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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:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SECURITY INCOME 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:
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Notice of Special Meeting of Stockholders of
Security Income Fund, Global Aggressive Bond Series
to be held April 28, 1997
700 SW Harrison, Topeka, Kansas 66636-0001
Telephone 1-800-888-2461
To the Stockholders of
* Security Income Fund
- Global Aggressive Bond Series
Notice is hereby given that a special meeting of the stockholders of Global
Aggressive Bond Series of Security Income Fund (the "Fund"), a Kansas
corporation, will be held at the offices of the Fund, Security Benefit Group
Building, 700 SW Harrison Street, Topeka, Kansas 66636-0001, on April 28, 1997
at 9:30 a.m. local time ("Meeting"), for the following purposes:
1. To approve a New Investment Advisory Contract, as exhibited in the
attached proxy statement, which replaces Security Management Company,
LLC as investment manager to the Fund with MFR Advisors, Inc. (MFR
Advisors, Inc. is currently a sub-adviser to the Fund.)
2. To approve a new Sub-Advisory Contract, as exhibited in the attached
proxy statement, between the prospective investment adviser, MFR
Advisors, Inc. and Lexington Management Corporation. (Lexington
Management Corporation is currently a sub-adviser to the Fund.)
3. 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 Security Income Fund on behalf of the Fund has
fixed the close of business on March 3, 1997, as the record date for the
determination of stockholders of the Fund entitled to notice of and to vote at
the Meeting.
Notice is also given that on February 7, 1997, the Board of Directors of
Security Income Fund approved a change in the names of the existing series of
the Fund from Global Aggressive Bond Series A and B to Global High Yield Series
A and B to more fully reflect the investment objectives of the Series. The name
change will be made effective May 1, 1997.
THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF
SECURITY INCOME FUND. ANY FORM OF PROXY WHICH IS EXECUTED AND RETURNED,
NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED
AND RECEIVED IN TIME WILL BE VOTED AT THE MEETING.
By order of the Board of Directors of
Security Income Fund,
AMY J. LEE
Secretary
Topeka, Kansas
March 27, 1997
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Important: Stockholders who do not expect to be present in person at the meeting
are requested to make, date, sign and return the enclosed proxy card(s) to the
Fund as early as possible.
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SECURITY INCOME FUND
- GLOBAL AGGRESSIVE BOND SERIES
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001
SPECIAL MEETING OF STOCKHOLDERS, APRIL 28, 1997
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Security Income Fund for Global Aggressive Bond Series (the "Fund") and is
revocable by timely submission to the Secretary of the Security Income Fund of
another proxy or of notice of revocation in proper written form, or by voting
the shares in person at the Meeting. A second proxy form may be obtained from
the Secretary of Security Income Fund. The cost of soliciting proxies will be
borne by Security Management Company, LLC, the Fund's existing investment
manager ("SMC" or the "Existing Investment Manager"). In addition to
solicitations by mail, some of the Existing Investment Manager's officers and
employees, without extra remuneration, may conduct additional solicitation by
telephone, telegraph and personal interviews. Proxies will be mailed on or about
March 27, 1997.
VOTING SECURITIES
Only stockholders of record at the close of business on March 3, 1997 are
entitled to vote at the special Meeting. On that date, the outstanding number of
voting securities of the Fund was as follows: 348,413.268 Class A shares and
148,160.022 Class B shares, all of which are common stock of the Fund of the par
value of $1.00 per share. Each share in each series is entitled to one vote.
Approval of the New Investment Advisory Contract, Proposal No. 1, and the New
Sub-Advisory Contract, Proposal No. 2, will each require the affirmative vote of
a majority of the outstanding shares of the common stock of the Fund. A
"majority vote" is defined as the vote of either 67% or more of voting
securities present at the meeting in person or by proxy, or more than 50% of the
outstanding voting securities of the Fund, whichever is less. The Class A and
Class B shares of the Fund will be voted together on each proposal due to the
commonality of the interest of the two classes of shares with respect to the
proposals to be voted upon.
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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, 1996 to a
shareholder upon request. Such requests should be directed to Amy Lee, Secretary
of the Fund by writing the Fund at 700 SW Harrison, Topeka, Kansas 66636-0001,
or by calling the Fund's toll-free telephone number 1-800-888-2461, extension
3127.
1
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PROPOSAL NO. 1
APPROVAL OF NEW INVESTMENT ADVISORY CONTRACT WITH MFR ADVISORS, INC.
The Fund's shareholders are asked to approve a new Investment Advisory
Contract (the "New Investment Advisory Contract") between the Fund and MFR
Advisors, Inc. ("MFR" or the "New Investment Manager"). Pursuant to this
proposal, MFR will replace SMC as the principal investment adviser to the Fund.
MFR currently serves as sub-adviser to the Fund. The Fund's Board of Directors,
including a majority of the disinterested Directors, approved the New Investment
Advisory Contract at a Meeting held on February 7, 1997. If the Fund's
stockholders approve the New Investment Advisory Contract at the Meeting, the
Existing Investment Advisory Contract between the Fund and SMC, the existing
Sub-Advisory Contract between SMC and Lexington, and the existing Sub-Advisory
Contract between Lexington and MFR will terminate effective on May 1, 1997 (or
on such later date on which stockholder approval is obtained). The terms of the
New Investment Advisory Contract, including the investment management fee
payable by the Fund, are identical in all material respects to the terms of the
Existing Investment Advisory Contract.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR APPROVAL
OF THE NEW INVESTMENT ADVISORY CONTRACT.
PROPOSAL NO. 2
APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN MFR AND
LEXINGTON MANAGEMENT CORPORATION
The Fund's shareholders are asked to approve a new sub-advisory agreement
between MFR and Lexington Management Corporation ("Lexington" or the
"Sub-Adviser"). Lexington currently furnishes sub-advisory services to the Fund
pursuant to the terms of a sub-advisory contract between SMC and Lexington. If
this Proposal No. 2 is approved by the shareholders, Lexington will continue to
provide sub-advisory services to the Fund pursuant to a new sub-advisory
contract between MFR and Lexington (the "New Sub-Advisory Contract"). The Fund's
Board of Directors, including a majority of the disinterested Directors,
approved the New Sub-Advisory Contract at a Meeting held on February 7, 1997.
The terms of the New Sub-Advisory Contract, including the net investment
management fee which will be paid to Lexington by MFR, are identical in all
material respects to the terms of the existing Sub-Advisory Contract between SMC
and Lexington. The execution of Proposal No. 2 if approved, is contingent upon
the approval of the New Investment Advisory Contract between the Fund and MFR as
the new investment adviser of the Fund under Proposal No. 1.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S STOCKHOLDERS VOTE FOR APPROVAL
OF THE NEW SUB-ADVISORY CONTRACT.
2
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EXISTING INVESTMENT ADVISORY CONTRACTS
EXISTING INVESTMENT ADVISORY CONTRACT. Security Management Company, LLC,
successor firm to Security Management Company, 700 SW Harrison, Topeka, Kansas
66636-0001 has served as the investment adviser to the Fund since its inception
pursuant to an amendment, dated May 1, 1995, to the Investment Advisory Contract
with Security Income Fund ("Existing Investment Advisory Contract"), which was
approved by the initial Stockholder of the Fund on April 18, 1995. The contract
was renewed by the Board of Directors of Security Income Fund (including a
majority of the directors who are not parties to the contract or interested
persons of any such party) on February 7, 1997, and will continue in effect
until stockholder approval of the New Investment Advisory Contract proposed by
this proxy, or, if such contract is not approved, until May 1, 1998 and from
year to year thereafter providing such continuance is specifically approved by
the vote of the majority of the Board of Directors of Security Income 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. The contract provides that it may be
terminated without penalty at any time upon sixty days' notice by the Board of
Directors of Security Income Fund, or by a vote of the holders of a majority of
the outstanding securities of the Global Aggressive Bond Series, or by the
Existing Investment Manager. The contract terminates automatically in the event
of its assignment (as such term is defined in the Investment Company Act of
1940).
Pursuant to the terms of the Existing Investment Advisory Contract the
Existing Investment Manager furnishes statistical and research services to the
Fund, supervises and arranges for the purchase and sale of securities on behalf
of the Fund, provides for the maintenance and compilation of records pertaining
to the investment advisory functions, and also makes certain guarantees with
respect to the Fund's annual expenses. As compensation for the services provided
to the Fund, the Existing Investment Manager receives on an annual basis, .75
percent of the average daily net assets of the Fund, computed on a daily basis
and payable monthly. The contract provides that for each of the full fiscal
years during it's term, the Existing Investment Manager guarantees that the
aggregate annual expenses of every character, exclusive of brokerage
commissions, interest, taxes, Class B distribution fees and extraordinary
expenses (such as litigation), but inclusive of the Existing Investment
Manager's compensation, shall not for the Fund exceed any expense limitation
imposed by state securities regulation in any state in which shares of the Fund
are qualified for sale. The Existing Investment Manager agrees to contribute
such funds to the Fund or to waive such portion of its compensation in any year
as may be necessary to ensure that the total annual expenses shall not exceed
any such limitation.
For the fiscal year ended December 31, 1996, all of the investment
advisory, transfer agent and administrative fees were voluntarily waived by the
Existing Investment Manager. Absent such waiver, the Existing Investment Manager
would have earned $34,900 from the Fund under the terms of the Existing
Investment Advisory Contract. In addition the Existing Investment Manager
provided transfer agent services and certain other administrative services for
which it would have received $1,269 for transfer agent services and $41,953 for
administrative services during such fiscal year. Such services were provided
pursuant to an Administrative Services and Transfer Agency Agreement with
Security Income Fund, dated April 1, 1987, which was amended on May 1, 1995, to
include the Fund.
EXISTING LEXINGTON SUB-ADVISORY CONTRACT. The Existing Investment Manager
has engaged Lexington Management Corporation ("Lexington" or the "Sub-Adviser"),
Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to provide certain
investment advisory services to the Fund pursuant to the terms of a sub-advisory
agreement dated May 1, 1995 ("Existing Lexington Sub-Advisory Agreement")
between the Existing Investment Manager and Lexington. The contract was renewed
by the Board of Directors of Security Income Fund (including a majority of the
directors who are not parties to the contract or interested persons of any such
party) on February 7, 1997. The contract will continue in effect until
stockholder approval of the New Investment Advisory Contract proposed by this
proxy, or, if such contract is not approved, until May 1, 1998 and from year to
year thereafter providing such continuance is specifically approved by the vote
of the
3
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majority of the Board of Directors of Security Income Fund (including a majority
of such directors who are not parties to the contract or interested persons of
any such party) cast in person at a meeting specifically called for voting on
such renewal. Under the Existing Lexington Sub-Advisory Agreement, Lexington
furnishes the Fund with investment advisory, statistical and research
facilities, supervises and arranges for the purchase and sale of securities, and
provides for the maintenance and compilation of records pertaining to such
investment advisory functions subject to the control and supervision of the
Board of Directors of the Fund and the Existing Investment Manager. As
compensation for the services provided to the Fund, the Existing Investment
Manager pays Lexington, on an annual basis, a fee equal to .35 percent of the
average daily net assets of such Fund, calculated daily and payable monthly. The
Existing Lexington Sub-Advisory Agreement may be terminated without penalty at
any time by either party on sixty days' written notice and is automatically
terminated in the event of its assignment or in the event that the Existing
Investment Advisory Contract between the Existing Investment Manager and the
Fund is terminated, assigned or not renewed.
EXISTING MFR SUB-ADVISORY CONTRACT. Lexington has engaged MFR Advisors,
Inc., One Liberty Plaza, New York, New York 10006, to provide the Fund with
investment and economic research services, pursuant to the terms of a
sub-advisory agreement dated May 1, 1995 ("Existing MFR Sub-Advisory Agreement")
between Lexington and MFR. The contract was renewed by the Board of Directors of
Security Income Fund (including a majority of the directors who are not parties
to the contract or interested persons of any such party) on February 7, 1997.
The contract will continue in effect until stockholder approval of the New
Investment Advisory Contract proposed by this proxy, or, if such contract is not
approved, until May 1, 1998 and from year to year thereafter providing such
continuance is specifically approved by the vote of the majority of the Board of
Directors of Security Income 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. Pursuant to
the contract, MFR provides investment and economic research services to the
Fund, subject to the control and supervision of the Board of Directors, the
Existing Investment Manager and Lexington. For the services provided by MFR, MFR
receives from Lexington, on an annual basis, a fee equal to .15 percent of the
average daily net assets of the Fund, calculated daily and payable monthly. The
Existing MFR Sub-Advisory Agreement may be terminated without penalty at any
time by either party on sixty days' written notice and is automatically
terminated in the event of its assignment or in the event that the Existing
Investment Advisory Contract between the Existing Investment Manager and the
Fund or the Existing Lexington Sub-Advisory Agreement is terminated, assigned or
not renewed.
NEW INVESTMENT ADVISORY CONTRACT
The Fund proposes to enter into the New Investment Advisory Contract with
MFR Advisors, Inc., attached as Exhibit A to this proxy statement, subject to
approval by a majority of the stockholders. The New Advisory Contract was
proposed by the Existing Investment Manager and was unanimously approved by the
Board of Directors of Security Income Fund (including a majority of such
directors who are not parties to such contract or interested persons of any such
party) on February 7, 1997. The New Investment Advisory Contract differs from
the Existing Investment Advisory Contract only in that it replaces SMC with MFR
as the new investment manager. The terms of the New Investment Advisory Contract
are identical in all material respects to the terms of the Existing Investment
Advisory Contract. As with the Existing Investment Advisory Contract, the New
Investment Advisory Contract provides for compensation equal to .75 of one
percent of the Fund's average net assets computed on a daily basis and payable
monthly.
It is expected that the new contract will become effective on May 1, 1997,
provided that prior to that date it is approved by the holders of a majority of
the outstanding voting securities of the Fund. The new contract shall continue
in force until May 1, 1998, and from year to year thereafter, providing such
continuance is specifically approved by a majority of the Board of Directors of
the Fund (including a majority of such directors who are not parties to the New
Investment Advisory Contract or interested persons of any such party). At the
time the New Investment Advisory Contract becomes effective, the Existing
4
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Investment Advisory Contract, Existing Lexington Sub-Advisory Contract and
Existing MFR Sub-Advisory Contract will automatically terminate.
In recommending the approval of the New Investment Advisory Contract to the
stockholders of the Fund, the Board considered such factors as it deemed
reasonably necessary, including (1) the fairness of the investment advisory fee
to be paid by the Fund; (2) the nature and quality of the services to be
rendered and the results achieved by the New Investment Manager in its capacity
as sub-adviser to the Fund during the past two years; (3) the cost to the Fund
for administrative services to be rendered by the Existing Investment Manager
under a separate administrative services agreement; (4) comparative industry
advisory fee structures and expense ratios for the Fund including, specifically,
the relationship of the proposed advisory fee rates to those typically charged
similar mutual funds; (5) the financial soundness of the New Investment Manager
to render all necessary services to the Fund; and (6) the total fees paid by the
Fund, including 12b-1 plan fees. The Board gave equal weight to each of the
above factors when considering approval of the Contract.
The New Investment Advisory Contract provides that for each of the Fund's
full fiscal years during its term, the New Investment Manager guarantees that
the aggregate annual expenses of every character, exclusive of brokerage
commissions, interest, taxes and extraordinary expenses (such as litigation),
but inclusive of the New Investment Manager's compensation, shall not exceed any
expense limitation imposed by state securities regulation in any state in which
shares of the Fund are qualified for sale. The New Investment Manager agrees to
contribute such funds to the Fund or to waive such portion of its compensation
in any year as may be necessary to ensure that such total annual expenses will
not exceed any such limitation. The New Investment Manager, however, is not
aware of any such limitation currently imposed by state securities regulation,
and therefore, does not anticipate waiving or reimbursing any expenses under
this provision. However, the Investment Adviser intends to voluntarily limit the
expenses of the Fund to 2.00 percent of average net assets with respect to Class
A shares and 2.75 percent of average net assets with respect to Class B shares
during the year ending December 31, 1997.
The New Investment Advisory Contract sets forth the New Investment
Manager's responsibilities and the procedures relating to portfolio transactions
and brokerage. The New Investment Manager may benefit from its relationship with
the Fund by receiving investment information and services from broker/dealers
that execute transactions in portfolio securities on behalf of the Fund. The New
Investment Manager may use all, none or some of such information and services in
providing investment advisory services to the Fund and other mutual funds under
its management. The New Investment Advisory Contract does not change past
practices and policies of the Fund relating to portfolio transactions, nor does
it change services to be performed or facilities to be provided. For further
discussion regarding portfolio brokerage and the possible benefits to the New
Investment Manager, see Portfolio Brokerage on page 11.
The New Investment Advisory Contract also sets forth the expenses to be
paid by the New Investment Manager and the Fund. The New Investment Manager is
to pay only those expenses relating to its responsibility to provide investment
advisory, statistical and research services and facilities, including all
clerical services relating to research, statistical and investment work, and for
the compilation and maintenance of such records relating to these functions as
are required under applicable law and the rules and regulations of the
Securities and Exchange Commission. The Fund will be responsible for its
expenses, including the following expenses: office rental or general
administrative expenses, insurance premiums, expenses of obtaining quotations on
the Funds' portfolio securities and pricing of the Fund's shares, expenses of
maintaining the Fund's corporate existence, directors' fees, expenses of
preparing and distributing reports to shareholders, brokerage commissions,
interest charges, and legal, auditing and accounting expenses. The Board and the
Management of the Fund believe limiting the Investment Manager's
responsibilities to providing investment advisory, statistical and research
services, is consistent with industry practice.
The Board of Directors of the Fund, unanimously recommends approval of the
New Investment Advisory Contract by a vote in favor of Proposal No. 1. In the
event the proposed contract is not approved, the Existing Investment Advisory
Contract will continue in effect according to its terms.
5
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NEW SUB-ADVISORY CONTRACT
The Fund proposes to enter into a new Sub-Advisory Contract ("New
Sub-Advisory Contract") between the New Investment Manager and Lexington
Management Corporation attached hereto as Exhibit "B," which will replace the
Existing Lexington Sub-Advisory Contract between the Existing Investment Manager
and Lexington. The terms of the New Sub-Advisory Contract, including the
investment management fee which will be paid to the Sub-Adviser by the New
Investment Manager, are identical in all material respects to the terms of the
Existing Lexington Sub-Advisory Contract. The New Sub-Advisory Contract was
proposed by the Existing Investment Manager and was unanimously approved by the
Board of Directors of Security Income Fund (including a majority of such
directors who are not parties to such contract or interested persons of any such
party) on February 7, 1997. The execution of this Proposal No. 2 is contingent
upon shareholder approval of Proposal No. 1 pertaining to the approval of MFR as
the New Investment Manager.
Under the New Sub-Advisory Contract, the Sub-Adviser will continue to
furnish the Fund with investment research and advice in connection with the
Fund's investment in global securities, and effect purchases and sales of
portfolio securities, subject to the policies and control of the Board of
Directors and the supervision of the New Investment Manager. For its services,
the Sub-Adviser will receive from the New Investment Manager a monthly fee at
the annual rate of .20% of the average daily closing value of the net assets of
the Fund. The Sub-Adviser has agreed to pay its expenses in connection with
providing the advisory services, including any expenses associated with
preparing reports for the Fund's Board of Directors and expenses of any travel
by employees of the Sub-Adviser in connection with such reports as well as any
expenses that it may incur in communicating with the New Investment Manager.
It is expected that the New Sub-Advisory Contract will become effective on
May 1, 1997, provided that prior to that date it is approved by the holders of a
majority of the outstanding voting securities of the Fund. The new contract will
continue in force until May 1, 1998, and from year to year thereafter, providing
such continuance is specifically approved by a majority of the Board of
Directors of the Fund (including a majority of such directors who are not
parties to the New Sub-Advisory Contract or interested persons of any such
party). At the time the New Investment Advisory Contract and the New
Sub-Advisory Contract become effective, the Existing Lexington Sub-Advisory
Contract between the Existing Investment Manager and the Sub-Adviser will
automatically terminate. The New Sub-Advisory Contract may be terminated without
penalty upon sixty days' written notice by either party or by vote of the Board
of Directors or by vote of a majority of the holders of the outstanding voting
securities of the Fund. The New Sub-Advisory Contract will automatically
terminate in the event of the termination of the New Investment Advisory
Contract between the New Investment Manager and the Fund or in the event of its
assignment.
In recommending the approval of the New Sub-Advisory Contract to the
shareholders of the Fund the Board of Directors considered such factors as it
deemed reasonably necessary, including (1) the nature and quality of the
services to be provided to the Fund and the results achieved by the Sub-Adviser
over the past two years; (2) the fairness of the compensation of the Sub-Adviser
under all agreements with the Sub-Adviser; (3) the financial soundness of the
Sub-Adviser to render all necessary services to the Fund; (4) comparative
industry advisory fee structures and expense ratios for the Fund including,
specifically, the relationship of the proposed advisory fee rates to those
typically charged similar mutual funds; and (5) the total fees paid by the Fund,
including 12b-1 plan fees. The Board gave equal weight to each of the above
factors when considering approval of the Contract.
The Board of Directors of the Fund unanimously recommends approval of the
New Sub-Advisory Contract by a vote in favor of Proposal No. 2. In the event
that the proposed contract is not approved, the Board of Directors will meet to
consider what action should be taken to present another Sub-Advisory contract
for approval.
6
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THE PROSPECTIVE INVESTMENT ADVISER
MFR Advisors, Inc., is located at One Liberty Plaza, New York, New York,
10006. MFR is 100% owned by Maria Fiorini Ramirez, Inc., a New York corporation
("Ramirez"). Security Benefit Life Insurance Company ("SBL") is negotiating with
Ramirez to acquire stock rights that would enable SBL to acquire up to 100% of
the ownership interest in MFR upon the exercise of such rights. Ramirez was
established in August of 1992 to provide economic consulting and through its
subsidiary companies, investment advisory and other broker/dealer services.
Ramirez is a successor firm to Maria Ramirez Capital Consultants, Inc. which was
formed in April 1990 as a subsidiary of John Hancock Freedom Securities
Corporation (JHFSC). Maria Fiorini Ramirez owns 100% of the common stock of
Ramirez and JHFSC owns 20% of the preferred stock of Ramirez which, under
certain circumstances, would be convertible into 20% of the common stock of
Ramirez. Security Benefit Life Insurance Company is a mutual life insurance
company incorporated under the laws of Kansas with over $15.5 billion of
insurance in force.
MFR has served as sub-adviser to the Fund since its inception on May 1,
1995, providing global investment advisory services to the Fund. MFR seeks to
provide superior long-term performance results by combining its noted global
economic forecasting with active value-added portfolio management. If the New
Investment Advisory Contract, Proposal No. 1, is approved by the stockholders,
it is anticipated that MFR will continue to provide such services to the Fund
and those additional investment advisory services currently provided by the
Existing Investment Manager.
The names and principal occupations of the executive officers and directors
of MFR and their position with the Fund are as follows:
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PRINCIPAL POSITION POSITION
NAME* OCCUPATION WITH MFR WITH FUND
- --------------------------------------------------------------------------------
Maria Fiorini Ramirez Chief Executive Chief Executive Officer, (1)
Officer and and Director
President
MFR Advisors, Inc.
Bruce Jensen Executive Vice Executive Vice President (1)
President and Director
MFR Advisors, Inc.
Timothy F. Downing Chief Financial Officer Chief Financial Officer None
MFR Advisors, Inc. and Director
*All located at One Liberty Plaza, New York, New York 10006.
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(1) It is anticipated that Maria Fiorini Ramirez and Bruce Jensen will be
appointed as directors of the Fund in the near future.
7
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MFR acts as investment manager or sub-adviser for the portfolios of
registered investment companies with investment objectives similar to the Fund's
investment objective of high current income and secondarily, capital
appreciation. Set forth below is the name of each such fund, together with
information concerning the fund's net assets and the fees paid to MFR for its
services.
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FUND RELATIONSHIP NET ASSETS ANNUAL RATE FEE WAIVER OR
NAME OF MFR AS OF 12-31-96 OF COMPENSATION REIMBURSEMENTS
- --------------------------------------------------------------------------------
Lexington Ramirez Sub-Adviser $29,109,820 .5% of net None
Global Income assets in
excess of
$15 million
SBL Fund -
Series K Sub-Adviser $12,743,098 .15% of net (1)
assets
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(1) MFR voluntarily agreed to waive all fees for fiscal year ended December 31,
1996.
THE SUB-ADVISER
Lexington Management Corporation is a wholly owned subsidiary of Lexington
Global Asset Managers, Inc., Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663, which is organized as a Delaware corporation, the majority of the common
stock of which is owned by descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities.
The Sub-Adviser has furnished advisory services to the Fund since its
inception on May 1, 1995, and it is anticipated that the Sub-Adviser will
continue to provide similar services to the Fund under the New Sub-Advisory
Agreement, Proposal No. 2, if approved by the shareholders.
The names and principal occupations of the executive officers and directors
of the Sub-Adviser and their positions with the Funds are as follows:
<TABLE>
<CAPTION>
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PRINCIPAL POSITION WITH POSITION WITH
NAME* OCCUPATION SUB-ADVISER FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ROBERT M. DEMICHELE President and Director, Lexington Global Chairman None
Asset Managers, Inc.; Chairman and and Chief
Chief Executive Officer, Lexington Executive
Management Corporation; Chairman Officer
and Chief Executive Officer, Lexington Funds
Distributor, Inc.; Director, Chartwell Re
Corporation; Director, The Navigator's
Insurance Group, Inc.; Director, Unione
Itaiana Reinsurance; Director, Vanguard Cellular
Systems, Inc.; Chairman, Lexington Group
of Investment Companies; Chairman of the
Board, Market Systems Research, Inc. and
Market Systems Research Advisors, Inc.
(registered investment advisers)
</TABLE>
8
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<TABLE>
<CAPTION>
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PRINCIPAL POSITION WITH POSITION WITH
NAME* OCCUPATION SUB-ADVISER FUND
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard M. Hisey Chief Financial Officer, Managing Director Chief Financial None
and Director, Lexington Management Officer,
Corporation; Executive Vice President and Managing
Chief Financial Officer, Lexington Global Director and
Asset Managers, Inc.; Chief Financial Officer Director
and Vice President, Lexington Group of
Investment Companies; Vice President and
Treasurer, Market Systems Research Advisors,
Inc.; Chief Financial Officer, Vice President
and Director, Lexington Funds Distributor, Inc.
Lawrence Kantor Executive Vice President, Managing Executive None
Director and Director, Lexington Vice President,
Management Corporation; Executive Vice Managing
President, General Manager-Mutual Funds, Director and
Lexington Global Asset Managers, Inc.; Director
Vice President and Director, Lexington Group
of Investment Companies; Executive Vice
President and Director, Lexington Funds
Distributor, Inc.
Stuart S. Richardson Chairman of the Board, Lexington Director None
Global Asset Managers, Inc.
</TABLE>
*All located at P.O. Box 1515, Saddle Brook, New Jersey 07663.
- --------------------------------------------------------------------------------
The Sub-Adviser acts as investment manager or sub-adviser for the
portfolios of registered investment companies with investment objectives similar
to the Fund's investment objective of high current income and, secondarily,
capital appreciation. Set forth below is the name of each of such funds,
together with information concerning the fund's net assets and the fees paid to
Lexington for its services.
- --------------------------------------------------------------------------------
FUND RELATIONSHIP NET ASSETS ANNUAL RATE FEE WAIVER OR
NAME OF LEXINGTON AS OF 12-31-96 OF COMPENSATION REIMBURSEMENTS
- --------------------------------------------------------------------------------
Lexington Ramirez Adviser $29,109,820 .50% of net assets (1)
Global Income
SBL Fund -
Series K Sub-Adviser $12,742,098 .35% of net assets (2)
- --------------------------------------------------------------------------------
(1) Lexington has voluntarily at least until April 30, 1997 undertaken to
reimburse the fund, the amount, if any, whereby total expenses of such fund
(excluding interest, taxes, brokerage commissions and extraordinary
expenses but including management fee and operating expenses) exceed 1.50%
of the amount of daily net assets of the fund on an annual basis.
(2) Lexington voluntarily waived all fees for the fiscal year ended December
31, 1996.
9
<PAGE>
The Sub-Adviser also provides certain administrative services to the Fund,
pursuant to a Sub-Administrative Agreement, dated September 10, 1993, as amended
to include the Fund, effective May 1, 1995. Pursuant to this agreement the
Sub-Adviser provides certain accounting functions, the pricing function and
related recordkeeping for the Fund and certain other mutual funds for which the
Existing Investment Manager acts as fund administrator. For such services the
Existing Investment Manager pays the Sub-Adviser annual compensation which
consists of an annual base fee of $9,000 per fund (or series of a fund) per
contract year, plus the greater of (i) a minimum fee of $47,000 per fund (or
series of a fund) per contract year or (ii) an amount equal to the following
percentages of the aggregate average daily net assets of the funds/series:
Average Daily Net Assets of the Combined Funds/Series Compensation
Less than $500 million ................................ .07%, plus
$500 million but less than $1 billion .................. .045%, plus
$1 billion or more ..................................... .025%
It is anticipated that SMC, the administrator for the Fund, will begin
providing the sub-administrative services previously provided by the
Sub-Adviser, effective May 1, 1997.
UNDERWRITER
Security Distributors, Inc., a wholly-owned subsidiary of Security Benefit
Group, Inc., is principal underwriter of the Fund and other funds for which the
New Investment Manager serves as investment manager.
The affiliations of various officers and directors of the Fund with MFR
Advisors, Inc., the New Investment Manager, and Security Distributors, Inc. are
listed in the following table:
- --------------------------------------------------------------------------------
POSITION WITH
POSITION WITH POSITION WITH SECURITY
NAME(1) THE FUND MFR ADVISORS, INC. DISTRIBUTORS, INC.
- --------------------------------------------------------------------------------
James R. Schmank Vice President None Vice President
and Treasurer and Director
John D. Cleland President and None Vice President
Director and Director
Mark E. Young Vice President None Vice President
Amy J. Lee Secretary None Secretary
Brenda M. Harwood Assistant Secretary None Treasurer
and Assistant
Treasurer
- --------------------------------------------------------------------------------
(1) It is anticipated that Maria Fiorini Ramirez and Bruce Jensen will be
appointed as directors of Security Income Fund in the future. The affiliations
of such persons with MFR are set forth on page 8 and neither will hold any
position with Security Distributors, Inc.
For the fiscal year ended December 31, 1996, the Fund paid $219 in sales
commissions to Security Distributors, Inc.
10
<PAGE>
PORTFOLIO BROKERAGE
Transactions in portfolio securities shall be effected in such manner as
deemed to be in the best interest of the Fund. In reaching a judgment relative
to the qualifications of a broker or dealer to obtain the best execution of a
particular transaction, all relevant factors and circumstances will be taken
into account by the New Investment Manager, including consideration of the
overall reasonableness of commissions paid to a broker, the firm's general
execution and operational capabilities, and its reliability and financial
condition. The Fund does not anticipate that it will incur a significant amount
of brokerage commissions on transactions in fixed income securities because
fixed income securities are generally traded on a "net" basis--that is, in
principal amount without the addition or deduction of a stated brokerage
commission, although the net price usually includes a profit to the dealer. The
Fund will deal directly with the selling or purchasing principal without
incurring charges for the services of a broker on its behalf unless it is
determined that a better price or execution may be obtained by utilizing the
services of a broker. The Fund also may purchase portfolio securities in
underwritings where the price includes a fixed underwriter's concession or
discount. Money market instruments may be purchased directly from the issuer at
no commission or discount.
Portfolio transactions that require a broker may be directed to brokers who
furnish investment information or research services to the New Investment
Manager. Such investment information and research services include advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers of
securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and performance of
accounts. Such investment information and research services may be furnished by
brokers in many ways, including: (1) on-line data base systems, the equipment
for which is provided by the broker, that enable registrant to have real-time
access to market information, including quotations; (2) economic research
services, such as publications, chart services and advice from economists
concerning macroeconomic information; and (3) analytical investment information
concerning particular corporations. If a transaction is directed to a broker
supplying such information or services, 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 New Investment Manager shall have
determined in good faith that the commission is reasonable in relation to the
value of the investment information or the research services provided, viewed in
terms of either that particular transaction or the overall responsibilities of
the New Investment Manager with respect to all accounts as to which it exercises
investment discretion. The New Investment Manager may use all, none, or some of
such information and services in providing investment advisory services to each
of the mutual funds under its management, including the Fund.
In addition, brokerage transactions may be placed with broker/dealers who
sell shares of the Funds managed by the New Investment Manager who may or may
not also provide investment information and research services. The New
Investment Manager may, consistent with the NASD Rules of Fair Practice,
consider sales of Fund shares in the selection of a broker/dealer.
Securities held by the Fund may also be held by other investment advisory
clients of the New Investment Manager, including other investment companies.
When selecting securities for purchase or sale for a Fund, the New Investment
Manager may at the same time be purchasing or selling the same securities for
one or more of such other accounts. Subject to the New Investment Manager's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of the New Investment Manager not
to favor one account over the other. Any purchase or sale orders executed
simultaneously are allocated at the average price and as nearly as practicable
on a pro rata basis (transaction costs will also generally be shared on a pro
rata basis) in proportion to the amounts desired to be purchased or sold by each
account. In those instances where it is not practical to allocate purchase or
sale orders on a pro rata basis, then the allocation will be made on a rotating
or other equitable basis. While it is conceivable that in certain instances this
procedure could adversely affect the price or number of shares
11
<PAGE>
involved in the Fund's transaction, it is believed that the procedure generally
contributes to better overall execution of the Fund's portfolio transactions.
The Board of Directors has adopted guidelines governing this procedure and will
monitor the procedure to determine that the guidelines are being followed and
that the procedure continues to be in the best interest of the Fund and its
stockholders. With respect to the allocation of initial public offerings
("IPOs"), the New Investment Manager may determine not to purchase such
offerings for certain of its clients (including investment company clients) due
to the limited number of shares typically available to the New Investment
Manager in an IPO. No brokerage commissions were paid by the Fund to an
affiliated broker for the year ended December 31, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following chart lists those shareholders which beneficially own in
excess of 5% of the outstanding common stock of the Fund.
- --------------------------------------------------------------------------------
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENTAGE
DIRECTLY OR INDIRECTLY OF
NAME AND ADDRESS AS OF FEBRUARY 28, 1997 CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
Smith Richardson Foundation, Inc.(1) 163,045.736 None 46.85% 0%
c/o Lexington Management Corporation
P.O. Box 1515
Saddle Brook, New Jersey 07668
Security Benefit Group, Inc. 144,469.254 142,020.064 41.51% 95.86%
700 SW Harrison St.
Topeka, Kansas 66636-0001
(1) The Smith Richardson Foundation, Inc. is a private foundation whose current
grant policy focuses on the areas of international and domestic public
policy and children and families at risk.
- --------------------------------------------------------------------------------
On February 28, 1997, the Fund's "named executive officers" and directors,
individually and as a group, beneficially owned no shares of the Fund.
12
<PAGE>
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, 1996, which was mailed to stockholders on
or about March 6, 1997.
The Board of Directors of the Fund is not aware of any other matters to
come before the special Meeting of stockholders or any adjournments thereof
other than those specified herein. If any other matters should come before the
Meeting, it is intended that the persons named as proxies in the enclosed
form(s) of proxy, or their substitutes, will vote the proxy in accordance with
their best judgment on such matters.
By order of the Board of Directors of Security Income Fund,
AMY J. LEE
Secretary
13
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY CONTRACT
THIS AGREEMENT, made this _______ day of __________________, 1997, between
SECURITY INCOME FUND, a Kansas corporation (the "Fund"), and MFR Advisors, Inc.,
a New York corporation (the "Adviser"),
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 Fund is authorized to issue shares in separate Series, with each
such Series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund desires to retain the Adviser to render certain investment
advisory services hereunder and with respect to Global Aggressive Bond Series of
the Fund (the "Series") 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 ADVISER. The Fund hereby employs the Adviser to act as
investment adviser to the Series of the Fund with respect to the investment
of its assets, and to supervise and arrange the purchase of securities for
and the sale of securities held in the portfolios of the Series of the
Fund, subject always to the supervision of the Board of Directors of the
Fund, during the period and upon and subject to the terms and conditions
herein set forth. The Adviser hereby accepts such employment and agrees to
perform the services required by this Agreement for the compensation herein
provided.
In the event the Fund establishes additional series with respect to which
it desires to retain the Adviser to render investment advisory services
hereunder, it shall notify the Adviser in writing. If the Adviser is
willing to render such services it shall notify the Fund in writing,
whereupon such series shall become a Series subject to the terms and
conditions hereunder, and to such amended or additional provisions as shall
be specifically agreed to by the Fund and the Adviser in accordance with
applicable law.
2. INVESTMENT ADVISORY DUTIES. The Adviser shall regularly provide the Series
of 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 series shall be
held uninvested and shall arrange for the purchase of securities and other
investments for and the sale of securities and other investments held in
the portfolio of the Series. All investment advice furnished by the Adviser
to the Series 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 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 Adviser shall advise and assist the officers or
other agents of the Fund in taking such steps as are necessary or
appropriate to carry out the decisions of the Fund's Board of Directors
(and any duly appointed committee thereof) with regard to the foregoing
matters and the general conduct of the Fund's business.
14
<PAGE>
3. PORTFOLIO TRANSACTIONS AND BROKERAGE.
(a) Transactions in portfolio securities shall be effected by the Adviser,
through brokers or otherwise, in the manner permitted in this Section
3 and in such manner as the Adviser shall deem to be in the best
interests of the Fund after consideration is given to all relevant
factors.
(b) In reaching a judgment relative to the qualification of a broker to
obtain the best execution of a particular transaction, the Adviser may
take into account all relevant factors and circumstances, including
the size of any contemporaneous market in such securities; the
importance to the Fund of speed and efficiency of execution; whether
the particular transaction is part of a larger intended change in
portfolio position in the same securities; the execution capabilities
required by the circumstances of the particular transaction; the
capital required by the transaction; the overall capital 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 or statement of additional
information, the Adviser is authorized to direct the execution of
portfolio transactions for the Fund to brokers who furnish investment
information or research service to the Adviser. Such allocation shall
be in such amounts and proportions as the Adviser may determine. If
the transaction is directed to a broker providing brokerage and
research services to the Adviser, the commission paid for such
transaction may be in excess of the commission another broker would
have charged for effecting that transaction, if the Adviser shall have
determined in good faith that the commission is reasonable in relation
to the value of the brokerage and research services provided, viewed
in terms of either that particular transaction or the overall
responsibilities of the Adviser with respect to all accounts as to
which it now or hereafter exercises investment discretion. For
purposes of the immediately preceding sentence, "providing brokerage
and research services" shall have the meaning generally given such
terms or similar terms under Section 28(e)(3) of the Securities
Exchange Act of 1934, as amended.
(d) In the selection of a broker for the execution of any transaction not
subject to fixed commission rates, the Adviser shall have no duty or
obligation to seek advance competitive bidding for the most favorable
negotiated commission rate to be applicable to such transaction, or to
select any broker solely on the basis of its purported or "posted"
commission rates.
(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
Adviser, better price or execution can be obtained in utilizing the
services of a broker.
4. ALLOCATION OF EXPENSES AND CHARGES. The Adviser 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 sentences, the
Adviser shall not be required to pay any expenses of the Fund, and in
particular, but without limiting the generality of the foregoing, the
Adviser shall not be required to pay office rental or general
administrative expenses; Board of Directors' fees; legal, auditing and
accounting expenses; insurance premiums; broker's commissions; taxes and
15
<PAGE>
governmental fees and any membership dues; fees of custodian, transfer
agent, registrar and dividend disbursing agent (if any); expenses of
obtaining quotations on the Fund's portfolio securities and pricing of the
Fund's shares; cost of stock certificates and any other expenses (including
clerical expenses) of issue, sale, repurchase or redemption of shares of
the Fund's capital stock; costs and expenses in connection with the
registration of the Fund's 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, printing and distributing reports, proxy statements,
prospectuses, statements of additional information, notices and
distributions to stockholders; costs of stationery; costs of stockholder
and other Meetings; expenses of maintaining the Fund's corporate existence;
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 directors.
5. COMPENSATION OF ADVISER.
(a) As compensation for the services rendered by the Adviser as provided
herein, for each of the Fund's fiscal years this Agreement is in
effect, the Fund shall pay the Adviser an annual fee equal to .75
percent of the average daily closing value of the net assets of the
Series computed on a daily basis. Such fee shall be adjusted and
payable monthly. If this Agreement shall be effective for only a
portion of a year in which a fee is owed for any Series, then the
Adviser's compensation for said year shall be prorated for such
portion. For purposes of this Section 5, the value of the net assets
of the Series shall be computed in the same manner as the value of
such net assets is computed in connection with the determination of
the net asset value of the shares of the Fund as described in the
Fund's Prospectus and Statement of Additional Information. The net
asset value of the Series shall be included in and comprise a part of
the net assets of the Fund for purposes of said fee under this
Section.
(b) For each of the Fund's full fiscal years this Agreement remains in
force, the Adviser agrees that if the total annual expenses of the
Series of the Fund, exclusive of interest and taxes and extraordinary
expenses (such as litigation), and distribution fees paid under the
Fund's Class B Distribution Plan, but inclusive of the Adviser's
compensation, exceed any expense limitation imposed by state
securities law or regulation in any state in which shares of the Fund
are then qualified for sale, as such regulations may be amended from
time to time, the Adviser will contribute to the Series such funds or
waive such portion of its fee, adjusted monthly as may be requisite to
insure that such annual expenses will not exceed any such limitation.
If this 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 the Series
shall not be deemed to be expenses with the meaning of this paragraph
(b).
6. ADVISER NOT TO RECEIVE COMMISSIONS. In connection with the purchase or sale
of portfolio securities for the account of the Fund, neither the Adviser
nor any officer or director of the Adviser shall act as principal or
receive any compensation from the Fund other than its compensation as
provided for in Section 5 above. If the Adviser, or any "affiliated person"
(as defined in the Investment Company Act of 1940) receives any cash,
credits, commissions or tender fees from any person in connection with
transactions in the Fund's portfolio securities (including but not limited
to the tender or delivery of any securities held in the Fund's portfolio),
the Adviser shall immediately pay such amount to the Fund in cash or as a
credit against any then earned but unpaid management fees due by the Fund
to the Adviser.
16
<PAGE>
7. LIMITATION OF LIABILITY OF ADVISER. So long as the Adviser shall give the
Fund the benefit of its best judgment and effort in rendering services
hereunder, the Adviser shall not be liable for any errors of judgment or
mistake of law, or for any loss sustained by reason of the adoption of any
investment policy or the purchase, sale or retention of any security on its
recommendation, 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 Adviser against any
liability to the Fund or its security holders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7, "Adviser" shall include
directors, officers and employees of the Adviser, as well as that
corporation itself.
8. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
the Adviser or any officer thereof from acting as investment adviser for
any other person, firm, or corporation, nor shall it in any way limit or
restrict the Adviser or any of its directors, officers, stockholders or
employees from buying, selling, or trading any securities for its own
accounts or for the accounts of others for whom it may be acting; provided,
however, that the Adviser expressly represents that it will undertake no
activities which, in its judgment, will conflict with the performance of
its obligations to the Fund under this Agreement. The Fund acknowledges
that the Adviser acts as investment adviser to other investment companies,
and it expressly consents to the Adviser acting as such; provided, however,
that if in the opinion of the Adviser, particular securities are consistent
with the investment objectives of, and are desirable purchases or sales for
the portfolios of the Series and one or more of such other investment
companies or series of such companies at approximately the same time, such
purchases or sales will be made on a proportionate basis if feasible, and
if not feasible, then on a rotating or other equitable basis.
9. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective on May 1, 1997, provided that on that date it is approved by the
holders of a majority of the outstanding voting securities of the Series.
This Agreement shall continue in force until May 1, 1998, 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 Advisory Contract, it will
be continued for that series even though the Advisory Contract is not
approved by a majority of the outstanding shares of any other series. Upon
this Agreement becoming effective, any previous agreement between the Fund
and the Adviser 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 the Series, 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 Adviser, 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).
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective corporate officers thereto duly authorized on the
day, month and year first above written.
SECURITY INCOME FUND
By
---------------------------------
President
ATTEST:
- ----------------------------------------------
Secretary
MFR Advisors, Inc.
By
---------------------------------
President
ATTEST:
- ----------------------------------------------
Secretary
18
<PAGE>
EXHIBIT B
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this ___ day of ______ 1997, by and between MFR ADVISORS,
INC., a New York Corporation (the "Adviser"), and LEXINGTON MANAGEMENT
CORPORATION, a Delaware corporation (the "Sub-adviser"),
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for certain series of the
Security Income Fund (the "Fund"), and provides investment advisory services to
the Fund on the terms and conditions set forth in an investment advisory
contract;
WHEREAS, the Fund is registered as a diversified, open-end management investment
company under the Investment Company Act of 1940, as amended, (the "1940 Act"),
and the rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain the Sub-adviser as the Adviser's agent to
furnish certain advisory services to the Global Aggressive Bond Series of the
Fund (the "Series"), on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on the
terms set forth in this Agreement. Sub-adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. INVESTMENT ADVICE. The Sub-adviser shall furnish the Series with investment
research and advice consistent with the investment policies set forth in
the Prospectus and Statement of Additional Information of the Fund, subject
at all times to the policies and control of the Fund's Board of Directors
and the supervision of the Adviser. In addition, the Sub-adviser may avail
itself of any investment research or advice provided by the Adviser. The
Sub-adviser shall give the Series the benefit of its best judgment, efforts
and facilities in rendering its services as Sub-adviser.
3. INVESTMENT ANALYSIS AND IMPLEMENTATION. In carrying out its obligation
under paragraph 2 hereof, the Sub-adviser shall:
(a) consult with Adviser concerning which issuers and securities should be
represented in the Series' portfolio and regularly report thereon to
the Fund's Board of Directors and the Adviser;
(b) formulate and implement continuing programs for the purchase and sale
of the securities of such issuers and regularly report thereon to the
Fund's Board of Directors and the Adviser;
19
<PAGE>
(c) continuously review the Series' security holdings and the investment
program and the investment policies of the Series; and
(d) take, on behalf of the Series, all actions which appear necessary to
carry into effect such purchase and sale programs, including the
placement of orders for the purchase and sale of securities for the
Series.
4. BROKER-DEALER RELATIONSHIPS. The Sub-adviser is responsible for decisions
to buy and sell securities for the Series, broker/dealer selection, and
negotiation of brokerage commission rates. The Sub-adviser's primary
consideration in effecting a security transaction will be execution at the
most favorable price. In selecting a broker/dealer to execute each
particular transaction, the Sub-adviser will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker/dealer; the size of and difficulty in
executing the order; and the value of the expected contribution of the
broker/dealer to the investment performance of the Series on a continuing
basis. Accordingly, the price to the Series in any transaction may be less
favorable than that available from another broker/dealer if the difference
is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-adviser shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Series to pay a broker for effecting a
portfolio investment transaction in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if the Sub-adviser determines in good faith that such amount of commission
was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Sub-adviser's overall responsibilities with
respect to the Series and to its other clients as to which it exercises
investment discretion. The Sub-adviser is further authorized to place
and/or to effect orders with such brokers and dealers who may provide
research or statistical material or other services to the Series or to the
Sub-adviser. Such allocation shall be in such amounts and proportions as
the Sub-adviser shall determine and the Sub-adviser will report on said
allocations regularly to the Board of Directors of the Fund and the Adviser
indicating the brokers to whom such allocations have been made and the
basis therefor.
5. CONTROL BY BOARD OF DIRECTORS. Any investment program undertaken by the
Sub-adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-adviser on behalf of the Series pursuant thereto,
shall at all times be subject to any directives of the Board of Directors
of the Fund.
6. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Sub-adviser shall ensure that the Series complies
with:
(a) all applicable provisions of the 1940 Act;
(b) the provisions of the Registration Statement of the Fund, as amended,
under the Securities Act of 1933 and the 1940 Act;
(c) all applicable statutes and regulations necessary to qualify the
Series as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code (or any successor or similar provision), and
shall notify the Adviser immediately upon having a reasonable basis
for believing that the Series has ceased to so qualify or that it
might not so qualify in the future;
(d) the provisions of the Fund's Articles of Incorporation, as amended;
(e) the provisions of the Bylaws of the Fund, as amended; and
(f) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-adviser hereby agrees to maintain all records relating to
its activities and obligations under this Agreement which are required to
be maintained by Rule 31a-1 under the 1940 Act and agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the Act. The
Sub-adviser
20
<PAGE>
further agrees that all such records are the property of the Fund and
agrees to surrender promptly to the Fund any such records upon the Fund's
request.
8. EXPENSES. The expenses connected with the Fund shall be borne by the
Sub-adviser as follows:
(a) The Sub-adviser shall maintain, at its expense and without cost to the
Adviser or the Series, a trading function in order to carry out its
obligations under subparagraph (d) of paragraph 3 hereof to place
orders for the purchase and sale of portfolio securities for the
Series.
(b) The Sub-adviser shall pay any expenses associated with carrying out
its obligation under subparagraph (b) of paragraph 2 hereof to prepare
reports for the Fund's Board of Directors concerning issuers and
securities represented in the Series' portfolio and the expenses of
any travel by employees of the Sub-adviser in connection with such
reports to the Fund's Board of Directors.
(c) The Sub-adviser shall pay any expenses that it may incur in
communicating with the Adviser in connection with its obligations
under this Agreement, including the expenses of telephone calls,
special mail services and telecopier charges.
9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-adviser may perform
services on behalf of the Fund which are not required by this Agreement.
Such services will be performed on behalf of the Fund, and the
Sub-adviser's cost in rendering such services may be billed monthly to the
Adviser, subject to examination by the Adviser's independent accountants.
Payment or assumption by the Sub-adviser of any Fund expense that the
Sub-adviser is not required to pay or assume under this Agreement shall not
relieve the Adviser or the Sub-adviser of any of their obligations to the
Fund or obligate the Sub-adviser to pay or assume any similar Fund expense
on any subsequent occasions.
10. DELEGATION OF DUTIES. The Sub-adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and services
governed by this agreement to a third party, whether or not by formal
written agreement, provided that such arrangement with a third party has
been approved by the Board of Directors of the Fund. The Sub-adviser shall,
however, retain ultimate responsibility to the Fund and shall implement
such reasonable procedures as may be necessary for assuring that any
duties, responsibilities or services so assigned, subcontracted or
delegated are performed in conformity with the terms and conditions of this
agreement.
11. COMPENSATION. For the services to be rendered and the facilities furnished
hereunder, the Adviser shall pay the Sub-adviser an annual fee equal to .20
percent of the average daily closing value of the net assets of the Series,
computed on a daily basis. Such fee shall be computed and payable monthly.
If this Agreement shall be effective for only a portion of a year, then the
Sub-adviser's compensation for said year shall be prorated for such
portion. For purposes of this paragraph 11, the value of the net assets of
the 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 Series' shares as described in
the Fund's prospectus and statement of additional information. Payment of
the Sub-adviser's compensation for the preceding month shall be made as
promptly as possible after the end of each month.
12. NON-EXCLUSIVITY. The services of the Sub-adviser to the Adviser are not to
be deemed to be exclusive, and the Sub-adviser shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby.
21
<PAGE>
13. TERM. This Agreement shall become effective at the close of business on the
date first shown above. It shall remain in force and effect, subject to
paragraph 14 hereof for one year from the date hereof.
14. RENEWAL. Following the expiration of its initial year term, this Agreement
shall continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a majority
of the Series' outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in
person at a Meeting specifically called for such purpose.
15. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote
of a majority of the Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Adviser or by the Sub-adviser
on sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment" as that term is
defined in Section 2(a)(4) of the 1940 Act. This Agreement shall
automatically terminate in the event that the investment advisory contract
between the Adviser and the Fund is terminated, assigned or not renewed.
16. LIABILITY OF THE SUB-ADVISER. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Sub-adviser or its officers,
directors or employees, or reckless disregard by the Sub-adviser of its
duties under this Agreement, the Sub-adviser shall not be liable to the
Adviser, the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for
any losses that may be sustained in the purchase, holding or sale of any
security, provided the Sub-adviser has acted in good faith.
17. INDEMNIFICATION. The Adviser and the Sub-adviser each agree to indemnify
the other against any claim against, loss, or liability to, such other
party (including reasonable attorney's fees) arising out of any action on
the part of the indemnifying party which constitutes willful misfeasance,
bad faith or gross negligence.
18. NOTICES. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage-paid to the other party at such address as
such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the
Sub-adviser for this purpose shall be Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663, and the address of the Adviser for this purpose
shall be One Liberty Plaza, New York, New York 10006.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
ATTEST: MFR ADVISORS, INC.
By:
- ---------------------------------- -------------------------------------
Title: Senior Vice President
ATTEST: LEXINGTON MANAGEMENT CORPORATION
By:
- ---------------------------------- -------------------------------------
Title:
23
<PAGE>
PROXY CARD
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
IN FAVOR OF PROPOSAL NOS. 1 AND 2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE FUNDS.
The undersigned, revoking all previous proxies for his or her stock, hereby
acknowledges receipt of the Notice of Meeting and Proxy Statement dated March
24, 1997, and appoints John D. Cleland, Donald A. Chubb, Jr. and Donald L.
Hardesty, and each of them as Proxies, with power of substitution, to vote all
stock of Security Income Fund - Global Aggressive Bond Series which the
undersigned is entitled to vote at the Fund's Special Meeting of Stockholders to
be held at 700 SW Harrison Street, Topeka, Kansas, on Monday, April 28, 1997, at
9:30 a.m., including any adjournments thereof, upon such other business as may
be properly brought before the meeting and specifically upon the proposals set
out on the following page.
------------------------------------------------------
IMPORTANT: Stockholders are requested to mark,
date, sign and return the attached Proxy Card to the
Fund in the postage-paid envelope as early as
possible to save the expense of a second proxy
mailing.
------------------------------------------------------
KEEP THIS FOR YOUR RECORDS
<PAGE>
Account No.
To vote, mark an X in blue or black ink below.
VOTE ON PROPOSALS
FOR AGAINST ABSTAIN 1. APPROVE A NEW INVESTMENT ADVISORY CONTRACT
|_| |_| |_| WHICH REPLACES SECURITY MANAGEMENT COMPANY, LLC
AS INVESTMENT MANAGER TO THE FUND WITH
MFR ADVISORS, INC.
FOR AGAINST ABSTAIN 2. APPROVE A NEW SUB-ADVISORY CONTRACT BETWEEN
|_| |_| |_| THE PROSPECTIVE INVESTMENTADVISER,
MFR ADVISORS, INC. AND LEXINGTON
MANAGEMENT CORPORATION
- ---------------------- ------------------------------- -----------------------
Signature Signature (Joint Owners) Date
PLEASE DATE AND SIGN NAME OR NAMES AS PRINTED ABOVE TO AUTHORIZE THE VOTING OF
YOUR SHARES AS INDICATED ABOVE. WHERE SHARES ARE REGISTERED WITH JOINT OWNERS,
ALL JOINT OWNERS SHOULD SIGN. PERSONS SIGNING AS AN EXECUTOR, ADMINISTRATOR,
TRUSTEE OR OTHER REPRESENTATIVE SHOULD GIVE FULL TITLE AS SUCH.
RETURN THIS PORTION
