manager would earn at various levels of investment performance
of the Funds and the S&P 500 to further clarify the functioning of the
Fund's current performance-based fee arrangement.
Response: The tables in the proxy statements appear in the Funds' current
prospectuses, which have been reviewed by, and discussed with, the SEC
staff in the past. We believe that any changes to the tables in the proxy
statement could be potentially confusing to investors, because they would
not match the disclosure in the Funds' current registration statements. As
a result, no change has been made in response to this comment.
7. Comment: On page 6 of the proxy statements in the tables comparing the
Funds' advisory/management fees as calculated under the terms of the
Current Advisory/Management Agreement and the Amended Advisory/Management
Agreement, please consider also providing the fees paid for last 5 fiscal
years. In addition, please provide the differences in percentage terms
between the values provided under the Current and Amended
Advisory/Management Agreements as required by Item 22(c)(9)(iii).
Response: With respect to the first part of the comment from the staff, we
believe that the tables are responsive to the requirements set forth under
Schedule 14A and related proxy rules. We have implemented the second
request by adding the percentage differences between the fees paid under
Current and Amended Advisory/Management Agreements as required by Item
22(c)(9)(iii).
8. Comment: In the proxy statement for Security Alpha Opportunity Fund, the
staff believes that applicable guidance requires that the fee table lines
titled "Distribution (12b-1) fees" on pages 6 and 7 of the proxy statement
should be titled "Distribution (12b-1) and service fees."
Response: We have implemented the requested change to the disclosure.
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9. Comment: The staff noted that the Investment Manager is entitled to recoup
previously waived fees and expenses under the disclosed expense limitation
arrangement. Please indicate whether the Board of the Funds must further
approve these recoupments.
Response: The Board is not required to further approve recoupments pursuant
to the Funds' fee waiver agreement.
10 Comment: Please confirm that the "Evaluation by the Board" starting on page
7 of the Series Z (Alpha Opportunity Series) proxy statement and page 8 of
the Security Alpha Opportunity Fund proxy statement is responsive to the
Item 22(c)(11) of Schedule 14A with respect to the approval of the
Agreements.
Response: The Funds believe that the disclosure is responsive to Item
22(c)(11) of Schedule 14A and no additional disclosure is required.
11. Comment: Please disclose what happens if the proposals in the proxy
statements are not approved by shareholders.
Response: We have implemented the requested change to the disclosure.
12. Comment: Please remove the first sentence in the second paragraph under
"Shareholder Reports" on page 11 of the Series Z (Alpha Opportunity Series)
proxy statement and page 13 of the Security Alpha Opportunity Fund proxy
statement.
Response: We have implemented the requested change to the disclosure.
13. Comment: Please confirm that additional disclosure is not needed to respond
to Items 22(c)(6) and 22(c)(7) of Schedule 14A.
Response: The Funds believe that no additional disclosure is needed to
respond to Items 22(c)(6) and 22(c)(7) of Schedule 14A.
14. Comment: Please update Exhibit E in each proxy statement before filing the
definitive proxy statement.
Response: We have updated Exhibit E for the definitive proxy statement
filing.
15. Comment: Please explain the initial purpose of the performance-based
investment advisory/management fee under the Current Advisory/Management
Agreements for the Funds and discuss the circumstances that have led each
Fund's Board to determine that it should now be eliminated. Please confirm
that there is clear disclosure explaining that, depending on the
performance of the Funds and variations in net assets of the Funds, the
proposed fixed fee structure could in fact result in higher fees than under
the current performance-based fee structure. Also, please disclose the
benefits of a performance-based fee arrangement and that these benefits
would not exist under the proposed fixed fee.
Response: The performance-based investment advisory/management fees
originated with a proposal by the Investment Manager, that each Board
consider a performance-based component to the fee. In the proposal, the
Investment Manager explained that
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Mainstream's clients were primarily unregistered funds and accounts, and
these clients paid fees based on performance.
In determining whether to eliminate the performance-based component of the
investment advisory/management fee, the Board noted that a fixed fee is
more common among registered investment companies and provides for a level
of Fund expenses that is more predictable. The Board noted that the
performance-based component was not received as well in the marketplace as
anticipated and that, despite a competitive performance track record, the
Funds have not attracted the assets that were originally anticipated. In
addition, the performance-based component of the current fee structure
generally led to higher investment advisory/management fees paid by the
Funds (the new investment advisory/management fees proposed in the Proxy
Materials would be equal to the lowest level of advisory/management
annualized fees payable under the Current Advisory/Management Agreements
for the Funds). It was also noted that the performance-based fee is
difficult to adapt in a multi-manager structure when the investment
advisory/management fee is used to pay several sub-advisers.
We confirm that the disclosure explaining that the proposed fixed fee
arrangement could, in theory, result in higher fees than under the current
performance-based fee structure appears in the Proxy Materials (see
discussion under the sections titled "Comparison of the Fee Structures
under the Advisory Agreements" and "Comparison of the Fee Structures under
the Management Agreements" on page 6 of the proxy statements). We have also
implemented the requested change to the disclosure by adding the following
under the sections titled "Comparison of the Fee Structures under the
Advisory Agreements" and "Comparison of the Fee Structures under the
Management Agreements" on page 6 of proxy statements:
Fee arrangements with a performance-based component, such as the fee
arrangement in place under the Current Advisory/Management Agreements,
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).
16. Comment: The staff notes its prior position in Factors to be Considered in
Connection with Investment Company Advisory Contracts Containing Incentive
Arrangements, Investment Advisers Act Release No. 315 (Apr. 6, 1972) (the
"1972 Release"). Please discuss whether the termination and replacement of
the investment advisory arrangement will include a "winding down" period,
as discussed in the 1972 Release.
Response: In the 1972 Release, the SEC indicated that an investment
adviser's termination and replacement of an investment advisory arrangement
that includes a performance-based component with a fixed fee rate could
raise fairness concerns. In particular, the SEC stated that it was
concerned that an investment adviser could identify situations where fund
performance was below its benchmark (so a negative performance adjustment
would be in effect) and attempt to renegotiate the advisory contract to
provide for an fixed fee that would be higher that what it would have
earned under the original contract.
The Funds believe that the present facts are distinguishable from those
contemplated in the 1972 Release for the several reasons. The 1972 Release
states that the cancellation of a "rolling" performance fee could be unfair
to the investment company and not that it
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inherently raises a "fairness" concern. In the present case, the new
proposed fees are lower than the fees expected to be payable by the Funds
until the end of the current performance period (based on recent past
performance). The proposed fixed investment advisory/management fee rate is
equal to the minimum annualized fee rate payable under the Current
Advisory/Management Agreements.1 Consequently, the proposed fees are
expected benefit the Funds and their shareholders and not be unfair to
them.
Also, the SEC position about "winding down" periods predates the adoption
of Rules 205-1 and 205-2 under the Advisers Act, which apply to the Funds'
current performance-based fee arrangements.2 Neither Section 205 under the
Advisers Act nor Rules 205-1 or 205-2 thereunder explicitly require
"winding down" periods. Furthermore, Section 15 of the 1940 Act, which
regulates the Funds' current investment advisory arrangements, permits a
change of investment advisory fee at any time (including an increase of
fees) subject to the provisions of Section 15, such as the requirement to
obtain Board and shareholder approval. In the Funds' case, the Funds will
fully comply with Section 15's requirements. Notably, each Fund's Board has
reviewed and approved the proposed arrangement in light of its fiduciary
duties, and each Amended Advisory/Management Agreement with the Investment
Manager will be subject to approval by the Fund's shareholders before it
becomes effective. The Proxy Materials fully disclose the functioning of
the current performance-based fees and how these compare to a fixed fee.
Finally, the Funds' directors were aware of the positions taken in the 1972
Release on "winding down" periods when they approved the new fee
arrangements subject to shareholder approval. They were advised by Fund
counsel and independent legal counsel during their consideration.
17. Comment: Please include standard Tandy representation language in your
transmittal letter for your upcoming filing.
Response: Each Fund agrees to make the following representations:
o the Fund is responsible for the adequacy and accuracy of the
disclosure in the filing;
o the staff comments or changes to disclosure in response to staff
comments in the filing reviewed by the staff do not foreclose the
SEC from taking any action with respect to the filing; and
o the Fund may not assert staff comments as a defense in any
proceeding initiated by the SEC under the federal securities
laws.
* * *
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1 It is worthy of note that each Fund's recent performance is superior to the
investment record of its benchmark index and each Fund has increased its
asset size. Those elements would result in positive performance adjustments
(at least in the short-term).
2 The 1972 Release was issued in April 1972. Rule 205-1 was adopted on August
8, 1972 (see Release No. IA-327 (Aug. 8, 1972)) and Rule 205-2 was adopted
on November 10, 1972 (see Release No. IA-347 (Nov. 10, 1972)).
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Please call Julien Bourgeois at Dechert LLP at 202.261.3451 with any questions
or comments regarding this letter, or if he may assist you in any way.
Very truly yours,
/s/ Chris Swickard
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Chris Swickard
Assistant Secretary
Security Investors, LLC
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