<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SBL FUND
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE TO CONTRACT OWNERS OF SBL VARIABLE ANNUITY ACCOUNTS III, IV, VIII,
VARIFLEX, AND PARKSTONE AND SBL VARIABLE LIFE INSURANCE ACCOUNT VARILIFE
AND VARILIFE SEPARATE ACCOUNT
OF THE
ANNUAL MEETING OF STOCKHOLDERS OF
SBL FUND TO BE HELD JANUARY 26, 2000
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461
TO THE STOCKHOLDERS OF SBL FUND
Notice is hereby given that an annual meeting of the stockholders of SBL Fund
(the "Fund"), a Kansas corporation, will be held at the offices of SBL Fund,
Security Benefit Group Building, 700 SW Harrison Street, Topeka, Kansas
66636-0001, on January 26, 2000 at 9:30 a.m. local time (the "Meeting"), for the
following purposes:
1. To elect six directors to serve on the Board of Directors of the Fund
until the next annual meeting or until their successors shall have been
duly elected and qualified.
2. To ratify or reject the selection of the firm of Ernst & Young LLP as
independent accountants for the Fund's fiscal year 2000.
3. a. To amend the Fund's fundamental investment limitation concerning
share ownership of any one issuer.
b. To eliminate the Fund's fundamental investment limitation concerning
investing for control of portfolio companies.
c. To amend the Fund's fundamental investment limitation concerning
underwriting.
d. To amend the Fund's fundamental investment limitation concerning
borrowing.
e. To amend the Fund's fundamental investment limitation concerning
lending.
f. To eliminate the Fund's fundamental investment limitation concerning
short sales and margin purchases of securities.
g. To eliminate the Fund's fundamental investment limitation concerning
investment in other investment companies.
h. To amend the Fund's fundamental investment limitation concerning
buying or selling real estate.
i. To amend the Fund's fundamental investment limitation concerning
commodities or commodity contracts.
4. To approve or disapprove an arrangement and new investment advisory
contract that would permit Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter into or amend
sub-advisory agreements without stockholder approval.
5. To approve or disapprove a Brokerage Enhancement Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, and a new investment
advisory contract that would permit the implementation of the Plan.
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof, and to adjourn the Meeting from time to
time.
The Board of Directors of SBL Fund has fixed the close of business on
November 30, 1999, as the record date for the determination of stockholders of
the Fund entitled to notice of and to vote at the Meeting.
THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF SBL
FUND. ANY FORM OF PROXY THAT IS EXECUTED AND RETURNED, NEVERTHELESS MAY BE
REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED AND RECEIVED IN
TIME WILL BE VOTED AT THE MEETING.
By order of the Board of Directors of
SBL Fund,
Topeka, Kansas AMY J. LEE
December _____, 1999 Secretary
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IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND, OR OTHERWISE VOTE THEIR SHARES, AS EARLY AS POSSIBLE.
<PAGE>
SBL FUND
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001
ANNUAL MEETING OF STOCKHOLDERS, JANUARY 26, 2000
PROXY STATEMENT
BENEFICIAL OWNERSHIP OF FUND SHARES
By investing in a variable annuity or variable life insurance policy issued
by Security Benefit Life Insurance Company ("SBL"), you indirectly purchased
shares of one or more of the Series of SBL Fund (the "Fund"). SBL owns shares of
the Fund for your benefit in the separate account funding your variable annuity
or variable life insurance policy. As record owner of shares of the Fund, SBL
will vote shares of the Fund in accordance with voting instructions received
from you and other owners of such variable annuity and variable life insurance
policies (herein referred to as "stockholders"). Stockholders have certain
voting rights with respect to their beneficially owned shares. SBL, or its
appointee, will vote the shares beneficially owned by each stockholder in
accordance with each stockholder's instructions. The enclosed voting instruction
form is provided for this purpose. All shares for which stockholders do not
provide voting instructions, and any shares which SBL holds for its own account,
will be voted in the same proportion as those shares for which voting
instructions have been received.
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
SBL Fund (the "Fund"). You may vote in person at the annual Meeting, by
telephone, by Internet, or by returning your completed proxy card in the
postage-paid envelope provided. Details can be found on the enclosed proxy
insert. Do not return your proxy card if you are voting by telephone or
Internet. You may revoke your proxy by submitting another proxy or a notice of
revocation of your proxy in proper form to the Secretary of the Fund, or by
voting the shares in person at the Meeting. A second proxy form may be obtained
from the Secretary of the Fund. The cost of soliciting proxies will be borne by
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas
66636-0001 ("SMC" or the "Investment Manager"), which will be reimbursed by the
Fund. SMC is the investment adviser and administrator of the Fund. Proxies are
expected to be mailed to the Fund's stockholders on or about December ____,
1999.
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THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND A
COPY OF THE SEMI-ANNUAL REPORT CONTAINING UNAUDITED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED JUNE 30, 1999, TO A STOCKHOLDER UPON REQUEST. SUCH REQUESTS SHOULD
BE DIRECTED TO THE FUND, BY WRITING THE FUND AT 700 SW HARRISON STREET, TOPEKA,
KANSAS 66636-0001, OR BY CALLING THE FUND'S TOLL-FREE TELEPHONE NUMBER
1-800-888-2461, EXTENSION 3127.
<PAGE>
VOTING SECURITIES
Only Fund stockholders of record at the close of business on November 30,
1999, are entitled to vote at the annual Meeting. On that date, the outstanding
number of voting securities of each Series of common stock of the Fund (each a
"Series" and collectively the "Series") was as follows:
---------------------------------------------
SERIES OF COMMON STOCK SHARES OUTSTANDING
---------------------------------------------
Series A
Series B
Series C
Series D
Series E
Series H
Series I
Series J
Series K
Series M
Series N
Series O
Series P
Series S
Series V
Series X
Series Y
---------------------------------------------
As of the Record Date, the following persons owned beneficially more than 5%
of a Series.
<TABLE>
<CAPTION>
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% OF SERIES'
NAME NUMBER OF OUTSTANDING
SERIES NAME SHARES OWNED SHARES
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<S> <C> <C> <C>
Security Benefit Life Insurance Company Trste.
Agent for Security Benefit Life
Series A 700 SW Harrison Street
Topeka, KS 66636-0001
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Series B
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Series C
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Series D
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Series E
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Series H
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Series I
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Series J
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Series K
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Series M
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Series N
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Series O
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Series P
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Series S
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Series V
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Series X
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Series Y
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</TABLE>
Each Series of the Fund's common stock has a par value of $1.00 per share.
Each share is entitled to one vote and shares of the Series will be voted
together with respect to Proposal Nos. 1 and 2. Shares of each Series will be
voted separately with respect to Proposal Nos. 3, 4, and 5 as set forth in the
table below.
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PROPOSAL SERIES AFFECTED
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1. To elect six (6) directors to the Board of All Series of the Fund
Directors.
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2. To ratify or reject the selection of Ernst & All Series of the Fund
Young LLP as independent accountants of the
Fund for fiscal year 1999
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3a. To amend the Fund's fundamental investment All Series of the Fund
limitation concerning share ownership of any
one issuer.
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3b. To eliminate the Fund's fundamental All Series of the Fund
investment limitation concerning investing
for control of portfolio companies.
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3c. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning underwriting. except D, H, I and Y
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3d. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning borrowing. except D, H, I, K, M, N,
O, P, V, X and Y
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3e. To amend the Fund's fundamental investment All Series of the Fund,
limitation concerning lending. except D, H, I and Y
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3f. To eliminate the Fund's fundamental All Series of the Fund,
investment limitation concerning short sales except D, H, I, K, M, N,
and margin purchases of securities. O, P, V, X and Y
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3g. To eliminate the Fund's fundamental All Series of the Fund,
investment limitation concerning investment except D, H, I, K, M, N,
in other investment companies. O, P, V, X and Y
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3h. To amend the Fund's fundamental investment All Series of the Fund
limitation concerning buying or selling real
estate.
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3i. To amend the Fund's fundamental investment All Series of the Fund
limitation concerning commodities or
commodities contracts.
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4. To approve or disapprove an arrangement and All Series of the Fund
new investment advisory contract that would
permit Security Management Company, LLC, the
Fund's investment adviser, with Board
approval, to enter into or amend sub-advisory
agreements without stockholder approval.
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5. To approve or disapprove a Brokerage All Series of the Fund
Enhancement Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, and a new
investment advisory contract that would
permit the implementation of the Plan.
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The presence, in person or by proxy, of more than 50% of the outstanding
shares of the Fund will be sufficient to establish a quorum for the conduct of
business at the Meeting. Because SBL, through its separate accounts, owns 100
percent of the Fund's shares, there will be a quorum for the conduct of
business. Shares held by stockholders present in person or represented by proxy
at the Meeting will be counted for the purpose of determining the votes cast on
the proposals before the Meeting. Shares represented by timely and properly
executed proxies will be voted as specified. Executed proxies that are unmarked
will be voted in favor of the proposals presented at the Meeting.
If a proxy represents a broker "non-vote" (that is, a proxy from a broker or
nominee indicating that such a person has not received instructions from the
beneficial owner or other person entitled to vote shares of the Fund on a
particular matter with respect to which the broker or nominee has discretionary
power) or is marked with an abstention (collectively "abstentions"), the Fund's
shares represented thereby will be considered to be present at the meeting for
purposes of determining the existence of a quorum for the transaction of
business. Abstentions, however, will have the effect of a "no" vote for the
purpose of obtaining requisite approval for the proposals described herein and
any other proposal that may come before the Meeting.
In the event that a sufficient number of votes to approve a proposal were not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of voting instructions, or for any
other purpose. A vote may be taken on any proposal prior to an adjournment if
sufficient votes have been received for approval. Any adjournment will require
the affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. Unless otherwise instructed, proxies will be voted in favor
of any adjournment. At any subsequent reconvening of the Meeting, proxies
(unless previously revoked) will be voted in the same manner as they would have
been voted at the Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Board of Directors has proposed a slate of six persons for election as
directors of the Fund, each to hold office until the next annual meeting or
until his or her successor is duly elected and qualified. Each nominee is
currently a director of the Fund and has consented to his or her nomination and
agreed to serve if elected. Each director was elected by stockholders, except
James R. Schmank, who was elected by the other directors on December 10, 1997,
and Maynard F. Oliverius, who was so elected on February 6, 1998. If any of the
nominees is not available for election, the persons named as proxies (or their
substitutes) may vote for other persons in their discretion. Management has no
reason to believe that any nominee will be unavailable for election.
The names of the nominees to the Fund's Board of Directors and their
respective offices and principal occupations are set forth below.
NOMINEES TO THE FUND'S BOARD OF DIRECTORS
<TABLE>
<CAPTION>
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FUND SHARES BENEFICIALLY OWNED, ALL OTHER SECURITY FUNDS'
DIRECTLY OR INDIRECTLY, SHARES OWNED DIRECTLY
NAME, AGE, ADDRESS, AS OF 11/30/99 AS OF 11/30/99 DATE FIRST
POSITION ON FUND BOARD ------------------------------- ----------------------------- BECAME A
AND PRINCIPAL OCCUPATIONS FUND SHARES FUND SHARES DIRECTOR
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<S> <C> <C> <C> <C> <C>
DONALD A. CHUBB, JR., 53, SBL Fund - Series A Ultra 1994
2222 SW 29th Street, SBL Fund - Series B Equity
Topeka, Kansas 66611, SBL Fund - Series S Growth & Income
POSITION ON FUND BOARD: Director of the Fund Cash
PRINCIPAL OCCUPATIONS: Business broker, Griffith & Global
Blair Realtors. Prior to 1997, President, Neon Total Return
Tube Light Company, Inc. Select 25
Corporate Bond
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JOHN D. CLELAND*, 63, Equity 1990
700 SW Harrison Street, Growth & Income
Topeka, Kansas 66636-0001, Value
POSITION ON FUND BOARD: President and Director of Small Company
the Fund Select 25
PRINCIPAL OCCUPATIONS: Senior Vice President and Cash
Managing Member Representative, Security
Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit
Life Insurance Company
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PENNY A. LUMPKIN, 60, SBL Fund - Series B Ultra 1993
3616 Canterbury Town Road, Equity
Topeka, Kansas 66610, Growth
POSITION ON FUND BOARD: Director of the Fund Cash
PRINCIPAL OCCUPATIONS: President, Vivians Municipal Bond
(Corporate Sales); Vice President, Palmer Global
Companies (Wholesalers, Retailers and Developers); Value
Vice President, Bellairre Shopping Center (Leasing Corporate Bond
and Shopping Center Management) U.S. Government
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MARK L. MORRIS, JR., DVM, 65, Equity 1990
5500 SW 7th Street, Corporate Bond
Topeka, Kansas 66606,
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: Retired. Independent
Investor, Morris Co. (Personal Investments)
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MAYNARD F. OLIVERIUS, 56, SBL Fund - Series A Equity 1998
1500 SW 10th Avenue, Cash
Topeka, Kansas 66604,
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: President and Chief
Executive Officer, Stormont-Vail Health Care
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JAMES R. SCHMANK*, 46, Ultra 1999
700 SW Harrison Street, Equity
Topeka, Kansas 66636-0001, Growth & Income
POSITION ON FUND BOARD: Vice President and Global
Director of the Fund Select 25
PRINCIPAL OCCUPATIONS: President and Managing Value
Member Representative of Security Management Small Company
Company, LLC; Senior Vice President, Security Cash
Benefit Group, Inc. and Security Benefit Life High Yield
Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Nominees who are considered "interested persons" of Security Management Company, LLC by reason of their respective positions with
Security Management Company, LLC, the Fund's investment adviser, and Security Distributors, Inc., the Fund's principal underwriter.
</FN>
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</TABLE>
The directors are responsible for general oversight of the Fund's business
and for assuring that the Fund is managed in the best interests of its
stockholders. The Board of Directors held four meetings during fiscal year 1998,
and each director standing for reelection attended all of those meetings, except
Mr. Oliverius who attended three Board meetings subsequent to his election in
February 1998. The Board of Directors has held six meetings so far during fiscal
year 1999 and each director standing for reelection has attended all of the
meetings, except Mr. Cleland and Ms. Lumpkin who have attended five of the six
meetings. The Board of Directors currently has one committee, the Joint Audit
Committee, which also serves as the Nominating Committee.
The following directors are members of the Fund's Joint Audit Committee: Ms.
Lumpkin, Chairperson; Dr. Morris; and Mr. Chubb. The Joint Audit Committee holds
at least one regular meeting each year, at which time it meets with the Fund's
independent accountants to review: (1) the services provided; (2) the findings
of the most recent audit; (3) management's response to the findings of the most
recent audit; (4) the scope of the audit performed; and (5) any questions or
concerns about the Fund's operations. The Joint Audit Committee met once in 1998
and has met twice so far in 1999. All members of the committee participated in
the meetings.
The Nominating Committee meets on an as-needed basis. The committee did not
meet in 1998 and has not met in 1999. The purpose of the committee is to review
and recommend to the full Board of Directors candidates for election as
independent directors to fill vacancies on the Fund's Board. The Nominating
Committee will consider written recommendations from stockholders for possible
nominees. Stockholders should submit their written recommendations to the
Secretary of the Fund.
The Fund's directors, except Mr. Cleland and Mr. Schmank who are "interested
persons" of the Investment Manager, receive from the Fund an annual retainer of
$10,000 and a fee of $1,000 per meeting, plus reasonable travel costs, for each
meeting of the Board of Directors attended. In addition, those directors who are
members of the Fund's joint audit committee receive a fee of $1,000 per meeting
and reasonable travel costs for each meeting of the Fund's audit committee
attended. The meeting fee (including the audit committee meeting) and travel
costs are paid proportionately by each of the 35 funds to which the Adviser
provides investment advisory services (collectively, the "Security Fund
Complex") based on each fund's relative net assets.
The Fund does not pay any fees to, or reimburse expenses of, its directors
who are considered "interested persons" of the Investment Manager. The aggregate
compensation paid by the Fund to each of the directors during the fiscal year
ended December 31, 1998, and the aggregate compensation paid to each of the
directors during fiscal year 1998 by the Security Fund Complex, are set forth in
the accompanying chart. Each of the directors is a director of each of the other
registered investment companies in the Security Fund Complex.
<TABLE>
<CAPTION>
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PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS ESTIMATED TOTAL COMPENSATION
COMPENSATION PART OF FUND EXPENSES ANNUAL FROM THE SECURITY
NAME OF DIRECTOR ------------ --------------------- BENEFITS UPON FUND COMPLEX,
OF THE FUND SBL FUND SBL FUND RETIREMENT INCLUDING THE FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald A. Chubb, Jr. $13,000 $0 $0 $26,000
John D. Cleland 0 0 0 0
Penny A. Lumpkin 13,000 0 0 26,000
Mark L. Morris, Jr. 13,212 0 0 26,294
Maynard Oliverius* 9,000 0 0 18,000
James R. Schmank 0 0 0 0
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<FN>
*Mr. Oliverius was first elected to the Board of Directors by the other directors on February 6, 1998.
</FN>
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</TABLE>
REQUIRED VOTE
In the election of directors, each stockholder is entitled to vote that
number of shares owned as of the record date multiplied by the number of
directors to be elected. A stockholder may cast all such votes for a single
director or distribute them among two or more directors. This method of voting
for the election of directors is commonly known as "cumulative voting."
A plurality of the combined votes cast at the meeting by the stockholders of
all Series of the Fund is sufficient to approve the election of a director. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE NOMINEES TO
THE FUND'S BOARD OF DIRECTORS.
PROPOSAL NO. 2
SELECTION OF INDEPENDENT ACCOUNTANTS
The selection by the Fund's Board of Directors of the firm of Ernst & Young
LLP as the independent accountants for the Fund for the fiscal year 2000 is to
be submitted for ratification or rejection by stockholders at the annual
meeting. The firm of Ernst & Young LLP, including a predecessor firm, Arthur
Young and Company, has served the Fund as independent accountants since its
inception. The independent accountants have no direct or material indirect
financial interest in the Fund. Representatives of the firm of Ernst & Young LLP
are not expected to be present at the annual meeting. Approval of this Proposal
No. 2 requires the affirmative vote of a majority of those shares represented at
the Meeting in person or by proxy. THE BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL NO. 3
TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT LIMITATIONS OF THE FUND
Certain investment limitations of each Series of the Fund are matters of
fundamental policy and may not be changed without the approval of the Series'
stockholders. The Investment Manager has recommended to the Board of Directors
that certain fundamental investment limitations of the Series be amended or
eliminated as set forth below. The Investment Manager believes that the proposed
changes reflect more modern investment practices and will more closely conform
the investment policies of the Series to those of other mutual funds managed by
the Investment Manager. The changes will allow the Investment Manager to manage
each Series' investments in a more streamlined and efficient manner. The
Investment Manager plans to make conforming changes to the fundamental
investment policies and limitations of the other funds under its management to
further streamline its investment and compliance processes. The Board of
Directors believes that the proposal is in the best interests of the Series'
stockholders.
The Investment Manager believes that increased standardization of fundamental
investment policies and limitations will promote operational efficiencies and
facilitate monitoring of compliance with fundamental policies. Adoption of the
revised limitations, in some cases, also will give the Series the flexibility to
change its investment methods in the future without a stockholder vote, provided
that the Board of Directors approves any such change. Set forth below is each of
the proposed changes. Stockholders have the option to approve all, some or none
of the proposed changes.
PROPOSAL NO. 3(A)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING SHARE OWNERSHIP OF ANY ONE ISSUER
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning limits on investment in the outstanding voting securities
of any one issuer, and the Investment Manager recommends a change in the
fundamental limitation. The current and proposed fundamental investment
limitations are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to purchase more than 10% of the Not to purchase a security if, as a
outstanding voting securities of any result, with respect to 75% of the
one issuer. value of a Series' total assets, more
than 10% of the outstanding voting
securities of any issuer would be held
by the Series (other than obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities).
- -------------------------------------- --------------------------------------
The proposed fundamental investment limitation would conform the Series'
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow each Series of the Fund to invest a greater percentage of its
assets in a single issuer. If the proposed investment limitation were adopted, a
Series would be limited, with respect to 75% of its total assets, to purchasing
no more than 10% of the outstanding voting securities of any one issuer. No such
limitation would apply, however, to the remaining 25% of the Series' total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Series by permitting it to invest a greater percentage
of its assets in a single issuer and correspondingly to have greater exposure in
the event of adverse developments with respect to such an issuer. While the
Series have no present intention of investing greater percentages of their
assets in any single issuer, the flexibility to do so may be beneficial to the
Series at a future date.
The Board of Directors believes that adoption of the amended limitation is in
the best interests of stockholders because a standardized fundamental investment
limitation will facilitate investment compliance efforts and will give the
Series the flexibility to take a larger position in the securities of a single
issuer if the Investment Manager believes that such a position is advisable and
is consistent with the investment objective and policies of the Series. THE
BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL NO. 3(A).
PROPOSAL NO. 3(B)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTING FOR CONTROL OF PORTFOLIO COMPANIES
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investing for control of portfolio companies. The
Investment Manager recommends eliminating the fundamental limitation and
replacing it with an operating policy that may be changed by the directors
without a vote of stockholders. The current fundamental limitation and proposed
operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to purchase securities for the As an operating policy, the Series may
purpose of exercising control over the not invest in companies for the
issuers thereof. purpose of exercising management or
control.
- -------------------------------------- --------------------------------------
Elimination of this fundamental investment limitation is unlikely to affect
the Series' investment techniques as they have no present intention of investing
for control of portfolio companies. The Board of Directors believes that
eliminating this fundamental limitation and replacing it with an operating
policy is in the best interests of stockholders, because a standardized
fundamental investment limitation will facilitate investment compliance efforts.
THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3(B).
PROPOSAL NO. 3(C)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING UNDERWRITING
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning underwriting, and the Investment Manager recommends a
change in the fundamental limitation. The current and proposed fundamental
investment limitations are set forth below (the proposed fundamental investment
limitation is currently in place for Series D, H, I and Y of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to underwrite securities of other Not to act as underwriter of
issuers. securities issued by others, except to
the extent that a Series may be
considered an underwriter within the
meaning of the Securities Act of 1933
in the disposition of restricted
securities.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change is to clarify that the Series are
not prohibited from selling restricted securities if, as a result of such sale,
a Series would be considered an underwriter under federal securities laws.
Approval of this Proposal may subject the Series to additional risk of liability
in that underwriters have heightened obligations to purchasers in connection
with sales of securities. The Series do not intend to invest in restricted
securities in a manner that would cause a Series to be deemed an underwriter
and, as a result, consider the risk to be remote. A secondary purpose of this
Proposal is to revise the Series' fundamental limitation on underwriting so that
it conforms to a limitation that is expected to become standard for all funds
managed by the Investment Manager. While the proposed change will have no
current impact on the Series, adoption of the proposed standardized fundamental
investment limitation will advance the goals of standardization discussed above.
THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR PROPOSAL NO. 3(C).
PROPOSAL NO. 3(D)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING BORROWING
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning borrowing, and the Investment Manager recommends a change
in the fundamental investment limitation and adoption of an operating policy
that may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (the proposed fundamental investment limitation currently is in place for
Series D, H, I, K, M, N, O, P, V, X and Y of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to borrow money or securities for Not to borrow in excess of 33 1/3% of
any purposes except that borrowing up a Series' total assets.
to 5% of a Series' total assets from
commercial banks is permitted for As an operating policy, the Series may
emergency or temporary purposes. The not borrow money or securities for any
Series may also obtain such short-term purposes except that borrowing up to
credits as are necessary for the 10% of a Series' total assets from
clearance of portfolio transactions. commercial banks is permitted for
emergency or temporary purposes.
- -------------------------------------- --------------------------------------
The primary purpose of the proposed change to the fundamental investment
limitation concerning borrowing is to conform it to a limitation that is
expected to become standard for all funds managed by the Investment Manager. If
the proposal is approved, the amended fundamental borrowing limitation cannot be
changed without a future vote of stockholders. The operating policy could be
changed upon the vote of the Board of Directors.
Adoption of the proposed amendment is not expected to affect the way the
Series are managed, the investment performance of the Series, or the securities
or instruments in which the Series invest.
The increase in the permissible level of borrowing would allow the Board of
Directors to amend the operating policy in the future to allow the Series to
engage in leveraging. Leveraging is a speculative investment technique which
consists of purchasing securities with borrowed funds. There are risks
associated with purchasing securities while borrowings are outstanding,
including a possible reduction of income and increased fluctuation of net asset
value per share. Interest on money borrowed is an expense a Series would not
otherwise incur, so that it may have little or no net investment income during
periods of substantial borrowings. Borrowing for investment therefore increases
both investment opportunity and risk. While the Series have no current intention
to purchase securities while borrowings equal to 5% of its total assets are
outstanding, the flexibility to do so may be beneficial at a future date.
The proposed change will have no current impact on the Series. However,
adoption of a standardized fundamental investment policy will facilitate
investment compliance efforts and will enable the Series to respond more
promptly if circumstances suggest such a change in the future. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(D).
PROPOSAL NO. 3(E)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING LENDING
Each Series of the Fund is currently subject to a fundamental investment
limitation concerning lending, and the Investment Manager recommends a change in
the fundamental investment limitation and adoption of an operating policy that
may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (the proposed fundamental investment limitation is currently in place for
Series D, H, I and Y of the Fund).
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to make loans to other persons Not to lend any security or make any
except by entry into repurchase other loan if, as a result, more than
agreements or by the purchase, upon 33 1/3% of a Series' total assets
original issuance or otherwise, of a would be lent to other parties, except
portion of an issue of publicly (i) through the purchase of a portion
distributed bonds, notes, debentures of an issue of debt securities in
or other securities. accordance with its investment
objective and policies, or (ii) by
engaging in repurchase agreements with
respect to portfolio securities.
As an operating policy, the Series do
not currently intend to lend assets
other than securities to other
parties. (This limitation does not
apply to purchases of debt securities
or to repurchase agreements.)
- -------------------------------------- --------------------------------------
This proposal if adopted would affect the way in which the Series are managed
in that it would allow the Series to engage in securities lending. Securities
loans are made to broker-dealers or institutional investors or other persons,
pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the value of the securities lent
marked to market on a daily basis. The collateral received would consist of
cash, U.S. government securities, letters of credit or such other collateral as
may be permitted under the Series' investment program. While the securities
loans are outstanding, the Series would continue to receive the equivalent of
the interest or dividends paid by the issuer of the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Series would have a right to call each loan and obtain the securities within the
period of time that coincides with the normal settlement time period for
purchases and sales of such securities in their respective markets. The Series
would not have the right to vote securities while they are being lent, but it
would call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans would be made only to firms deemed
by the Investment Manager to be of good standing and would not be made unless,
in the judgment of the Investment Manager, the consideration to be earned from
such loans would justify the risk.
In addition to the potential benefits of securities lending, the adoption of
standardized investment policies as proposed will advance the goals of
investment limitation standardization. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(E).
PROPOSAL NO. 3(F)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
SHORT SALES AND MARGIN PURCHASES OF SECURITIES RESTRICTED SECURITIES
Each Series of the Fund, except Series D, H, I, K, M, N, O, P, V, X and Y
currently is subject to a fundamental investment limitation concerning margin
purchases of securities and short sales of securities. The Investment Manager
recommends that stockholders approve the elimination of this fundamental
investment limitation. If the proposal is approved, the Directors intend to
replace the current fundamental investment limitation with an operating policy
that could be changed without a vote of stockholders. The current fundamental
investment limitation and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to effect short sales of As an operating policy, the Series,
securities or buy securities on margin other than Series K, do not currently
(except such short-term credits as are intend to sell securities short,
necessary for the clearance of unless a Series owns or has the right
portfolio transactions). to obtain securities equivalent in
kind and amount to the securities sold
short, and provided that transactions
in futures contracts and options are
not deemed to constitute selling
securities short. In addition, the
Series do not currently intend to
purchase securities on margin, except
that a Series may obtain such
short-term credits as are necessary
for the clearance of transactions, and
provided that margin payments in
connection with futures contracts and
options on futures contracts shall not
constitute purchasing securities on
margin.
- -------------------------------------- --------------------------------------
In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. In an
investment technique known as a short sale "against the box," an investor sells
short while owning the same securities in the same amount, or having the right
to obtain equivalent securities. The investor could have the right to obtain
equivalent securities, for example, through its ownership of warrants, options,
or convertible bonds.
Margin purchases involve the purchase of securities with money borrowed from
a broker. "Margin" is the cash or eligible securities that the borrower places
with a broker as collateral against the loan. The Fund's current fundamental
investment limitation prohibits a Series from purchasing securities on margin,
except to obtain such short-term credits as may be necessary for the clearance
of transactions. Policies of the Securities and Exchange Commission (SEC) also
allow mutual funds to purchase securities on margin for initial and variation
margin payments made in connection with the purchase and sale of futures
contracts and options on futures contracts. With these exceptions, mutual funds
are prohibited from entering into most types of margin purchases by applicable
policies of the SEC. The proposed non-fundamental operating policy includes
these exceptions.
Elimination of the Fund's fundamental investment limitation on margin
purchases and short sales is unlikely to affect the Series' investment
techniques at this time. If the proposal is approved, however, the Board of
Directors would be able to change the proposed operating policy in the future,
without a vote of stockholders. In the event of a change in state or federal
regulatory requirements, a Series may change its investment practices in the
future. The Board of Directors believes that efforts to standardize operating
policies will facilitate the Investment Manager's investment compliance and are
in the best interest of stockholders. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(F).
PROPOSAL NO. 3(G)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OTHER INVESTMENT COMPANIES
Each Series of the Fund, except Series D, H, I, K, M, N, O, P, V, X and Y,
currently is subject to a fundamental investment limitation concerning
investment in securities of other investment companies, and the Investment
Manager recommends that stockholders approve the elimination of this fundamental
investment limitation. If the proposal is approved, the Directors intend to
replace the current fundamental investment limitation with an operating policy
that could be changed without a vote of stockholders. The current fundamental
investment limitation and proposed operating policy are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to invest in the securities of As an operating policy, the Series may
other investment companies. not, except in connection with a
merger, consolidation, acquisition, or
reorganization, invest in the
securities of other investment
companies, except in compliance with
the Investment Company Act of 1940.
- -------------------------------------- --------------------------------------
Elimination of the above fundamental limitation is not expected to have a
significant impact on the Series' investment practices, because the Series
currently do not expect to invest in shares of other investment companies.
However, investment in shares of money market mutual funds may from time to time
offer a convenient way to invest the Series' idle cash. To the extent that a
Series invests in shares of other investment companies, it will have the effect
of requiring stockholders to pay the operating expenses of two mutual funds. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(G).
PROPOSAL NO. 3(H)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING BUYING OR SELLING REAL ESTATE
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in real estate, and the Investment Manager
recommends a change in the fundamental investment limitation. The current and
proposed fundamental investment limitations are set forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
Not to purchase or sell interests in Not to purchase or sell real estate
real estate except as are represented unless acquired as a result of
by securities of companies, including ownership of securities or other
real estate trusts whose assets instruments (but this shall not
consist substantially of interests in prevent a Series from investment in
real estate, including obligations securities or other instruments backed
secured by real estate or interest by real estate or securities of
therein and which therefore may companies engaged in the real estate
represent indirect interest in real business).
estate.
- -------------------------------------- --------------------------------------
The Series have interpreted this fundamental investment limitation to allow
the purchase of securities or other instruments backed by real estate or
securities of companies engaged in the real estate business. The proposed
investment limitation makes explicit this interpretation and also specifically
permits the Series to sell real estate acquired as a result of ownership of
securities or other instruments. The Investment Manager considers direct
ownership of real estate as a result of ownership of securities or other
instruments to be a remote possibility. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(H).
PROPOSAL NO. 3(I)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING COMMODITIES OR COMMODITIES CONTRACTS
Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in commodities or commodities contracts, and
the Investment Manager recommends a change in the fundamental investment
limitation. The current and proposed fundamental investment limitations are set
forth below.
- -------------------------------------- --------------------------------------
CURRENT PROPOSED
- -------------------------------------- --------------------------------------
For all Series, except Series D, H, I Not to purchase or sell physical
and Y, not to own, buy, sell or commodities, except that a Series may
otherwise deal in commodities or enter into futures contracts and
commodity contracts; provided, options thereon.
however, that Series K, M, N, O, P, V --------------------------------------
and X may enter into forward currency
contracts and other forward
commitments and transactions in
futures, options and options on
futures.
For Series D, H, I and Y, not to
invest in commodities, except that a
Series may as consistent with its
investment objective and policies: (a)
purchase and sell options, forward
contracts and futures contracts,
including without limitation those
relating to indices; (b) purchase and
sell options on futures contracts or
indices; and (c) purchase publicly
traded securities of companies
engaging in such activities.
- --------------------------------------
The Series have interpreted the fundamental policy limitation concerning
commodities to allow investment in financial futures contracts and options
thereon. The proposed amendment of this fundamental policy limitation modernizes
the language to reflect this interpretation but does not change the Series'
approach to investing in commodities. The Series do not intend to engage in the
buying or selling of physical commodities such as pork, corn and wheat futures
or related commodity contracts other than financial instruments. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(I).
REQUIRED VOTE
Each of Proposal Nos. 3(a) through 3(i) will be adopted with respect to a
Series of the Fund if it is approved by the vote of a majority of outstanding
shares of that Series, as defined in the 1940 Act. A "majority vote" is defined
as the lesser of (a) a vote of 67% or more of the Series shares whose holders
are present or represented by proxy at the meeting if the holders of more than
50% of all outstanding Series shares are present in person or represented by
proxy at the meeting, or (b) a vote of more than 50% of all outstanding Series
shares.
Each change that is approved by stockholders will become effective upon the
conclusion of the Meeting and the investment limitations will be as described
above and set forth in Exhibit A. For any change that is not approved by a
majority vote of a Series shares, the Series' current investment limitation, as
set forth in the applicable sub-portion of Proposal 3, would remain unchanged
with respect to that Series. The Board of Directors believes that all of the
proposed changes to the fundamental investment limitations of the Series, as set
forth in Proposal No. 3, are in the best interests of stockholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR ALL OF THE CHANGES SET FORTH IN
PROPOSAL NO. 3.
PROPOSAL NO. 4
APPROVAL OF AN ARRANGEMENT AND NEW INVESTMENT ADVISORY
CONTRACT THAT WOULD PERMIT SECURITY MANAGEMENT COMPANY, LLC,
WITH BOARD APPROVAL, TO ENTER INTO OR AMEND SUB-ADVISORY
AGREEMENTS WITHOUT STOCKHOLDER APPROVAL
The Board of Directors of the Fund recommends the approval of an arrangement,
along with a new Investment Advisory Contract, that together would permit SMC,
subject to Board approval, to enter into and/or amend sub-advisory agreements
without obtaining the approval of Fund stockholders.
The Fund currently issues its shares in 17 separate series (each a "Series").
If the proposal were approved, SMC on behalf of the Fund, would be provided with
greater flexibility in retaining the services of one or more sub-advisers,
replacing sub-advisers or materially amending the terms of a sub-advisory
contract; including the Fund's sub-advisers for the following Series:
-------------------------------------------------
SERIES SUB-ADVISER
-------------------------------------------------
OppenheimerFunds, Inc.
D Two World Trade Center
New York, New York 10048
-------------------------------------------------
Bankers Trust Company
H and I One Bankers Trust Plaza
New York, New York 10006
-------------------------------------------------
Strong Capital Management, Inc.
X 900 Heritage Reserve
Menomonee Falls, Wisconsin 53051
-------------------------------------------------
Wellington Management Company, L.L.P.
K and M 75 State Street
Boston, Massachusetts 02109
-------------------------------------------------
T. Rowe Price Associates, Inc.
N and O 100 East Pratt Street
Baltimore, Maryland 21202
-------------------------------------------------
SMC has engaged each of the above-named Sub-Advisers to provide investment
advisory services to the Fund pursuant to sub-advisory agreements entered
individually with each Sub-Adviser. SMC has no present intention to change any
of the Series' sub-advisers or its current sub-advisory agreements.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which
persons serve as investment advisers to investment companies be approved by
stockholders. As interpreted, this requirement would apply to the appointment of
sub-advisers to the Fund. In order to obtain stockholder approval in accordance
with Section 15(a) of the 1940 Act, the Fund would have to prepare and
distribute proxy materials and hold a special meeting of stockholders, causing
it to incur costs and delays in implementing contracts with sub-advisers. The
United States Securities and Exchange Commission (the "SEC"), however, has
granted conditional exemptions from the stockholder approval requirements. SMC
and the Fund have applied for such an exemption. If the exemption is granted and
the proposal is approved, any sub-advisory agreement entered into would continue
to require the approval of a majority of the Board, including a majority of the
Directors who are not "interested persons" of the Fund or SMC (as defined in the
1940 Act). Thus, the Board could, if it determined it to be in the best
interests of the Fund and its investors, authorize SMC to hire or replace one or
more sub-advisers, including those sub-advisers above mentioned, or change the
terms of sub-advisory agreements, including SMC's current sub-advisory
agreements. The Fund would not have to obtain approval of stockholders, who
would instead receive notice of the change, including the same information they
would receive in a proxy statement if their approval were required.
The Board has approved the submission of an application to the SEC for an
order exempting the Fund from the requirement of the 1940 Act that stockholders
approve sub-advisory agreements or amendments thereto. On November 30, 1999, the
Board met to consider placing this proposal on the agenda for the stockholder
meeting. After consideration of information about the proposal that was provided
by SMC (including the information contained in the exemptive application), the
Board concluded that the proposal is reasonable, fair, and in the best interest
of the Fund and its stockholders. Accordingly, the Board unanimously approved
the proposal and voted to recommend its approval by stockholders. As noted
above, this proposal also involves the consideration of a new Investment
Advisory Contract between the Fund and SMC. Proposal No. 5, the Brokerage
Enhanced Plan, if approved would also necessitate certain changes to the
existing Investment Advisory Contract. Refer to Proposal No. 5 for the specific
changes which would be made to the Investment Advisory Contract in connection
with the Brokerage Enhancement Plan. The new contract recognizes the fact that
SMC may , with Board approval, retain the services of one or more sub-advisers,
replace sub-advisers or amend sub-advisory contracts as contemplated in this
proposal. The new Investment Advisory Contract does NOT provide for any increase
in the investment advisory fee paid to SMC. The existing and new Investment
Advisory Contracts are described in more detail below under the headings
"Existing Investment Advisory Contract" and "New Investment Advisory Contract,"
respectively.
The Board now seeks the approval of Fund stockholders which would: (i)
authorize SMC on behalf of the Fund to enter into sub-advisory agreements or
amend such agreements without obtaining stockholder approval; and (ii) approve
the new Investment Advisory Contract between the Fund and SMC. The Fund's use of
the authority that would be granted by this proposal is contingent upon the
SEC's issuance of an order permitting the Fund to do so.
BOARD CONSIDERATION OF PROPOSAL NO. 4
At its November 30, 1999 meeting, the Board considered various information
provided by SMC, including the information contained in the exemptive
application submitted to the SEC. Based on this information, the Board concluded
that approval of the proposal is in the best interests of the Fund and its
investors. Among the things considered by the Board in reaching this conclusion
was that (i) the proposal would permit the Fund to avoid the costs and
administrative burden that would be incurred if the Fund was compelled to
conduct a proxy solicitation each time SMC and the Board determine to hire a
sub-adviser or amend a sub-advisory agreement; (ii) to the extent that SMC
retains the services of a sub-adviser on behalf of any Series of the Fund, the
sub-adviser plays a role analogous to that of an individual portfolio manager,
thus making approval of the sub-advisory agreement less important to Fund
stockholders; and (iii) the proposal would maintain important safeguards and
protections for Fund stockholders. The information considered by the Board is
discussed in greater detail below.
Currently, in order to approve a sub-advisory agreement (including the
requirement to re-approve a sub-advisory agreement that has been terminated as a
result of an "assignment"), to substitute one sub-adviser for another, or to
amend a sub-advisory agreement, the Fund must obtain the approval of
stockholders. Seeking this approval imposes costs and burdens on the Fund and,
indirectly, upon stockholders. Some of these costs include printing costs for
the proxy statements, proxy cards, and return envelopes; postage (including
return postage); tabulation of proxy cards; if necessary, solicitation and other
expenses incurred in order to obtain a quorum; and the costs of the meeting
itself. Accordingly, the Board considered that the proposal would permit the
Fund to minimize these expenses and administrative burdens when retaining or
replacing sub-advisors, or when materially amending a sub-advisory agreement.
In addition, under the current arrangement, once SMC and the Board determine
that using the services of one or more sub-advisers (or replacing or eliminating
a sub-adviser, or amending a sub-advisory agreement once a sub-adviser is
retained) is in the best interest of stockholders, a delay may occur until the
Fund can obtain the necessary approval of stockholders. Typically, it requires
approximately three months to prepare a proxy solicitation, send it to
stockholders, receive and tabulate the result, and hold the meeting. During this
period, the Fund loses the benefit of the addition or replacement of the
sub-adviser, or the amendment to the sub-advisory agreement. Approval of the
proposal would permit the Board and SMC to reduce or eliminate this delay.
The second factor considered by the Board was the fact that, to the extent a
Fund uses the services of one or more sub-advisers, the sub-adviser plays a role
analogous to that of an individual portfolio manager employed by a typical
mutual fund's investment adviser, making approval of sub-advisory agreements
less important. In the case of a mutual fund that does not use a sub-adviser,
the fund's investment adviser provides corporate management and administrative
services, along with portfolio management services. Typically, the investment
adviser chooses an individual or individuals on its staff to perform the actual
day-to-day management of the portfolio. Although the investment adviser
discloses to stockholders the individual's identity, the company is not required
to, and does not, submit approval of the choice of individual to the
stockholders. Rather, accountability lies with the investment adviser itself,
which has the responsibility of monitoring the individual's investment
performance and replacing the individual if doing so is in the best interest of
stockholders.
Under a structure where sub-advisers are used, the sub-adviser takes the
place of the individual portfolio manager. The investment adviser has ultimate
accountability for the performance of the sub-advisers. The Board believes that
stockholders will expect SMC to select and retain sub-advisers who successfully
meet the Fund's objectives and policies and replace those who do not. The Board
further believes that, in such cases, stockholders will determine to rely on
SMC's ability to select, monitor, and terminate sub-advisers just as
stockholders have currently elected to rely upon SMC to select individual
portfolio managers and analysts on its staff and supervise them accordingly.
The third factor considered by the Board was that the proposal preserves
certain protections and safeguards for the Fund and its stockholders. For
example, although the proposal would authorize SMC on behalf of the Fund to
enter into or amend sub-advisory agreements, any change in the investment
advisory contract between the Fund and SMC, or the replacement of SMC itself,
would continue to require approval of Fund stockholders. In addition,
stockholders would receive the same information about sub-advisers as they
currently would. In the event SMC, with the approval of the Board, determines to
use the services of a sub-adviser or replace a sub-adviser, stockholders would
receive, within ninety days of the change, the same information about the
sub-adviser and sub-advisory agreement they would receive in a proxy statement
if their approval were required.
APPROVAL BY SEC
As noted above, the Board has approved the submission of an application to
the SEC for an order of exemption from certain requirements of the 1940 Act in
order to permit the Fund to use the authority to enter into or amend
sub-advisory agreements as contemplated by this proposal. Any use of that
authority is contingent upon obtaining the requested order from the SEC. The
application for exemption contains conditions to which the order would be
subject. The conditions are set forth in Exhibit B. It is possible that the SEC
may require certain changes to the application or impose additional conditions
prior to granting the order. The Fund will agree to such changes if the Board
and SMC determine that it is in the best interests of the Fund and its
stockholders to do so. It is also possible that the SEC may refuse to grant the
order entirely, although the SEC has granted similar exemptions to other mutual
fund companies under similar circumstances in the past. In that case, the Board
will take what further actions it deems to be in the best interests of the Fund
and its stockholders.
REQUIRED VOTE
The proposal will be adopted with respect to a Series of the Fund if it is
approved by the vote of a majority of outstanding shares of that Series, as
defined in the 1940 Act, which is the lesser of (a) a vote of 67% or more of the
Series shares whose holders are present or represented by proxy at the meeting
if the holders of more than 50% of all outstanding Series shares are present in
person or represented by proxy at the meeting, or (b) a vote of more than 50% of
all outstanding Series shares. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR PROPOSAL NO. 4.
EXISTING INVESTMENT ADVISORY CONTRACT
SMC currently serves as the investment adviser to the Series of the Fund
pursuant to the terms of an Investment Advisory Contract dated June 20, 1977, as
amended (the "Existing Contract"). The Existing Contract was last approved by
the Board of Directors of the Fund on February 10, 1999 and was last approved by
Fund stockholders on the following dates:
--------------------------------------
SERIES DATE
--------------------------------------
A, B, C and E ..... March 31, 1989
D ................. April 26, 1991
H, Y and I ........ April 30, 1999
J ................. April 23, 1993
K, M, N and O ..... April 18, 1995
P ................. July 26, 1996
S ................. April 24, 1992
V ................. April 29, 1997
X ................. October 14, 1997
--------------------------------------
The Existing Contract has not been submitted to stockholders for approval
since those dates. Unless superseded by the proposed new Investment Advisory
Contract, in connection with either this Proposal or Proposal No. 5, the
Existing Contract will continue in effect until May 1, 2000, and from year to
year thereafter providing such continuance is specifically approved by the vote
of a majority of the Board of Directors of the Fund (including a majority of
such directors who are not parties to the contract or interested persons of any
such party) cast in person at a meeting specifically called for voting on such
renewal. If Proposal No. 4 is approved by stockholders, the new Investment
Advisory Contract with a provision allowing SMC to hire and replace sub-advisers
and amend the contracts of such sub-advisers without stockholder approval, would
be adopted. If Proposal No. 4 is not approved by stockholders, but Proposal No.
5 is approved, the new Investment Advisory Contract with a provision that
permits SMC to direct Fund portfolio trades to its broker/dealer affiliate would
be adopted. If neither proposal is approved by stockholders, the Existing
Contract would continue in effect.
Under the Existing Contract, SMC furnishes each Series of the Fund with
investment research and advice and an investment program. In addition, SMC
provides for the compilation and maintenance of records relating to its duties
as required by the rules and regulations of the SEC. Under the terms of the
Existing Contract, SMC is not subject to any liability for any errors of
judgment or mistake of law or for any loss sustained by reason of the adoption
of any investment policy so long as such recommendation shall have been made
with due care and in good faith. Nothing in the Existing Contract, however,
shall protect SMC against any liability to the Fund or its stockholders 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 the agreement.
SMC pays its expenses in connection with providing investment advisory
services to the Fund under the Existing Contract. SMC has also agreed that, if
the total annual expenses of any Series of the Fund, exclusive of interest,
taxes, brokerage fees and extraordinary expenses, but inclusive of its own
investment advisory fee, exceeds any expense limitation imposed by state
securities law or regulation in any state in which shares are offered, SMC will
contribute to such Series such funds or waive such portion of its fee as may be
necessary to insure that the annual expenses of such Series will not exceed any
such limitation. SMC has also agreed that if the total annual expenses of Series
H or Y exceeds 1.75%, or if the total annual expenses of Series I exceeds 2.25%,
in each case exclusive of interest, taxes, extraordinary expenses and brokerage
fees and commissions, but inclusive of SMC's own advisory fee, then SMC will
waive or reimburse expenses in order to keep those Series' expenses at the
specified level.
For its services under the Existing Contract, SMC receives from the Fund, on
an annual basis, a fee equal to .75% of Series A, B, E, H, J, K, P, S, V and Y;
5% of Series C; 1.00% of Series D, M, N, O and X; and 1.10% of Series I of the
average daily closing value of each Series of the Fund, such fee computed daily
and payable monthly. SMC received from the Fund advisory fees of $28,302,875
during the fiscal year ended December 31, 1998. No brokerage commissions were
paid by the Fund to an affiliated broker for the year ended December 31, 1998.
The Existing Contract may be terminated without penalty at any time upon
sixty days' notice by the Board of Directors of the Fund, by vote of the holders
of a majority of the outstanding voting securities of the Fund, or by SMC. The
Existing Contract is terminated automatically in the event of its assignment (as
such term is defined in the Investment Company Act of 1940).
SMC also serves as the Fund's administrative and transfer agent. SMC
received, in the aggregate from the Series of the Fund, $2,129,577 for
administrative services and $52,490 for transfer agency services during the year
ended December 31, 1998.
PROPOSED INVESTMENT ADVISORY CONTRACT
SMC proposes to enter into a new Investment Advisory Contract (the "New
Contract") with the Fund. A form of the New Contract is attached hereto as
Exhibit C. The form of the New Contract was proposed by SMC and was approved on
November 30, 1999, by the Board of Directors of the Fund (including a majority
of such directors who are not parties to such contract or interested persons of
any such party). Other than the provision relating to sub-advisory arrangements,
and the provision relating to the ability of SMC to place the Fund's purchase
and sale of portfolio securities with SMC's broker/dealer affiliate as discussed
in connection with Proposal No. 5., there are no material differences between
the Existing Contract and the New Contract. In particular, the New Contract does
NOT provide for any increase in the investment advisory fee paid to SMC. It is
expected that the New Contract will become effective on January 27, 2000,
provided that on the Meeting date it is approved by a majority vote of the
holders of the outstanding voting securities of the Fund.
In approving the New Contract, and in recommending that stockholders approve
the New Contract, the Board considered such factors as it deemed reasonably
necessary and appropriate, including (1) the nature, extent and quality of the
services expected to be provided to the Fund by SMC; (2) SMC's past investment
performance with respect to the Fund; (3) the costs of services to be provided
by SMC; (4) the fact that the compensation payable to SMC by the Fund is the
same under the New Contract as it is under the Existing Contract; (5) other
sources of revenue accruing to SMC and its affiliates as a result of its
relationship with the Fund, including any intangible benefits that accrue to SMC
and its affiliates; (6) the Fund's expenses compared to other funds; and (7)
such other factors as the Board deemed relevant. The Board gave equal weight to
each of the above factors when considering approval of the New Contract. Based
on the considerations above, the Board determined that the New Contract is in
the best interests of the Fund and its stockholders.
MORE INFORMATION ABOUT THE INVESTMENT MANAGER AND DISTRIBUTOR
The Fund currently has no distributor. However, in connection with the
proposed Brokerage Enhancement Plan discussed in Proposal No. 5, the Fund's
Board has approved a distribution agreement between the Fund and Security
Distributors, Inc. ("SDI"), pursuant to which SDI would become the Fund's
distributor. Accordingly, if Proposal No. 5 is adopted, it is expected that SDI
will become the Fund's distributor. SDI is a wholly owned subsidiary of Security
Benefit Group, Inc. ("SBG"), a holding company wholly owned by Security Benefit
Life Insurance Company ("SBL"). SMC is a limited liability company owned by its
members, SBL and SBG. SBL is wholly owned by Security Benefit Corp. (except for
shares held by the Directors of SBL as required by Kansas law) and Security
Benefit Corp. is wholly owned by Security Benefit Mutual Holding Company. The
address of each of the foregoing companies is 700 SW Harrison Street, Topeka,
Kansas 66636-0001.
The principal occupations, and positions with SMC and the Fund, of the
principal executive officer and each officer and director of SMC are as follows:
EXECUTIVE OFFICERS OF THE FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS* PRINCIPAL OCCUPATION POSITION WITH SMC POSITION WITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Schmank, 46** President and Managing Member Representative, President and Managing Vice President
SMC; Senior Vice President, Security Benefit Member Representative and Director
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Cleland, 63 Senior Vice President and Managing Member Senior Vice President President and
Representative, SMC; Senior Vice President, and Managing Member Director
Security Benefit Group, Inc. and Security Benefit Representative
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas A. Swank, 39 Senior Vice President and Portfolio Manager, SMC; Senior Vice President Vice President
Senior Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee, 38 Secretary, SMC; Vice President, Associate General Secretary Secretary
Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Bowser, 39 Second Vice President and Portfolio Manager, SMC; Second Vice President Vice President
Second Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
David Eshnaur, 38 Assistant Vice President and Portfolio Manager, Assistant Vice Vice President
SMC; Assistant Vice President, Security Benefit President and
Group, Inc. and Security Benefit Life Insurance Portfolio Manager
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood, 35 Assistant Vice President and Treasurer, SMC; Assistant Vice Treasurer
Assistant Vice President, Security Benefit Group, President and
Inc. and Security Benefit Life Insurance Company Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher D. Swickard, 34 Assistant Secretary, SMC; Assistant Vice Assistant Secretary Assistant Secretary
President and Assistant Counsel, Security Benefit
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
*All located at 700 SW Harrison Street, Topeka, KS 66636-0001 unless otherwise noted.
**Principal executive officer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SMC acts as investment adviser for certain other mutual funds with investment
objectives similar to the investment objectives of certain Series of the Fund.
Set forth below are the names of the applicable Series of the Fund, the name of
the other similar mutual fund, information concerning the similar funds' net
assets as of September 30, 1999, the fees paid to SMC for its services to the
other mutual funds and information concerning certain expense caps for the
similar mutual funds.
- --------------------------------------------------------------------------------
ANNUAL RATE OF
SERIES OF NET ASSETS OF COMPENSATION FOR
FUND NAME NAME OF SIMILAR FUND SIMILAR FUND SIMILAR FUND
- --------------------------------------------------------------------------------
Series A Security Equity Fund
Series B Security Growth and Income Fund
Series C Security Cash Fund
Series D Security Global Fund
Series E Security Corporate Bond Fund
Series H Security Enhanced Index Fund
Series I Security International Fund
Series J Security Ultra Fund
Series P Security High Yield Fund
Series S Security Social Awareness Fund
Series V Security Value Fund
Series X Security Small Company Fund
Series Y Security Select 25 Fund
- --------------------------------------------------------------------------------
For each of the similar funds, SMC has agreed that if the total annual
expenses of any of the funds, exclusive of interest, taxes, Rule 12b-1
distribution fees (if any), brokerage fees and extraordinary expenses, but
inclusive of SMC's own investment advisory fee, exceeds any expense limitation
imposed by state securities law or regulation in any state in which such funds
are offered, SMC will contribute to such fund or waive such portion of its fee
as may be necessary to insure that the annual expenses of such fund will note
exceed any such limitation. SMC has also agreed that if the total annual
expenses of Security Cash Fund exceeds 1.00%, Security Enhanced Index Fund or
Security Select 25 Fund exceeds 1.75%, or if the total annual expenses of
Security International Fund exceeds 2.25%, in each case exclusive of interest,
taxes, Rule 12b-1 distribution fees (if any), brokerage fees and extraordinary
expenses, but inclusive of SMC's own investment advisory fee, then SMC will
waive or reimburse expenses in order to keep those fund's expenses at the
specified level.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart shows the shares of common stock of the Fund beneficially
owned by directors and executive officers of the Fund.
- ---------------------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY OWNED AS
OF NOVEMBER 30, 1999 BY ALL DIRECTORS
SERIES AND EXECUTIVE OFFICERS AS A GROUP PERCENTAGE OF CLASS
- ---------------------------------------------------------------------------
Series A
Series B
Series C
Series D
Series E
Series H
Series I
Series J
Series K
Series M
Series N
Series O
Series P
Series S
Series V
Series X
Series Y
- ---------------------------------------------------------------------------
*No director or "named executive officer" of the Fund beneficially owned
any shares of common stock of the Fund as of November 30, 1999, except as
shown in the above chart.
- ---------------------------------------------------------------------------
PROPOSAL NO. 5
TO APPROVE OR DISAPPROVE A BROKERAGE ENHANCEMENT PLAN
(THE "PLAN") PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT
COMPANY ACT OF 1940, AND A NEW INVESTMENT ADVISORY
CONTRACT THAT WOULD PERMIT THE IMPLEMENTATION OF THE PLAN.
INTRODUCTION AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Until now, neither the Fund nor any of the Series has had a "principal
underwriter." Although it is not required to do so, Security Distributors, Inc.
(the "Distributor"), as principal underwriter of the Variable Contracts,
currently pays many of the expenses used to finance activities that are
primarily intended to result in the sale of Fund shares through the sale of
variable life and variable annuity contracts funded by the Fund (the "Variable
Contracts"). The Distributor's ability to pay the costs associated with a higher
level of sales activities is limited by its available resources.
At a meeting of the Board of Directors of the Fund (the "Board") held on
November 30, 1999, the Board, including the Directors who are not "interested
persons" of the Fund (as defined in the Investment Company Act of 1940) (the
"Independent Directors") and who have no direct or indirect financial interest
in the operation of the Plan, unanimously voted to approve the Plan and a new
investment advisory contract that would permit the implementation of the Plan.
The Plan is intended to assist in promoting the sale of the Fund's shares by
providing the Distributor with further resources. The Board recommends that the
stockholders of each Series approve the Plan. A copy of the Plan may be found in
Exhibit D.
DESCRIPTION OF THE PLAN
Under the Plan, neither the Fund nor any Series would incur any new fees or
charges. In summary, the Plan would authorize the Fund to place orders for the
purchase or sale of portfolio securities or other assets with: (i)
broker-dealers that have agreed to direct a portion of their brokerage
commissions to the Distributor, or other introducing brokers ("Brokerage
Payments") to be used to finance activities that are primarily intended to
result in the sale of Fund shares through the sale of Variable Contracts; and
(ii) broker-dealers that, in addition to executing the trade, will provide
brokerage credits, benefits or other services ("Brokerage Credits") to be used
directly or indirectly to promote the distribution of Fund shares through the
sale of Variable Contracts. Under the Plan, neither the Fund nor any Series
would incur any new fees or charges. The Distributor, an affiliate of SBL, is
the principal underwriter of the Variable Contracts. As part of the Plan, the
Distributor would also become the principal underwriter of the Fund, with
responsibility for promoting sales of shares of each Series.
The Distributor, however, would not receive any compensation from the Fund
for its activities to promote sales of Fund shares. Instead, under the Plan, the
Distributor would be authorized to direct that the Investment Manager or a
Sub-Advisor, subject to the requirement to seek best price and execution, effect
brokerage transactions in portfolio securities through broker-dealers in a
manner that will help promote the sale of the Fund's shares. It is anticipated
that activities or services which will be procured through the expenditure of
Brokerage Payments and Brokerage Credits will include:
* Developing, preparing, printing, and mailing of advertisements, sales
literature and other promotional material describing and/or relating to the
Fund, the Series, or the Variable Contracts.
* Printing and mailing of Fund prospectuses, statements of additional
information, any supplements thereto and shareholder reports for existing and
prospective Variable Contract owners.
* Holding or participating in seminars and sales meetings designed to promote
the distribution of shares of the Fund, the Series or the Variable Contracts,
including materials intended either for broker-dealer only use or for retail
use.
* Providing information about the Fund, its Series or the Variable Contracts,
or mutual funds or variable contracts in general, to registered
representatives of broker-dealers.
* Providing assistance to broker-dealers that are conducting due diligence on
the Fund or its Series or the Variable Contracts.
* Payment of Marketing Fees requested by broker-dealers who sell Variable
Contracts.
* Obtaining information and providing explanations to Variable Contract owners
regarding Series investment options and policies and other information about
the Fund and its Series, including the performance of the Series.
* Training sales personnel regarding sales of Variable Contracts.
* Personal service and/or maintenance of the Variable Contract owner accounts.
* Payment of commissions to broker-dealers who sell Variable Contracts.
* Financing any other activity that is intended to result in the sale of Fund
shares or the Variable Contracts.
The Distributor may also use amounts generated under the Plan to defray legal
and administrative costs associated with implementation of the Plan.
The Plan permits Brokerage Payments and Brokerage Credits generated by
securities transactions from one Series to inure to the benefit of that Series,
any other Series, or to the Fund as a whole.
The Distributor will be obligated to use all of the Brokerage Payments and
Brokerage Credits generated under the Plan for distribution expenses, except for
a small amount which may be used to defray the costs associated with
implementing the Plan, including the Distributor's costs associated with
becoming and acting as an introducing broker-dealer under the Plan. Accordingly,
the Distributor will not make any profit from the operation of the Plan.
However, the Distributor could indirectly benefit from the Plan in that
Brokerage Payments and Brokerage Credits generated under the Plan may help
defray, in whole or in part, distribution expenses that may otherwise be borne
by the Distributor or an affiliate in distributing the Variable Contracts.
The Distributor, on behalf of the Fund, may take appropriate actions to
effect the purposes of the Plan, including, but not limited to, directing the
Investment Manager or a Sub-Advisor to allocate transactions for the purchase or
sale of portfolio securities to particular broker-dealers, including the
Distributor or other affiliated broker-dealers, in the manner described in the
Plan. The Distributor does not currently provide brokerage services, but in
connection with the implementation of the Plan is taking steps to become an
introducing broker. When directing the Investment Manager or a Sub-Advisor to
allocate purchase or sale transactions to broker-dealers under the Plan, the
Fund will continue to be subject to those standards of best price and best
execution set forth in the Fund's registration statement.
The Plan requires that it be approved, with respect to each Series, by a vote
of at least a majority of the outstanding voting securities of that Series. The
Plan also provides that it is subject to an annual renewal by the Board,
including the Independent Directors who do not have any direct or indirect
financial interest in the operation of the Plan (the "Plan Directors"). The Plan
also provides that the Distributor provide the Board with a written report of
securities transactions directed under the Plan, currently on a quarterly basis.
The Plan may be terminated at any time by a vote of the Board, by the vote of a
majority of the Plan Directors or, with respect to a Series, by a vote of a
majority of the outstanding voting securities of such Series. All material Plan
amendments must be approved by a majority vote of the Board, including a
majority of the Plan Directors.
BOARD CONSIDERATION OF THE PLAN
The Board, including all of the Plan Directors, have voted to approve the
Plan and to recommend to stockholders of each Series that they vote to approve
the Plan.
The Board has determined that adoption of the Plan is in the best interests
of the Fund and its stockholders and that there is a reasonable likelihood that
the Plan will benefit the Fund and its stockholders. In making these
determinations, the Board considered a number of factors. The Board noted that
the Plan would help promote the sale of the Fund's shares without the Series
bearing any direct additional expenses of the type normally associated with
distribution plans for mutual funds. Moreover, the Board considered that the
Series of the Fund will continue to incur expenses for securities transactions,
including commissions, regardless of whether the Plan is adopted. In general,
apart from the execution provided, the brokerage expenses incurred by the Series
currently do not directly benefit the Series, except to the extent that
executing brokers provide research services to the Investment Manager or a
Sub-Advisor. Under the Plan, the Series could benefit from the Fund's brokerage
if it helps generate increased assets.
The Board also considered that the Plan could help the Distributor to
maintain or enhance the distribution system in place for the Variable Contracts.
The Board considered a report from the Investment Manager that implementation of
the Plan is not likely to increase the brokerage expenses of the Series. The
Board noted that promotion of the Variable Contracts could result in an increase
in the Funds' assets, thereby promoting greater economies of scale and
decreasing the Series' per-share operating expenses.
The Board also considered the benefits of the Plan to the Investment Manager
and the Distributor. In particular, the Board considered that an increase in the
Series' assets would increase the advisory fees paid to the Investment Manager,
and that payment of distribution expenses with Brokerage Payments and Brokerage
Credits could reduce the need for the Distributor (or an affiliate) to pay such
expenses out of its own resources.
THE INVESTMENT ADVISORY CONTRACT
The successful implementation of the Plan as recommended by the Board also
necessitates certain changes to the Fund's Investment Advisory Contract with the
Investment Manager. Moreover, as noted in connection with the discussion of
Proposal No. 4, that Proposal also requires that certain changes be made to the
Investment Advisory Contract. For a discussion of the existing Investment
Advisory Contract, the new Investment Advisory Contract, the Investment Manager
and Distributor, refer to Proposal No. 4. A form of the new Investment Advisory
Contract is attached hereto as Exhibit C.
The existing Investment Advisory Contract contains a provision which provides
that, if the Investment Manager or any affiliate (which would include the
Distributor) receives any cash credits, commissions or tender fees in connection
with transactions in portfolio securities of the Fund, the Investment Manager
must immediately pay such amounts to the Fund in cash or as a credit against the
Investment Manager's fee. As noted above, under the terms of the Plan, the
Distributor may receive brokerage commissions as an introducing broker in
connection with the Fund's portfolio transactions. Accordingly, in order to
permit the Plan to operate in the manner contemplated, the provision of the
Investment Advisory Contract stating that commissions must be paid to the Fund
or used to reduce the advisory fee, must be removed. If Proposal No. 5 is
approved by stockholders, the new Investment Advisory Contract with this
provision omitted will be adopted. If Proposal No. 5 is not approved by
stockholders, but Proposal No. 4 is approved, the new Investment Advisory
Contract will be adopted, but the above-referenced provision will be remain a
part of the new Investment Advisory Contract. If neither Proposal is approved by
stockholders, the existing Investment Advisory Contract will continue in effect
according to its terms. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR PROPOSAL NO. 5.
REQUIRED VOTE
Approval of the Plan with respect to a Series requires the vote of a majority
of the outstanding shares of that Series that are eligible to vote at the
meeting. For purposes of this proposal, with respect to each Series, majority
means the lesser of (a) 67% or more of the shares of that Series present at the
meeting, if 50% or more of the shares of such Series are represented in person
or by proxy; or (b) 50% or more of the shares of such Series.
STOCKHOLDER PROPOSALS
Unless otherwise required under the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
stockholders. Stockholder proposals must be received at least 120 days prior to
the next meeting of stockholders, whenever held.
OTHER MATTERS
The audited financial statements of the Fund are found in the Annual Report
for the fiscal year ended December 31, 1998, which was mailed to stockholders on
or about March 1, 1999.
The Board of Directors of the Fund is not aware of any other matters to come
before the Meeting or any adjournments thereof other than those specified
herein. If any other matters should come before the Meeting, it is intended that
the persons named as proxies in the enclosed form(s) of proxy, or their
substitutes, will vote the proxy in accordance with their best judgment on such
matters.
By order of the Board of Directors of
SBL Fund,
AMY J. LEE
Secretary
<PAGE>
EXHIBIT A
PROPOSED FUNDAMENTAL INVESTMENT LIMITATIONS FOR SBL FUND
1. Not to purchase a security if, as a result, with respect to 75% of the value
of a Series' total assets, more than 10% of the outstanding voting
securities of any issuer would be held by the Series (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
2. Not to act as underwriter of securities issued by others, except to the
extent that a Series may be considered an underwriter within the meaning of
the Securities Act of 1933 in the disposition of restricted securities.
3. Not to borrow in excess of 33 1/3% of a Series' total assets.
4. Not to lend any security or make any other loan if, as a result, more than
33 1/3% of a Series' total assets would be lent to other parties, except (i)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective and policies, or (ii) by engaging
in repurchase agreements with respect to portfolio securities.
5. Not to purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Series from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
6. Not to purchase or sell physical commodities, except that a Series may enter
into futures contracts and options thereon.
<PAGE>
EXHIBIT B
CONDITIONS PROPOSED BY THE FUND AND SMC TO THE SEC
AS PART OF THEIR APPLICATION FOR EXEMPTIVE RELIEF
1. No Fund will enter into a subadvisory agreement with an Affiliated
Subadviser without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the Fund (or, if the Fund
serves as a funding medium for any sub-account of a registered separate
account, then pursuant to voting instructions by the unitholders of the
sub-account).
2. At all times, a majority of each Funds' Board will be persons who are
Independent Directors, and the nomination of new or additional Independent
Directors will be at the discretion of the then-existing Independent
Directors.
3. When a change of Subadviser is proposed for a Fund with an Affiliated
Subadviser, the Fund's Board, including a majority of the Independent
Directors, will make a separate finding, reflected in the Fund's Board
minutes, that such change of Subadviser is in the best interests of the Fund
and its shareholders (or, if the Fund serves as a funding medium for any
sub-account of a registered separate account, in the best interests of the
Fund and the unitholders of any sub-account) and that the change does not
involve a conflict of interest from which SMC or the Affiliated Subadviser
derives an inappropriate advantage.
4. SMC will provide management services to the Funds, including overall
supervisory responsibility for the general management and investment of each
Fund, and, subject to review and approval by the applicable Fund's Board
will (a) set each Fund's overall investment strategies; (b) evaluate, select
and recommend Subadvisers to manage all or a part of a Fund's assets; (c)
when appropriate, allocate and reallocate a Fund's assets among multiple
Subadvisers; (d) monitor and evaluate the investment performance of
Subadvisers; and (e) implement procedures reasonably designed to ensure that
the Subadvisers comply with the relevant Fund's investment objectives,
policies, and restrictions.
5. Within 90 days of the hiring of any new Subadviser, SMC will furnish
shareholders (or, if the Fund serves as a funding medium for any sub-account
of a registered separate account, SMC will furnish the unit holders of the
sub-account) with respect to the appropriate Fund with all information about
the new Subadviser that would be included in a proxy statement. Such
information will include any changes caused by the addition of a new
Subadviser. To meet this condition, SMC will provide shareholders (or, if
the Fund serves as a funding medium for any sub-account of a registered
separate account, then by providing unitholders of the sub-account) with an
information statement meeting the requirements of Regulation 14C, Schedule
14C, and Item 22 of Schedule 14A under the Securities Exchange Act of 1934.
6. Any Fund relying on the requested relief will disclose in its prospectus the
existence, substance and effect of any order granted pursuant to this
application. In addition, any such Fund will hold itself out as employing
the management structure described in the application. The prospectus will
prominently disclose that SMC has ultimate responsibility to oversee the
Subadvisers and recommend their hiring, termination, and replacement.
7. Before a Fund may rely on the order, the operation of the Fund in the manner
described in the application will be approved by a majority of the Fund's
outstanding voting securities (or, if the Fund serves as a funding medium
for any sub-account of a registered separate account, pursuant to voting
instructions provided by the unitholders of the sub-account), as defined in
the 1940 Act, or in the case of a new Fund whose public shareholders (or
variable contract owners through a separate account) purchase shares on the
basis of a prospectus(es) containing the disclosure contemplated by
Condition 6 above, by the sole initial shareholder(s) before the shares of
such Fund are offered to the public (or the variable contract owners through
a separate account).
<PAGE>
EXHIBIT C
INVESTMENT ADVISORY CONTRACT
THIS AGREEMENT, made and entered into this 27th day of January, 2000, by and
between SBL FUND, a Kansas corporation (hereinafter referred to as the "Fund"),
and SECURITY MANAGEMENT COMPANY, LLC, a Kansas limited liability company
(hereinafter referred to as the "Management Company").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management
investment company registered under the Federal Investment Company Act of 1940;
and
WHEREAS, the Management Company is willing to provide investment research and
advice to the Fund on the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. EMPLOYMENT OF MANAGEMENT COMPANY. The Fund hereby employs the Management
Company to act as investment adviser to the Fund with respect to the investment
of its assets and to supervise and arrange the purchase of securities for the
Fund and the sale 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 herein set forth. The Management Company hereby accepts
such employment and agrees to perform the services required by this Agreement
for the compensation herein provided.
2. INVESTMENT ADVISORY DUTIES.
(a) The Management Company shall regularly provide the Fund with
investment research, advice and supervision, continuously furnish an
investment program and recommend what securities shall be purchased and sold
and what portion of the assets of the Fund shall be held uninvested and shall
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 Management Company to the Fund
under this Section 2 shall at all times conform to any requirements imposed
by the provisions of the Fund's Articles of Incorporation and Bylaws, the
Investment Company Act of 1940, the Investment Advisors Act of 1940 and the
rules and regulations promulgated thereunder, any other applicable provisions
of law, and the terms of the registration statements of the Fund under the
Securities Act of 1933 and the Investment Company Act of 1940, all as from
time to time amended. The Management Company 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) in regard to the foregoing matters
and the general conduct of the Fund's business.
(b) Subject to the provisions of the Investment Company Act of 1940 and
any applicable exemptions thereto, the Management Company 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 Management Company. Consistent with
the provisions of the Investment Company Act of 1940 and any applicable
exemption thereto, the Management Company may enter into Sub-Advisory
Agreements or amend Sub-Advisory Agreements without the approval of the
shareholders of the effected series.
3. PORTFOLIO TRANSACTIONS AND BROKERAGE.
(a) Transactions in portfolio securities shall be effected by the
Management Company, through brokers or otherwise (including affiliated
brokers), in the manner permitted in this Section 3 and in such manner as the
Management Company shall deem to be in the best interests of the Fund after
consideration is given to all relevant factors.
(b) In reaching a judgment relative to the qualification of a broker to
obtain the best execution of a particular transaction, the Management Company
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 to be required by the transaction; the
overall capital 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.
(c) Subject to any statements concerning the allocation of brokerage
contained in the Fund's prospectus, the Management Company is authorized to
direct the execution of the portfolio transactions of the Fund to brokers who
furnish investment information or research services to the Management
Company. Such allocation shall be in such amounts and proportions as the
Management Company may determine. If a transaction is directed to a broker
supplying brokerage and research services to the Management Company, the
commission paid for such transaction may be in excess of the commission
another broker would have charged for effecting that transaction, provided
that the Management Company 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 Management Company 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.
(d) In the selection of a broker for the execution of any transaction not
subject to fixed commission rates, the Management Company 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.
(e) 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 Management Company,
better price or execution can be obtained by utilizing the services of a
broker.
4. ALLOCATION OF EXPENSES AND CHARGES. The Management Company shall provide
investment advisory, statistical and research facilities and all clerical
services relating to research, statistical and investment work, and shall
provide for the compilation and maintenance of such records relating to these
functions as shall be required under applicable law and the rules and
regulations of the Securities and Exchange Commission. Other than as
specifically indicated in the preceding sentence, the Management Company shall
not be required to pay any expenses of the Fund, and in particular, but without
limiting the generality of the foregoing, the Management Company shall not be
required to pay office rental or general administrative expenses; board of
directors' fees; legal, auditing and accounting expenses; broker's commissions;
taxes and governmental fees; membership dues; fees of custodian, transfer agent,
registrar and dividend disbursing agent (if any); expenses (including clerical
expenses) of issue, sale or redemption of shares of the Fund's capital stock;
costs and expenses in connection with the registration of such capital stock
under the Securities Act of 1933 and qualification of the Fund's capital stock
under the "Blue Sky" laws of the states where such stock is offered; costs and
expenses in connection with the registration of the Fund under the Investment
Company Act of 1940 and all periodic and other reports required thereunder;
expenses of preparing and distributing reports, proxy statements, notices and
distributions to stockholders; costs of stationery; expenses of printing
prospectuses; costs of stockholder and other meetings; and such nonrecurring
expenses as may arise including litigation affecting the Fund and the legal
obligations the Fund may have to indemnify its officers and the members of its
board of directors.
5. COMPENSATION OF MANAGEMENT COMPANY.
(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is in
effect, the Fund shall pay the Management Company an annual fee computed on a
daily basis equal to .75 percent of the average daily closing value of the
net assets of Series A, Series B, Series E, Series H, Series J, Series K,
Series P, Series S, Series V, and Series Y of the Fund, .50 percent of the
average daily closing value of the net assets of Series C of the Fund, 1.00
percent of the average daily closing value of the net assets of Series D,
Series M, Series N, Series O and Series X of the Fund, and 1.10 percent of
the average daily closing value of the net assets of Series I of the Fund.
Such fee shall be adjusted and payable monthly. If this Agreement shall be
effective for only a portion of a year, then the Management Company's
compensation for said year shall be prorated for such portion. For purposes
of this Section 5, the value of the net assets of each such 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.
(b) For each of the Fund's full fiscal years this Agreement remains in
force, the Management Company agrees that if total annual expenses of each
Series of the Fund, exclusive of interest and taxes and extraordinary
expenses (such as litigation), but inclusive of the Management Company's
compensation, exceed any expense limitation imposed by state securities law
or regulation in any state in which shares of the Fund are then qualified for
sale, as such regulations may be amended from time to time, the Management
Company will contribute to such Series such funds or to 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 contract shall be
effective for only a portion of one of the Series' fiscal years, then the
maximum annual expenses shall be prorated for such portion. Brokerage fees
and commissions incurred in connection with the purchase or sale of any
securities by a Series shall not be deemed to be expenses within the meaning
of this paragraph (b).
(c) For each of the Fund's full fiscal years this Agreement remains in
force, the Management Company agrees that if total annual expenses of each
Series of the Fund identified below, exclusive of interest, taxes,
extraordinary expenses (such as litigation), and brokerage fees and
commissions, but inclusive of the Management Company's compensation, exceeds
the amount set forth below (the "Expense Cap"), the Management Company will
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 will 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
Series H - 1.75%
Series I - 2.25%
Series Y - 1.75%
6. LIMITATION OF LIABILITY OF MANAGEMENT COMPANY. So long as the Management
Company shall give the Fund the benefit of its best judgment and effort in
rendering services hereunder, the Management Company 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, whether or not such 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 Management Company
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 the
Agreement. As used in this Section 6, "Management Company" shall include
directors, officers and employees of the Management Company, as well as the
Management Company itself.
7. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
the Management Company 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 Management Company or any of its directors, officers, stockholders
or employees from buying, selling, or trading any securities for its own
accounts or for the accounts of others for whom it may be acting; provided,
however, that the Management Company 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
Management Company acts as investment adviser to other investment companies, and
it expressly consents to the Management Company acting as such; provided,
however, that if securities of one issuer are purchased or sold, the purchase or
sale of such securities is consistent with the investment objectives of, and, in
the opinion of the Management Company, such securities are desirable purchases
or sales for the portfolios of the Fund and one or more of such other investment
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.
8. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective on January 27, 2000, provided that on or before that date it has been
approved by the holders of a majority of the outstanding voting securities of
each series of the Fund. This Agreement shall continue in force until January
27, 2002, and 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, and 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, or (b) by the
vote of the holders of a majority of the outstanding voting securities of each
series of the Fund (as defined in the Investment Company Act of 1940). 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 Management Company
providing for investment advisory and management services shall concurrently
terminate, except that such termination shall not affect 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 vote of the Board of Directors of the Fund or
by vote of the holders of a majority of the outstanding voting securities of
that series of the Fund, or by the Management Company, in each case upon 60
days' written notice to the other party.
This Agreement shall automatically terminate in the event of its "assignment"
(as defined in the Investment Company Act of 1940).
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.
SBL FUND
By:
----------------------------
Title:
ATTEST:
- ----------------------------------
Secretary
SECURITY MANAGEMENT COMPANY, LLC
By:
----------------------------
Title:
ATTEST:
- ----------------------------------
Secretary
<PAGE>
EXHIBIT D
SBL FUND
BROKERAGE ENHANCEMENT PLAN
WHEREAS, SBL Fund (the "Fund") engages in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act");
WHEREAS, shares of common stock of the Fund are currently divided into series,
listed on Schedule A hereto (the "Series"), which Schedule can be amended to add
or remove a series by an amended schedule;
WHEREAS, the Board of Directors of the Fund (the "Board") has determined that,
subject to the requirement to seek best price and execution, it is appropriate
and desirable for the Fund to use certain brokerage commissions generated on the
purchase and sale of portfolio securities to finance activities that are
primarily intended to result in the sale of its shares (the "Brokerage
Enhancement Plan" or the "Plan") either directly or through the sale of variable
annuity or variable life insurance contracts (the "Variable Contracts") for
which the Fund serves as an underlying investment vehicle;
WHEREAS, in order to effect the purposes of this Plan the Fund has been
authorized to enter into a Distribution Agreement with Security Distributors,
Inc. (the "Distributor") pursuant to which Distributor will serve as distributor
of the securities of which the Fund is the issuer;
WHEREAS, any benefits that may be obtained from brokerage commissions are assets
of the Fund, and the Fund wishes, pursuant to Rule 12b-1 under the Act, to
utilize such assets in furtherance of the distribution of the Fund's shares,
through the sale of the Variable Contracts; and
WHEREAS, the Board has determined that, to the extent that the use of these
benefits earned by a Series under this Plan results in the increased
distribution of the Fund's shares or the Variable Contracts, a benefit in the
form of potential economies of scale should inure to that Series and to the
other Series offered by the Fund;
NOW, THEREFORE, this Brokerage Enhancement Plan is adopted by the Fund on behalf
of the Series, in accordance with Rule 12b-l under the Act, on the following
terms and conditions:
1. The Fund is authorized to enter into agreements or arrangements pursuant to
which the Fund may direct Security Management Company, LLC ("SMC"), in its
capacity as the Fund's investment adviser, and each of the sub-advisors
retained by SMC (and approved by the Fund) to manage certain of the Series
(each a "Sub-Advisor"), acting as agents for the Fund or its Series.
a. To place orders for the purchase or sale of portfolio securities with
the Distributor or other introducing broker-dealers who will receive a
portion of the brokerage commission paid by the Series from
broker-dealers executing such portfolio transactions for the benefit of
the Series ("Brokerage Payments") that can be used directly or
indirectly to finance the distribution of the Fund's shares; or
b. To allocate transactions for the purchase or sale of portfolio
securities or other assets to broker-dealers, and receive, in addition
to execution of the brokerage transaction, credits, benefits or other
services from the broker-dealer ("Brokerage Credits") that can be used
directly or indirectly to promote the distribution of the Fund's
shares;
in each case, provided that SMC or the Sub-Advisor must reasonably believe
that the Distributor or broker-dealer (or the clearing broker of either)
will execute the transaction in a manner consistent with standards of best
execution, as described in the Registration Statement for the Fund, as
amended from time to time.
2. The Fund is authorized to expend Brokerage Credits and Brokerage Payments
to compensate the Distributor and other broker-dealers for the cost and
expense of certain distribution-related activities or to procure from, or
otherwise induce, the Distributor and other broker-dealers to provide
services, where such activities or services are intended to promote the
sale of the Fund's shares, either directly or indirectly through the sale
of the Variable Contracts. Such activities or services may be provided by
the Distributor or broker-dealer to which a purchase or sale transaction
has been allocated (the directed broker-dealer) or by another broker-dealer
or other party at the direction of the Distributor or directed
broker-dealer. The activities or services which may be procured with
Brokerage Credits and Brokerage Payments include, but are not limited to
(i) developing, preparing, printing, and mailing of advertisements, sales
literature and other promotional material describing and/or relating to the
Fund, the Series, or the Variable Contracts; (ii) printing and mailing of
Fund prospectuses, statements of additional information, any supplements
thereto and shareholder reports for existing and prospective Variable
Contract owners; (iii) holding or participating in seminars and sales
meetings designed to promote the distribution of shares of the Fund, the
Series or the Variable Contracts, including materials intended either for
broker-dealer only use or for retail use; (iv) providing information about
the Fund, its Series or the Variable Contracts, or mutual funds or variable
contracts in general, to registered representatives of broker-dealers; (v)
providing assistance to broker-dealers that are conducting due diligence on
the Fund or its Series or the Variable Contracts; (vi) payment or
reimbursement of legal and administrative costs associated with
implementing the Plan; (vii) marketing fees requested by broker-dealers who
sell Variable Contracts; (viii) obtaining information and providing
explanations to Variable Contract owners regarding Series investment
options and policies and other information about the Fund and its Series,
including the performance of the Series; (ix) training sales personnel
regarding sales of Variable Contracts; (x) personal service and/or
maintenance of the Variable Contract owner accounts; (xi) payment of
commissions to broker-dealers who sell Variable Contracts; and (xii)
financing any other activity that is intended to result in the sale of Fund
shares or the Variable Contracts.
3. The Fund may direct the Distributor to take appropriate actions to effect
the purposes of this Plan, including, but not limited to, (a) directing on
behalf of the Fund or a Series and subject to the standards described
above, SMC or a Sub-Advisor to allocate transactions for the purchase or
sale of portfolio securities in the manner described in the Plan; (b)
compensating a broker-dealer for the cost and expense of certain
distribution-related activities or procuring from a broker-dealer or
otherwise inducing a broker-dealer to provide services, where such
activities or services are intended to promote the sale of shares of the
Fund or a Series through the sale of the Variable Contracts, all on behalf
of the Fund or a Series. Subject to the standards set forth in Section 1,
and subject to applicable law, SMC and a Sub-Advisor may also direct
brokerage transactions to a broker-dealer that is an affiliated person of
the Distributor, SMC or a Sub-Advisor. Provided that any Brokerage Credits
or Brokerage Payments directly or indirectly inure to the benefit of those
Series which generated the particular Brokerage Credit or Brokerage
Payment, any such credits or payments may also inure to the benefit of
other Series of the Fund.
4. This Plan shall not take effect with respect to a Series until it has been
approved by (a) a vote of a majority of the outstanding voting securities
of that Series; and, together with any related agreements, has been
approved by (a) the Fund's Board of Directors, and (b) those Directors of
the Fund who are not "interested persons" of the Fund (as defined in the
Act) and who have no direct or indirect financial interest in the operation
of this Plan or any agreements related to it (the "Rule 12b-l Directors"),
cast in person at a meeting (or meetings) called, at least in part, for the
purpose of voting on this Plan and such related agreements. As additional
Series of the Fund are established, this Plan shall not take effect with
respect to such Series until the Plan, together with any related
agreements, has been approved by votes of a majority of both (a) the Fund's
Board of Directors and (b) the Rule 12b-1 Directors cast in person at a
meeting called, at least in part, for the purpose of voting on such
approval.
5. After approval as set forth in paragraph 4, and any other approvals
required pursuant to the Act and Rule 12b-1 thereunder, this Plan shall
take effect at the time specified by the Fund's Board of Directors, or, if
no such time is specified by the Directors, at the time that all approvals
necessary have been obtained. The Plan shall continue in full force and
effect as to a Series for so long as such continuance is specifically
approved at least annually by votes of a majority of both (a) the Board of
Directors and (b) the Rule 12b-1 Directors of the Fund, cast in person at a
meeting called, at least in part, for the purpose of voting on this Plan.
6. The Distributor shall provide to the Directors of the Fund a written report
of the amounts expended or benefits received and the purposes for which
such expenditures were made at such frequency as may be required under Rule
12b-1 of the Act.
7. This Plan may be terminated as to the Fund or each Series at any time,
without payment of any penalty, by vote of the Directors of the Fund, by
vote of a majority of the Rule 12b-l Directors, or by a vote of a majority
of the outstanding voting securities of the Series on not more than 30
days' written notice to any other party to the Plan. In addition, all
Agreements shall provide that such Agreement shall terminate automatically
in the event of its assignment.
8. This Plan may not be amended in any material respect unless such amendment
is approved by a vote of a majority of both (a) the Fund's Board of
Directors and (b) the Rule 12b-1 Directors cast in person at a meeting
called, at least in part, for the purpose of voting on such approval. The
Plan may not be amended to increase materially the amount to be spent for
distribution unless such amendment is approved by a majority of the
outstanding voting securities of the pertinent Series and by a majority of
both (a) the Fund's Board of Directors and (b) the Rule 12b-1 Directors
cast in person at a meeting called, at least in part, for the purpose of
voting on such approval; PROVIDED HOWEVER, that increases in amounts spent
for distribution by virtue of a greater amount of Brokerage Credits or
Brokerage Payments generated by the Fund shall not be deemed to constitute
a material increase in the amount to be spent for distribution.
9. While this Plan is in effect, the selection and nomination of Directors who
are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Directors who are not interested
persons.
10. The Fund shall preserve copies of this Plan and related agreements for a
period of not less than six years from the date of termination of the Plan
or related agreements, the first two years in an easily accessible place;
and shall preserve all reports made pursuant to paragraph 6 hereof for a
period of not less than six years, the first two years in an easily
accessible place.
11. The provisions of this Plan are severable as to each Series, and any action
to be taken with respect to this Plan shall be taken separately for each
Series affected by the matter.
Date: January __, 2000
<PAGE>
SCHEDULE A
Series A (Growth Series)
Series B (Growth-Income Series)
Series C (Money Market Series)
Series D (Worldwide Equity Series)
Series E (High Grade Income Series)
Series H (Enhanced Index Series)
Series I (International Series)
Series J (Mid Cap Series)
Series K (Global Strategic Income Series)
Series M (Global Total Return Series)
Series N (Managed Asset Allocation Series)
Series O (Equity Income Series)
Series P (High Yield Series)
Series S (Social Awareness Series)
Series V (Value Series)
Series X (Small Cap Series)
Series Y (Select 25 Series)
<PAGE>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SERIES A, B, C, E, J, AND S SBL FUND
Annual Meeting of Stockholders
January 26, 2000
The undersigned hereby appoints John D. Cleland, Donald A. Chubb, Jr.,
and James R. Schmank, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated annual meeting, and at all adjournments thereof, all
shares of
SERIES A, B, C, E, J, AND S SBL FUND
held by the undersigned at the Annual Meeting of Stockholders of
Series A of the Fund to be held at 9:30 AM, local time, on January 26,
2000, at Security Benefit Group Building, 700 Harrison Street, Topeka,
Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the proxy
statement for the meeting, receipt of which is hereby acknowledged,
and in the proxies' discretion, upon such other matters as may
properly come before the meeting or any adjournment thereof.
In order to avoid the additional expense of further solicitation to your Fund,
we strongly urge you to review, complete, and return your ballot as soon as
possible. Your vote is important regardless of the number of shares you own. The
Board of Directors recommends a vote for each of the following proposals. These
voting instructions will be voted as specified and in the absence of
specification will be treated as granting authority to vote "FOR" each proposal.
To vote, mark blocks below in blue or black ink as follows:
- --------------------------------------------------------------------------------
SERIES A, B, C, E, J, AND S SBL FUND
NOTE: Please sign exactly as the name appears on this card. EACH joint owner
must sign the proxy. When signing as executor, administrator, attorney, trustee
or guardian, or as custodian for a minor, please give the FULL title of such. If
a corporation, please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VOTE ON DIRECTORS
1. To elect six directors to FOR AGAINST FOR ALL To withhold authority
serve on the Board of ALL ALL EXCEPT to vote, mark "For All
Directors of the Fund Except" and write the
until the next annual nominee's number on
meeting, if any, or until the line below.
their successors shall
have been duly elected and
qualified.
01) Donald A. Chubb, Jr.,
02) John D. Cleland,
03) Penny A. Lumpkin,
04) Mark L. Morris, Jr.,
05) Maynard F. Oliverius
and 06) James R. Schmank |_| |_| |_| ______________________
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. To ratify or reject the selection of the firm of |_| |_| |_|
Ernst & Young LLP as independent accountants for
the Fund's fiscal year 2000.
3a. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning share ownership of any one
issuer.
3b. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning investing for control of
portfolio companies.
3c. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning underwriting.
3d. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning borrowing.
3e. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning lending.
3f. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning short sales and margin
purchases of securities.
3g. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning investment in other
investment companies.
3h. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning buying or selling real
estate.
3i. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning commodities or commodity
contracts.
4. To approve or disapprove an arrangement and new |_| |_| |_|
investment advisory contract that would permit
Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter
into or amend sub-advisory agreements without
stockholder approval.
5. To approve or disapprove a Brokerage Enhancement |_| |_| |_|
Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, and a new investment advisory
contract that would permit the implementation of
the Plan.
To transact such other business as may properly come before the Meeting or any
adjournments thereof, and to adjourn the Meeting from time to time.
- ------------------------------------------- ---------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
<PAGE>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SERIES D, H, I AND Y OF SBL FUND
Annual Meeting of Stockholders
January 26, 2000
The undersigned hereby appoints John D. Cleland, Donald A. Chubb, Jr.,
and James R. Schmank, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated annual meeting, and at all adjournments thereof, all
shares of
SERIES D, H, I AND Y OF SBL FUND
held by the undersigned at the Annual Meeting of Stockholders of
Series A of the Fund to be held at 9:30 AM, local time, on January 26,
2000, at Security Benefit Group Building, 700 Harrison Street, Topeka,
Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the proxy
statement for the meeting, receipt of which is hereby acknowledged,
and in the proxies' discretion, upon such other matters as may
properly come before the meeting or any adjournment thereof.
In order to avoid the additional expense of further solicitation to your Fund,
we strongly urge you to review, complete, and return your ballot as soon as
possible. Your vote is important regardless of the number of shares you own. The
Board of Directors recommends a vote for each of the following proposals. These
voting instructions will be voted as specified and in the absence of
specification will be treated as granting authority to vote "FOR" each proposal.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
- --------------------------------------------------------------------------------
SERIES D, H, I AND Y OF SBL FUND
NOTE: Please sign exactly as the name appears on this card. EACH joint owner
must sign the proxy. When signing as executor, administrator, attorney, trustee
or guardian, or as custodian for a minor, please give the FULL title of such. If
a corporation, please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VOTE ON DIRECTORS
1. To elect six directors to FOR AGAINST FOR ALL To withhold authority
serve on the Board of ALL ALL EXCEPT to vote, mark "For All
Directors of the Fund Except" and write the
until the next annual nominee's number on
meeting, if any, or until the line below.
their successors shall
have been duly elected and
qualified.
01) Donald A. Chubb, Jr.,
02) John D. Cleland,
03) Penny A. Lumpkin,
04) Mark L. Morris, Jr.,
05) Maynard F. Oliverius
and 06) James R. Schmank |_| |_| |_| ______________________
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. To ratify or reject the selection of the firm of |_| |_| |_|
Ernst & Young LLP as independent accountants for
the Fund's fiscal year 2000.
3a. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning share ownership of any one
issuer.
3b. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning investing for control of
portfolio companies.
3c. Not Applicable.
3d. Not Applicable.
3e. Not Applicable.
3f. Not Applicable.
3g. Not Applicable.
3h. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning buying or selling real
estate.
3i. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning commodities or commodities
contracts.
4. To approve or disapprove an arrangement and new |_| |_| |_|
investment advisory contract that would permit
Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter
into or amend sub-advisory agreements without
stockholder approval.
5. To approve or disapprove a Brokerage Enhancement |_| |_| |_|
Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, and a new investment advisory
contract that would permit the implementation of
the Plan.
To transact such other business as may properly come before the Meeting or any
adjournments thereof, and to adjourn the Meeting from time to time.
- ------------------------------------------- ---------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
- --------------------------------------------------------------------------------
<PAGE>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001
SERIES K, M, N, O, P, V AND X OF SBL FUND
Annual Meeting of Stockholders
January 26, 2000
The undersigned hereby appoints John D. Cleland, Donald A. Chubb, Jr.,
and James R. Schmank, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated annual meeting, and at all adjournments thereof, all
shares of
SERIES K, M, N, O, P, V AND X OF SBL FUND
held by the undersigned at the Annual Meeting of Stockholders of
Series A of the Fund to be held at 9:30 AM, local time, on January 26,
2000, at Security Benefit Group Building, 700 Harrison Street, Topeka,
Kansas 66636-0001, and at any adjournment thereof, in the manner
directed below with respect to the matters referred to in the proxy
statement for the meeting, receipt of which is hereby acknowledged,
and in the proxies' discretion, upon such other matters as may
properly come before the meeting or any adjournment thereof.
In order to avoid the additional expense of further solicitation to your Fund,
we strongly urge you to review, complete, and return your ballot as soon as
possible. Your vote is important regardless of the number of shares you own. The
Board of Directors recommends a vote for each of the following proposals. These
voting instructions will be voted as specified and in the absence of
specification will be treated as granting authority to vote "FOR" each proposal.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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SERIES K, M, N, O, P, V AND X OF SBL Fund
NOTE: Please sign exactly as the name appears on this card. EACH joint owner
must sign the proxy. When signing as executor, administrator, attorney, trustee
or guardian, or as custodian for a minor, please give the FULL title of such. If
a corporation, please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.
PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
VOTE ON DIRECTORS
1. To elect six directors to FOR AGAINST FOR ALL To withhold authority
serve on the Board of ALL ALL EXCEPT to vote, mark "For All
Directors of the Fund Except" and write the
until the next annual nominee's number on
meeting, if any, or until the line below.
their successors shall
have been duly elected and
qualified.
01) Donald A. Chubb, Jr.,
02) John D. Cleland,
03) Penny A. Lumpkin,
04) Mark L. Morris, Jr.,
05) Maynard F. Oliverius
and 06) James R. Schmank |_| |_| |_| ______________________
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
2. To ratify or reject the selection of the firm of |_| |_| |_|
Ernst & Young LLP as independent accountants for
the Fund's fiscal year 2000.
3a. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning share ownership of any one
issuer.
3b. To eliminate the Fund's fundamental investment |_| |_| |_|
limitation concerning investing for control of
portfolio companies.
3c. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning underwriting.
3d. Not Applicable.
3e. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning lending.
3f. Not Applicable.
3g. Not Applicable.
3h. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning buying or selling real
estate.
3i. To amend the Fund's fundamental investment |_| |_| |_|
limitation concerning commodities or commodities
contracts.
4. To approve or disapprove an arrangement and new |_| |_| |_|
investment advisory contract that would permit
Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter
into or amend sub-advisory agreements without
stockholder approval.
5. To approve or disapprove a Brokerage Enhancement |_| |_| |_|
Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, and a new investment advisory
contract that would permit the implementation of
the Plan.
To transact such other business as may properly come before the Meeting or any
adjournments thereof, and to adjourn the Meeting from time to time.
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Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
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