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Registration No. 811-2120
Registration No. 2-38414
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 61 [X]
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Post-Effective Amendment No. 61 [X]
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(Check appropriate box or boxes)
SECURITY INCOME FUND
(Exact Name of Registrant as Specified in Charter)
700 HARRISON STREET, TOPEKA, KANSAS 66636-0001
(Address of Principal Executive Offices/Zip Code)
Registrant's Telephone Number, including area code:
(785) 431-3127
Copies To:
John D. Cleland, President Amy J. Lee, Secretary
Security Income Fund Security Income Fund
700 Harrison Street 700 Harrison Street
Topeka, KS 66636-0001 Topeka, KS 66636-0001
(Name and address of Agent for Service)
Approximate date of proposed public offering: May 3, 1999
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[_] on May 3, 1999, pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on May 3, 1999, pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[X] on May 3, 1999, pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Shares of common stock, par value $1.00.
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SECURITY INCOME FUND
FORM N-1A
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of Security Income Fund, which
contains nine series, relates only to the Capital Preservation Series. The
prospectus and statement of additional information for each of the other series
is incorporated herein by reference to the Registrant's most recent filing under
Rule 497 under the Securities Act of 1933.
FORM N-1A
ITEM NUMBER CAPTION
PART A PROSPECTUS
1. Cover Page
2. Not Applicable
2a. Transaction and Operating Expense Table
3. Fund Financial Highlights
4. Management of the Fund; Investment Objectives, Policies,
Practices and Risk Factors
5. Management of the Fund; Investment Adviser; Administrator;
Portfolio Management; Year 2000 Compliance
5a. Not Applicable
6. Additional Information about the Fund; Tax Considerations;
Information Concerning the Master Feeder Fund Structure
7. How to Purchase Shares; Alternative Purchase Options; Class
A Shares; Class A Distribution Plan; Class B Shares; Class B
Distribution Plan; Class C Shares; Class C Distribution
Plan; Calculation and Waiver of Contingent Deferred Sales
Charges; Net Asset Value; Purchases at Net Asset Value;
Accumulation Plan; Exchange Privilege
8. How to Redeem Shares
9. Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objectives, Policies and Restrictions
14. Management of the Fund and Trust
15. Management of the Fund and Trust
16. Investment Adviser; Administrator; Distributor; Custodian;
Independent Accountants
17. Portfolio Transactions and Brokerage Commissions
18. Organization of Security Income Fund; Organization of the
Trust
19. Not Applicable
20. Taxation
21. Distributor
22. Performance Information
23. Financial Statements
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CAPITAL PRESERVATION PROSPECTUS
SECURITY CAPITAL PRESERVATION FUND
A MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 HARRISON, TOPEKA, KANSAS 66636-0001
PROSPECTUS
MAY 1, 1999
Security Capital Preservation Fund seeks to provide investors with a high
level of current income while seeking to maintain a stable net asset value
("NAV") per share.
Security Income Fund is an open-end management investment company (mutual
fund). Security Capital Preservation Fund (the "Fund") is a separate series of
Security Income Fund and currently offers three classes of shares (the
"Shares"). The Shares are offered exclusively to retirement accounts such as
tax-sheltered annuity custodial accounts ("TSA Accounts"), individual retirement
accounts ("IRAs"), as defined in this Prospectus, and to employees investing
through participant-directed employee benefit plans.
UNLIKE OTHER MUTUAL FUNDS, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS NET INVESTABLE ASSETS (THE "ASSETS") IN BT
PRESERVATIONPLUS INCOME PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SUBTRUST OF BT
INVESTMENT PORTFOLIOS, A NEW YORK MASTER TRUST FUND (THE "PORTFOLIO TRUST"),
WITH AN IDENTICAL INVESTMENT OBJECTIVE. SEE "INFORMATION CONCERNING THE
MASTER-FEEDER FUND STRUCTURE." THE FUND IS NOT A MONEY MARKET FUND, AND THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE NAV OR OTHERWISE
ACHIEVE ITS STATED INVESTMENT OBJECTIVE.
Please read this Prospectus before investing and keep it on file for future
reference. It contains important information concerning the Fund and the
Portfolio, including how the Portfolio invests and the services available to the
Fund's shareholders. Bankers Trust Company ("Bankers Trust") is the investment
adviser ("Adviser") of the Portfolio. Security Management Company, LLC is the
Fund's administrator and transfer agent (the "Administrator").
LIKE SHARES OF ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
To learn more about the Fund and the Portfolio, investors can obtain a copy
of the Fund's Statement of Additional Information ("SAI"), dated May 1, 1999,
which has been filed with the Securities and Exchange Commission (the "SEC") and
is incorporated herein by this reference. For a free copy of the SAI please call
Security Distributors, Inc. at 1-800-888-2461. The SAI, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
SHARES OF THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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THE FUND.................................................................... 3
Who May Invest............................................................ 3
INVESTMENT OBJECTIVE........................................................ 3
EXPENSE SUMMARY............................................................. 3
Fund Financial Highlights................................................. 5
INDIVIDUAL RETIREMENT ACCOUNTS AND RETIREMENT PLANS......................... 5
Overview of TSA Accounts.................................................. 5
Overview of Individual Retirement Accounts................................ 6
OWNERSHIP OF SHARES THROUGH PLANS........................................... 6
INVESTMENT OBJECTIVES, POLICIES, PRACTICES AND RISK FACTORS................. 6
Investment Objectives and Policies........................................ 6
Investment Practices of the Portfolio..................................... 8
Risk Factors.............................................................. 9
Risk Factors Relating to Portfolio Securities............................. 9
Lower-Rated Debt Securities ("Junk Bonds")................................ 10
Overview of Wrapper Agreements and Associated Risks....................... 11
Derivatives............................................................... 12
HOW TO PURCHASE SHARES...................................................... 13
Alternative Purchase Options.............................................. 13
Class A Shares............................................................ 13
Class A Distribution Plan................................................. 13
Class B Shares............................................................ 14
Class B Distribution Plan................................................. 15
Class C Shares............................................................ 15
Class C Distribution Plan................................................. 15
Calculation and Waiver of Contingent Deferred Sales Charge................ 16
Confirmations and Statements.............................................. 16
PURCHASES AT NET ASSET VALUE................................................ 16
PURCHASING SHARES THROUGH PLANS............................................. 17
PURCHASING SHARES THROUGH IRAS.............................................. 17
HOW TO REDEEM SHARES........................................................ 17
Redeeming Shares Owned Through Plans...................................... 18
Redeeming Shares Owned Through IRAs....................................... 18
Qualified IRA Redemptions................................................. 19
Traditional IRAs, SEP-IRAs and SIMPLE IRAs................................ 20
Roth IRAs................................................................. 20
Keogh Plans............................................................... 21
Education IRAs............................................................ 21
SHAREHOLDER AND FUND INFORMATION............................................ 21
Investor Services......................................................... 21
Net Asset Value........................................................... 21
Dividends and Capital Gains Distributions................................. 22
Tax Considerations........................................................ 22
Performance............................................................... 23
Explanation of Performance Terms.......................................... 23
MANAGEMENT OF THE FUND...................................................... 24
Boards of Directors....................................................... 24
Investment Adviser........................................................ 24
The Investment Advisory Agreement......................................... 24
Portfolio Management...................................................... 24
Administrator............................................................. 25
Distributor............................................................... 25
Custodian................................................................. 25
Year 2000 Compliance...................................................... 25
Exchange Privilege........................................................ 26
ADDITIONAL INFORMATION ABOUT THE FUND....................................... 26
Shareholder Inquiries..................................................... 27
INFORMATION CONCERNING THE MASTER FEEDER FUND STRUCTURE..................... 27
DEFINITIONS OF SECURITIES PURCHASED BY THE PORTFOLIO........................ 28
Asset-Backed Securities................................................... 28
Collateralized Mortgage Obligations....................................... 28
Mortgage-Backed Securities................................................ 28
Real Estate Mortgage Investment Conduits.................................. 29
Repurchase Agreements..................................................... 29
Reverse Repurchase Agreements and Dollar Rolls............................ 29
Rule 144A Securities...................................................... 29
Short-Term Investments.................................................... 29
U.S. Government Securities................................................ 29
Other U.S. Dollar-Denominated Fixed Income Securities..................... 30
U.S. Dollar-Denominated Foreign Securities................................ 30
U.S. Dollar-Denominated Sovereign and Supranational Fixed Income
Securities.............................................................. 30
When-Issued and Delayed Delivery Securities............................... 30
Zero Coupon Securities.................................................... 30
APPENDIX A - REDUCED SALES CHARGES.......................................... 31
Class A Shares............................................................ 31
Rights of Accumulation.................................................... 31
Statement of Intention.................................................... 31
Reinstatement Privilege................................................... 31
APPENDIX B - ADDITIONAL INFORMATION ABOUT TSAS.............................. 32
TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS..................................... 32
Traditional IRAs.......................................................... 32
Roth IRAs................................................................. 32
SEP-IRAs.................................................................. 33
SIMPLE IRAs............................................................... 33
Keogh Plans............................................................... 33
Education IRAs............................................................ 33
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THE FUND
WHO MAY INVEST -- The Fund is designed for investors seeking preservation and
stability of principal and a level of current income higher than money market
mutual funds over most time periods. The Fund has been established to serve as
an alternative investment to short-term bond funds and money market funds. In
addition, the Fund is designed as a comparable investment to stable value or
guaranteed investment contract options offered in employee benefit plans (such
as 401(k) plans). The Fund currently offers three classes of shares exclusively
to TSA Accounts, individual retirement accounts and to employees investing
through participant-directed employee benefit plans (each a "Plan" and together
"Plans"). For the purpose of this prospectus, individual retirement accounts
include, but are not limited to, those accounts commonly referred to as
traditional IRAs, Roth IRAs, simplified employee pension IRAs ("SEP-IRAs"), IRAs
that are part of a savings incentive match plan for employees ("SIMPLE IRAs"),
Keogh plans and education IRAs (each, an "IRA," collectively referred to herein
as "IRAs"). See "Overview of the Types of Individual Retirement Accounts" on
page 32. The Fund is offering the Shares to owners of TSA Accounts, IRAs (each
an "IRA Owner") and participants of Plans who purchase Shares through their Plan
("Plan Participants"). Shares are available to TSA Accounts or IRA Owners
directly through a Security Funds TSA or IRA or through another TSA or IRA
provider who makes available Shares of the Fund.
Shares are offered to Plans either directly, or through vehicles such as
bank collective funds or insurance company separate accounts consisting solely
of such Plans. Shares are also available to employee benefit plans which invest
in the Fund through an omnibus account or similar arrangement.
The Fund is not in itself a balanced investment plan. Owners of TSA
Accounts, IRA Owners and Plan Participants (collectively, "Shareholders") should
consider their investment objectives and tolerance for risk when making an
investment decision. When Shares are redeemed, they may be worth more or less
than what they originally cost, although the nature of the Portfolio's
investments--particularly the Wrapper Agreements (as defined below)--are
intended to stabilize the Fund's NAV per Share.
INVESTMENT OBJECTIVE
The Fund's investment objective is to provide investors with a high level of
current income while seeking to maintain a stable NAV per Share. The Fund seeks
to achieve its investment objective by investing all of its Assets in the
Portfolio. The Portfolio will seek to achieve this objective by investing in a
diversified portfolio of fixed income securities, money market instruments,
futures, options and other instruments ("Portfolio Securities") and by entering
into wrapper agreements with financial institutions, such as insurance companies
and banks, which are intended to stabilize the NAV per Share of the Fund (the
"Wrapper Agreements"). See "Overview of Wrapper Agreements and Associated Risks"
herein. In connection with the Global Asset Allocation Strategy (described
below), Portfolio Securities may include indexed securities, futures contracts
on securities indices, securities representing securities of foreign issuers
(e.g. ADRs, GDRs and EDRs), options on stocks, options on futures contracts,
foreign currency exchange transactions and options on foreign currencies. See
"Investment Objectives and Policies -- Global Asset Allocation Enhancement"
herein. There can be no assurance that the Fund will achieve its stated
investment objective.
EXPENSE SUMMARY
Annual operating expenses are paid out of the assets of the Portfolio and the
Fund. The Portfolio pays an investment advisory fee and an administrative
services fee to Bankers Trust and wrapper expenses to the Wrapper Providers (as
defined below). The Fund incurs additional administrative expenses such as
maintaining shareholder records and furnishing shareholder statements. The Fund
must also provide semi-annual financial reports. The following tables are
intended to assist investors in understanding the expenses associated with
investing in the Fund. The expenses shown on the following pages are estimates
for the first full year of operations. The table provides (i) a summary of
expenses related to purchases and redemptions (sales) of Shares and the
anticipated annual operating expenses of the Fund and the Portfolio, in the
aggregate, as a percentage of average daily net assets and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Fund. THE DIRECTORS OF THE SECURITY INCOME FUND BELIEVE THAT THE AGGREGATE
EXPENSES OF THE FUND (INCLUDING ITS PROPORTIONATE SHARE OF THE PORTFOLIO'S
EXPENSES) WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES THAT THE FUND
WOULD INCUR IF IT DIRECTLY RETAINED THE SERVICES OF AN INVESTMENT ADVISER AND
THE ASSETS OF THE FUND WERE INVESTED DIRECTLY IN PORTFOLIO SECURITIES AND
WRAPPER AGREEMENTS.
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SHAREHOLDER FEES
(fees paid directly from your investment)
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CLASS A(1) CLASS B(2) CLASS C(3)
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 3.5% None None
Maximum Sales Charge Imposed
on Reinvested Dividends None None None
Deferred Sales Load (as a None 5% during the 1%
percentage of original first year,
purchase price or decreasing to 0%
redemption proceeds, in the sixth and
whichever is lower) following years
Maximum Redemption Fee 3% 3% 3%
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1 Purchases of Class A shares in amounts of $1,000,000 or more are not subject
to an initial sales load; however, a deferred sales charge of 1% is imposed
in the event of redemption within one year of purchase.
2 Class B shares convert tax-free to Class A shares automatically after eight
years.
3 A deferred sales charge of 1% is imposed in the event of redemption within
one year of purchase.
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The redemption fee (the "Redemption Fee") payable to the Portfolio is
designed primarily to offset those expenses which may be incurred by the
Portfolio in connection with certain Shareholder redemptions. Proceeds from the
Redemption Fee will be used by the Portfolio to defray the actual portfolio and
administrative costs associated with such redemptions, including custodian,
transfer agent, settlement, and account processing costs, as well as the adverse
impact of such redemptions on the premiums paid for Wrapper Agreements and the
yield on Wrapper Agreements. The Redemption Fee may also have the effect of
discouraging redemptions initiated by shareholders attempting to take advantage
of short-term interest rate movements.
Qualified TSA Account Redemptions (as described in "Redeeming Shares Owned
Through TSA Accounts and IRAs herein), Qualified IRA Redemptions (as described
in "Redeeming Shares Owned Through TSA Accounts and IRAs" herein) and Qualified
Plan Redemptions (as described in "Redeeming Shares Owned Through Plans" herein)
are not subject to the Redemption Fee at any time. All other redemptions are
subject to the Redemption Fee, in the amount of 3%, on the proceeds of such
redemptions of Shares by Shareholders on any day that the "Interest Rate
Trigger" (as described below) is "active," and not subject to those charges on
days that the Interest Rate Trigger is "inactive." The Interest Rate Trigger is
active on any day when, as of the preceding day, the "Reference Index Yield"
exceeds the sum of the "Annual Effective Yield of the Portfolio" plus 1.80%. The
"Reference Index Yield" shall be defined on any determination date as the
previous day's closing "Yield to Worst" on the Lehman Brothers Intermediate
Treasury Bond Index(R) and the "Annual Effective Yield of the Portfolio" is
defined as set forth under "Explanation of Performance Terms" on page 23 herein.
See "Shareholder and Fund Information -- Explanation of Performance Terms".
The status of the Interest Rate Trigger will either be "active" or
"inactive" on any day, and shall be determined on every day that an NAV is
calculated for the Portfolio. Once the Interest Rate Trigger is active, it
remains active every day until the Reference Index Yield is less than the sum of
the Annual Effective Yield of the Portfolio plus 1.55%, at which time the
Interest Rate Trigger becomes inactive on the following day and remains inactive
every day thereafter until it becomes active again. The following is an example
of when and how the Redemption Fee will apply to the redemption of Shares.
EXAMPLE -- A Class A Shareholder is considering submitting a request for a
redemption other than a Qualified TSA Redemption, a Qualified IRA Redemption or
Qualified Plan Redemption to the Fund on March 2 in the amount of $5,000. Assume
that the Reference Index Yield is 8.65% as of the close of business on March 1
and the Annual Effective Yield of the Portfolio is 6.20% as of that date. Since
the Annual Effective Yield of the Portfolio plus 1.80% (8.0%) is less than the
Reference Index Yield (8.65%), the Interest Rate Trigger is active. Thus, the
net redemption proceeds to the Shareholder will be $4,850. The Redemption Fee
will continue to apply to all redemptions which are not Qualified TSA
Redemptions, Qualified IRA Redemptions or Qualified Plan Redemptions until the
day after the Reference Index Yield is less than the sum of the Annual Effective
Yield of the Portfolio plus 1.55%.
(Please note that this example does not take into consideration an
individual Shareholder's tax issues or consequences including without limitation
any withholding taxes that may apply.)
Shareholders can obtain information regarding when the Interest Rate Trigger
is active, as well as the Annual Effective Yield of the Portfolio and the
Reference Index Yield by calling _____________________. The amount of, and
method of applying, the Redemption Fee, including the operation of the Interest
Rate Trigger, may be changed in the future.
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of the Fund's projected averaged daily net assets)
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CLASS A CLASS B CLASS C
Management Fees (after fee waivers)(1)........ .42% .42% .42%
12b-1 Fees(2)................................. 0.25% 0.75% 0.50%
Other Expenses (after expense reimbursements). .88% .88% .88%
Wrapper Fees(3)............................... 0.20% 0.20% 0.20%
---- ---- ----
Total Fund Operating Expenses................. 1.75% 2.25% 2.00%
==== ==== ====
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1 The Fund does not directly pay a management fee; the amount shown reflects
the Fund's proportionate share of the Portfolio's management fee.
2 Long-term holders of shares that are subject to an asset-based sales charge
may pay more than the equivalent of the maximum front-end sales charge
otherwise permitted by NASD Rules.
3 Wrapper Agreements are contracts entered into by the Portfolio that are
intended to stabilize the value per share of the Fund (see "Investment
Objectives, Policies, Practices and Risk Factors").
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EXAMPLE -- You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period. No
Redemption Fee has been included.
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CLASS A CLASS B CLASS C
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1 Year $64 $73 $30
3 Years 100 100 63
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You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) no redemption.
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CLASS A CLASS B CLASS C
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1 Year $64 $23 $20
3 Years 100 70 63
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The expense table and the example above show the estimated costs and
expenses that a Shareholder will bear directly or indirectly as a shareholder of
the Fund. Bankers Trust has voluntarily agreed to waive a portion of its
investment advisory fee payable by the Portfolio. Without such waiver, the
Portfolio's investment advisory fee would be 0.70% of its average daily net
assets. Bankers Trust has also voluntarily agreed to waive a portion of its
administration fees (included in "Other Expenses"). Without such waiver, "Other
Expenses" would be 0.96%. Bankers Trust may terminate or adjust these voluntary
waivers and reimbursements at any time in its sole discretion without notice to
shareholders. In addition, the Wrapper Fees shown above are estimates and may be
greater or less than 0.20%. In addition, the Administrator has agreed, for each
of the Fund's fiscal years, to cap the average annual expenses of the Fund at
1.5%, exclusive of interest, taxes, brokerage fees and commissions,
extraordinary expenses and 12b-1 fees. The Wrapper Fee expenses incurred by the
Portfolio will be those fees actually charged by the Wrapper Providers. In the
absence of these waivers, assuming total Fund assets of $5 million, it is
estimated that "Total Operating Expenses" of the Class A shares would be 1.83%
for the Class B shares would be 2.33% and for Class C shares would be 2.08%. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES,
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Moreover, while the
example assumes a 5% annual return, actual performance will vary and may result
in a return greater or less than 5%.
For more information about the Fund's and the Portfolio's expenses see
"Management of the Fund" and "Valuation Details" herein. See "How to Purchase
Shares" for more information concerning the sales load. Also, see Appendix A for
a discussion of "Rights of Accumulation" and "Statement of Intention" which
options may serve to reduce the front-end sale load on purchases of Class A
shorts.
FUND FINANCIAL HIGHLIGHTS -- The Fund will have a fiscal year end of September
30. As this is the Fund's first fiscal year, financial information with respect
to the Fund is not available at this time.
TSA ACCOUNTS, INDIVIDUAL RETIREMENT ACCOUNTS AND RETIREMENT PLANS
OVERVIEW OF TSA ACCOUNTS -- In general, Section 403(b)(7) of the Internal
Revenue Code of 1986, as amended (the "Code") permits public school employees
and employees of certain types of charitable, educational and scientific
organizations specified in Section 501(c)(3) of the Code to purchase shares of a
mutual fund through a custodial account, and, subject to certain limitations, to
exclude the amount of purchase payments from gross income for tax purposes.
Shares of the Fund may be purchased in connection with a TSA custodial account.
TSA Accounts may provide significant tax savings to individuals, but are
governed by a complex set of tax rules under the Code and the regulations
promulgated by the Department of the Treasury thereunder. If you already have a
Security Funds TSA custodial account, you may be able to invest in the Fund. If
you do not presently have a Security Funds TSA custodial account and you meet
the requirements of the applicable tax rules, you may be able to create a
Security Funds TSA custodial account (or a TSA custodial account from another
provider that makes shares of the Fund available to its customers) and invest in
shares of the Fund through that TSA. Included in Appendix B is a general
discussion of some TSA features. HOWEVER, TSA OWNERS AND OTHER PROSPECTIVE
INVESTORS SHOULD CONSULT WITH THEIR PROFESSIONAL TAX AND FINANCIAL ADVISERS
BEFORE ESTABLISHING A TSA OR OTHERWISE INVESTING IN SHARES.
OVERVIEW OF INDIVIDUAL RETIREMENT ACCOUNTS -- In general, an IRA is a trust or
custodial account established in the United States for the exclusive benefit of
an individual or his or her beneficiaries. (Keogh plans are established by
self-employed persons, including partnerships, and also cover eligible non-owner
employees.) Most IRAs are designed principally as retirement savings vehicles.
Education IRAs are designed to provide a tax-favored means of saving for a
child's educational expenses. IRAs may provide significant tax savings to
individuals, but are governed by a complex set of tax rules set out under the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated by the Department of the Treasury thereunder. If you already have an
IRA, your IRA may be able to invest in the Fund. If you do not presently have an
IRA and you meet the requirements of the applicable tax rules, you may be able
to create an IRA and invest in Shares of the Fund through that IRA. Included in
Appendix B is a general discussion of some IRA features and IRA types. HOWEVER,
IRA OWNERS AND OTHER PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR
PROFESSIONAL TAX AND FINANCIAL ADVISERS BEFORE ESTABLISHING AN IRA OR INVESTING
IN SHARES. CERTAIN TYPES OF THE IRAS DESCRIBED IN APPENDIX B MAY NOT BE
AVAILABLE THROUGH THE SECURITY FUNDS. FOR MORE INFORMATION CALL 1-800-888-2461.
OWNERSHIP OF SHARES THROUGH PLANS
Fund Shares owned by Plan Participants through Plans are held either directly by
the respective Plan, or beneficially through vehicles such as bank collective
funds or insurance company separate accounts consisting solely of such Plans
(collectively, "Plan Pools"), which will in turn offer the Fund as an investment
option to their participants. Investments in the Fund may by themselves
represent an investment option for a Plan or may be combined with other
investments as part of a pooled investment option for the Plan. In the latter
case, the Fund may require Plans to provide information regarding the withdrawal
order and other characteristics of any pooled investment option in which the
Shares are included prior to a Plan's initial investment in the Fund.
Thereafter, the Fund will require the Plan to provide information regarding any
changes to the withdrawal order and other characteristics of the pooled
investment option before such changes are implemented. The Fund in its sole
discretion may decline to sell Shares to Plans if the governing withdrawal order
or other characteristics of any pooled investment option in which the Shares are
included is determined at any time to be disadvantageous to the Fund.
Plan Participants should contact their Plan administrator or the
organization that provides recordkeeping services if they have questions
concerning their account. Plan administrators and fiduciaries should call
__________________ for information regarding a Plan's account with the Fund.
INVESTMENT OBJECTIVES, POLICIES, PRACTICES AND RISK FACTORS
INVESTMENT OBJECTIVES AND POLICIES --
THE FUND. The Fund seeks to achieve its investment objective by investing
all of its Assets in the Portfolio, which has the same investment objective as
the Fund. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in "Risk Factors Relating
to Fixed Income Securities" herein and in the SAI. There can be no assurance
that the Fund's and the Portfolio's investment objective will be achieved.
THE PORTFOLIO. The Portfolio's investment objective is a high level of
current income while seeking to maintain a stable value per Share. The Portfolio
will seek to achieve this objective by investing in the Portfolio Securities and
by entering into Wrapper Agreements, intended to stabilize the NAV per Share of
the Fund. Each Wrapper Agreement obligates the Wrapper Provider to maintain the
"Book Value" of a portion of the Portfolio's assets ("Covered Assets") up to a
specified maximum dollar amount, upon the occurrence of certain specified
events. Generally, the Book Value of the Covered Assets is their purchase price
plus interest on the Covered Assets accreted at a rate specified in the Wrapper
Agreement ("Crediting Rate"). The Crediting Rate used in computing Book Value is
calculated by a formula specified in the Wrapper Agreement and is adjusted
periodically. In the case of Wrapper Agreements purchased by the Portfolio, the
Crediting Rate is the actual interest earned on the Covered Assets, or an
index-based approximation thereof, plus or minus an adjustment for an amount
receivable from or payable to the Wrapper Provider based on fluctuations in the
market value of the Covered Assets. See "Overview of Wrapper Agreements and
Associated Risks" herein for further detail.
The Portfolio expects to invest at least 65% of its total assets in fixed-
and floating or variable-rate securities ("Fixed Income Securities") of varying
maturities rated, at the time of purchase, in one of the top four long-term
rating categories by Standard & Poor's ("S&P"), Moody's Investors Service, Inc.
("Moody's"), or Duff & Phelps Credit Rating Co., or comparably rated by another
nationally recognized statistical rating organization ("NRSRO"), or, if not
rated by a NRSRO, of comparable quality as determined by Bankers Trust in its
sole discretion. For example, included are those Fixed Income Securities rated
by S&P in long-term rating categories ranging from AAA to BBB- and the
comparable categories of Moody's, Duff & Phelps Credit Rating Co., or another
NRSRO, or, if not rated by a NRSRO, deemed to be of comparable quality as
determined by Bankers Trust in its sole discretion. Further, because high yield
securities will usually offer higher-yields than higher-rated securities, the
Portfolio may also invest up to ten percent (10%) of its assets in Fixed Income
Securities rated, at the time of purchase in the fifth and sixth long-term
rating categories by S&P (i.e., BB and B), Moody's, or Duff & Phelps Credit
Rating Co., or comparably rated by another NRSRO, or, if not rated by a NRSRO,
of comparable quality as determined by Bankers Trust in its sole discretion. See
"Lower Rated Debt Securities" herein.
WRAPPERS. In addition to the above, the Portfolio will enter into Wrapper
Agreements with insurance companies, banks or other financial institutions
("Wrapper Providers") that are rated, at the time of purchase, in one of the top
two long-term rating categories by Moody's or S&P. There is no active trading
market for Wrapper Agreements, and none is expected to develop; therefore, they
will be considered illiquid. At the time of purchase of any Wrapper Agreement,
the value of all of the Wrapper Agreements and any other illiquid securities
will not exceed 15% of the Portfolio's net assets.
FIXED INCOME SECURITIES. The Fixed Income Securities include fixed income
securities issued or guaranteed by the U.S. government, or any agency or
instrumentality thereof; publicly or privately issued U.S. dollar-denominated
debt of domestic or foreign entities, including corporate, sovereign or
supranational entities; publicly issued U.S. dollar denominated asset-backed
securities issued by domestic or foreign entities; mortgage pass-through
securities issued by the Government National Mortgage Association ("GNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal National
Mortgage Association ("FNMA"); mortgage pass-through securities issued by
non-government entities such as banks, mortgage lenders, or other financial
institutions, including private label mortgage pass-through securities and whole
loans; collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"), which are mortgage-backed debt instruments that
make payments of principal and interest at a variety of intervals and are
collateralized by any of the aforementioned mortgage pass-through securities or
whole loans; and obligations issued or guaranteed, or backed by securities
issued or guaranteed, by the U.S. government or any of its agencies or
instrumentalities, including Certificates of Accrual Treasury Securities
("CATS"), Treasury Income Growth Receipts ("TIGRs"), and Treasury Receipts
("TRs") and zero coupon securities (securities consisting solely of the
principal or interest component of a U.S. Treasury bond). See "Definitions of
Securities Purchased by the Portfolio" herein for a more detailed description of
the foregoing.
The Portfolio Securities purchased by the Portfolio also include short-term
investments rated, at the time of purchase, in one of the top two short-term
rating categories by an NRSRO or, if unrated, of comparable quality in the
opinion of the Adviser, including commercial paper and time deposits,
certificates of deposit, bankers' acceptances, other instruments of foreign and
domestic banks and thrift institutions and shares of money market mutual funds.
The Portfolio may invest up to 35% of its total assets in such short-term
investments for purposes of liquidity and up to 100% of its total assets in such
instruments for temporary defensive purposes.
GLOBAL ASSET ALLOCATION ENHANCEMENT. Although the Portfolio is intended to
be primarily invested in Fixed Income Securities, the Adviser intends to
implement its Global Asset Allocation Strategy (the "GAA Strategy") in an
attempt to enhance the return on the Portfolio's Assets. The GAA Strategy
employs a multi-factor, global asset allocation model which evaluates equity,
bond, cash and currency opportunities across domestic and international markets.
The GAA Strategy seeks to enhance long-term returns and manage risk by
responding effectively to changes in global markets using instruments including
but not limited to, futures, options and currency forwards.
In implementing the GAA Strategy, the Portfolio invests in options and
futures based on any type of security or index including options and futures
traded on foreign exchanges such as bonds and equity indices of foreign
countries. Some options and futures strategies, including selling futures,
buying puts, and writing calls, hedge the Portfolio's investments against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase and will broaden the Portfolio's market exposure.
Options and futures may be combined with each other, or with forward contracts,
in order to adjust the risk and return characteristics of an overall strategy.
The Portfolio may also enter into forward currency exchange contracts
(agreements to exchange one currency for another at a future date), may buy and
sell options and futures contracts relating to foreign currencies, and may
purchase securities indexed to foreign currencies. Currency management
strategies allow the Adviser to shift investment exposure from one currency to
another or to attempt to profit from anticipated declines in the value of a
foreign currency relative to the U.S. dollar. Some of these strategies will
require the Portfolio to segregate liquid assets in a custodial account to cover
its obligations. See "Definitions of Securities Purchased by the Portfolio"
herein. For further information regarding the GAA Strategy, you should consult
"Investment Policies -- Global Asset Allocation Enhancement" in the Fund's SAI.
The Portfolio may also invest in and utilize the following investments and
investment techniques and practices: Rule 144A securities (as defined in
"Securities and Investment Practices of the Portfolio"), when-issued and delayed
delivery securities, repurchase agreements, reverse repurchase agreements and
dollar rolls, and options and futures contracts. See "Definitions of Securities
Purchased by the Portfolio" herein for a more detailed description of the
foregoing.
OTHER PORTFOLIO INFORMATION. In selecting securities for the Portfolio, the
Adviser attempts to maintain an average portfolio duration of the Portfolio
Securities within a range of 2.5 to 4.5 years. Duration is a measure of the
expected life of a Fixed Income Security on a present value basis which
incorporates the security's yield, coupon interest payments, final maturity and
call features into a single measure.
The Fund's investment objective is not a fundamental policy and may be
changed upon notice to, but without the need for approval of, its shareholders.
If there is a change in the Fund's investment objective, its shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio also is not a
fundamental policy. Shareholders of the Fund will receive 30 days' prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio. See "Investment Restrictions" in the SAI for a description of the
fundamental policies of the Portfolio that cannot be changed without approval by
"the vote of a majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the "1940 Act") ) of the Portfolio.
INVESTMENT PRACTICES OF THE PORTFOLIO --
BORROWING. The Portfolio will not borrow money (including through reverse
repurchase agreements or dollar roll transactions) for any purpose in excess of
5% of its total assets, except that it may borrow for temporary or emergency
purposes up to 1/3 of its total assets. Under the 1940 Act, the Portfolio is
required to maintain continuous asset coverage of 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidation of the Portfolio's holdings
may be disadvantageous from an investment standpoint.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of the Portfolio's securities and the Fund's NAV per
Share, and money borrowed by the Portfolio will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) that may exceed the income received from the securities
purchased with the borrowed funds. It is not the intention of the Adviser to use
leverage as a normal practice in the investment of the Portfolio's Assets.
HEDGING STRATEGIES. The Portfolio may use certain strategies designed to
adjust the overall risk of its investment portfolio. These "hedging" strategies
involve derivative contracts, including U.S. Treasury and Eurodollar futures
contracts and exchange-traded put and call options on such futures contracts.
New financial products and risk management techniques continue to be developed
and may be used if consistent with the Portfolio's investment objective and
policies. Among other purposes, these hedging strategies may be used to
effectively maintain a desired portfolio duration or to protect against market
risk should the Portfolio change its investments among different types of Fixed
Income Securities. In this respect, these hedging strategies are designed for
different purposes than the investments in Wrapper Agreements. The SAI contains
further information on these strategies.
The Portfolio might not use any hedging strategies, and there can be no
assurance that any strategy used will succeed. If the Adviser is incorrect in
its judgment on market values, interest rates or other economic factors in using
a hedging strategy, the Portfolio may have lower net income and a net loss on
the investment.
Each of these strategies involves certain risks, which include: the fact
that the skills needed to use hedging instruments are different from those
needed to select securities for the Portfolio; the possibility of imperfect
correlation, or even no correlation, between the price movements of hedging
instruments and price movements of the securities or currencies being hedged;
possible constraints placed on the Portfolio's ability to purchase or sell
portfolio investments at advantageous times due to the need for the Portfolio to
maintain "cover" or to segregate securities; and the possibility that the
Portfolio will be unable to close out or liquidate its hedged position.
ASSET COVERAGE. To assure that the Portfolio's use of futures contracts and
related options, as well as when-issued and delayed-delivery securities, are not
used to achieve investment leverage, the Portfolio will cover such transactions,
as required under applicable interpretations of the SEC, either by owning the
underlying securities or by segregating or earmarking liquid securities with the
Portfolio's Custodian (Bankers Trust) in an amount at all times equal to or
exceeding the Portfolio's commitment with respect to these instruments or
contracts. The Portfolio will also cover its use of Wrapper Agreements to the
extent required to avoid the creation of a "senior security" (as defined in the
1940 Act) in connection with its use of such agreements.
GAA STRATEGY. In connection with the GAA Strategy, the Board of Trustees of
the Portfolio has adopted a restriction that the Portfolio will not enter into
any futures contracts or option on futures contracts if immediately thereafter
the amount of margin deposits on all of the futures contracts of the Portfolio
and premiums paid on outstanding options on futures contract owned by the
Portfolio (other than those entered into for bona fide hedging purposes) would
exceed five percent (5%) of the market value of the total assets of the
Portfolio.
RISK FACTORS -- The value of most of the Portfolio Securities will fluctuate
based upon changes in domestic or foreign interest rates, the credit quality of
the issuer, market conditions, and other economic and political news. In
general, the prices of Portfolio Securities will rise when interest rates fall,
and fall when interest rates rise. The Wrapper Agreements are intended to
stabilize the value per Share by offsetting fluctuations in the value of the
Portfolio Securities under certain conditions. Under most circumstances, the
combination of Portfolio Securities and Wrapper Agreements held by the Portfolio
is expected to provide Fund shareholders with a constant NAV per Share and a
current rate of return that is higher than most money market mutual funds over
most time periods. However, there can be no guarantee that the Portfolio will
maintain a constant NAV, and consequently that the Fund will be able to maintain
a constant NAV per Share.
The Portfolio incurs costs in connection with its investment in Wrapper
Agreements which will reduce the Fund's investment return. The Wrapper
Agreements may not insulate the Portfolio from loss if an issuer of Portfolio
Securities defaults on payments of interest or principal. Additionally, an
issuer of a Wrapper Agreement could default on its obligations under the
agreement or the Portfolio might be unable to obtain Wrapper Agreements covering
all of its assets. Either type of default or the inability to obtain Wrapper
Agreements might result in a decline in the value of the Shares. Moreover, in
valuing a Wrapper Agreement, the Board of Trustees of the Portfolio Trust may
determine that such agreement should not be carried by the Portfolio at a value
sufficient to maintain the Portfolio's NAV per Share.
Bankers Trust may use various investment techniques to hedge the Portfolio's
risks, but there is no guarantee that these strategies will work as intended.
See "Risk Factors Related to Fixed Income Securities" for more information.
RISK FACTORS RELATING TO PORTFOLIO SECURITIES -- The following pages contain
more detailed information about the specific types of instruments in which the
Portfolio may invest and strategies the Adviser may employ in pursuit of the
Portfolio's investment objective. A summary of the risks and restrictions
associated with these investments and investment practices is included as well.
The Adviser may not buy all of these instruments or use all of these
techniques to the full extent permitted unless it believes that doing so will
help the Portfolio achieve its objective. Current holdings and investment
strategies will be described in the financial reports of the Fund and the
Portfolio, which will be sent to Fund shareholders twice a year.
All fixed income investments have exposure to three primary types of risks.
Credit risk is the possibility that the issuer of a Fixed Income Security will
fail to make timely payments of either interest or principal to the Portfolio.
Interest rate risk is the potential for fluctuations in the prices of Fixed
Income Securities due to changing interest rates. Income risk is the potential
for decline in the Portfolio's income due to the investment or reinvestment of
assets in Fixed Income Securities when market interest rates are falling.
Although there is no assurance that it will achieve its objective, the
Portfolio attempts to enhance yield while minimizing these risks. If an issuer
of a Fixed Income Security or a Wrapper Provider becomes financially impaired,
it may default on its obligations and the Portfolio's interest income may be
reduced or the Portfolio may incur a loss of principal. This is an example of
credit risk. In order to minimize credit risk, the Portfolio's assets are
allocated among a diversified group of issuers. Credit analysis is applied to
every security and Wrapper Provider selected for the Portfolio. Once purchased,
a security and, in the case of a Wrapper Agreement, the Wrapper Provider is
monitored regularly by Bankers Trust for maintenance of adequate credit
characteristics. In the event that the rating of a security or Wrapper Provider
is downgraded by one or more NRSRO, the Portfolio may elect to retain the
security or applicable Wrapper Agreement. However, some Wrapper Agreements may
require that Fixed Income Securities that fall below investment grade be
liquidated within a set time period typically within one year or less. The
Portfolio may elect not to cover with Wrapper Agreements any Fixed Income
Securities with a remaining maturity of 60 days or less and any cash or short
term investments.
When interest rates rise, Fixed Income Security prices generally decline.
When interest rates fall, Fixed Income Security prices generally increase.
Generally, the longer the maturity of the Fixed Income Security, the higher its
yield, although longer-term Fixed Income Securities tend to offer less price
stability in response to changes in interest rates than do shorter-term
investments. Therefore, portfolios with shorter average maturities tend to have
less risk and lower returns than portfolios with longer average maturities. This
is an example of interest rate risk. In order to help maintain an average
portfolio duration of 2.5 to 4.5 years, the Portfolio will invest primarily in
Fixed Income Securities of short- to intermediate-term maturities. This will
help to minimize interest rate risk. In addition, unlike most traditional fixed
income portfolios, the Portfolio purchases Wrapper Agreements that should offset
substantially all of the price fluctuations typically associated with
longer-term Fixed Income Securities.
It is important to note the distinction between the Portfolio and short-term
investments such as money market funds. The securities held by the Portfolio
have a longer average maturity than those of money market funds. Because a money
market fund has a shorter average maturity, its yield will track the direction
of current market rates of return more closely than the Portfolio. For example,
in a rising interest rate environment, money market yields may rise more quickly
than those of the Portfolio. In a falling interest rate environment, money
market yields may fall more quickly than those of the Portfolio. Over the
long-term, however, intermediate and long-term Fixed Income Securities such as
those purchased by the Portfolio have historically offered higher yields than
short-term investments (i.e., money market funds).
LOWER-RATED DEBT SECURITIES ("JUNK BONDS") -- The Portfolio may invest in debt
securities rated in the fifth and sixth long-term rating categories by S&P,
Moody's and Duff & Phelps Credit Rating Company, or comparably rated by another
NRSRO, or if not rated by a NRSRO, deemed to be of comparable quality as
determined by the Adviser in its sole discretion. While the market for high
yield corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980's brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructuring. Past experience may not provide an accurate indication of future
performance of the high yield bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels. The market for
lower-rated debt securities may be thinner and less active than that for
higher-rated debt securities, which can adversely affect the prices at which the
former are sold. If market quotations are not available, lower-rated debt
securities will be valued in accordance with procedures established by the Board
of Trustees, including the use of outside pricing services. Judgment plays a
greater role in valuing high yield corporate debt securities than is the case
for securities for which more external sources for quotations and last sale
information is available. Adverse publicity and changing investor perception may
affect the availability of outside pricing services to value lower-rated debt
securities and the Portfolio's ability to dispose of these securities.
Since the risk of default is higher for lower-rated debt securities, the
Adviser's research and credit analysis are an especially important part of
managing securities of this type held by the Portfolio. In considering
investments for the Portfolio, the Adviser will attempt to identify those
issuers of high-yielding debt securities whose financial conditions are adequate
to meet future obligations, have improved or are expected to improve in the
future. The Adviser's analysis focuses on relative values based on such factors
as interest on dividend coverage, asset coverage, earnings prospects and the
experience and managerial strength of the issuer. The Portfolio may choose, at
its expense or in conjunction with others, to pursue litigation or otherwise
exercise its rights as a security holder to seek to protect the interest of
security holders if it determines this to be in the interest of the Portfolio.
OVERVIEW OF WRAPPER AGREEMENTS AND ASSOCIATED RISKS -- As discussed above, each
Wrapper Agreement obligates the Wrapper Provider to maintain the "Book Value" of
the Covered Assets up to a specified maximum dollar amount, upon the occurrence
of certain specified events. The Book Value of the Covered Assets is their
purchase price (i) plus interest on the Covered Assets at the Crediting Rate,
and (ii) less an adjustment to reflect any defaulted securities. The Crediting
Rate used in computing Book Value is calculated by a formula specified in the
Wrapper Agreement and is adjusted periodically. In the case of Wrapper
Agreements purchased by the Portfolio, the Crediting Rate is the actual interest
earned on the Covered Assets, or an index-based approximation thereof, plus or
minus an adjustment for an amount receivable from or payable to the Wrapper
Provider based on fluctuations in the market value of the Covered Assets. As a
result, while the Crediting Rate will generally reflect movements in the market
rates of interest, it may at any time be more or less than these rates or the
actual interest income earned on the Covered Assets. The Crediting Rate may also
be impacted by defaulted securities and by increases and decreases of the amount
of Covered Assets as a result of contributions and withdrawals tied to the
purchase and redemption of Shares. Furthermore, the premiums due Wrapper
Providers in connection with the Portfolio's investments in Wrapper Agreements
are offset against interest earned and thus reduce the Crediting Rate. These
premiums are generally paid quarterly. In no event will the Crediting Rate fall
below 0% under the Wrapper Agreements entered into by the Portfolio.
Generally, under the terms of a Wrapper Agreement, if the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value at the time the Covered Assets are liquidated in order to
provide proceeds for withdrawals of Portfolio interests resulting from
redemptions of Shares by Shareholders, the Wrapper Provider becomes obligated to
pay to the Portfolio the difference. Conversely, the Portfolio becomes obligated
to make a payment to the Wrapper Provider if it is necessary for the Portfolio
to liquidate Covered Assets at a price above their Book Value in order to make
withdrawal payments. (Withdrawals generally will arise when the Fund must pay
shareholders who redeem Shares.) Because it is anticipated that each Wrapper
Agreement will cover all Covered Assets up to a specified dollar amount, if more
than one Wrapper Provider becomes obligated to pay to the Portfolio the
difference between Book Value and market value (plus accrued interest on the
underlying securities), each Wrapper Provider will be obligated to pay a
pro-rata amount in proportion to the maximum dollar amount of coverage provided.
Thus, the Portfolio will not have the option of choosing which Wrapper Agreement
to draw upon in any such payment situation.
The terms of the Wrapper Agreements vary concerning when these payments must
actually be made between the Portfolio and the Wrapper Provider. In some cases,
payments may be due upon disposition of Covered Assets; other Wrapper Agreements
provide for settlement of payments only upon termination of the Wrapper
Agreement or total liquidation of the Covered Assets.
The Fund expects that the use of Wrapper Agreements by the Portfolio will
under most circumstances permit the Fund to maintain a constant NAV and to pay
dividends that will generally reflect over time both the interest income of, and
market gains and losses on, the Covered Assets held by the Portfolio less the
expenses of the Fund and the Portfolio. However, there can be no guarantee that
the Fund will maintain a constant NAV per Share or that any Shareholder will
realize the same investment return as might be realized by investing directly in
the Portfolio assets other than the Wrapper Agreements. For example, a default
by the issuer of a Portfolio Security or a Wrapper Provider on its obligations
might result in a decrease in the value of the Portfolio assets and,
consequently, the Shares. The Wrapper Agreements generally do not protect the
Portfolio from loss if an issuer of Portfolio Securities defaults on payments of
interest or principal. Additionally, a Fund shareholder may realize more or less
than the actual investment return on the Portfolio Securities. Furthermore,
there can be no assurance that the Portfolio will be able at all times to obtain
Wrapper Agreements. Although it is the current intention of the Portfolio to
obtain such agreements covering all of its assets (with the exceptions noted),
the Portfolio may elect not to cover some or all of its assets with Wrapper
Agreements should Wrapper Agreements become unavailable or should other
conditions such as cost, in Bankers Trust's sole discretion, render their
purchase inadvisable.
If, in the event of a default of a Wrapper Provider, the Portfolio were
unable to obtain a replacement Wrapper Agreement, Shareholders redeeming Shares
might experience losses if the market value of the Portfolio's assets no longer
covered by the Wrapper Agreement is below Book Value. The combination of the
default of a Wrapper Provider and an inability to obtain a replacement agreement
could render the Portfolio and the Fund unable to achieve their investment
objective of maintaining a stable NAV per Share. If the Board of Trustees of the
Portfolio Trust (the "Portfolio Trust Board") determines that a Wrapper Provider
is unable to make payments when due, that Board may assign a fair value to the
Wrapper Agreement that is less than the difference between the Book Value and
the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
Some Wrapper Agreements require that the Portfolio maintain a specified
percentage of its total assets in short-term investments ("Liquidity Reserve").
These short-term investments must be used for the payment of withdrawals from
the Portfolio and Portfolio expenses. To the extent the Liquidity Reserve falls
below the specified percentage of total assets, the Portfolio is obligated to
direct all net cash flow to the replenishment of the Liquidity Reserve. The
obligation to maintain a Liquidity Reserve may result in a lower return for the
Portfolio and the Fund than if these funds were invested in longer-term Fixed
Income Securities. The Liquidity Reserve required by all Wrapper Agreements is
not expected to exceed 20% of the Portfolio's total assets.
Wrapper Agreements also require that the Covered Assets have a specified
duration or maturity, consist of specified types of securities or be of a
specified investment quality. The Portfolio will purchase Wrapper Agreements
whose criteria in this regard are consistent with the Portfolio's (and the
Fund's) investment objective and policies as described in this Prospectus.
Wrapper Agreements may also require the disposition of securities whose ratings
are downgraded below a certain level. This may limit the Portfolio's ability to
hold such downgraded securities. Please see the SAI for additional information
concerning Wrapper Agreements.
DERIVATIVES -- The Portfolio may invest in various instruments, including the
Wrapper Agreements, that are commonly known as "derivatives." Broadly defined, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset or market index. Some derivatives
such as mortgage-related and other asset-backed securities are in many respects
like any other investments, although they may be more volatile or less liquid
than more traditional debt securities. There are, in fact, many different types
of derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures contracts and options are commonly used for
traditional hedging purposes to attempt to protect an investor from exposure to
changing interest rates, securities prices or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effect of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets and can, in some circumstances, lead to significant losses.
Bankers Trust uses derivatives only in circumstances where it believes they
offer the most economic means of improving the risk/reward profile of the
Portfolio. Except as noted herein, derivatives will not be used to increase
portfolio risk above the level that could be achieved using only traditional
investment securities or to acquire exposure to changes in the value of assets
or indexes that by themselves would not be purchased for the Portfolio. The use
of derivatives for non-hedging purposes may be considered speculative.
GAA STRATEGY. In implementing the GAA Strategy, the Portfolio's investment
in derivatives such as options, futures or forward contracts, and similar
strategies depend on the Adviser's judgment as to the potential risks and
rewards of implementing the different types of strategies. Options and futures
can be volatile investments, and may not perform as expected. If the Adviser
applies a hedge at an inappropriate time or judges price trends incorrectly,
options and futures strategies may lower the Portfolio's return. Additionally,
options and futures traded on foreign exchanges generally are not regulated by
U.S. authorities, and may offer less liquidity and less protection to a
Portfolio in the event of default by the other party to the contract. The
Portfolio could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market.
HOW TO PURCHASE SHARES
Security Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Security Benefit Group, Inc., is principal underwriter for the Fund. Shares
of the Fund may be purchased through authorized investment dealers. In addition,
banks and other financial intermediaries that have an agreement with the
Distributor may make shares of the Fund available to their customers. The
minimum initial purchase must be $100 and subsequent purchases must be $100
unless made through an Accumulation Plan which allows subsequent purchases of
$20.
Orders for the purchase of Shares will be confirmed at an offering price
equal to the net asset value per share next determined after receipt of the
order in proper form by the Distributor (generally as of the close of the
Exchange on that day) plus the sales charge in the case of Class A shares.
Orders received by dealers or other firms prior to the close of the Exchange and
received by the Distributor prior to the close of its business day will be
confirmed at the offering price effective as of the close of the Exchange on
that day.
Orders for shares received by broker/dealers prior to that day's close of
trading on the New York Stock Exchange and transmitted to the Fund prior to its
close of business that day will receive the offering price equal to the net
asset value per share computed at the close of trading on the Exchange on the
same day plus, in the case of Class A shares, the sales charge. Orders received
by broker/dealers after that day's close of trading on the Exchange and
transmitted to the Fund prior to the close of business on the next business day
will receive the next business day's offering price.
ALTERNATIVE PURCHASE OPTIONS -- The Fund offers three classes of shares:
CLASS A SHARES - FRONT-END LOAD OPTION. Class A shares are sold with a sales
charge at the time of purchase. Class A shares are not subject to a sales charge
when they are redeemed (except that shares sold in an amount of $1,000,000 or
more without a front-end sales charge will be subject to a contingent deferred
sales charge for one year.) See Appendix A on page 31 for a discussion of
possible reductions in the front-end sales charge.
CLASS B SHARES - BACK-END LOAD OPTION. Class B shares are sold without a
sales charge at the time of purchase, but are subject to a deferred sales charge
if they are redeemed within five years of the date of purchase. Class B shares
will automatically convert tax-free to Class A shares at the end of eight years
after purchase.
CLASS C SHARES - BACK-END LOAD OPTION. Class C shares are sold without a
sales charge at the time of purchase, but are subject to a deferred sales charge
of 1% if they are redeemed within one year of the date of purchase. Class C
shares do not automatically convert to any other share class.
The decision as to which share class is more beneficial to an investor
depends on the amount and intended length of the investment. Investors who would
rather pay the entire cost of distribution at the time of investment, rather
than spreading such cost over time, might consider Class A shares. Other
investors might consider Class B or Class C shares, in which case 100% of the
purchase price is invested immediately, depending on the amount of the purchase
and the intended length of investment.
Dealers or others receive different levels of compensation depending on
which class of Shares they sell.
CLASS A SHARES -- Class A shares of the Fund are offered at net asset value plus
an initial sales charge as follows:
- --------------------------------------------------------------------------------
SALES CHARGE
--------------------------------------------
APPLICABLE PERCENTAGE OF PERCENTAGE
AMOUNT OF PURCHASE PERCENTAGE OF NET AMOUNT REALLOWABLE
AT OFFERING PRICE OFFERING PRICE INVESTED TO DEALERS
- --------------------------------------------------------------------------------
Less than $100,000............... 3.5% 3.63% 3.0%
$100,000 but less than $500,000.. 2.5% 2.56% 2.0%
$500,000 but less than $1,000,000 1.5% 1.52% 1.0%
$1,000,000 and over.............. None None (See below)
- --------------------------------------------------------------------------------
Purchases of Class A shares in amounts of $1,000,000 or more are made at net
asset value (without a sales charge), but are subject to a contingent deferred
sales charge of 1% in the event of redemption within one year following
purchase. For a discussion of the contingent deferred sales charge, see
"Calculation and Waiver of Contingent Deferred Sales Charges" on page 16.
The Distributor will pay a commission to dealers on such purchases of
$1,000,000 or more as follows: ______% on sales up to $5,000,000, plus ______%
on sales of $5,000,000 or more up to $10,000,000 and ______% on any amount of
$10,000,000 or more.
CLASS A DISTRIBUTION PLAN -- In addition to the sales charge deducted from Class
A shares at the time of purchase, the Fund is also authorized, under a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "Class A Distribution Plan"), to use its assets to finance certain
activities relating to the distribution of its Shares to investors. The Fund's
Class A Distribution Plan permits payments to be made by the Fund to the
Distributor, to finance various activities relating to the distribution of its
Class A shares to investors, including, but not limited to, the payment of
compensation (including incentive compensation to securities dealers and other
financial institutions and organizations) to obtain various distribution-related
and/or administrative services for the Fund.
Under the Class A Distribution Plan, a monthly payment is made to the
Distributor in an amount computed at an annual rate of .25% of the average daily
net asset value of the Fund's Class A shares. The distribution fees collected
may be used by the Fund and the other series of Security Income Fund to finance
joint distribution activities, for example advertisements promoting each of the
funds, and the costs of such joint activities will be allocated among the funds
on a fair and equitable basis, including on the basis of the relative net assets
of their Class A shares.
The Class A Distribution Plan authorizes payment by the Class A shares of
the Fund of the cost of preparing, printing and distributing prospectuses and
Statements of Additional Information to prospective investors and of
implementing and operating the Plan.
In addition, compensation to securities dealers and others is paid from
distribution fees at an annual rate of .25% of the average daily net asset value
of Class A shares sold by such dealers and remaining outstanding on the Fund's
books to obtain certain administrative services for the Fund's Class A
shareholders. The services include, among other things, processing new
stockholder account applications and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Fund. Other promotional activities which
may be financed pursuant to the Plan include (i) informational meetings
concerning the Fund for registered representatives interested in selling shares
of the Fund, and (ii) bonuses or incentives offered to all or specified dealers
on the basis of sales of a specified minimum dollar amount of Class A shares of
the Fund by the registered representatives employed by such dealer(s). The
expenses associated with the foregoing activities will include travel expenses,
including lodging.
The Class A Distribution Plan may be terminated at any time by vote of the
directors of the Fund, who are not interested persons of the Fund as defined in
the 1940 Act or by vote of a majority of the Fund's outstanding Class A shares.
In the event the Class A Distribution Plan is terminated, the payments made to
the Distributor pursuant to the Plan up to that time would be retained by the
Distributor. Any expenses incurred by the Distributor in excess of those
payments would be absorbed by the Distributor.
CLASS B SHARES -- Class B shares of the Fund are offered at net asset value,
without an initial sales charge. With certain exceptions, the Fund may impose a
deferred sales charge on Class B shares redeemed within five years of the date
of purchase. No deferred sales charge is imposed on amounts redeemed thereafter.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable. The deferred sales charge is retained by the Distributor.
Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the shareholder made a purchase
payment from which an amount is being redeemed, according to the following
schedule:
--------------------------------------------
CONTINGENT
YEAR SINCE DEFERRED
PURCHASE WAS MADE SALES CHARGE
--------------------------------------------
First........................ 5%
Second....................... 4%
Third........................ 3%
Fourth....................... 3%
Fifth........................ 2%
Sixth and following.......... 0%
--------------------------------------------
Class B shares (except shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares) will
automatically convert on the eighth anniversary of the date such shares were
purchased to Class A shares which are subject to a lower distribution fee. This
automatic conversion of Class B shares will take place without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to the transfer agent.) All shares purchased through reinvestment
of dividends and other distributions paid with respect to Class B shares
("reinvestment shares") will be considered to be held in a separate subaccount.
Each time any Class B shares (other than those held in the subaccount) convert
to Class A shares, a pro rata portion of the reinvestment shares held in the
subaccount will also convert to Class A shares. Class B shares so converted will
no longer be subject to the higher expenses borne by Class B shares. Because the
net asset value per share of the Class A shares may be higher or lower than that
of the Class B shares at the time of conversion, although the dollar value will
be the same, a shareholder may receive more or less Class A shares than the
number of Class B shares converted. Under current law, it is the Fund's opinion
that such a conversion will not constitute a taxable event under federal income
tax law. In the event that this ceases to be the case, the Board of Directors
will consider what action, if any, is appropriate and in the best interests of
the Class B shareholders.
CLASS B DISTRIBUTION PLAN -- The Fund bears some of the costs of selling its
Class B shares under a Distribution Plan adopted with respect to its Class B
shares ("Class B Distribution Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("1940 Act"). The Class B Distribution Plan provides for
payments at an annual rate of .75% of the average daily net asset value of the
Class B shares. Amounts paid by the Fund are currently used to pay dealers and
other firms that make Class B shares available to their customers (1) a
commission at the time of purchase normally equal to 3% of the value of each
share sold, and (2) a service fee payable for the first year, initially, and for
each year thereafter, quarterly, in an amount equal to .25% annually of the
average daily net asset value of Class B shares sold by such dealers and other
firms and remaining outstanding on the books of the Fund.
NASD Rules limit the aggregate amount that the Fund may pay annually in
distribution costs for the sale of its Class B shares to 6.25% of gross sales of
Class B shares since the inception of the Class B Distribution Plan, plus
interest at the prime rate plus 1% on such amount (less any contingent deferred
sales charges paid by Class B shareholders to the Distributor). The Distributor
intends, but is not obligated, to continue to apply or accrue distribution
charges incurred in connection with the Class B Distribution Plan which exceed
current annual payments permitted to be received by the Distributor from the
Fund. The Distributor intends to seek full payment of such charges from the Fund
(together with annual interest thereon at the prime rate plus 1%) at such time
in the future as, and to the extent that, payment thereof by the Fund would be
within permitted limits.
The Fund's Class B Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class B shares. In the
event the Class B Distribution Plan is terminated, the payments made to the
Distributor pursuant to the Plan up to that time would be retained by the
Distributor. Any expenses incurred by the Distributor in excess of those
payments would be absorbed by the Distributor. The Fund makes no payments in
connection with the sale of their Class B shares other than the distribution fee
paid to the Distributor.
CLASS C SHARES -- Class C shares of the Fund are offered at net asset value,
without an initial sales charge. With certain exceptions, the Fund will impose a
deferred sales charge on Class C shares redeemed within one year of the date of
purchase. No deferred sales charge is imposed on amounts redeemed thereafter. If
imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable. The deferred sales charge is retained by the Distributor.
CLASS C DISTRIBUTION PLAN -- The Fund bears some of the costs of selling its
Class C shares under a Distribution Plan adopted with respect to its Class C
shares ("Class C Distribution Plan") pursuant to Rule 12b-1 under the 1940 Act.
The Class C Distribution Plan provides for payments at an annual rate of .50% of
the average daily net asset value of the Class C shares. Amounts paid by the
Fund are currently used to pay dealers and other firms that make Class C shares
available to their customers (1) a commission at the time of purchase normally
equal to .25% of the value of each share sold, and for each year thereafter,
quarterly, in an amount equal to .25% annually of the average daily net asset
value of Class C shares sold by such dealers and other firms and remaining
outstanding on the books of the Fund, and (2) a service fee payable for the
first year, initially, and for each year thereafter, quarterly, in an amount
equal to .25% annually of the average daily net asset value of Class C shares
sold by such dealers and other firms and remaining outstanding on the books of
the Fund.
NASD Rules limit the aggregate amount that the Fund may pay annually in
distribution costs for the sale of its Class C shares to 6.25% of gross sales of
Class C shares since the inception of the Class C Distribution Plan, plus
interest at the prime rate plus 1% on such amount (less any contingent deferred
sales charges paid by Class C shareholders to the Distributor). The Distributor
intends, but is not obligated, to continue to apply or accrue distribution
charges incurred in connection with the Class C Distribution Plan which exceed
current annual payments permitted to be received by the Distributor from the
Fund. The Distributor intends to seek full payment of such charges from the Fund
(together with annual interest thereon at the prime rate plus 1%) at such time
in the future as, and to the extent that, payment thereof by the Fund would be
within permitted limits.
The Fund's Class C Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class C shares. In the
event the Class C Distribution Plan is terminated, the payments made to the
Distributor pursuant to the Plan up to that time would be retained by the
Distributor. Any expenses incurred by the Distributor in excess of those
payments would be absorbed by the Distributor. The Fund makes no payments in
connection with the sale of their Class C shares other than the distribution fee
paid to the Distributor.
CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES -- Any contingent
deferred sales charge imposed upon redemption of Class A shares (purchased in an
amount of $1,000,000 or more), and Class B shares or Class C shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net cost of such shares. No contingent deferred sales charge is imposed
upon redemption of amounts derived from (1) increases in the value above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) shares acquired through reinvestment of income dividends and capital
gain distributions; (3) Class A shares (purchased in an amount of $1,000,000 or
more) or Class C shares held for more than one year; or (4) Class B shares held
for more than five years. Upon request for redemption, shares not subject to the
contingent deferred sales charge will be redeemed first. Thereafter, shares held
the longest will be the first to be redeemed.
The contingent deferred sales charge is waived: (1) following the death of a
shareholder if redemption is made within one year after death; (2) upon the
disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
contingent deferred sales charge), (iv) "financial hardship" of a participant in
the plan, as that term is defined in Treasury Regulation section
1.401(k)1(d)(2), as amended from time to time, (v) termination of employment of
a participant in the plan, (vi) any other permissible withdrawal under the terms
of the plan.
CONFIRMATIONS AND STATEMENTS -- Certain transactions may be confirmed on a
quarterly basis including systematic withdrawals, automatic purchases and
reinvested dividends.
PURCHASES AT NET ASSET VALUE
Class A shares of the Fund may be purchased at net asset value by (1)
directors, officers and employees of the Fund, the Fund's Administrator or
Distributor; directors, officers and employees of Security Benefit Life
Insurance Company and its subsidiaries; agents licensed with Security Benefit
Life Insurance Company; spouses or minor children of any such agents; as well as
the following relatives of any such directors, officers and employees (and their
spouses): spouses, grandparents, parents, children, grandchildren, siblings,
nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan
established by any of the foregoing corporations for persons described above;
(3) retirement plans where third party administrators of such plans have entered
into certain arrangements with the Distributor or its affiliates provided that
no commission is paid to dealers; and (4) officers, directors, partners or
registered representatives (and their spouses and minor children) of
broker/dealers who have a selling agreement with the Distributor. Such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of the Fund.
Class A shares of the Fund may also be purchased at net asset value when the
purchase is made on the recommendation of (i) a registered investment adviser,
trustee or financial intermediary who has authority to make investment decisions
on behalf of the investor; or (ii) a certified financial planner or registered
broker-dealer who either charges periodic fees to its customers for financial
planning, investment advisory or asset management services, or provides such
services in connection with the establishment of an investment account for which
a comprehensive "wrap fee" is imposed. The Distributor must be notified when a
purchase is made that qualifies under this provision.
PURCHASING SHARES THROUGH PLANS
Plan participant-directed purchases, exchanges and redemptions of Shares are
handled in accordance with each Plan's specific provisions. Plans may have
different provisions with respect to the timing and method of purchases,
exchanges and redemptions by Plan Participants. Plan Participants should contact
their Plan administrator for details concerning how they may direct transactions
in Shares. It is the responsibility of the Plan administrator or other Plan
service provider to forward instructions for these transactions to the
Administrator.
PURCHASING SHARES THROUGH TSA ACCOUNTS AND IRAS
Shares may be purchased through a TSA Account or an IRA established with the
Security Funds by calling the Distributor at 1-800-888-2461. Alternatively,
Shares may be purchased through a TSA Account or an IRA established with an
authorized investment dealer or other financial intermediary that has a selling
agreement with the Distributor (collectively referred to as "Investment
Dealers").
For information regarding opening a TSA Account or an IRA account, call the
Distributor at 1-800-888-2461 or contact your Investment Dealer, or address a
written request to:
Security Distributors, Inc.
P.O. Box __________________
Topeka, KS ________________
HOW TO REDEEM SHARES
A Shareholder may redeem shares at the net asset value next determined after the
time when such shares are tendered for redemption, less any applicable deferred
sales charge and Redemption Fee.
Shares will be redeemed on request of the shareholder in proper order to the
Fund's Administrator. A request is made in proper order by submitting the
following items to the Administrator: (1) a written request for redemption
signed by all registered owners exactly as the account is registered, including
fiduciary titles, if any, and specifying the account number and the dollar
amount or number of shares to be redeemed; (2) a guarantee of all signatures on
the written request or on the share certificate or accompanying stock power; (3)
any share certificates issued for any of the shares to be redeemed; and (4) any
additional documents which may be required by the Administrator for redemption
by corporations or other organizations, executors, administrators, trustees,
custodians or the like. Transfers of shares are subject to the same
requirements. The signature guarantee must be provided by an eligible guarantor
institution, such as a bank, broker, credit union, national securities exchange
or savings association. A signature guarantee is not required for redemptions of
$10,000 or less, requested by and payable to all shareholders of record for an
account, to be sent to the address of record. The Transfer Agent reserves the
right to reject any signature guarantee pursuant to its written procedures which
may be revised in the future. To avoid delay in redemption or transfer
stockholders having questions should contact the Administrator by calling
1-800-888-2461, extension 3127.
Payment of the amount due on redemption, less any applicable deferred sales
charge and Redemption Fee, will be made by check or by wire at the sole
discretion of the Administrator, within seven days after receipt of the
redemption request in proper order. If a wire transfer is requested, the
Administrator must be provided with the name and address of the shareholder's
bank as well as the account number to which payment is to be wired. Checks will
be mailed to the shareholder's registered address (or as otherwise directed).
Remittance by wire (to a commercial bank account in the same name(s) as the
shares are registered), by certified or cashier's check, or by express mail, if
requested, will be at a charge of $15, which will be deducted from the
redemption proceeds.
In addition to the foregoing redemption procedures, the Fund repurchases
shares from broker/dealers at the price determined as of the close of business
on the day such offer is confirmed. Dealers may charge a commission on the
repurchase of shares.
At various times, requests may be made to redeem shares for which good
payment has not yet been received. Accordingly, payment of redemption proceeds
may be delayed until such time as good payment has been collected for the
purchase of the shares in question, which may take up to 15 days from the
purchase date.
Requests may also be made to redeem shares in an account for which the
shareholder's tax identification number has been provided. To the extent
permitted by law, the redemption proceeds from such an account will be reduced
by $50 to reimburse for the penalty imposed by the Internal revenue Service for
failure to report the tax identification number.
The Fund reserves the right to honor any request for redemption by making
payment in whole or in part in securities selected solely in the discretion of
the Fund provided, however, that such "securities" shall not include Wrapper
Agreements. The Fund intends to exercise this right under certain extraordinary
conditions as determined by the Fund. To the extent that payment is made in
securities, a shareholder may incur brokerage expenses in converting these
securities into cash. Please see the Fund's Statement of Additional Information
for additional information concerning redemptions in kind.
REDEEMING SHARES OWNED THROUGH PLANS -- Redemption requests will be processed at
the NAV per share next determined after a request for redemption is received in
good order by the Administrator, less any applicable deferred sales charge.
There will be no reduction of the NAV per Share for "Qualified Plan
Redemptions," which are redemptions resulting from a Plan Participant's death,
disability, retirement or termination of employment or to fund loans to, or "in
service" withdrawals by, a Plan Participant, other than the possible assessment
of a contingent deferred sales charge as described above. All other redemptions
of Shares, including those to fund transfers to other Plan investment options,
will be subject to the 3% Redemption Fee, if the Interest Rate Trigger is
active. See "EXPENSE SUMMARY" and "Shareholder Transaction Expenses" above.
The Fund and the Administrator reserve the right to require written
verification of whether a redemption request is for a Qualified Plan Redemption
in accordance with Plan provisions and to establish the authenticity of this
information before processing a redemption request. Normally, the Fund will make
payment for all Shares redeemed within one business day after a request is
received. In no event will payment be made more than seven days after receipt of
a redemption request in good order. The Fund may suspend the right of redemption
or postpone the date of payment at times when both the NYSE and the Fund's
Administrator are closed, or under any emergency circumstances as determined by
the SEC.
The value of Shares at the time of redemption may be more or less than the
Plan Participant's cost at the time of purchase, depending upon the then-current
market value of the Fund's assets (its interest in the Portfolio). Plan
Participants should consult with their Plan administrator and/or professional
tax adviser with respect to the terms and conditions for withdrawal from, or
redemption of their interests in, their respective Plans.
REDEEMING SHARES OWNED THROUGH TSA ACCOUNTS AND IRAS -- Redemption Requests by
Owners of TSA Accounts and IRA Owners should be transmitted in accordance with
procedures established by the Administrator. Requests for redemptions of Shares
held through TSA Accounts and IRAs must be made in writing and describe the
nature of the redemption in order to be deemed "in good order." Forms are
available from the Security Funds Service Center at 1-800-888-2461 or from your
Investment Dealer.
Redemption requests initiated by Owners f TSA Accounts and IRA Owners will
be processed at the NAV per Share next determined after a request for redemption
is received in good order by the Transfer Agent, less any applicable deferred
sales charge. Normally, the Fund will make payment for all Shares redeemed under
this procedure within one business day after a request is received in good
order. In no event will payment be made more than seven days after receipt of a
redemption request in good order. The Fund may suspend the right of redemption
or postpone the date of payment at times when both the NYSE and the Fund's
Transfer Agent are closed, or under any emergency circumstances as determined by
the SEC.
The value of Shares at the time of redemption may be more or less than the
investor's cost at the time of purchase, depending upon the then-current market
value of the Fund's assets (its interest in the Portfolio). Consult with your
Investment Dealer and/or professional tax adviser with respect to the terms and
conditions for withdrawal of particular TSA Accounts and IRAs.
Redemptions of Shares which are not Qualified TSA Redemptions or Qualified
IRA Redemptions, as defined below, will be subject to the 3% Redemption Fee (in
addition to any applicable deferred sales charge), if the Interest Rate Trigger
is active. See "EXPENSE SUMMARY" and "Shareholder Transaction Expenses" above.
QUALIFIED TSA ACCOUNT REDEMPTIONS -- At any time, a redemption of Fund shares
can be effected without assessment of the Redemption Fee, if such redemption is
a "Qualified TSA Account Redemption." In general, amounts distributed to a
taxpayer from a TSA Account prior to the date on which the taxpayer reaches age
59 1/2 are includible in the taxpayer's gross income and, unless the
distribution meets the requirements of a specific exception, are also subject to
an additional 10% penalty tax. In general, rollovers from a TSA Account to an
IRA and direct trustee-to-trustee transfers from a TSA Account to another TSA
Account are not subject to tax. A "Qualified TSA Account Redemption" is a
redemption made by an owner of a TSA Account that is not subject to any early
withdrawal penalty tax, other than a rollover to an IRA or a direct
trustee-to-trustee transfers ("Qualified Transfers"), unless the owner of the
TSA Account or IRA Owner continues the investment of the transferred amount in
the Fund.
Owners of TSA Accounts requesting a redemption of Fund shares will be
required to provide a written statement as to whether the proceeds of the
redemption will be subject to the early withdrawal penalty tax and to identify
the specific exception upon which he or she intends to rely. The information
provided by the owner of the TSA Account will be reflected on the Form 1099-R
issued to the owner and filed with the Internal Revenue Service in connection
with the redemption, as well as forming the basis for redemption as a Qualified
TSA Account Redemption. The Fund and/or the Transfer Agent may require
additional evidence, such as the opinion of a certified public accountant or tax
attorney, that any particular redemption will not be subject to any penalty tax.
If a qualified exception to the early withdrawal penalty, other than a Qualified
Transfer, is not identified by the TSA Account owner, the Redemption Fee will be
assessed on the redemption if the Interest Rate Trigger is active (unless the
owner continues the investment of the Fund after the transfer). OWNERS OF TSA
ACCOUNTS SHOULD CONSULT THEIR TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF ANY
REDEMPTION.
Some of the exceptions to the early withdrawal penalty taxes are described
below. THIS DESCRIPTION IS INTENDED TO PROVIDE ONLY A BRIEF SUMMARY OF THE
PRINCIPAL EXCEPTIONS TO THE ADDITIONAL TAX IMPOSED ON EARLY WITHDRAWALS UNDER
THE CURRENT PROVISIONS OF THE CODE, WHICH MAY CHANGE FROM TIME TO TIME. THE FUND
INTENDS TO CONFORM THE DEFINITION OF QUALIFIED TSA ACCOUNT REDEMPTIONS TO
CHANGES IN APPLICABLE TAX LAWS; HOWEVER, THE FUND RESERVES THE RIGHT TO CONTINUE
TO DEFINE QUALIFIED TSA ACCOUNT REDEMPTIONS BY REFERENCE TO CODE PROVISIONS NOW
IN EFFECT OR OTHERWISE TO DEFINE SUCH PHRASE INDEPENDENTLY OF FUTURE CODE
PROVISIONS.
In general, the early withdrawal penalty tax imposed by the Code will not
apply to the following types of distributions from a TSA Account and these will
be treated as Qualified TSA Account Redemptions:
1. Distributions made on or after the date on which the TSA Account owner
attains age 59 1/2;
2. Distributions made to a beneficiary (or to the estate of the TSA Account
owner) on or after the death of the TSA Account owner;
3. Distributions attributable to the TSA Account owner being disabled;
4. Distributions made to the TSA Account owner after separation from service
after age 55;
5. Distributions to an alternate payee (e.g. a former spouse) pursuant to a
qualified domestic relations order;
6. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the TSA
Account owner, or the joint lives (or life expectancies) of the TSA Account
owner and his or her designated beneficiary, after the TSA Account owner
separates from service;
7. Distributions made to a TSA Account owner for medical care, but not in
excess of the amount allowable as a medical expense deduction by the TSA
Account owner on his or her tax return for the year;
8. Distributions timely made to correct an excess contribution; and
9. Distributions timely made to reduce an excess elective deferral.
QUALIFIED IRA REDEMPTIONS -- At any time, a redemption of Fund Shares can be
effected without assessment of the Redemption Fee, if such redemption is a
"Qualified IRA Redemption." In general, amounts distributed to a taxpayer from a
Traditional IRA, SEP-IRA or SIMPLE IRA prior to the date on which the taxpayer
reaches age 59 1/2 are includible in the taxpayer's gross income and, unless the
distribution meets the requirements of a specific exception, are also subject to
an additional 10% penalty tax. (The penalty is increased to 25% for early
withdrawals from SIMPLE IRAs that occur within two years of beginning
participation.) Similar penalties apply to early withdrawals from Roth IRAs,
Keogh plans and education IRAs. In general, rollovers from one IRA to another
and direct trustee-to-trustee transfers from an IRA to another IRA (or in some
cases to other types of qualified plans) are not subject to tax. In addition,
conversions of Traditional IRAs to Roth IRAs are subject to income tax but are
not subject to the early withdrawal penalty tax. A "Qualified IRA Redemption" is
a redemption made by an IRA Owner to effect a distribution from his or her IRA
account that is not subject to any early withdrawal penalty tax, other than IRA
rollovers, direct trustee-to-trustee transfers and conversions of Traditional
IRAs to Roth IRAs ("Qualified Transfers"), unless the IRA Owner continues the
investment of the transferred amount in the Fund. IRA Owners requesting a
redemption of Fund Shares will be required to provide a written statement as to
whether the proceeds of the redemption will be subject to the early withdrawal
penalty tax and to identify the specific exception upon which the IRA Owner
intends to rely. The information provided by the IRA Owner will be reflected on
the Form 1099-R issued to the IRA Owner and filed with the Internal Revenue
Service in connection with the redemption as well as forming the basis for
redemption as a Qualified IRA Redemption. The Fund and/or Transfer Agent may
require additional evidence, such as the opinion of a certified public
accountant or tax attorney, that any particular redemption will not be subject
to any penalty tax. If a qualified exception to the early withdrawal penalty
other than a Qualified Transfer is not identified by the IRA Owner, the
Redemption Fee will be assessed on the redemption if the Interest Rate Trigger
is active (unless shares of the Fund are transferred). IRA OWNERS SHOULD CONSULT
THEIR TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF ANY REDEMPTION.
Some of the exceptions to the early withdrawal penalty taxes are described
below. THIS DESCRIPTION IS INTENDED TO PROVIDE ONLY A BRIEF SUMMARY OF THE
PRINCIPAL EXCEPTIONS TO THE ADDITIONAL TAX IMPOSED ON EARLY WITHDRAWALS UNDER
THE CURRENT PROVISIONS OF THE CODE, WHICH MAY CHANGE FROM TIME TO TIME. THE FUND
INTENDS TO CONFORM THE DEFINITION OF QUALIFIED IRA REDEMPTIONS TO CHANGES IN
APPLICABLE TAX LAWS; HOWEVER, THE FUND RESERVES THE RIGHT TO CONTINUE TO DEFINE
QUALIFIED IRA REDEMPTIONS BY REFERENCE TO CODE PROVISIONS NOW IN EFFECT OR
OTHERWISE TO DEFINE SUCH PHRASE INDEPENDENTLY OF FUTURE CODE PROVISIONS.
TRADITIONAL IRAS, SEP-IRAS AND SIMPLE IRAS -- In general, the early withdrawal
penalty tax imposed by the Code will not apply to the following types of
distributions from a Traditional IRA, SEP-IRA or a SIMPLE IRA and these will be
treated as Qualified IRA Redemptions:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled;
4. Distributions made to the IRA Owner to the extent such distributions do not
exceed the amount of unreimbursed medical expenses allowed as a tax
deduction;
5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount paid for medical insurance for the IRA Owner, and his
or her spouse and dependents;
6. Distributions to an IRA Owner to the extent such distributions do not exceed
the qualified higher education expenses for the IRA Owner;
7. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under the Code; and
8. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the IRA
Owner, or the joint lives (or life expectancies) of the IRA Owner and his or
her designated beneficiary.
ROTH IRAS -- With respect to a Roth IRA, all "qualified distributions" are
excluded from gross income and, therefore, from the early withdrawal penalty
tax. In general, qualified distributions from a Roth IRA which will be treated
as Qualified IRA Redemptions include:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled; and
4. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under the Code.
However, a distribution will not be a qualified distribution, even if it
otherwise meets the definition, if it is made within the 5-year period beginning
with the first taxable year for which the IRA Owner made a contribution to the
Roth IRA (or such person's spouse made a contribution to a Roth IRA established
for the IRA Owner). Special rules apply with respect to certain types of
rollovers.
To the extent a distribution from a Roth IRA is not a qualified
distribution, either because it does not meet the definition of a qualified
distribution in the first instance, or because it is made within the five-year
period described above, the portion of the distribution that represents earnings
will be subject to tax under the Code, and will also be subject to the early
withdrawal penalty tax. The same exceptions to the penalty tax that apply to
Traditional IRAs will apply to nonqualified distributions from Roth IRAs.
In the event of a nonqualified distribution from a Roth IRA, only the
earnings in the account are subject to tax; contributions may be recovered
tax-free (since no deduction is permitted for such contributions). Under the
Code, distributions from Roth IRAs are considered to come first from
contributions, to the extent that distributions do not exceed the total amount
of contributions.
KEOGH PLANS -- In general, the early withdrawal penalty tax imposed by the Code
will not apply to the following types of distributions from a Keogh plan:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled;
4. Distributions made to the IRA Owner after separation from service after age
55;
5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount of unreimbursed medical expenses allowed as a tax
deduction;
6. Distributions to an alternate payee (e.g., a former spouse) pursuant to a
qualified domestic relations order; and
7. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the IRA
Owner, or the joint lives (or life expectancies) of the IRA Owner and his or
her designated beneficiary.
EDUCATION IRAS -- Distributions from an education IRA are included in income
unless the qualified higher education expenses of the designated beneficiary are
equal to or greater than the amount of such distributions. In addition, certain
special rules are provided that permit certain rollovers or changes in
beneficiaries. Any distribution that is subject to tax under the Code is also
subject to the early withdrawal penalty tax. Thus, in general, any distribution
from an education IRA that exceeds the amount of qualified higher education
expenses of the designated beneficiary will be subject to the early withdrawal
penalty tax.
SHAREHOLDER AND FUND INFORMATION
INVESTOR SERVICES -- The Fund provides a variety of services to help you manage
your account. Information Services Statements and reports that your Investment
Dealer or the Administrator may send to you include the following:
* Confirmation statements (which may be sent quarterly for certain systematic
transactions);
* Account statements;
* Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the Fund. Call your Investment Dealer
or the Security Funds Service Center at 1-800-888-2461 extension 3127 if you
need additional copies of financial reports.
NET ASSET VALUE -- The NAV is calculated on each day on which the New York Stock
Exchange, Inc. (the "NYSE") is open (each such day being a "Valuation Day"). The
NYSE is currently open on each day, Monday through Friday, except (a) January 1,
Martin Luther King Day, Presidents' Day (the third Monday in February), Good
Friday, Memorial Day (the last Monday in May), July 4, Labor Day (the first
Monday in September), Thanksgiving Day (the last Thursday in November) and
December 25; and (b) the preceding Friday or the subsequent Monday when one of
the calendar-determined holidays falls on a Saturday or Sunday, respectively.
The NAV per Share is calculated once on each Valuation Day as of the close
of regular trading on the NYSE (the "Valuation Time"), which is currently 3:00
p.m., Central time, or if the NYSE closes early, at the time of the early
closing. The NAV per Share is computed by dividing the value of the Fund's
assets (i.e., the value of its investment in the Portfolio and other assets, if
any), less all liabilities, by the total number of its Shares outstanding. The
Portfolio's securities and other assets are valued primarily on the basis of
market quotations or, if quotations are not readily available, by a method that
the Portfolio Trust Board believes accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the fair value
of a Wrapper Agreement ("Wrapper Value") generally will be equal to the
difference between the Book Value and the market value (plus accrued interest on
the underlying securities) of the applicable Covered Assets. If the market value
(plus accrued interest on the underlying securities) of the Covered Assets is
greater than their Book Value, the Wrapper Value will be reflected as a
liability of the Portfolio in the amount of the difference, i.e., a negative
value, reflecting the potential liability of the Portfolio to the Wrapper
Provider. If the market value (plus accrued interest on the underlying
securities) of the Covered Assets is less than their Book Value, the Wrapper
Value will be reflected as an asset of the Portfolio in the amount of the
difference, i.e., a positive value, reflecting the potential liability of the
Wrapper Provider to the Portfolio. In performing its fair value determination,
the Portfolio Trust Board expects to consider the creditworthiness and ability
of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the
Portfolio Trust Board determines that a Wrapper Provider is unable to make such
payments, that Board may assign a fair value to the Wrapper Agreement that is
less than the difference between the Book Value and the market value (plus
accrued interest on the underlying securities) of the applicable Covered Assets
and the Portfolio might be unable to maintain NAV stability.
Under procedures adopted by the Trust Board, an NAV per Share later
determined to have been inaccurate for any reason will be recalculated.
Purchases and redemptions made at the NAV per Share and determined to have been
inaccurate will be adjusted, although in certain circumstances, such as where
the difference between the original NAV per Share and the recalculated NAV per
Share divided by the latter is 0.005 (1/2 of 1%) or less or shareholder
transactions are otherwise insubstantially affected, action is not required.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS -- The Fund intends to distribute all
of its net investment income and net capital gains, if any, to its shareholders
each year. Dividends from net investment income are declared daily and are paid
monthly, and any net capital gains are distributed annually. An additional
annual distribution ("Additional Distribution") may be paid to satisfy the tax
requirements that the Fund distribute each year substantially all of its
investment company taxable income (see "Tax Considerations").
Dividends and other distributions are automatically reinvested in additional
Shares unless the Plan participant directs otherwise.
The Fund may declare and pay dividends in amounts which are not equal to the
amount of the net investment income it actually earns. Consequently, in any year
the amount actually distributed may differ from the income earned. If, for any
year, those distributions exceed the income earned, the excess may be considered
a return of capital. On the other hand, if the income earned exceeds the amount
of the dividends distributed, the Fund may make an Additional Distribution of
that excess. To enable the Fund to maintain a stable NAV per Share in the event
of an Additional Distribution, the Fund Board may declare, effective on the
ex-distribution date of an Additional Distribution, a reverse split of the
Shares in an amount that will cause the total number of Shares held by each
shareholder, including Shares acquired on reinvestment of that distribution, to
remain the same as before that distribution was paid.
For example, if the Fund declares an Additional Distribution of $0.10 per
Share at a time when the NAV per Share is $10.00, a shareholder holding one
Share would receive 0.01 additional Shares on reinvestment of that distribution.
If there were no reverse split, the per Share NAV of the 1.01 Shares held by the
shareholder would be approximately $9.90, and the aggregate value thereof would
be $10.00. If a 1.01-for-1 reverse Share split were declared, however, the
shareholder's holdings would be consolidated back into one Share having an NAV
of $10.00. Thus, a reverse Share split will not affect the value of the total
holdings of a shareholder.
TAX CONSIDERATIONS -- The Fund intends to qualify to be treated as a regulated
investment company under the Code. As a regulated investment company, the Fund
will not be subject to U.S. federal income tax on its investment company taxable
income (generally consisting of net investment income and the excess of net
short-term capital gain over net long-term capital loss, if any) and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss), if any, that it distributes to its shareholders. The Fund intends to
distribute to its shareholders all of its investment company taxable income and
net capital gain at least annually, if necessary through Additional
Distributions, and therefore does not anticipate incurring any federal income
tax liability.
For Owners of TSA Accounts, IRA Owners and Plan Participants, the dividend
and capital gain distributions from the Fund generally will not be subject to
current taxation, but will accumulate on a tax-deferred basis. To the extent
that distributions from a TSA, IRA or Plan are taxable, they are taxable as
ordinary income. TSAs, IRAs and Plans are governed by a complex set of tax
rules. Owners of TSA Accounts, IRA Owners and Plan Participants should consult
with a professional tax adviser regarding the tax consequences associated with
an investment in the Fund.
PERFORMANCE -- The Fund's performance may be used from time to time in
advertisements, shareholders reports or other communications to shareholders or
prospective shareholders. In accordance with SEC regulations, Fund performance
may be calculated with or without deduction of the maximum sales charge.
However, any performance information shown without deduction of the sales charge
would be lower if the sales charge had been deducted. Performance information
may include investment results and/or comparisons of its investment results to
the IBC Averages, Lipper Averages, an appropriate guaranteed interest contract
average, or other various unmanaged indices or results of other mutual funds or
investment or saving vehicles. The Portfolio's strategies, holdings and
performance will be detailed twice a year in the Fund's financial reports, which
are sent to all Fund shareholders.
Mutual fund performance is commonly measured as total return and/or yield.
The performance of a class of shares is affected by its expenses and its share
of those expenses of the Portfolio.
EXPLANATION OF PERFORMANCE TERMS -- Total Return is the change in value of an
investment in the Shares over a given period, assuming reinvestment of any
dividends and capital gain distributions. A cumulative total return reflects
actual performance over a stated period of time. An average annual total return
is a hypothetical rate of return that, if achieved annually, would have produced
the same cumulative total return if performance had been constant over the
entire period. Average annual total return calculations smooth out variations in
performance; they are not the same as actual year-by-year results. Average
annual total returns covering periods of less than one year assume that
performance will remain constant for the rest of the year.
Yield refers to the income generated by an investment in the Shares over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield may
not equal the income actually paid to shareholders.
In accordance with SEC regulations, the yield of the Fund (the "SEC Yield")
shall be calculated on any determination date as follows:
2[((a-b)/c*d) + 1)^6 - 1]
a = Current income measured over a 30-day period
b = Expenses accrued during the same 30-day period
c = Average daily number of shares outstanding during the same 30-day period
d = Maximum offering price per share on the last day of the period.
The "Annual Effective Yield of the Fund" is intended to represent one day's
investment income expressed as an annualized yield and compounded annually. The
Annual Effective Yield of the Fund shall be expressed as a percentage and
calculated on each business day as follows based on the dividend declared for
the previous day:
[(1 + PREVIOUS DAY'S DIVIDEND FACTOR)^365-1]
--------------------------------------------
NAV Per Share
EXAMPLE: If on March 1 the Fund's Dividend Factor is 0.00174163 and the
Fund's NAV per share is $10, then the Fund's Annual Effective Yield for March 2
equals 6.56%.
The "Annual Effective Yield of the Portfolio" is intended to represent the
previous day's investment income of the Portfolio, expressed as an annualized
yield and compounded annually.
The "Annual Effective Yield of the Portfolio" shall be expressed as a
percentage and calculated on each Business Day as follows based on the dividend
declared for the previous day:
[(1 + PREVIOUS DAY'S PORTFOLIO DIVIDEND FACTOR)^365-1]
------------------------------------------------------
NAV Per Share
Once the Interest Rate Trigger is active, it shall remain active every day
until the Reference Index Yield is less than the Annual Effective Yield of the
Portfolio plus 1.55%, at which time the Interest Rate Trigger becomes inactive
on the following day and remains inactive every day thereafter until it becomes
active again.
EXAMPLE: If on March 1 the Portfolio's Dividend Factor is 0.00174163 and the
Portfolio's NAV per share is $10, then the Portfolio's Annual Effective Yield
for March 2 equals 6.56%.
The Annual Effective Yield of the Portfolio is used in determining when the
Interest Rate Trigger is active, as discussed in "Shareholder Fees," on page 4.
Performance information or advertisements may include comparisons of the
Shares' investment results to various unmanaged indices or results of other
mutual funds or investment or savings vehicles. From time to time, the Shares'
ranking may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line, Inc. and Morningstar, Inc.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the Portfolio Securities and the
value of the Wrapper Agreements and changes in the expenses of the Shares and
the Portfolio. In addition, during certain periods for which total return may be
provided, the Fund's administrator and Transfer Agent, Security Management
Company, LLC ("SMC") may have voluntarily agreed to waive portions of its fees,
or to reimburse certain operating expenses of the Fund. In addition, Bankers
Trust may have agreed to do the same with respect to the Portfolio. Such waivers
will have the effect of increasing the Fund's net income (and therefore its
yield and total return) during the period such waivers are in effect.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION
OF FUTURE PERFORMANCE.
MANAGEMENT OF THE FUND
BOARDS OF DIRECTORS -- The Fund's business and affairs are governed by a Board
of Directors. See "Management of the Fund" in the SAI for more information with
respect to the Directors and officers of the Fund.
INVESTMENT ADVISER -- The Fund has not retained the services of an investment
adviser because it seeks to achieve its investment objective by investing all of
its Assets in the Portfolio. The Portfolio has retained the services of Bankers
Trust as its investment adviser pursuant to an Investment Advisory Agreement
between the Portfolio Trust and Bankers Trust dated April 28, 1993 (the
"Investment Advisory Agreement").
Bankers Trust, subject to the supervision and direction of the Portfolio
Trust's Board, manages the Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its worldwide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations, including Wrapper Agreements, for which Bankers Trust
or any of its affiliates is the ultimate obligor or accepting bank. The
Portfolio may, however, invest in the obligations of correspondents and
customers of Bankers Trust.
THE INVESTMENT ADVISORY AGREEMENT -- The Investment Advisory Agreement provides
for the Portfolio Trust to pay Bankers Trust a fee, accrued daily and paid
monthly, equal to 0.70% per year of the average daily net assets of the
Portfolio. Bankers Trust has indicated that it will voluntarily waive all but
0.42% of this fee.
Bankers Trust has been advised by its counsel that, in counsel's opinion,
Bankers Trust currently may perform the services for the Portfolio described in
this Prospectus and the SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretations of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
law.
PORTFOLIO MANAGEMENT -- ERIC KIRSCh (CFA), is a Managing Director and the Chief
Investment Officer of the Structured Fixed Income Group at Bankers Trust in New
York. In this capacity, he oversees over $15 billion of stable value and fixed
income portfolios and coordinates fixed income portfolio management and trading
functions with regards to these portfolios' investments. He has over ten years
of investment experience relating to structured fixed income portfolios, and
previous experience in Employee Benefit Trust Administration. Mr. Kirsch joined
Bankers Trust in 1980.
LOUIS R. D'ARIENZO is a Vice President and a portfolio manager of the
Structured Fixed Income Group at Bankers Trust in New York, where he is
responsible for managing Structured Fixed Income accounts. He has managed the
Fixed Income Securities of the Portfolio since its inception. Mr. D'Arienzo has
17 years of trading and investment experience in structured portfolios,
quantitative analysis of fixed income and derivative securities. Mr. D'Arienzo
joined Bankers Trust in 1981.
JOHN D. AXTELL, JR. is a Principal and a Stable Value portfolio manager at
Bankers Trust in New York, where he is responsible for the portfolio management
and trading activities relating to Stable Value Investments for client
portfolios. He previously managed $2 billion in Structured Bond Portfolios for
four years. Mr. Axtell is a former fixed income portfolio strategist at Drexel
Burnham Lambert, Inc. and has prior experience as Systems Engineer at Hewlett
Packard. Mr. Axtell joined Bankers Trust in 1990.
Bankers Trust investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for personal
investing and restricts certain transactions.
ADMINISTRATOR -- Under an Administration Services and Transfer Agency Agreement
with Security Income Fund, Security Management Company, LLC ("SMC" or the
"Administrator") is responsible for calculating the Fund's NAV and for
performing the bookkeeping, accounting and transfer agency function for the
Fund. This Agreement provides for the Fund to pay SMC a fee, accrued daily and
paid monthly, equal to .09% per year of the average daily net assets of the
Fund. For its transfer agency services SMC receives $8 per account and $1 per
dividend and other transactions. SMC is a limited liability company organized
under the laws of the State of Kansas and is owned by its member firms, Security
Benefit Life Insurance Company and Security Benefit Group, Inc. SMC's principal
offices are located at 700 SW Harrison, Topeka, Kansas 66636-0001.
Under a Sub-Accounting Agreement between SMC and Bankers Trust, Bankers
Trust has agreed to provide certain accounting services to the Fund, including
the daily calculation of the Fund's NAV. The Sub-Accounting Agreement provides
for SMC to pay Bankers Trust a fee, equal to $14,000 per year.
Pursuant to a separate Management Services Agreement, SMC also performs
certain other services on behalf of the Fund. Under this Agreement, SMC
provides, among other things, feeder fund management and administrative services
to the Fund which include monitoring the performance of the Portfolio,
coordinating the Fund's relationship with the Portfolio, communicating with the
Fund's Board of Directors and shareholders regarding the Portfolio's performance
and the Fund's two tier structure, and in general, assisting the Board of
Directors of the Fund in all aspects of the administration and operation of the
Fund. For these services, the Fund pays SMC a fee at the annual rate of .20% of
its average daily net assets, calculated daily and payable monthly.
Under an Administration and Services and Transfer Agency Agreement with the
Portfolio Trust, Bankers Trust calculates the NAV of the Portfolio and generally
assists the Portfolio in all aspects of the administration and operation of the
Portfolio. This Administration and Services Agreement provides for the Portfolio
to pay Bankers Trust a fee, accrued daily and paid monthly, equal to 0.05% per
year of the Portfolio's average daily net assets. Under this Administration and
Services Agreement, Bankers Trust may delegate one or more of its
responsibilities to others, including the Distributor, at Bankers Trust's
expense.
Subject to certain conditions, SMC may, out of its own resources, make
ongoing payments to brokerage firms, plan administrators and fiduciaries,
financial institutions (including banks) and other entities for certain services
provided to the Fund and/or shareholders.
DISTRIBUTOR -- Security Distributors, Inc., as distributor, serves as the Fund's
principal underwriter. Security Distributors, Inc. is a registered broker/dealer
and is a wholly-owned subsidiary of Security Benefit Group, Inc. Its principal
offices are at 700 SW Harrison, Topeka, Kansas 66636-0001.
CUSTODIAN -- UMB Bank, n.a. acts as custodian for the assets of the Fund.
Bankers Trust acts as custodian for the assets of the Portfolio under the
Administration and Services Agreement with the Trust. It is not separately
compensated for this service and may, at its own expense, delegate certain
services to other qualified entities.
YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Fund could be adversely affected if
the computer systems used by the Administrator, Bankers Trust, and other service
providers, in performing their management and administrative functions do not
properly process and calculate date-related information and data before, during
and after January 1, 2000. Some computer software and hardware systems currently
cannot distinguish between the year 2000 and the year 1900 or some other date
because of the way date fields were encoded. This is commonly known as the "Year
2000 Problem." If not addressed, the Year 2000 Problem could impact the
management, transfer agency, accounting, custody and other services provided to
the Fund by the Administrator, Bankers Trust and other service providers.
The Administrator has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Administrator considers a system "Year 2000 Compliant"
when it is able to correctly process, provide and/or receive data before, during
and after the Year 2000. The Administrator's overall approach to addressing the
Year 2000 Problem is as follows: (1) to inventory its internal and external
hardware, software, telecommunications and data transmissions to customers and
conduct a risk assessment with respect to the impact that a failure of any such
system would have on its business operations; (2) to modify or replace its
internal systems and obtain vendor certifications of Year 2000 compliance for
systems provided by vendors or replace such systems that are not Year 2000
Compliant; and (3) to implement and test its systems for Year 2000 compliance.
The Administrator has completed the inventory of its internal and external
systems and has made substantial progress toward completing the
modification/replacement of its internal systems, as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing is scheduled to commence in December 1998 and is scheduled to extend
into the first six months of 1999. In addition, the Fund has been informed by
Bankers Trust that it is working both internally and with its business partners
and service providers to address the Year 2000 Problem.
Although the Administrator has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Administrator is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Administrator at this time but could have a
material adverse impact on the operations of the Fund, the Administrator and
Bankers Trust.
The Year 2000 Problem is also expected to impact operating companies, which
may include issuers of portfolio securities held by the Portfolio, to varying
degrees based upon various factors, including, but not limited to, the company's
industry sector and degree of technological sophistication. The Fund and Bankers
Trust are unable to predict what impact, if any, the Year 2000 Problem will have
on issuers of the portfolio securities held by the Portfolio and, indirectly, on
the value of the Fund's shares.
EXCHANGE PRIVILEGE -- Shareholders who own shares of the Fund may exchange those
shares for shares of another of the series of Security Income Fund or for shares
of other mutual funds distributed by the Distributor (the "Security Funds").
Exchanges may be made, only in those states where shares of the fund into which
an exchange is to be made are qualified for sale. No service fee is presently
imposed on such an exchange. Class A, Class B and Class C shares of the Fund may
be exchanged for Class A, Class B and, if applicable, Class C shares,
respectively, of another Security Fund. Any applicable contingent deferred sales
charge will be calculated from the date of the initial purchase. Exchanges of
Class A shares are made at net asset value without a front-end sales charge. A
Redemption Fee may be assessed on an exchange from the Security Capital
Preservation Fund to another Security Fund if the Interest Rate Trigger is
active.
For tax purposes, an exchange is a sale of shares which may result in a
taxable gain or loss. Special rules may apply to determine the amount of gain or
loss on an exchange occurring within ninety days after the exchanged shares were
acquired.
Exchanges are made upon receipt of a properly completed Exchange
Authorization form. This privilege may be changed or discontinued at any time at
the discretion of the management of the Fund upon 60 days' notice to
shareholders. A current prospectus of the Security Fund into which an exchange
is made will be given to each shareholder exercising this privilege.
ADDITIONAL INFORMATION ABOUT THE FUND
The Fund is a mutual fund: an investment that pools shareholders' money and
invests it toward a specified goal. The Fund is a separate series of the
Security Income Fund organized under the laws of the State of Kansas on
September 9, 1970. The Portfolio is a separate subtrust of the Portfolio Trust,
a New York master trust fund organized pursuant to a Declaration of Trust dated
March 27, 1993.
The Fund and the Trust each reserves the right to add additional
series/subtrusts in the future.
The Articles of Incorporation of Security Income Fund provides for the
issuance of an indefinite numberof shares of capital stock in one or more
classes or series.
Security Income Fund has authorized capital stock of $1.00 par value. Its
shares are currently issued in eight series, Corporate Bond Fund, Limited
Maturity Bond Fund, U.S. Government Fund, High Yield Fund, Emerging Markets
Total Return Fund, Global Asset Allocation Fund, Global High Yield Fund and the
Capital Preservation Fund. The shares of each series represent a pro rata
beneficial interest in that series' net assets and in the earnings and profits
or losses derived from the investment of such assets.
Security Income Fund currently issues two classes of shares for each of its
eight series, except Capital Preservation Fund which offers three classes of
shares. Each class of shares participates proportionately based on their
relative net asset values in dividends and distributions and have equal voting,
liquidation and other rights except that (i) expenses related to the
distribution of each class of shares or other expenses that the Board of
Directors may designate as class expenses from time to time, are borne solely by
each class; (ii) each class of shares has exclusive voting rights with respect
to any Distribution Plan adopted for that class; (iii) each class has different
exchange privileges; and (iv) each class has a different designation.
When issued and paid for, the Fund's shares will be fully paid and
nonassessable by the Fund. Shares may be exchanged as described above under
"Exchange Privilege," but will have no other preference, conversion, exchange or
preemptive rights. Shares are transferable, redeemable and assignable and have
cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of each
series of Income Fund vote together, with each share having one vote. Under
certain circumstances, the shareholders of one series of Security Income Fund
could control the outcome of these votes. On other matters affecting a
particular series, such as the fundamental investment policies, only shares of
that series are entitled to vote, and a majority vote of the shares of that
series is required for approval of the proposal.
The Fund does not generally hold annual meetings of shareholders and will do
so only when required by law. Shareholders may remove directors from office by
votes cast in person or by proxy at a meeting of shareholders. Such a meeting
will be called at the written request of the holders of 10% of Security Income
Fund's outstanding shares.
Each subtrust of the Portfolio Trust, including the Portfolio, will vote
separately on any matter involving that subtrust. Holders of interests in all
the subtrusts of the Portfolio Trust, however, will vote together to elect
Trustees of the Portfolio Trust and for certain other matters. The subtrusts of
the Portfolio Trust will vote together or separately on matters in the same
manner, and in the same circumstances, as do the series of the Fund. As with
Security Income Fund, the investors in one or more subtrusts of the Portfolio
Trust could control the outcome of these votes. No subtrust of the Portfolio
Trust has any preference over any other subtrust.
The Portfolio Trust was organized as a trust under the laws of the State of
New York. The Portfolio Trust's Declaration of Trust provides that the entities
investing in the Portfolio (e.g., investment companies such as the Fund and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund's incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Directors of the Fund believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
SHAREHOLDER INQUIRIES -- Shareholders who have questions concerning their
account or wish to obtain additional information may write to the Security Funds
at 700 SW Harrison Street, Topeka, Kansas 66636-0001, or call (785) 431-3127 or
1-800-888-2461, extension 3127.
INFORMATION CONCERNING THE MASTER FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund seeks to achieve its investment objective by investing all
of its Assets in the Portfolio, a separate subtrust of a registered investment
company with the same investment objective as the Fund. Therefore, a Fund
shareholder's interest in the Portfolio's assets is indirect. In addition to
selling a beneficial interest to the Fund, the Portfolio may sell beneficial
interests to other mutual funds or institutional investors. Such investors will
invest in the Portfolio on the same terms and conditions and will pay a
proportionate share of the Portfolio's expenses. However, the other investors
investing in the Portfolio are not required to sell their shares or other
interests at the same public offering price as the Fund, due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different entities that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust, as the Administrator of the Portfolio, at 1-800-677-7596.
The master-feeder structure is relatively complex, so shareholders should
carefully consider this investment approach. Smaller investors in the Portfolio
may be materially affected by the actions of larger investors in the Portfolio.
For example, if a large investor withdraws from the Portfolio, the remaining
investors may experience higher pro rata operating expenses, thereby producing
lower returns (however, this possibility exists as well for traditionally
structured funds that have large investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, investors with
a greater pro rata ownership in the Portfolio could have effective voting
control of its operations. Except as permitted by the SEC, whenever the Fund is
requested to vote on matters pertaining to the Portfolio, the Fund will hold a
meeting of shareholders of the Fund and will cast all of its votes in the same
proportion as the votes of the Fund's shareholders. Fund shareholders who do not
vote will not affect the Fund's votes on the Portfolio's matters; the Fund's
votes representing Fund shareholders not voting will be voted by the Directors
or officers of the Fund in the same proportion as the Fund shareholders who do,
in fact, vote. Certain changes in the Portfolio's investment objective, policies
or restrictions may require the Fund to withdraw its interest in the Portfolio.
Any such withdrawal could result in a distribution "in kind" of Portfolio assets
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing. The Fund may withdraw its investment
from the Portfolio at any time, if the Board of Directors of Security Income
Fund (the "Fund Board") determines that it is in the best interests of the
shareholders of the Fund to do so. Upon any such withdrawal, the Fund Board
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective as the Fund or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies described
herein with respect to the Portfolio.
DEFINITIONS OF SECURITIES PURCHASED BY THE PORTFOLIO
ASSET-BACKED SECURITIES -- Asset-backed securities have structural
characteristics similar to mortgage-backed securities. However, the underlying
assets are not first lien mortgage loans or interests therein but include assets
such as motor vehicle installment sale contracts, other installment sale
contracts, home equity loans, leases of various types of real and personal
property, and receivables from revolving credit (credit card) agreements. Such
assets are securitized through the use of trusts or special purpose
corporations. Payments or distributions of principal and interest on
asset-backed securities may be guaranteed up to certain amounts and for a
certain time period by a letter of credit or a pool insurance policy issued by a
financial institution unaffiliated with the issuer, or other credit enhancements
may be present.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same type of security interest in the related collateral. Credit card
receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to avoid payment of certain amounts owed on the
credit cards, thereby reducing the balance due. There is the risk in connection
with automobile receivables that recoveries on repossessed collateral may not,
in some cases, be available to support payments on those securities.
COLLATERALIZED MORTGAGE OBLIGATIONS -- CMOs are mortgage-backed bonds that
separate mortgage pools into different classes, called tranches. Tranches pay
different rates of interest and can mature in a few months, or in as long as 20
years. Issued by the Federal Home Loan Mortgage Corporation (Freddie Mac) and
private issuers, CMOs are usually backed by government-guaranteed or other
top-grade mortgages and have AAA ratings. In return for a lower yield, CMOs
provide investors with increased security throughout the life of their
investment compared to purchasing a whole mortgage-backed security. Even so, if
mortgage rates drop sharply, causing a flood of refinancings, prepayment rates
will soar and CMO tranches will be repaid before their expected maturity. See
also REMICs, below.
MORTGAGE-BACKED SECURITIES -- The Portfolio may purchase mortgage-backed
securities issued by the U.S. government, its agencies or instrumentalities and
non-governmental entities such as banks, mortgage lenders or other financial
institutions. Mortgage-backed securities include mortgage pass-through
securities, mortgage-backed bonds and mortgage pay-through securities. A
mortgage pass-through security is a pro rata interest in a pool of mortgages
where the cash flow generated from the mortgage collateral is passed through to
the security holder. A mortgage-backed bond is a general obligation of the
issuer, payable out of the issuer's general funds and additionally secured by a
first lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-through and mortgage-backed bonds. The mortgage
pass-through securities issued by non-governmental entities such as banks,
mortgage lenders or other financial institutions in which the Portfolio may
invest include private label mortgage pass-through securities and whole loans.
Mortgage-backed securities also include other debt obligations secured by
mortgages on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Bankers Trust determines they are consistent
with the Portfolio's investment objective and policies.
Unlike ordinary Fixed Income Securities, which generally pay a fixed rate of
interest and return principal upon maturity, mortgage-backed securities repay
both interest income and principal as part of their periodic payments. Because
the mortgages underlying mortgage-backed certificates can be prepaid at any time
by homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "pre-payment" risks. Prepayment risk or call risk is the
likelihood that, during periods of falling interest rates, securities with high
stated interest rates will be prepaid (or "called") prior to maturity, requiring
the Portfolio to invest the proceeds at generally lower interest rates.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS -- REMICs are pass-through vehicles
created under the tax reform act of 1986 to issue multiclass mortgage-backed
securities. REMICs may be organized as corporations, partnerships or trusts.
Interests in REMICs may be senior or junior, regular (DEBT INSTRUMENTS) or
residual (equity interests). CMOs (described above) normally have AAA bond
ratings, whereas REMICs represent a range of risk levels.
REPURCHASE AGREEMENTS -- In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back to the seller on
a specific date and at a higher price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the underlying security. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS -- In a reverse repurchase
agreement, the Portfolio temporarily transfers possession of a portfolio
instrument to another party in return for cash. This could increase the risk of
fluctuation in the Fund's yield or in the market value of its interest in the
Portfolio. In a dollar roll, the Portfolio sells mortgage-backed or other
securities for delivery in the current month and simultaneously contracts to
purchase substantially similar securities on a specified future date. Reverse
repurchase agreements and dollar rolls are forms of borrowing and will be
counted towards the Portfolio's borrowing restrictions. See "Borrowing" on the
following pages and in the SAI. Wrapper Agreements would cover the cash proceeds
of such transactions but not the portfolio instruments transferred to another
party until possession of such instruments is returned to the Portfolio.
RULE 144A SECURITIES -- Rule 144A Securities are securities that are not
registered for sale under the federal securities laws but can be resold to
institutions pursuant to Rule 144A under the Securities Act of 1933. Provided
that a dealer or institutional trading market in such securities exists, these
restricted securities are treated as exempt from the Portfolio's 15% limit on
illiquid securities. Under the supervision of the Portfolio Trust Board, Bankers
Trust determines the liquidity of restricted securities; and through reports
from Bankers Trust, the Portfolio Trust Board monitors trading activity in
restricted securities. If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
SHORT-TERM INVESTMENTS -- The Portfolio's assets may be invested in high quality
short-term investments with remaining maturities of 397 days or less to maintain
the Liquidity Reserve, to meet anticipated redemptions and expenses for
day-to-day operating purposes and when, in Bankers Trust's opinion, it is
advisable to adopt a temporary defensive position because of unusual and adverse
conditions affecting the respective markets.
U.S. GOVERNMENT SECURITIES -- U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the FNMA are supported by the
instrumentality's right to borrow money from the U.S. Treasury under certain
circumstances. However, securities issued by certain other U.S. agencies or
instrumentalities are supported only by the credit of the entity that issued
them.
OTHER U.S. DOLLAR-DENOMINATED FIXED INCOME SECURITIES -- Bonds and other debt
instruments are used by issuers to borrow money from investors. The issuer pays
the investor a fixed or variable rate of interest and must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest but are purchased at a discount from their face values.
Debt securities, loans and other direct debt have varying degrees of quality and
varying levels of sensitivity to changes in interest rates. Longer-term bonds
are generally more sensitive to interest rate changes than short-term bonds.
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES -- The Portfolio may invest a portion
of its assets in the dollar-denominated debt securities of foreign companies.
Investing in the securities of foreign companies involves more risks than
investing in securities of U.S. companies. Their value is subject to economic
and political developments in the countries where the companies operate and to
changes in foreign currency values. Values may also be affected by foreign tax
laws, changes in foreign economic or monetary policies, exchange control
regulations and regulations involving prohibitions on the repatriation of
foreign currencies.
In general, less information may be available about foreign companies than
about U.S. companies, and foreign companies are generally not subject to the
same accounting, auditing and financial reporting standards as are U.S.
companies. Foreign securities markets may be less liquid and subject to less
regulation than the U.S. securities markets. The costs of investing outside the
United States frequently are higher than those in the United States. These costs
include relatively higher brokerage commissions and foreign custody expenses.
U.S. DOLLAR-DENOMINATED SOVEREIGN AND SUPRANATIONAL FIXED INCOME SECURITIES --
Debt instruments issued or guaranteed by foreign governments, agencies and
supranational organizations ("sovereign debt obligations"), especially sovereign
debt obligations of developing countries, may involve a high degree of risk. The
issuer of the obligation or the governmental authorities that control the
repayment of the debt may be unable or unwilling to repay principal and interest
when due and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as late as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period, and no income accrues to the Portfolio until
settlement takes place.
ZERO COUPON SECURITIES -- Zero Coupon Securities including CATS, TIGRs and TRs,
are the separate income or principal components of a debt instrument. These
involve risks that are similar to those of other debt securities, although they
may be more volatile, and the value of certain zero coupon securities moves in
the same direction as interest rates. Zero coupon bonds do not make regular
interest payments.
<PAGE>
REDUCED SALES CHARGES
CLASS A SHARES -- Initial sales charges may be reduced or eliminated for persons
or organizations purchasing Class A shares of the Fund alone or in combination
with Class A shares of other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or a Statement of Intention, the term
"Purchaser" includes the following persons: an individual, his or her spouse and
children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; or a pension, profit-sharing or other employee
benefit plan whether or not qualified under Section 401 of the Internal Revenue
Code.
RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Class A shares
of a Fund, a Purchaser may combine all previous purchases of the Funds with a
contemplated current purchase and receive the reduced applicable front-end sales
charge. The Distributor must be notified when a sale takes place which might
qualify for the reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination of
the Class A shares of the Funds, and other Security Funds, except Security Cash
Fund, in those states where shares of the fund being purchased are qualified for
sale.
STATEMENT OF INTENTION -- A Purchaser may choose to sign a Statement of
Intention within 90 days after the first purchase to be included thereunder,
which will cover future purchases of Class A shares of the Funds, and other
Security Funds, except Security Cash Fund. The amount of these future purchases
shall be specified and must be made within a 13-month period (or 36-month period
for purchases of $1 million or more) to become eligible for the reduced
front-end sales charge applicable to the actual amount purchased under the
Statement. Shares equal to five percent (5%) of the amount specified in the
Statement of Intention will be held in escrow until the statement is completed
or terminated. These shares may be redeemed by the Fund if the Purchaser is
required to pay additional sales charges.
A Statement of Intention may be revised during the 13-month (or, if
applicable, 36-month) period. A Statement of Intention may be obtained from the
Fund.
REINSTATEMENT PRIVILEGE -- Shareholders who redeem their Class A shares of the
Funds have a one-time privilege (1) to reinstate their accounts by purchasing
Class A shares without a sales charge up to the dollar amount of the redemption
proceeds; or (2) to the extent the redeemed shares would have been eligible for
the exchange privilege, to purchase Class A shares of another of the Security
Funds, without a sales charge up to the dollar amount of the redemption
proceeds. To exercise this privilege, a shareholder must provide written notice
and a check in the amount of the reinvestment within thirty days after the
redemption request; the reinstatement will be made at the net asset value on the
date received by the Fund or the Security Funds, as appropriate.
<PAGE>
ADDITIONAL INFORMATION ABOUT TSAS
TSA Accounts must generally be provided under a plan which meets certain minimum
participation, coverage, and nondiscrimination requirements. TSA Accounts are
subject to minimum distribution requirements such that an employees interest in
a TSA Account must generally be distributed or begin to be distributed not later
than April 1 of the calendar year following the later of the calendar year in
which they employee reaches age 70 1/2 or retires.
TSA Accounts may be purchased with employer contributions, employee
contributions or a combination of both. An employee's rights under a TSA Account
must be nonforfeitable. Numerous limitations apply to the amount of
contributions that may be made to a TSA Account. The applicable limit will
depend upon, among other things, whether the TSA Account is purchased with
employer or employee contributions.
Amounts used to purchase a TSA Account generally are excludable from the
taxable income of the employee. As a result, all distributions from such
accounts are normally taxable in full as ordinary income to the employee.
TSA Accounts must prohibit the distribution of employee contributions
(including earnings thereon) until the employee: (i) attains age 59 1/2; (ii)
terminates employment, (iii) dies; (iv) becomes disabled; or (v) incurs
financial hardship (earnings may not be distributed in the event of hardship).
TYPES OF INDIVIDUAL RETIREMENT ACCOUNTS
TRADITIONAL IRAS -- If you are under age 70 1/2, and you (or if you file a joint
return, your spouse) have taxable compensation, you may set up a Traditional IRA
and make annual IRA contributions of up to $2,000, or 100% of your taxable
compensation, whichever is less. Taxable income includes wages, salaries, and
other amounts reported in box 1 of Form W-2, as well as earnings from
self-employment. If you file a joint return and your taxable compensation is
less than that of your spouse, you may make annual contributions to a
Traditional IRA equal to the lesser of $2,000, or the sum of (i) your taxable
compensation and (ii) the taxable compensation of your spouse, reduced by the
amount of his or her IRA deduction for the year.
Amounts contributed to a Traditional IRA generally are deductible for
federal income tax purposes. However, if you were covered by an employer
retirement plan, the amount of your contribution to a Traditional IRA that you
may deduct will be reduced or eliminated if your modified adjusted gross income
exceeds certain amounts (currently $50,000 for a married couple filing a joint
return and $30,000 for a single taxpayer). If your spouse is covered by an
employer retirement plan but you are not, you may be able to deduct your
contributions to a Traditional IRA; however, the deduction will be reduced or
eliminated if your adjusted gross income on a joint return exceeds $150,000.
Even if your ability to deduct contributions to a Traditional IRA is limited,
you may still make contributions up to the limits described above.
In general, you may also make a contribution to a Traditional IRA by
"rolling over" all or a portion of a distribution you receive from a qualified
retirement plan (such as a pension or profit-sharing plan or a 401(k) plan) or
another Traditional IRA. Amounts distributed from a Traditional IRA and eligible
rollover distributions from qualified retirement plans will not be includible in
income if they are contributed to a Traditional IRA in a rollover transaction
which meets certain conditions; however, a federal withholding tax may be
imposed on such distributions. Consult your tax adviser for complete details on
Traditional IRAs.
ROTH IRAS -- Regardless of your age, you may be able to establish a Roth IRA.
Contributions to Roth IRAs are not deductible for federal income tax purposes.
However, if all of the applicable requirements are met, earnings in the account
accumulate tax free, and all withdrawals are also tax free. Generally, you may
contribute up to $2,000 annually to a Roth IRA; however, your ability to
contribute to a Roth IRA will be reduced or eliminated if your adjusted gross
income exceeds certain amounts (currently $150,000 for a married couple filing a
joint return and $95,000 for a single taxpayer). In addition, if you make
contributions to both a Traditional IRA and a Roth IRA, your contribution limit
for the Roth IRA will be reduced by the amount of the contribution you make to
the Traditional IRA.
If certain requirements are met, and (i) your modified adjusted gross income
is not more than $100,00, and (ii) you are not married and filing a separate tax
return, you can roll over amounts from a Traditional IRA to a Roth IRA. The
amount rolled over generally will be included in your taxable income; however,
if you roll over from a Traditional IRA to a Roth IRA before 1999, you may elect
to have the taxable amount included in your income ratably over a four-year
period. You may also roll over amounts from one Roth IRA to another Roth IRA.
Consult your professional tax adviser for complete details on Roth IRAs.
SEP-IRAS -- SEP-IRAs are IRAs that are created in connection with a simplified
employee pension ("SEP") established and maintained by a self-employed
individual, a partnership or a corporation. SEP-IRAs must be created for each
qualifying employee of the employer that establishes a SEP. In general, a
qualifying employee is an employee who has: (i) reached the age of 21; and (ii)
worked for the employer at least three out of the past five years. Each SEP-IRA
is owned by the employee for whom it is created; assets of a SEP are not pooled
together.
SEPs must provide for discretionary employer contributions. In other words,
employers are not required to make contributions to SEP-IRAs each year, but if
they do make contributions for any year, the contributions must be based on a
specific allocation formula set forth in the SEP, and must not discriminate in
favor of highly compensated employees.
Contributions to SEP-IRAs generally are deductible by the employer, subject
to certain limitations. Contributions to SEP-IRAs of self-employed individuals
are subject to certain additional limitations.
SEP-IRAs generally are subject to the same distribution and rollover rules
that apply to Traditional IRAs.
SIMPLE IRAS -- In general, a SIMPLE plan may be established by any employer,
including a sole proprietorship, partnership or corporation, with 100 or fewer
employees, and must be the only retirement plan maintained by the employer.
Under a SIMPLE plan using SIMPLE IRAs, a SIMPLE IRA is created for each
eligible employee which, in general, includes all employees who received at
least $5,000 in compensation during any two years preceding the year for which
eligibility is being determined (i.e., the current year) and is reasonably
expected to earn at least $5,000 during the current year. As with SEP-IRAs,
SIMPLE IRAs are individual accounts owned by each eligible employee.
Under a SIMPLE IRA plan, eligible employees can elect to contribute a
portion of their salary to their SIMPLE IRA. (These contributions are referred
to as "elective deferrals.") Elective deferrals are based on a stated percentage
of the employee's compensation, and are limited to $6,000 per year (indexed for
inflation). Elective deferrals are included in employees' gross income only for
Social Security and Medicare tax purposes (i.e., they are not included in wages
for federal income tax purposes).
In addition to elective deferrals by employees, under a SIMPLE IRA plan,
employers must make either: (i) matching contributions equal to each employee's
elective deferral, up to a maximum of 3% of the employee's compensation, or (ii)
nonelective contributions of 2% of compensation for each eligible employee
(subject to certain limits). Employer contributions to SIMPLE IRAs are excluded
from employees' gross income and are deductible by the employer.
SIMPLE IRAs generally are subject to the same distribution and rollover
rules that apply to Traditional IRAs. However, a rollover from a SIMPLE IRA to a
Traditional IRA can be made tax free only after the employee has participated in
the SIMPLE IRA plan for at least two years.
KEOGH PLANS -- Keogh plans are qualified retirement plans established by sole
proprietors or partnerships. As with other qualified retirement plans, in
general, contributions to Keogh plans are deductible, and neither such
contributions nor the investment earnings thereon are subject to tax until they
are distributed by the plan.
A number of different types of plans may qualify as Keogh plans. In certain
circumstances, Keogh plans may provide greater tax advantages than other types
of retirement plans. However, Keogh plans must satisfy a number of complex
rules, including minimum participation requirements, under which certain
employees must be covered by the plan, and in some cases, minimum funding
requirements. Professional assistance generally is required to establish and
maintain a Keogh plan.
EDUCATION IRAS -- An education IRA is a trust or custodial account created for
the purpose of paying the qualified higher education expenses of a designated
beneficiary, i.e., a child under the age of 18 at the time of the contributions.
In general, qualified higher education expenses include expenses for tuition,
fees, books, supplies and equipment required for the designated beneficiary of
the Education IRA to attend an eligible educational institution, which includes
essentially all accredited post secondary educational institutions. Any
individual may make contributions to an education IRA so long as his or her
modified adjusted gross income is less than $110,000 ($160,000 for married
taxpayers filing jointly). The maximum total contributions that may be made to
education IRAs for each child is $500 per year. Generally, amounts may be rolled
over from an education IRA to another education IRA established for the same
beneficiary or for certain members of the beneficiary's family. Beneficiaries
may make tax free withdrawals from education IRAs to pay qualified higher
education expenses. Other withdrawals generally will be subject to tax. Consult
your professional tax adviser for complete details on Education IRAs.
<PAGE>
- --------------------------------------------------------------------------------
SECURITY INCOME FUND
* CAPITAL PRESERVATION SERIES
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
RELATING TO THE PROSPECTUS DATED May 1, 1999,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
(785) 431-3127
(800) 888-2461
- --------------------------------------------------------------------------------
FUND ADMINISTRATOR
Security Management Company, LLC
700 SW Harrison Street
Topeka, Kansas 66636-0001
DISTRIBUTOR
Security Distributors, Inc.
700 SW Harrison Street
Topeka, Kansas 66636-0001
CUSTODIAN
UMB Bank, N.A.
928 Grand Avenue
Kansas City, Missouri 64106
INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS........................... 3
Investment Objective..................................................... 3
Investment Policies...................................................... 3
SHORT-TERM INSTRUMENTS................................................. 3
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES....................... 3
COMMERCIAL PAPER....................................................... 4
MORTGAGE-AND ASSET-BACKED SECURITIES................................... 4
ZERO-COUPON SECURITIES................................................. 4
WRAPPER AGREEMENTS..................................................... 4
ILLIQUID SECURITIES.................................................... 5
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES............................ 6
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS................................. 6
LOWER-RATED DEBT SECURITIES ("JUNK BONDS")............................. 6
FUTURES CONTRACTS AND OPTIONS AND FUTURES CONTRACTS - GENERAL.......... 7
FUTURES CONTRACTS...................................................... 7
OPTIONS ON FUTURES CONTRACTS........................................... 8
OPTIONS ON SECURITIES.................................................. 9
GLOBAL ASSET ALLOCATION ENHANCEMENT.................................... 10
Rating Services.......................................................... 12
Investment Restrictions.................................................. 12
FUNDAMENTAL RESTRICTIONS............................................... 12
NON-FUNDAMENTAL RESTRICTIONS........................................... 13
Portfolio Transactions and Brokerage Commissions......................... 13
PERFORMANCE INFORMATION.................................................... 14
Standard Performance Information......................................... 14
YIELD.................................................................. 14
TOTAL RETURN........................................................... 14
PERFORMANCE RESULTS.................................................... 15
Comparison of Fund Performance........................................... 15
Economic and Market Information.......................................... 15
VALUATION OF ASSETS; REDEMPTIONS IN KIND................................... 15
QUALIFIED REDEMPTIONS...................................................... 16
Traditional IRAs, SEP-IRAs and SIMPLE IRAs............................... 18
Roth IRAs................................................................ 18
Keogh Plans.............................................................. 18
Education IRAs........................................................... 19
MANAGEMENT OF THE FUND AND TRUST........................................... 19
Directors and Officers of Security Income Fund........................... 19
Trustees of BT Investment Portfolios..................................... 20
Officers of BT Investment Portfolios..................................... 20
Security Income Fund Director Compensation Table......................... 21
BT Investment Portfolio Trustee Compensation Table....................... 21
Investment Adviser....................................................... 21
Administrator............................................................ 22
Custodian................................................................ 22
Banking Regulatory Matters............................................... 23
Independent Accountants.................................................. 23
ORGANIZATION OF SECURITY INCOME FUND....................................... 23
ORGANIZATION OF THE TRUST.................................................. 23
TAXATION................................................................... 24
Taxation of the Fund..................................................... 24
Taxation of the Portfolio................................................ 24
Other Taxation........................................................... 25
Foreign Withholding Taxes................................................ 25
FINANCIAL STATEMENTS....................................................... 26
APPENDIX................................................................... 27
Description of Moody's Corporate Bond Ratings............................ 27
Description of S&P's Corporate Bond Ratings.............................. 27
Duff & Phelps' Long-Term Debt Ratings.................................... 28
Description of Moody's Short-Term Ratings................................ 28
Description of S&P Short-Term Issuer Credit Ratings...................... 29
Description of Duff & Phelps' Commercial Paper Ratings................... 29
Description of Moody's Insurance Financial Strength Ratings.............. 29
Description of S&P Claims Paying Ability Rating Definitions.............. 30
Duff & Phelps' Claims Paying Ability Ratings............................. 30
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
Security Capital Preservation Fund (the "Fund") is a separate series of
Security Income Fund, an open-end, management investment company (mutual fund)
of the series type, offering shares of the Fund ("Shares") as described herein.
As described in the Fund's Prospectus, the Fund seeks to achieve its
investment objective by investing all its net investable assets (the "Assets")
in BT PreservationPlus Income Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Fund. The Portfolio is a separate subtrust of BT Investment Portfolios, a
New York master trust fund (the "Portfolio Trust").
Because the investment characteristics of the Fund correspond directly to
those of the Portfolio (in which the Fund invests all of its assets), the
following is a discussion of the various investments of and techniques employed
by the Portfolio. The Fund has been established to serve as an alternative
investment to short-term bond funds and money market funds. In addition, since
to date, there has been no comparable investment substitute for those
individuals who are "rolling" assets over from the stable value or guaranteed
investment contract ("GIC") option of their employee benefit plans (such as
401(k) plans), the Fund is designed to be that comparable alternative.
Shares of the Fund are sold by Security Distributors, Inc., the Fund's
distributor (the "Distributor"), solely to tax-sheltered annuity custodial
accounts as defined in Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code"), individual retirement accounts as defined in Section
408 of the Code including "SIMPLE IRAs" and "SEP IRAs", Roth IRAs as defined in
Section 408A of the Code, education individual retirement accounts as defined in
Section 530 of the Code and "Keogh Plans" (sometimes collectively referred to
herein as "IRAs"), and to employees investing through participant-directed
employee benefit plans (each a "Plan" and together "Plans"). Shares are offered
to Plans either directly, or through vehicles such as bank collective funds or
insurance company separate accounts consisting solely of such Plans. Shares are
also available to employee benefit plans which invest in the Fund through an
omnibus account or similar arrangement.
The Fund's Prospectus (the "Prospectus") is dated May 1, 1999. The Prospectus
provides the basic information investors should know before investing and may be
obtained without charge by calling the Distributor at 1-800-888-2461 extension
3127. This Statement of Additional Information ("SAI"), which is not a
prospectus, is intended to provide additional information regarding the
activities and operations of the Fund and the Portfolio and should be read in
conjunction with the Prospectus. This SAI is not an offer by the Fund to an
investor that has not received a Prospectus. Capitalized terms not otherwise
defined in this SAI have the meanings ascribed to them in the Prospectus.
INVESTMENT OBJECTIVE -- The investment objective of the Fund is a high level of
current income while seeking to maintain a stable value per share. There can, of
course, be no assurance that the Fund will achieve its investment objective.
INVESTMENT POLICIES -- The Fund seeks to achieve its investment objective by
investing all of its Assets in the Portfolio. The Fund's investment in the
Portfolio may be withdrawn at any time if the Board of Directors of Security
Income Fund determines that it is in the best interests of the Fund to do so.
The following is a discussion of the various investments of and techniques
employed by the Portfolio.
SHORT-TERM INSTRUMENTS. The Portfolio may hold short-term investments
consisting of foreign and domestic (i) short-term obligations of sovereign
governments, their agencies, instrumentalities, authorities or political
subdivisions; (ii) other short-term debt securities rated in one of the top two
short-term rating categories by an NRSRO or, if unrated, of comparable quality
in the opinion of Bankers Trust Company, the Portfolio's investment adviser (the
"Adviser"); (iii) commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances; and (v)
repurchase agreements. At the time the Portfolio invests in commercial paper,
bank obligations or repurchase agreements, the issuer or the issuer's parent
must have an outstanding long-term debt rating of A or higher by Standard &
Poor's Ratings Group ("S&P") or A-2 or higher by Moody's Investors Service, Inc.
("Moody's") or outstanding commercial paper or bank obligations rated A-1 by S&P
or Prime-1 by Moody's; or, if no such ratings are available, the instrument must
be of comparable quality in the opinion of Bankers Trust.
CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one
to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
MORTGAGE- AND ASSET-BACKED SECURITIES. The yield characteristics of the
mortgage- and asset-backed securities in which the Portfolio may invest differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage- and
asset-backed securities (usually monthly) and that principal may be prepaid at
any time because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Portfolio purchases these securities at
a premium, a prepayment rate that is faster than expected will reduce their
yield, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield. Conversely, if the Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, their yield. Amounts
available for reinvestment by the Portfolio are likely to be greater during a
period of declining interest rates and, as a result, are likely to be reinvested
at lower interest rates than during a period of rising interest rates.
In general, the prepayment rate for mortgage-backed securities decreases as
interest rates rise and increases as interest rates fall. However, rising
interest rates will tend to decrease the value of these securities. In addition,
an increase in interest rates may affect the volatility of these securities by
effectively changing a security that was considered a short-term security at the
time of purchase into a long-term security. Long-term securities generally
fluctuate more widely in response to changes in interest rates than short- or
intermediate-term securities.
The market for privately issued mortgage- and asset-backed securities is
smaller and less liquid than the market for U.S. government mortgage-backed
securities. Collateralized mortgage obligation ("CMO") classes may be specially
structured in a manner that provides any of a wide variety of investment
characteristics, such as yield, effective maturity and interest rate
sensitivity. As market conditions change, however, and particularly during
periods of rapid or unanticipated changes in market interest rates, the
attractiveness of the CMO classes and the ability of the structure to provide
the anticipated investment characteristics may be significantly reduced. These
changes can result in volatility in the market value, and in some instances
reduced liquidity, of the CMO class.
ZERO-COUPON SECURITIES. The Portfolio may invest in certain zero coupon
securities that are "stripped" U.S. Treasury notes and bonds. Zero coupon
securities usually trade at a substantial discount from their face or par value.
Zero coupon securities are subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of comparable
maturities that make current distributions of interest in cash.
WRAPPER AGREEMENTS. Wrapper Agreements are structured with a number of
different features. Wrapper Agreements purchased by the Portfolio are of three
basic types: (1) non-participating, (2) participating and (3) "hybrid." In
addition, the Wrapper Agreements will either be of fixed-maturity or open-end
maturity ("evergreen"). The Portfolio enters into particular types of Wrapper
Agreements depending upon their respective cost to the Portfolio and the Wrapper
Provider's creditworthiness, as well as upon other factors. Under most
circumstances, it is anticipated that the Portfolio will enter into
participating Wrapper Agreements of open-end maturity and hybrid Wrapper
Agreements.
Under a NON-PARTICIPATING WRAPPER AGREEMENT, the Wrapper Provider becomes
obligated to make a payment to the Portfolio whenever the Portfolio sells
Covered Assets at a price below Book Value to meet withdrawals of a type covered
by the Wrapper Agreement (a "Benefit Event"). Conversely, the Portfolio becomes
obligated to make a payment to the Wrapper Provider whenever the Portfolio sells
Covered Assets at a price above their Book Value in response to a Benefit Event.
In neither case is the Crediting Rate adjusted at the time of the Benefit Event.
Accordingly, under this type of Wrapper Agreement, while the Portfolio is
protected against decreases in the market value of the Covered Assets below Book
Value, it does not realize increases in the market value of the Covered Assets
above Book Value; those increases are realized by the Wrapper Providers.
Under a PARTICIPATING WRAPPER AGREEMENT, the obligation of the Wrapper
Provider or the Portfolio to make payments to each other typically does not
arise until all of the Covered Assets have been liquidated. Instead of payments
being made on the occurrence of each Benefit Event, these obligations are a
factor in the periodic adjustment of the Crediting Rate.
Under a HYBRID WRAPPER AGREEMENT, the obligation of the Wrapper Provider or
the Portfolio to make payments does not arise until withdrawals exceed a
specified percentage of the Covered Assets, after which time payment covering
the difference between market value and Book Value will occur.
A FIXED-MATURITY WRAPPER AGREEMENT terminates at a specified date, at which
time settlement of any difference between Book Value and market value of the
Covered Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that
the Covered Assets provide a relatively fixed rate of return over a specified
period of time through bond immunization, which targets the duration of the
Covered Assets to the remaining life of the Wrapper Agreement.
An EVERGREEN WRAPPER AGREEMENT has no fixed maturity date on which payment
must be made, and the rate of return on the Covered Assets accordingly tends to
vary. Unlike the rate of return under a fixed-maturity Wrapper Agreement, the
rate of return on assets covered by an evergreen Wrapper Agreement tends to more
closely track prevailing market interest rates and thus tends to rise when
interest rates rise and fall when interest rates fall. An evergreen Wrapper
Agreement may be converted into a fixed-maturity Wrapper Agreement that will
mature in the number of years equal to the duration of the Covered Assets.
Wrapper Providers are banks, insurance companies and other financial
institutions. The number of Wrapper Providers has been increasing in recent
years. As of April 1998, there were approximately fifteen Wrapper Providers
rated in one of the top two long-term rating categories by Moody's, S&P or
another NRSRO. The cost of Wrapper Agreements is typically 0.10% to 0.25% per
dollar of Covered Assets per annum.
In the event of the default of a Wrapper Provider, the Portfolio could
potentially lose the Book Value protections provided by the Wrapper Agreements
with that Wrapper Provider. However, the impact of such a default on the
Portfolio as a whole may be minimal or non-existent if the market value of the
Covered Assets thereunder is greater than their Book Value at the time of the
default, because the Wrapper Provider would have no obligation to make payments
to the Portfolio under those circumstances. In addition, the Portfolio may be
able to obtain another Wrapper Agreement from another Wrapper Provider to
provide Book Value protections with respect to those Covered Assets. The cost of
the replacement Wrapper Agreement might be higher than the initial Wrapper
Agreement due to market conditions or if the market value (plus accrued interest
on the underlying securities) of those Covered Assets is less than their Book
Value at the time of entering into the replacement agreement. Such cost would
also be in addition to any premiums previously paid to the defaulting Wrapper
Provider. If the Portfolio were unable to obtain a replacement Wrapper
Agreement, participants redeeming Shares might experience losses if the market
value of the Portfolio's assets no longer covered by the Wrapper Agreement is
below Book Value. The combination of the default of a Wrapper Provider and an
inability to obtain a replacement agreement could render the Portfolio and the
Fund unable to achieve their investment objective of seeking to maintain a
stable value per Share.
With respect to payments made under the Wrapper Agreements between the
Portfolio and the Wrapper Provider, some Wrapper Agreements, as noted in the
Fund's prospectus, provide that payments may be due upon disposition of the
Covered Assets, while others provide for payment only upon the total liquidation
of the Covered Assets or upon termination of the Wrapper Agreement. In none of
these cases, however, would the terms of the Wrapper Agreements specify which
Portfolio Securities are to be disposed of or liquidated. Moreover, because it
is anticipated that each Wrapper Agreement will cover all Covered Assets up to a
specified dollar amount, if more than one Wrapper Provider becomes obligated to
pay to the Portfolio the difference between Book Value and market value (plus
accrued interest on the underlying securities), each Wrapper Provider will pay a
pro-rata amount in proportion to the maximum dollar amount of coverage provided.
Thus, the Portfolio will not have the option of choosing which Wrapper Agreement
to draw upon in any such payment situation. Under the terms of most Wrapper
Agreements, the Wrapper Provider will have the right to terminate the Wrapper
Agreement in the event that material changes are made to the Portfolio's
investment objectives or limitations or to the nature of the Portfolio's
operations. In such event, the Portfolio may be obligated to pay the Wrapper
Provider termination fees equal in amount to the premiums that would have been
due had the Wrapper Agreement continued through the predetermined period. The
Portfolio will have the right to terminate a Wrapper Agreement for any reason.
Such right, however, may also be subject to the payment of termination fees. In
the event of termination of a Wrapper Agreement or conversion of an evergreen
Wrapper Agreement to a fixed maturity, some Wrapper Agreements may require that
the duration of some portion of the Portfolio's securities be reduced to
correspond to the fixed maturity or termination date and that such securities
maintain a higher credit rating than is normally required, either of which
requirements might adversely affect the return of the Portfolio and the Fund.
For a description of Wrapper Provider ratings, see the Appendix.
ILLIQUID SECURITIES. Mutual funds do not typically hold a significant amount
of illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities, and a mutual fund might be unable to
dispose of illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven days. A mutual
fund might also have to register restricted securities in order to dispose of
them, resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale of such investments to the
general public or to certain institutions may not be indicative of their
liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A
under the 1933 Act, which allows a broader institutional trading market for
securities otherwise subject to restriction on their resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the 1933 Act for resales of certain securities to qualified institutional
buyers. The Adviser anticipates that the market for certain restricted
securities such as institutional commercial paper will expand further as a
result of this rule and the development of automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Adviser will monitor the liquidity of Rule 144A securities held by the
Portfolio under the supervision of the Portfolio Trust Board. In reaching
liquidity decisions, the Adviser will consider, among other things, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers and other potential purchasers or sellers of the security;
(3) dealer undertakings to make a market in the security; and (4) the nature of
the security and of the marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of the
transfer).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase commitment date or at the time the
settlement date is fixed. The value of such securities is subject to market
fluctuation, and no interest accrues to the Portfolio until settlement takes
place. At the time the Portfolio makes the commitment to purchase securities on
a when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its NAV and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement, a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, the Portfolio will maintain
with its custodian (Bankers Trust) a segregated account with liquid assets,
consisting of cash, U.S. government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, realize a gain or loss due to market fluctuation. It is
the current policy of the Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of its total assets, less
liabilities other than the obligations created by when-issued commitments.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in
obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Portfolio may invest that are not backed by the full
faith and credit of the United States include obligations of the Tennessee
Valley Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to meet
its obligations, and obligations of the Federal Farm Credit System and the
Federal Home Loan Banks, both of whose obligations may be satisfied only by the
individual credit of the issuing agency. Securities that are backed by the full
faith and credit of the United States include obligations of the Government
National Mortgage Association (the "GNMA"), the Farmers Home Administration and
the Export-Import Bank.
LOWER-RATED DEBT SECURITIES ("JUNK BONDS"). The Portfolio may invest in debt
securities rated in the fifth and sixth long-term rating categories by S&P,
Moody's and Duff & Phelps Credit Rating Company, or comparably rated by another
NRSRO, or if not rated by a NRSRO, of comparable quality as determined by
Bankers Trust in its sole discretion. While the market for high yield corporate
debt securities has been in existence for many years and has weathered previous
economic downturns, the 1980's brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructuring.
Past experience may not provide an accurate indication of future performance of
the high yield bond market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less active
than that for higher rated debt securities, which can adversely affect the
prices at which the former are sold. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Trustees, including the use of outside pricing
services. Judgment plays a greater role in valuing high yield corporate debt
securities than is the case for securities for which more external sources for
quotations and last sale information is available. Adverse publicity and
changing investor perception may affect the availability of outside pricing
services to value lower-rated debt securities and the Portfolio's ability to
dispose of these securities.
Since the risk of default is higher for lower-rated debt securities, Bankers
Trust's research and credit analysis are an especially important part of
managing securities of this type held by the Portfolio. In considering
investments for the Portfolio, Bankers Trust will attempt to identify those
issuers of high yielding debt securities whose financial conditions are adequate
to meet future obligations, have improved or are expected to improve in the
future. Bankers Trust's analysis focuses on relative values based on such
factors as interest on dividend coverage, asset coverage, earnings prospects and
the experience and managerial strength of the issuer.
The Portfolio may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to seek
to protect the interest of security holders if it determines this to be in the
interest of the Portfolio.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- GENERAL. The successful
use of these instruments draws upon the Adviser's skill and experience with
respect to such instruments and usually depends on its ability to forecast
interest rate movements correctly. If interest rates move in an unexpected
manner, the Portfolio may not achieve the anticipated benefits of futures
contracts or options thereon or may realize losses and thus will be in a worse
position than if such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options thereon and
movements in the price of the securities hedged or used for cover will not be
perfect and could produce unanticipated losses.
FUTURES CONTRACTS. The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or contracts based on
financial indices, including any index of U.S. government securities, foreign
government securities or corporate debt securities. U.S. futures contracts have
been designed by exchanges that have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC") and must be executed through a
futures commission merchant, or brokerage firm, that is a member of the relevant
contract market. Futures contracts trade on a number of exchange markets, and,
through their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The Portfolio may
enter into futures contracts based on debt securities that are backed by the
full faith and credit of the U.S. government, such as long-term U.S. Treasury
bonds, U.S. Treasury notes, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury bills. The Portfolio may also enter
into futures contracts that are based on bonds issued by entities other than the
U.S. government.
At the same time a futures contract is purchased or sold, the Portfolio must
allocate cash or securities as a deposit payment ("initial margin"). It is
expected that the initial margin would be approximately 1 1/2% to 5% of a
contract's face value. Daily thereafter, the futures contract is valued and
"variation margin" may be required (that is, the Portfolio may have to provide
or may receive cash that reflects any decline or increase in the contract's
value).
At the time of delivery of securities pursuant to a futures contract,
adjustments are made to recognize differences in value arising from the delivery
of securities with a different interest rate from that specified in the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the termination date of the contract without having to make or take
delivery of the securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts are traded,
the Portfolio will incur brokerage fees when it purchases or sells futures
contracts.
The purpose of the Portfolio's acquisition or sale of a futures contract is
to attempt to protect the Portfolio from fluctuations in interest rates without
actually buying or selling fixed-income securities. For example, if interest
rates were expected to increase (which thus would cause the prices of debt
securities to decline), the Portfolio might enter into futures contracts for the
sale of debt securities. Such a sale would have much the same effect as selling
an equivalent value of the debt securities owned by the Portfolio. If interest
rates did increase, the value of the debt securities held by the Portfolio would
decline, but the value of the futures contracts to the Portfolio would increase
at approximately the same rate, thereby keeping the Portfolio's NAV from
declining as much as it otherwise would have. The Portfolio could accomplish
similar results by selling debt securities and investing in bonds with short
maturities when interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of futures contracts
as an investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities.
Similarly, when it is expected that interest rates may decline (thus
increasing the value of debt securities), futures contracts for the acquisition
of debt securities may be purchased to attempt to hedge against anticipated
purchases of debt securities at higher prices. Since the fluctuations in the
value of futures contracts should be similar to those of the underlying debt
securities, the Portfolio could take advantage of the anticipated rise in the
value of debt securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be liquidated and the
Portfolio could then buy debt securities on the cash market. To the extent the
Portfolio enters into futures contracts for this purpose, the assets in the
segregated asset account maintained to cover the Portfolio's obligations with
respect to such futures contracts will consist of cash, cash equivalents or high
quality liquid debt securities from its portfolio in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the initial and variation margin payments made by the
Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial and variation
margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by Bankers Trust may still not
result in a successful transaction.
In addition, futures contracts entail risks. Although the Adviser believes
that use of such contracts will benefit the Portfolio, if its investment
judgment about the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates that would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities that it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of securities
may be, but will not necessarily be, at increased prices that reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write (sell)
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky
than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Portfolio is not fully invested it
may purchase a call option on a futures contract to hedge against a market
advance due to declining interest rates.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security that is deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
below the price specified in the option ("exercise price"), the Portfolio will
retain the full amount of the net premium (the premium received for writing the
option less any commission), which will provide a partial hedge against any
decline that may have occurred in its portfolio holdings. The writing of a put
option on a futures contract constitutes a partial hedge against increasing
prices of the security that is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option net
premium, which will provide a partial hedge against any increase in the price of
securities that the Portfolio intends to purchase. If a put or call option the
Portfolio has written is exercised, the Portfolio may incur a loss that will be
reduced by the amount of the net premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, such losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of put options on portfolio securities. For example,
the Portfolio may purchase a put option on a futures contract to hedge its
portfolio against the risk of rising interest rates. The amount of risk the
Portfolio assumes when it purchases an option on a futures contract is the
premium paid for the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract will not be
fully reflected in the value of the option purchased.
The Portfolio Trust Board has adopted a restriction that the Portfolio will
not enter into any futures contract or option on a futures contract if
immediately thereafter the amount of margin deposits on all the futures
contracts held by the Portfolio and premiums paid on outstanding options on its
futures contracts (other than those entered into for BONA FIDE hedging purposes)
would exceed 5% of the market value of the Portfolio's total assets.
OPTIONS ON SECURITIES. The Portfolio may write (sell) covered call and put
options on its portfolio securities ("covered options") to a limited extent in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options it writes. A call option
written by a Portfolio is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Portfolio holds a call option on the same security and in the
same principal amount as the written call option where the exercise price of the
call option so held (a) is equal to or less than the exercise price of the
written call option or (b) is greater than the exercise price of the written
call option if the difference is maintained by the Portfolio in cash, U.S.
government securities and other high quality liquid securities in a segregated
account with its custodian.
When the Portfolio writes a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the exercise price by
exercising the option at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in an amount equal to the
premium received for writing the option. If the option is exercised, a decision
over which the Portfolio has no control, the Portfolio must sell the underlying
security to the option holder at the exercise price. By writing a covered call
option, the Portfolio forgoes, in exchange for the net premium, the opportunity
to profit during the option period from an increase in the market value of the
underlying security above the exercise price.
When the Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
exercise price at any time during the option period. If the option expires
unexercised, the Portfolio will realize income in the amount of the net premium
received for writing the option. If the put option is exercised, a decision over
which the Portfolio has no control, the Portfolio must purchase the underlying
security from the option holder at the exercise price. By writing a covered put
option, the Portfolio, in exchange for the net premium, accepts the risk of a
decline in the market value of the underlying security below the exercise price.
The Portfolio will only write put options involving securities for which a
determination is made at the time the option is written that the Portfolio
wishes to acquire the securities at the exercise price.
The Portfolio may terminate its obligation as the writer of a call or put
option by purchasing an option with the same exercise price and expiration date
as the option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss on a closing purchase
transaction if the amount paid to purchase the option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio may enter into a "closing
sale transaction," which involves liquidating the Portfolio's position by
selling the option previously purchased. Where the Portfolio cannot effect a
closing purchase transaction, it may be forced to incur brokerage commissions or
dealer spreads in selling securities it receives or it may be forced to hold
underlying securities until an option is exercised or expires.
When the Portfolio writes an option, an amount equal to the net premium
received is included in the liability section of its Statement of Assets and
Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked to market to reflect the current market value of the option.
The current market value of a traded option is the last sale price or, in the
absence of a sale, the mean between the closing bid and asked prices. If an
option expires or if the Portfolio enters into a closing purchase transaction,
the Portfolio will realize a gain (or loss if the cost of the closing purchase
transaction exceeds the net premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
would ordinarily have a gain the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. Put options also may be purchased by the Portfolio for the
purpose of benefiting from a decline in the price of securities that the
Portfolio does not own. The Portfolio would ordinarily recognize a gain if the
value of the securities decreased below the exercise price sufficiently to cover
the premium and would recognize a loss if the value of the securities remained
at or above the exercise price. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
The Portfolio has adopted certain non-fundamental policies concerning option
transactions that are discussed below. The Portfolio's activities in options may
also be restricted by the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded if the option markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying securities markets that will not be
reflected in the option markets. It is impossible to predict the volume of
trading that may exist in such options, and there can be no assurance that
viable exchange markets will develop or continue.
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. At present, approximately ten
broker-dealers, including several of the largest primary dealers in U.S.
government securities, make these markets. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
U.S. government securities dealers recognized by the Federal Reserve Bank of New
York and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. Bankers Trust will monitor
the creditworthiness of dealers with whom the Portfolio enters into such options
transactions under the general supervision of the Portfolio Board.
GLOBAL ASSET ALLOCATION ENHANCEMENT. In connection with the GAA Strategy and
in addition to the securities described above, the Portfolio may invest in
indexed securities, futures contracts on securities indices, securities
representing securities of foreign issuers (e.g. ADRs, GDRs and EDRs), options
on stocks, options on futures contracts, foreign currency exchange transactions
and options on foreign currencies. These are discussed below, to the extent not
already described above.
INDEXED SECURITIES. The indexed securities in which the Portfolio may invest
include debt securities whose value at maturity is determined by reference to
the relative prices of various currencies or to the price of a stock index. The
value of such securities depends on the price of foreign currencies, securities
indices or other financial values or statistics. These securities may be
positively or negatively indexed; that is, their value may increase or decrease
if the underlying instrument appreciates.
FUTURES CONTRACTS ON SECURITIES INDICES. Futures contracts on securities
indices provide for the making and acceptance of a cash settlement based upon
changes in the value of an index of securities, and will be entered into by the
Portfolio to hedge against anticipated future change in general market prices
which otherwise might either adversely affect the value of securities held by
the Portfolio or adversely affect the prices of securities which are intended to
be purchased at a later date for the Portfolio, or as an efficient means of
managing allocations between asset classes. A futures contract may also be
entered into to close out or offset an existing futures position. The risks
attendant to futures contracts on securities indices are similar to those of
futures contracts, discussed above.
SECURITIES REPRESENTING SECURITIES OF FOREIGN ISSUERS. The Portfolio's
investments in the securities of foreign issuers may be made directly or in the
form of American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), European Depositary Receipts ("EDRs") or other similar securities
representing securities of foreign issuers. These securities may not necessarily
be denominated in the same currency as the securities they represent, and while
designed for use as alternatives to the purchase of the underlying securities in
their national markets and currencies, are subject to the same risks as the
foreign securities to which they relate.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio from time to time may
enter into foreign currency exchange transactions to convert to and from
different foreign currencies and to convert foreign currencies to and from the
U.S. dollar, either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
obligates the Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no deposit
requirement and is traded at a net price without commission. Neither spot
transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency hedging transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or changes in
foreign currency exchange rates that would adversely affect a portfolio position
or an anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long term investment
decisions, the Portfolio will not routinely enter into foreign currency hedging
transactions with respect to security transactions; however, Bankers Trust
believes that it is important to have the flexibility to enter into foreign
currency hedging transactions when it determines that the transactions would be
in the Portfolio's best interest. Although these transactions tend to minimize
the risk of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain that might be realized should
the value of the hedged currency increase. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may write covered put and call
options and purchase put and call options on foreign currencies for the purpose
of protecting against declines in the dollar value of portfolio securities and
against increases in the dollar cost of securities to be acquired. The Portfolio
may use options on currency to cross hedge, which involves writing or purchasing
options on one currency to hedge against changes in exchange rates for a
different, but related currency. As with other types of options, however, the
writing of an option on foreign currency will constitute only a partial hedge up
to the amount of the premium received, and the Portfolio could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may be used to
hedge against fluctuations in exchange rates although, in the event of exchange
rate movements adverse to the Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. In addition, the Portfolio
may purchase call options on currency when the Adviser anticipates that the
currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange
will exist for any particular option, or at any particular time. If the
Portfolio is unable to effect a closing purchase transaction with respect to
covered options it has written, the Portfolio will not be able to sell the
underlying currency or dispose of assets held in a segregated account until the
options expire or are exercised. Similarly, if the Portfolio is unable to effect
a closing sale transaction with respect to options it has purchased, it would
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying currency. The
Portfolio pays brokerage commissions or spreads in connection with its options
transactions.
As in the case of forward contracts, certain options on foreign currencies
are traded over the counter and involve liquidity and credit risks which may not
be present in the case of exchange traded currency options. The Portfolio's
ability to terminate OTC options will be more limited than with exchange traded
options. It is also possible that broker dealers participating in OTC options
transactions will not fulfill their obligations. Until such time as the staff of
the SEC changes its position, the Portfolio will treat purchased OTC options and
assets used to cover written OTC options as illiquid securities. With respect to
options written with primary dealers in U.S. Government securities pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount of illiquid securities may be calculated with reference to the repurchase
formula.
There can be no assurance that the use of these portfolio strategies will be
successful.
RATING SERVICES -- The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Portfolio Trust Board.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation. A description of
the ratings referred to herein and in the Prospectus is set forth in the
Appendix.
INVESTMENT RESTRICTIONS -- The following investment restrictions are
"fundamental policies" of the Fund and the Portfolio and may not be changed
without the approval of a "majority of the outstanding voting securities" of the
Fund or the Portfolio, as the case may be. "Majority of the outstanding voting
securities" under the 1940 Act, and as used in this SAI and the Prospectus,
means, with respect to the Fund (or the Portfolio), the lesser of (1) 67% or
more of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) are present or represented by proxy or
(2) more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio). Whenever the Fund is requested to
vote on a fundamental policy of the Portfolio, it will hold a meeting of the
Fund's shareholders and will cast its vote as instructed by them. Fund
shareholders who do not vote will not affect the Fund's votes at the Portfolio
meeting. The Fund's votes representing Fund shareholders not voting will be
voted by the Directors of Security Income Fund in the same proportion as the
Fund shareholders who do, in fact, vote.
None of the fundamental and non-fundamental policies described below shall
prevent the Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective. Because the Fund and
the Portfolio have the same fundamental policies and the Fund invests all of its
Assets in the Portfolio, the following discussion (though speaking only of the
Portfolio) applies to the Fund as well.
FUNDAMENTAL RESTRICTIONS. As a matter of fundamental policy, the Portfolio
may not:
1. Borrow money (including through reverse repurchase or dollar roll
transactions) in excess of 5% of the Portfolio's total assets (taken at
cost), except that the Portfolio may borrow for temporary or emergency
purposes up to 1/3 of its total assets. The Portfolio may pledge, mortgage
or hypothecate not more than 1/3 of such assets to secure such borrowings
provided that collateral arrangements with respect to options and futures,
including deposits of initial and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets
may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute;
2. Underwrite securities issued by other persons except insofar as the
Portfolio may be deemed an underwriter under the 1933 Act in selling a
portfolio security;
3. Make loans to other persons except (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not
exceed 30% of its total assets (taken at market value); (b) through the use
of repurchase agreements or the purchase of short-term obligations; or (c)
by purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
4. Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Portfolio may hold and sell, for its portfolio, real
estate acquired as a result of the Portfolio's ownership of securities);
5. Concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's investment objective, up to 25% of its total assets may
be invested in any one industry;
6. Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures contracts, including deposits of
initial and variation margin, are not considered to be the issuance of a
senior security for purposes of this restriction;
7. Purchase, with respect to 75% of the Portfolio's total assets, securities
of any issuer if such purchase at the time thereof would cause the
Portfolio to hold more than 10% of any class of securities of such issuer,
for which purposes all indebtedness of an issuer shall be deemed a single
class and all preferred stock of an issuer shall be deemed a single class,
except that options or futures contracts shall not be subject to this
restriction; and
8. Invest, with respect to 75% of the Portfolio's total assets, more than 5%
of its total assets in the securities (excluding U.S. government
securities) of any one issuer.
NON-FUNDAMENTAL RESTRICTIONS. In order to comply with certain statutes and
policies and for other reasons, the Portfolio will not, as a matter of operating
policy (these restrictions may be changed without shareholder approval):
(i) purchase any security or evidence of interest therein on margin, except
that short-term credit necessary for the clearance of purchases and sales
of securities may be obtained and deposits of initial and variation margin
may be made in connection with the purchase, ownership, holding or sale of
futures contracts;
(ii) sell securities it does not own (short sales). (This restriction does not
preclude short sales "against the box" (that is, sales of securities (a)
the Portfolio contemporaneously owns or (b) where the Portfolio has the
right to obtain securities equivalent in kind and amount to those sold).
The Portfolio has no current intention to engage in short selling);
(iii)purchase securities issued by any investment company except to the extent
permitted by the 1940 Act (including any exemptions or exclusions
therefrom), except that this limitation does not apply to securities
received or acquired as dividends, through offers of exchange, or as a
result of reorganization, consolidation or merger; and
(iv) invest more than 15% of the Portfolio's net assets (taken at the greater of
cost or market value) in securities that are illiquid or not readily
marketable (excluding Rule 144A securities deemed by the Portfolio Board to
be liquid).
An investment restriction will not be considered violated if that restriction
is complied with at the time the relevant action is taken, notwithstanding a
later change in the market value of an investment, in net or total assets or in
the change of securities rating of the investment or any other later change.
The Portfolio will comply with the permitted investments and investment
limitations in the securities laws and regulations of all states in which the
Fund, or any other registered investment company investing in the Portfolio, is
registered.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS -- The Adviser is responsible
for decisions to buy and sell securities, futures contracts and options thereon
for the Portfolio, the selection of brokers, dealers and futures commission
merchants to effect transactions and the negotiation of brokerage commissions,
if any. Broker-dealers may receive brokerage commissions on portfolio
transactions, including options, futures contracts and options on futures
transactions and the purchase and sale of underlying securities upon the
exercise of options. Orders may be directed to any broker-dealer or futures
commission merchant, including, to the extent and in the manner permitted by
applicable law, the Adviser or its subsidiaries or affiliates. Purchases and
sales of certain portfolio securities on behalf of the Portfolio are frequently
placed by the Adviser with the issuer or a primary or secondary market-maker for
these securities on a net basis, without any brokerage commission being paid by
the Portfolio. Trading does, however, involve transaction costs. Transactions
with dealers serving as market-makers reflect the spread between the bid and
asked prices. Transaction costs may also include fees paid to third parties for
information as to potential purchasers or sellers of securities. Purchases of
underwritten issues may be made that will include an underwriting fee paid to
the underwriter.
The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons. The Adviser is authorized, consistent
with Section 28(e) of the Securities Exchange Act of 1934, as amended, when
placing portfolio transactions for the Portfolio with a broker to pay a
brokerage commission (to the extent applicable) in excess of that which another
broker might have charged for effecting the same transaction on account of the
receipt of research, market or statistical information. The term "research,
market or statistical information" includes (a) advice as to (i) the value of
securities, (ii) the advisability of investing in, purchasing or selling
securities, and (iii) the availability of securities or purchasers or sellers of
securities and (b) furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. Higher commissions may be paid to firms that provide
research services to the extent permitted by law. The Adviser may use this
research information in managing the Portfolio's assets, as well as the assets
of other clients. Consistent with the policy stated above, the Conduct Rules of
the National Association of Securities Dealers, Inc. and such other policies as
the Portfolio Trust Board may determine, the Adviser may consider sales of
shares of the Fund and of other investment company clients of the Adviser as a
factor in the selection of broker-dealers to execute portfolio transactions. The
Adviser will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services. Except
for implementing the policies stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market-makers for the security being traded unless, after
exercising care, it appears that more favorable results are available otherwise.
Although certain research, market or statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the Portfolio's management that such information is only supplementary to the
Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio. In certain
instances there may be securities that are suitable for the Portfolio, as well
as for one or more of the Adviser's other clients. Investment decisions for the
Portfolio and for the Adviser's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients are simultaneously engaged in the purchase or
sale of the same security, the securities are allocated between (among) clients
in a manner believed to be equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Portfolio is concerned. However, it is believed that the
ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
PERFORMANCE INFORMATION
STANDARD PERFORMANCE INFORMATION -- From time to time, quotations of the Fund's
performance may be included in advertisements, sales literature or shareholder
reports. These performance figures are calculated in the following manner:
YIELD. Yield refers to the income generated by an investment over a given
period of time, expressed as an annual percentage rate. Yields are calculated
according to a standard that is required for all stock and bond mutual funds.
Because this differs from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders.
Performance information or advertisements may include comparisons of the
Fund's investment results to various unmanaged indices or results of other
mutual funds or investment or savings vehicles. From time to time, the Fund's
ranking may be quoted from various sources, such as Lipper Analytical Services,
Inc., Value Line, Inc. and Morningstar, Inc.
Unlike some bank deposits or other investments that pay a fixed yield for a
stated period of time, the total return of the Shares will vary depending upon
interest rates, the current market value of the securities held by the Portfolio
and the Wrapper Agreements and changes in the expenses of the Shares and the
Portfolio. In addition, during certain periods for which yield and total return
may be provided, the Fund's administrator, Security Management Company, LLC, may
have voluntarily agreed to waive portions of its fees, or to reimburse certain
operating expenses of the Fund, on a month-to-month basis. Bankers Trust may
have agreed to do the same with respect to the Portfolio. Such waivers will have
the effect of increasing the Fund's net income (and therefore its yield and
total return) during the period such waivers are in effect.
TOTAL RETURN. The Fund's average annual total return is calculated for
certain periods by determining the average annual compounded rates of return
over those periods that would cause an investment of $1,000 (made at the maximum
public offering price with all distributions reinvested) to reach the value of
that investment at the end of the periods. The Fund may also calculate total
return figures that represent aggregate performance over a period or
year-by-year performance.
PERFORMANCE RESULTS. Any performance information provided for the Fund should
not be considered as representative of its performance in the future, because
the NAV and public offering price of Shares will vary based not only on the
type, quality and maturities of the securities held by the Portfolio but also on
changes in the current value of such securities and on changes in the expenses
of the Fund and the Portfolio. Total return reflects the performance of both
principal and income.
Unless noted otherwise, the Fund's total return and average annual total
return will reflect deduction of the maximum initial sales load in the case of
Class A shares or the applicable deferred sales charge in the case of Class B
and Class C shares. From time to time the Fund may include performance
information in advertisements and sales literature without deduction of the
sales charge, which, if deducted, would reduce the performance data quoted.
COMPARISON OF FUND PERFORMANCE -- Comparison of the quoted nonstandardized
performance of various investments is valid only if performance is calculated in
the same manner. Since there are different methods of calculating performance,
investors should consider the effect of the methods used to calculate
performance when comparing performance of the Fund with performance quoted with
respect to other investment companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices that may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Evaluations of the Fund's
performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for the Fund's performance information could
include the following: ASIAN WALL STREET JOURNAL, BARRON'S, BUSINESS WEEK,
CHANGING TIMES, THE KIPLINGER MAGAZINE, CONSUMER DIGEST, FINANCIAL TIMES,
FINANCIAL WORLD, FORBES, FORTUNE, GLOBAL INVESTOR, INVESTOR'S DAILY, LIPPER
ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, MONEY, MORNINGSTAR
INC., NEW YORK TIMES, PERSONAL INVESTING NEWS, PERSONAL INVESTOR, SUCCESS, U.S.
NEWS AND WORLD REPORT, VALUELINE, WALL STREET JOURNAL, WEISENBERGER INVESTMENT
COMPANIES SERVICES, WORKING WOMEN and WORTH.
ECONOMIC AND MARKET INFORMATION -- Advertising and sales literature of the Fund
may include discussions of economic, financial and political developments and
their effect on the securities market. Such discussions may take the form of
commentary on these developments by Fund portfolio managers and their views and
analysis on how such developments could affect the Fund. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute ("ICI"). For
example, according to the ICI, thirty-seven percent of American households are
pursuing their financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the more than
6,000 funds available.
VALUATION OF ASSETS; REDEMPTIONS IN KIND
Debt securities (other than short-term debt obligations maturing in 60 days or
less), including listed securities and securities for which price quotations are
available, will normally be valued on the basis of market valuations furnished
by a pricing service. Such market valuations may represent the last quoted price
on the securities' major trading exchange or quotes received from dealers or
market makers in the relevant securities or may be determined through the use of
matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities will
normally be valued at the bid price. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost.
Securities for which market quotations are not readily available are valued
by Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board.
The NAV per Share is calculated once on each Valuation Day as of the
Valuation Time, which is currently 3:00 p.m., Central time, or if the NYSE
closes early, at the time of such early closing. The NAV per Share is computed
by dividing the value of the Fund's assets (I.E., the value of its investment in
the Portfolio and other assets, if any), less all liabilities, by the total
number of its Shares outstanding. The Portfolio's securities and other assets
are valued primarily on the basis of market quotations or, if quotations are not
readily available, by a method that the Portfolio Trust Board believes
accurately reflects fair value.
Pursuant to procedures adopted by the Portfolio Trust Board, the Wrapper
Value generally will be equal to the difference between the Book Value and the
market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets. If the market value (plus accrued interest on the
underlying securities) of the Covered Assets is greater than their Book Value,
the Wrapper Value will be reflected as a liability of the Portfolio in the
amount of the difference, I.E., a negative value, reflecting the potential
liability of the Portfolio to the Wrapper Provider. If the market value (plus
accrued interest on the underlying securities) of the Covered Assets is less
than their Book Value, the Wrapper Value will be reflected as an asset of the
Portfolio in the amount of the difference, I.E., a positive value, reflecting
the potential liability of the Wrapper Provider to the Portfolio. In performing
its fair value determination, the Portfolio Trust Board expects to consider the
creditworthiness and ability of a Wrapper Provider to pay amounts due under the
Wrapper Agreement. If the Portfolio Trust Board determine that a Wrapper
Provider is unable to make such payments, that Board may assign a fair value to
the Wrapper Agreement that is less than the difference between the Book Value
and the market value (plus accrued interest on the underlying securities) of the
applicable Covered Assets and the Portfolio might be unable to maintain NAV
stability.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
(formerly Accounting Series Release No. 113) ("FRR 1"), which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1, such factors
would include consideration of the --
type of security involved, financial statements, cost at date of purchase,
size of holding, discount from market value of unrestricted securities of
the same class at the time of purchase, special reports prepared by
analysts, information as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar securities of the
issuer or comparable companies, and other relevant matters.
The Adviser will value securities purchased by the Portfolio that are
restricted as to resale or for which current market quotations are not readily
available, including Wrapper Agreements, based upon all relevant factors as
outlined in FRR 1.
The Fund and the Portfolio each reserves the right, if conditions exist that
make cash payments undesirable, or for other reasons, to honor any request for
redemption or withdrawal, respectively, by making payment wholly or partly in
Portfolio Securities (a "redemption in kind"). Such securities shall not include
Wrapper Agreements, and shall be valued as they are for purposes of computing
the Fund's or the Portfolio's NAV, as the case may be. If payment is made to a
Fund shareholder in securities, the shareholder may incur transaction expenses
in converting those securities into cash.
The Portfolio has agreed to make a redemption in kind to the Fund whenever
the Fund wishes to make a redemption in kind to a shareholder thereof, and
therefore Fund shareholders that receive redemptions in kind will receive
Portfolio Securities of the Portfolio and in no case will they receive a
security issued by the Portfolio. The Portfolio has advised Security Income Fund
that the Portfolio will not redeem in kind except in circumstances in which the
Fund is permitted to redeem in kind or unless requested by the Fund.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each business day the Portfolio determines its
NAV. At the close of business on each such day, the value of each investor's
beneficial interest in the Portfolio will be determined by multiplying the NAV
of the Portfolio by the percentage effective for that day that represents that
investor's share of the aggregate beneficial interests in the Portfolio. Any
additions or withdrawals that are to be effected as of the close of business on
that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to a fraction (a) the numerator of which is the value of the investor's
investment in the Portfolio as of the close of business on that day plus or
minus, as the case may be, the amount of net additions to or withdrawals from
the investor's investment in the Portfolio effected as of the close of business
on that day, and (b) the denominator of which is the aggregate NAV of the
Portfolio as of the close of business on that day plus or minus, as the case may
be, the amount of net additions to or withdrawals from the aggregate investments
in the Portfolio by all investors therein. The percentage so determined will
then be applied to determine the value of the investor's interest in the
Portfolio as the close of business on the following business day.
QUALIFIED REDEMPTIONS
At any time, a redemption of Fund Shares can be effected without assessment of
the Redemption Fee described in "Shareholder Transaction Expenses" in the
Prospectus, if such redemption is a "Qualified TSA Account Redemption," a
"Qualified Plan Redemption" or a "Qualified IRA Redemption." "Qualified Plan
Redemptions" are redemptions resulting from a Plan Participant's death,
disability, retirement or termination of employment or to fund loans to, or "in
service" withdrawals by, a Plan Participant.
A "Qualified TSA Account Redemption" is a redemption made by an owner of a
TSA Account to effect a distribution from his or her account that is not subject
to the 10% penalty tax imposed by section 72(t), other than a rollover from a
TSA Account to an IRA or other TSA Account and, direct trustee-to-trustee
transfers, unless the owner continues the investment of the transferred amount
in the Fund. In general, section 72(t) of the Code imposes a 10% penalty tax on
any distribution received by a taxpayer who owns a TSA Account prior to the date
on which the taxpayer reaches age 59 1/2, unless the distribution meets the
requirements of a specific exception to the penalty tax. In general, rollovers
from a TSA Account to an IRA, from one TSA Account to another and direct
trustee-to-trustee transfers from one TSA Account to another TSA Account are not
subject to tax. TSA Account owners requesting a redemption of Fund Shares will
be required to provide a written statement as to whether the proceeds of the
redemption will be subject to a penalty tax and, if not, to identify the
specific exception upon which the owner intends to rely. The information
provided by the owner will be reflected on the Form 1099-R issued to the owner
and filed with the Internal Revenue Service in connection with the redemption as
well as forming the basis for redemption as a Qualified TSA Account Redemption.
The Fund may require additional evidence, such as the opinion of a certified
public accountant or tax attorney, that any particular redemption will not be
subject to any penalty tax. TSA ACCOUNT OWNERS SHOULD CONSULT THEIR TAX ADVISERS
REGARDING THE TAX CONSEQUENCES OF ANY REDEMPTION.
Some of the exceptions to the 10% penalty taxes are described below. This
description is intended to provide only a brief summary of the principal
exceptions to the additional tax imposed on early withdrawals under the current
provisions of the Code, which may change from time to time. The Fund intends to
conform the definition of Qualified TSA Account Redemptions to changes in
applicable tax laws; however, the Fund reserves the right to continue to define
Qualified TSA Account Redemptions by reference to Code provisions now in effect
or otherwise to define such phrase independently of future Code provisions.
In general, the early withdrawal penalty tax imposed by the Code will not
apply to the following types of distributions from a TSA Account:
1. Distributions made on or after the date on which the TSA Account owner
attains age 59 1/2;
2. Distributions made to a beneficiary (or to the estate of the TSA Account
owner) on or after the death of the TSA Account owner;
3. Distributions attributable to the TSA Account owner being disabled;
4. Distributions made to the TSA Account owner after separation from service
after age 55;
5. Distributions to an alternate payee (e.g. a former spouse) pursuant to a
qualified domestic relations order;
6. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the
TSA Account owner, or the joint lives (or life expectancies) of the TSA
Account owner and his or her designated beneficiary, after the TSA Account
owner separates from service;
7. Distributions made to a TSA Account owner for medical care, but not in
excess of the amount allowable as a medical expense deduction by the TSA
Account owner on his or her tax return for the year;
8. Distributions timely made to correct an excess contribution; and
9. Distributions timely made to reduce an excess elective deferral.
A "Qualified IRA Redemption" is a redemption made by an IRA Owner to effect a
distribution from his or her IRA account that is not subject to the 10% penalty
tax imposed by section 72(t) or 530(d), as applicable, other than IRA rollovers,
direct trustee-to-trustee transfers and conversions of Traditional IRAs to Roth
IRAs, unless the IRA Owner continues the investment of the transferred amount in
the Fund. In general, section 72(t) of the Code imposes a 10% penalty tax on any
distribution received by a taxpayer from a Traditional IRA, SEP-IRA or SIMPLE
IRA prior to the date on which the taxpayer reaches age 59 1/2, unless the
distribution meets the requirements of a specific exception to the penalty tax.
Similar penalties apply to early withdrawals from Roth IRAs and Keogh Plans.
Section 530(d) as currently written, imposes a separate 10% penalty tax on
distributions from an education IRA not used to pay qualified higher education
expenses. In general, rollovers from one IRA to another and direct
trustee-to-trustee transfers from an IRA to another IRA (or in some cases to
other types of qualified plans) are not subject to tax. In addition, conversions
of Traditional IRAs to Roth IRAs are subject to income tax but are not subject
to the early withdrawal penalty tax. IRA Owners requesting a redemption of Fund
Shares will be required to provide a written statement as to whether the
proceeds of the redemption will be subject to a penalty tax and, if not, to
identify the specific exception upon which the IRA Owner intends to rely. The
information provided by the IRA Owner will be reflected on the Form 1099-R
issued to the IRA Owner and filed with the Internal Revenue Service in
connection with the redemption as well as forming the basis for redemption as a
Qualified IRA Redemption. The Fund may require additional evidence, such as the
opinion of a certified public accountant or tax attorney, that any particular
redemption will not be subject to any penalty tax. IRA OWNERS SHOULD CONSULT
THEIR TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF ANY REDEMPTION.
Some of the exceptions to the 10% penalty taxes are described below. This
description is intended to provide only a brief summary of the principal
exceptions to the additional tax imposed on early withdrawals under the current
provisions of the Code, which may change from time to time. The Fund intends to
conform the definition of Qualified IRA Redemptions to changes in applicable tax
laws; however, the Fund reserves the right to continue to define Qualified IRA
Redemptions by reference to Code provisions now in effect or otherwise to define
such phrase independently of future Code provisions.
TRADITIONAL IRAS, SEP-IRAS AND SIMPLE IRAS -- In general, the 10% penalty tax
imposed by section 72(t) of the Code will not apply to the following types of
distributions from a Traditional IRA, SEP-IRA or SIMPLE IRA:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code;
4. Distributions made to the IRA Owner to the extent such distributions do not
exceed the amount of unreimbursed medical expenses allowed as a deduction
under section 213 of the Code;
5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount paid for medical insurance as described in section
213(d)(1)(D) of the Code for the IRA Owner, and his or her spouse and
dependents;
6. Distributions to an IRA Owner to the extent such distributions do not
exceed the qualified higher education expenses, as defined in section
72(t)(7), for the IRA Owner;
7. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under section 72(t) (8) of the Code; and
8. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the
IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and
his or her designated beneficiary.
ROTH IRAS -- With respect to a Roth IRA, all "qualified distributions" are
excluded from gross income and, therefore, from the 10% penalty tax imposed by
section 72(t). In general, qualified distributions from a Roth IRA include:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code; and
4. Distributions to an IRA Owner that are used to acquire a first home, and
that meet the definition of "qualified first-time homebuyer distributions"
under section 72(t) (8) of the Code.
However, a distribution will not be a qualified distribution, even if it
otherwise meets the definition, if it is made within the 5-year period beginning
with the first taxable year for which the IRA Owner made a contribution to the
Roth IRA (or such person's spouse made a contribution to a Roth IRA established
for the IRA Owner). Special rules apply with respect to certain types of
rollovers.
To the extent a distribution from a Roth IRA is not a qualified distribution,
either because it does not meet the definition of a qualified distribution in
the first instance, or because it is made within the five-year period described
in section 408A(d)(2)(B), the portion of the distribution that represents
earnings will be subject to tax in accordance with section 72 of the Code,
including the 10% penalty tax imposed under section 72(t). The same exceptions
to the penalty tax that apply to Traditional IRAs will apply to nonqualified
distributions from Roth IRAs.
In the event of a nonqualified distribution from a Roth IRA, only the
earnings in the account are subject to tax; contributions may be recovered
tax-free (since no deduction is permitted for such contributions). Section
408A(d) provides that distributions from Roth IRAs are considered to come first
from contributions, to the extent that distributions do not exceed the total
amount of contributions.
KEOGH PLANS -- In general, the 10% penalty tax imposed by section 72(t) of the
Code will not apply to the following types of distributions from a Traditional
IRA:
1. Distributions made on or after the date on which the IRA Owner attains age
59 1/2;
2. Distributions made to a beneficiary (or to the estate of the IRA Owner) on
or after the death of the IRA Owner;
3. Distributions attributable to the IRA Owner's being disabled within the
meaning of section 72(m)(7) of the Code;
4. Distributions made to the IRA Owner after separation from service after age
55;
5. Distributions to unemployed individuals to the extent such distributions do
not exceed the amount of unreimbursed medical expenses allowed as a
deduction under section 213 of the Code;
6. Distributions to an alternate payee (e.g., a former spouse) pursuant to a
qualified domestic relations order; and
7. Distributions that are part of a series of substantially equal periodic
payments made at least annually for the life (or life expectancy) of the
IRA Owner, or the joint lives (or life expectancies) of the IRA Owner and
his or her designated beneficiary.
EDUCATION IRAS -- Distributions from an education IRA are included in income
unless the qualified higher education expenses of the designated beneficiary are
equal to or greater than the amount of such distributions. In addition, certain
special rules are provided that permit certain rollovers or changes in
beneficiaries. Any distribution that is subject to tax under section 530 is also
subject to the 10% penalty tax imposed by section 530(d)(4). Thus, in general,
any distribution from an education IRA that exceeds the amount of qualified
higher education expenses of the designated beneficiary will be subject to the
10% penalty tax.
MANAGEMENT OF THE FUND AND TRUST
The Board of Directors of Security Income Fund and the Board of Trustees of the
Portfolio Trust (collectively, the Directors) are each composed of persons
experienced in financial matters who meet throughout the year to oversee the
activities of the Fund or the Portfolio, respectively. In addition, the
Directors review contractual arrangements with companies that provide services
to the Fund/Portfolio and review the Fund's performance.
The Directors and officers of the Security Income Fund and the Portfolio
Trust, their birthdates, and their principal occupations during the past five
years are set forth below. Their titles may have varied during that period.
Unless otherwise indicated, the address of each officer and director of Security
Income Fund is 700 Harrison Street, Topeka, Kansas 66636-0001 and the address of
each officer of the Portfolio Trust is One South Street, Baltimore, Maryland
21202.
DIRECTORS AND OFFICERS OF SECURITY INCOME FUND --
JOHN D. CLELAND* (BIRTHDATE: MAY 1, 1936) -- President and Director of the Fund;
Senior Vice President and Managing Member Representative, Security Management
Company, LLC; Senior Vice President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
DONALD A. CHUBB, JR.** (BIRTHDATE: DECEMBER 14, 1946) -- Director of the Fund;
business broker, Griffith & Blair Realtors. Prior to 1997, President, Neon Tube
Light Company, Inc. His address is 2222 SW 29th Street, Topeka, Kansas 66611.
PENNY A. LUMPKIN** (BIRTHDATE: AUGUST 20, 1939) -- Director of the Fund; Vice
President, Palmer Companies, Inc. (Wholesalers, Retailers and Developers) and
Bellaire Shopping Center (Leasing and Shopping Center Management); Secretary
Treasurer, Palmer New, Inc. (Wholesale Distributors). Her address is 3616
Canterbury Town Road, Topeka, Kansas 66610.
MARK L. MORRIS, JR.** (BIRTHDATE: FEBRUARY 3, 1934) -- Director of the Fund;
Retired Former General Partner, Mark Morris Associates (Veterinary Research and
Education). His address is 5500 SW 7th Street, Topeka, Kansas 66606.
MAYNARD OLIVERIUS (BIRTHDATE: DECEMBER 18, 1943) -- Director of the Fund;
President and Chief Executive Officer, Stormont-Vail HealthCare. His address is
1500 SW 10th Avenue, Topeka, Kansas 66604.
JAMES R. SCHMANK* (BIRTHDATE: FEBRUARY 21, 1953) -- Director and Vice President
of the Fund; President and Managing Member Representative, Security Management
Company, LLC; Senior Vice President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
MARK E. YOUNG (BIRTHDATE: JANUARY 25, 1957) -- Vice President of the Fund; Vice
President and Senior Economist, Security Management Company, LLC; Second Vice
President, Security Benefit Group, Inc. and Security Benefit Life Insurance
Company.
JANE A. TEDDER (BIRTHDATE: OCTOBER 1, 1942) -- Vice President of the Fund; Vice
President and Senior Economist, Security Management Company, LLC; Vice
President, Security Benefit Group, Inc. and Security Benefit Life Insurance
Company.
AMY J. LEE (BIRTHDATE: JUNE 5, 1961) -- Secretary of the Fund; Secretary,
Security Management Company, LLC; Vice President, Associate General Counsel and
Assistant Secretary, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
BRENDA M. HARWOOD (BIRTHDATE: NOVEMBER 3, 1963) -- Treasurer of the Fund;
Assistant Vice President and Treasurer, Security Management Company, LLC;
Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
STEVEN M. BOWSER (BIRTHDATE: FEBRUARY 11, 1960) -- Vice President of the Fund;
Second Vice President and Portfolio Manager, Security Management Company, LLC;
Second Vice President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company. Prior to October 1992, Assistant Vice President and Portfolio
Manager, Federal Home Loan Bank.
THOMAS A. SWANK (BIRTHDATE: JANUARY 10, 1960) -- Vice President of the Fund;
Vice President and Portfolio Manager, Security Management Company, LLC; Vice
President and Chief Investment Officer, Security BenefitGroup, Inc. and Security
Benefit Life Insurance Company.
DAVID ESHNAUR (BIRTHDATE: OCTOBER 8, 1960) -- Vice President of the Fund;
Assistant Vice President and Portfolio Manager, Security Management Company,
LLC. Prior to July 1997, Assistant Vice President and Assistant Portfolio
Manager, Waddell & Reed.
CHRISTOPHER D. SWICKARD (BIRTHDATE: OCTOBER 9, 1965) -- Assistant Secretary of
the Fund; Assistant Secretary, Security Management Company, LLC; Assistant Vice
President and Assistant Counsel, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company. Prior to June 1992, student at Washburn
University School of Law.
*These directors are deemed to be "interested persons" of the Fund.
**These directors serve on the Fund's audit committee, the purpose of which
(among other things) is to meet with independent auditors, to review the work
of the auditors, and to oversee the handling by Security Management Company,
LLC of the accounting function for the Fund.
The officers of Security Income Fund hold identical offices with each of the
other mutual funds in the Security Funds Family, except Ms. Tedder who holds the
same office only with respect to SBL Fund and Security Equity Fund, Mr. Eshnaur
who holds the same office only with respect to SBL Fund and Security Equity
Fund, Mr. Bowser who holds the same office only with respect to SBL Fund and
Security Equity Fund and Mr. Swank who holds the same office only with respect
to SBL Fund. The directors of Security Income Fund also serve as directors of
each of the other Security Funds. Ms. Lee is also Secretary of the Distributor,
Messrs. Cleland, Schmank and Young are directors and Vice Presidents of the
Distributor and Ms. Harwood is a director and Treasurer of the Distributor.
TRUSTEES OF BT INVESTMENT PORTFOLIOS --
CHARLES P. BIGGAR (BIRTHDATE: OCTOBER 14, 1930) -- Trustee; Retired; Director of
Chase/NBW Bank Advisory Board; Director, Batemen, Eichler, Hill Richards, Inc.;
formerly Vice President of International Business Machines and President of the
National Services and the Field Engineering Divisions of IBM. His address is 12
Hitching Post Lane, Chappaqua, New York 10514.
S. LELAND DILL (BIRTHDATE: MARCH 28, 1930) -- Trustee; Retired; director, Coutts
Group; Coutts (U.S.A.) International; Coutts Trust Holdings Ltd; Director, Zweig
Series Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters
International Company Inc.; General Partner of Pemco (an investment company
registered under the 1940 Act). His address is 5070 North Ocean Drive, Singer
Island, Florida 33404.
PHILIP SAUNDERS, JR. (BIRTHDATE: OCTOBER 11, 1935) -- Trustee; Principal, Philip
Saunders Associates (Consulting); former director of Financial Industry
Consulting, Wolf & Company; President, John Hancock Home Mortgage Corporation;
and Senior Vice President of Treasury and Financial Services, John Hancock
Mutual Life Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.
OFFICERS OF BT INVESTMENT PORTFOLIOS --
Unless otherwise specified, each officer listed below holds the same position
with the Trust and BT Investment Portfolios.
JOHN Y. KEFFER (BIRTHDATE: JULY 15, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group. His address is Two Portland Square,
Portland, Maine 04101.
JOSEPH A. FINELLI (BIRTHDATE: JANUARY 24, 1957) -- Treasurer; Vice President, BT
Alex. Brown Incorporated and Vice President, Investment Company Capital Corp.
(registered investment adviser), September 1995-Present; Formerly, Vice
President, Delaware Management Company Inc. (investments), 1980-August 1995. His
address is One South Street, Baltimore, Maryland 21202.
DANIEL O. HIRSCH (BIRTHDATE: MARCH 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Counsel at the United States Securities and Exchange Commission from 1993 to
1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.
No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolio. No director, officer or employee of ICC
Distributors or any of its affiliates will receive any compensation from the
Trust or the Portfolios for serving as an officer or Trustee of the Trust or a
Portfolio.
SECURITY INCOME FUND DIRECTOR COMPENSATION TABLE --
- -------------------------------------------------------------
AGGREGATE TOTAL
COMPENSATION COMPENSATION FROM
FROM SECURITY SECURITY INCOME
NAME INCOME FUND FUND COMPLEX
- -------------------------------------------------------------
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr.
James R. Schmank
- -------------------------------------------------------------
As of January 31, 1999 the officers and directors of Security Income Fund as
a group beneficially owned none of the total outstanding voting shares of the
Fund.
BT INVESTMENT PORTFOLIO TRUSTEE COMPENSATION TABLE --
- --------------------------------------------------------------------------------
TOTAL
COMPENSATION
FROM FUND
AGGREGATE AGGREGATE COMPLEX**
NAME OF COMPENSATION COMPENSATION PAID TO
PERSON, POSITION FROM TRUST*+ FROM PORTFOLIOS+ TRUSTEES***
- --------------------------------------------------------------------------------
Philip Saunders, $13,125 $13,750 $27,500
Jr.,
Trustee of Trust
and Portfolios
Charles Biggar, N/A $13,750 $27,500
Trustee of
Portfolios
S. Leland Dill, $13,125 $13,750 $27,500
Trustee of Trust
and Portfolios
- --------------------------------------------------------------------------------
*The aggregate compensation is provided for the BT Investment Funds which is
comprised of 17 funds.
+Information is provided for the Trust's and the Portfolio's most recent
fiscal years ended December 31, 1998.
**Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Pyramid Funds, BT Advisor Funds, BT Investment Portfolios, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free
Money Portfolio, International Equity Portfolio, Short Intermediate U.S.
Government Securities Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio.
***The compensation is provided for the calendar year ended December 31, 1998.
- --------------------------------------------------------------------------------
As of January 31, 1999, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).
INVESTMENT ADVISER -- Under the terms of the Portfolio's investment advisory
agreement with Bankers Trust (the "Advisory Agreement"), Bankers Trust manages
the Portfolio subject to the supervision and direction of the Board of Trustees
of the Portfolio. Bankers Trust will: (i) act in strict conformity with the
Portfolio's Declaration of Trust, the 1940 Act and the Investment Advisers Act
of 1940, as the same may from time to time be amended; (ii) manage the Portfolio
in accordance with the Portfolio's investment objectives, restrictions and
policies; (iii) make investment decisions for the Portfolio; and (iv) place
purchase and sale orders for securities and other financial instruments on
behalf of the Portfolio.
Bankers Trust bears all expenses in connection with the performance of
services under the Advisory Agreement. The Trust and the Portfolio bears certain
other expenses incurred in its operation, including: taxes, interest, brokerage
fees and commissions, if any; fees of Trustees of the Trust or the Portfolio who
are not officers, directors or employees of Bankers Trust, FAS, FI or any of
their affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and SAIs for regulatory purposes and for distribution to existing
shareholders; costs of shareholders' reports and meetings of shareholders,
officers and Trustees of the Trust or the Portfolio; and any extraordinary
expenses.
Bankers Trust may have deposit, loan and other commercial banking
relationships with the issuers of obligations which may be purchased on behalf
of the Portfolio, including outstanding loans to such issuers which could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations and
are among the leading dealers of various types of such obligations. Bankers
Trust has informed the Portfolio that, in making its investment decisions, it
does not obtain or use material inside information in its possession or in the
possession of any of its affiliates. In making investment recommendations for
the Portfolio, Bankers Trust will not inquire or take into consideration whether
an issuer of securities proposed for purchase or sale by the Portfolio is a
customer of Bankers Trust, its parent or its subsidiaries or affiliates and, in
dealing with its customers, Bankers Trust, its parent, subsidiaries and
affiliates will not inquire or take into consideration whether securities of
such customers are held by any fund managed by Bankers Trust or any such
affiliate.
ADMINISTRATOR -- Pursuant to an Administrative Services and Transfer Agency
Agreement with Security Income Fund, dated April 1, 1987 as amended April 30,
1999, Security Management Company, LLC ("SMC") acts as the administrative agent
for the Fund and as such performs administrative functions and the bookkeeping,
accounting and pricing function for the Fund. For these services SMC receives,
on an annual basis .09% of the average net assets of the fund, calculated daily
and payable monthly. Under this Agreement SMC also performs the transfer agency
function for the Fund. As such, SMC performs all shareholder servicing
functions, mailing shareholder communications and acting as dividend disbursing
agent. For the transfer agency services, SMC receives an annual maintenance fee
of $8 per account, a fee of $1 per shareholder transaction, and a fee of $1 per
dividend transaction. Under a sub-administration agreement between SMC and
Bankers Trust, Bankers Trust has agreed to provide certain fund accounting
services to the fund, including calculation of the Fund's daily NAV. For these
services, SMC pays Bankers Trust a fee of $14,000 per year.
Under an administration and services agreements, Bankers Trust is obligated
on a continuous basis to provide such administrative services as the Board of
Trustees of the Portfolio reasonably deem necessary for the proper
administration of the Portfolio. Bankers Trust will generally assist in all
aspects of the Portfolio's operations; supply and maintain office facilities
(which may be in Bankers Trust's own offices), statistical and research data,
data processing services, clerical, accounting, bookkeeping and record keeping
services (including without limitation the maintenance of such books and records
as are required under the 1940 Act and the rules thereunder, except as
maintained by other agents), executive and administrative services, and
stationery and office supplies; prepare reports to shareholders or investors;
prepare and file tax returns; supply financial information and supporting data
for reports to and filings with the SEC and various state Blue Sky authorities;
supply supporting documentation for meetings of the Board of Trustees; provide
monitoring reports and assistance regarding compliance with Declarations of
Trust, by-laws, investment objectives and policies and with Federal and state
securities laws; arrange for appropriate insurance coverage; calculate net asset
values, net income and realized capital gains or losses; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others to supply services.
Pursuant to a sub-administration agreement (the "Sub-Administration
Agreement"), FSC performs such sub-administration duties for the Portfolio as
from time to time may be agreed upon by Bankers Trust and FSC. The
Sub-Administration Agreement provides that FSC will receive such compensation as
from time to time may be agreed upon by FSC and Bankers Trust. All such
compensation will be paid by Bankers Trust.
Pursuant to a separate Management Services Agreement, SMC also performs
certain other services on behalf of the Fund. Under this Agreement, SMC provides
feeder fund management and administrative services to the Fund which include
monitoring the performance of the Portfolio, coordinating the Fund's
relationship with the Portfolio, communicating with the Fund's Board of
Directors and shareholders regarding the Portfolio's performance and the Fund's
two tier structure, and in general, assisting the Board of Directors of the Fund
in all aspects of the administration and operation of the Fund. For these
services, the Fund pays SMC a fee at the annual rate of .20% of its average
daily net assets, calculated daily and payable monthly.
CUSTODIAN -- Bankers Trust, 130 Liberty Street (One Bankers Trust Plaza), New
York, New York 10006, serves as Custodian for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Portfolio's
assets. Bankers Trust also serves as transfer agent of the Portfolio pursuant to
the respective administration and services agreement. Bankers Trust may be
reimbursed by the Portfolio for its out-of-pocket expenses. Bankers Trust will
comply with the self-custodian provisions of Rule 17f-2 under the 1940 Act. UMB
Bank, N.A. 928 Grand Avenue, Kansas City, Missouri 64106 serves as Custodian for
the Fund and as such, holds all the Fund's assets.
BANKING REGULATORY MATTERS -- Bankers Trust has been advised by its counsel that
in its opinion Bankers Trust may perform the services for the Portfolio
contemplated by the Advisory Agreement and other activities for the Portfolio
described in the Prospectus and this SAI without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. However, counsel has
pointed out that future changes in either Federal or state statutes and
regulations concerning the permissible activities of banks or trust companies,
as well as future judicial or administrative decisions or interpretations of
present and future statutes and regulations, might prevent Bankers Trust from
continuing to perform those services for the Portfolio. State laws on this issue
may differ from the interpretations of relevant Federal law and banks and
financial institutions may be required to register as dealers pursuant to state
securities law. If the circumstances described above should change, the Boards
of Trustees would review the relationships with Bankers Trust and consider
taking all actions necessary in the circumstances.
INDEPENDENT ACCOUNTANTS -- Ernst & Young LLP, One Kansas City Place, 1200 Main
Street, Kansas City, Missouri 64105, acts as independent accountants of Security
Income Fund. Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019,
acts as independent accountants of the Portfolio.
ORGANIZATION OF SECURITY INCOME FUND
The Articles of Incorporation of Security Income Fund provides for the issuance
of shares of common stock in one or more classes or series.
Security Income Fund has authorized the issuance of an indefinite number of
shares of capital stock of $1.00 part value and currently issues its shares in
eight series, Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government
Fund, High Yield Fund, Emerging Markets Total Return Fund, Global Asset
Allocation Fund, Global High Yield Fund and Capital Preservation Fund. The
shares of each Series of Security Income Fund represent a pro rata beneficial
interest in that Series' net assets and in the earnings and profits or losses
derived from the investment of such assets.
Each Series of Security Income Fund currently issues two classes of shares
except Capital Preservation Fund which issues three classes of shares. Each
class of shares participates proportionately based on their relative net asset
values in dividends and distributions and have equal voting, liquidation and
other rights except that (i) expenses related to the distribution of each class
of shares or other expenses that the Board of Directors may designate as class
expenses from time to time, are borne solely by each class; (ii) each class of
shares has exclusive voting rights with respect to any Distribution Plan adopted
for that class; (iii) each class has different exchange privileges; and (iv)
each class has a different designation. When issued and paid for, the shares of
each Series of Security income Fund will be fully paid and nonassessable. Shares
may be exchanged as described under "Exchange Privilege," in the prospecting but
will have no other preference, conversion, exchange or preemptive rights. Shares
are transferable, redeemable and assignable and have cumulative voting
privileges for the election of directors.
On certain matters, such as the election of directors, all shares of the
Series of Security Income Fund vote together with each share having one vote.
Under certain circumstances, the shareholders of one series of Security Income
Fund could control the outcome of these votes. On other matters affecting a
particular Series, such as the investment advisory contract or the fundamental
policies, only shares of that Series are entitled to vote, and a majority vote
of the shares of that Series is required for approval of the proposal.
Security Income Fund does not generally hold annual meetings of shareholders
and will do so only when required by law. Shareholders may remove directors from
office by vote cast in person or by proxy at a meeting of shareholders. Such a
meeting will be called at the written request of 10% of Security Income Fund's
outstanding shares.
ORGANIZATION OF THE TRUST
BT Investment Funds was organized on July 21, 1986, under the name BT Tax-Free
Investment Trust, and assumed its current name on May 16, 1988. The shares of
each series participate equally in the earnings, dividends and assets of the
particular series. The Trusts may create and issue additional series of shares.
Each Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held.
Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.
Massachusetts law provides that shareholders could under certain
circumstances be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of this disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Trust or a Trustee. The Declaration of Trust provides for indemnification
from the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder's incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations, a possibility that the Trust believes is remote. Upon payment of
any liability incurred by the Trust, the shareholder paying the liability will
be entitled to reimbursement from the general assets of the Trust. The Trustees
intend to conduct the operations of the Trust in a manner so as to avoid, as far
as possible, ultimate liability of the shareholders for liabilities of the
Trust.
Whenever a Trust is requested to vote on matters pertaining to a Portfolio,
the Trust will vote its shares without a meeting of shareholders of the
respective Fund if the proposal is one, which if made with respect to the Fund,
would not require the vote of shareholders of the Fund as long as such action is
permissible under applicable statutory and regulatory requirements. For all
other matters requiring a vote, a Trust will hold a meeting of shareholders of
its respective Fund and, at the meeting of the investors in the Portfolio, the
Trust will cast all of its votes in the same proportion as votes in all its
shares at the Portfolio meeting, other investors with a greater pro rata
ownership of the Portfolio could have effective voting control of the operations
of the Portfolio.
TAXATION
TAXATION OF THE FUND -- The Fund intends to qualify annually to be treated as a
regulated investment company under the Code. To qualify for that treatment, the
Fund must, among other things, (a) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies (the "Income Requirement"), (b) diversify its holdings so that,
at the end of each quarter of its taxable year, (i) at least 50% of the value of
its assets is represented by cash and cash items (including receivables), U.S.
government securities, securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the issuer's outstanding voting securities and (ii) not more
than 25% of the value of its total assets is invested in the securities of any
one issuer (other than U.S. government securities or the securities of other
regulated investment companies), and (c) distribute for each taxable year at
least 90% of its investment company taxable income (generally consisting of
interest, dividends and the excess of net short-term capital gain over net
long-term capital loss).
The Fund will be subject to a nondeductible 4% federal excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus any undistributed amount
from the prior year.
The Fund, as an investor in the Portfolio, will be deemed to own a
proportionate share of the Portfolio's assets, and to earn a proportionate share
of the Portfolio's income, for purposes of determining whether the Fund
satisfies all the requirements described above to qualify as a regulated
investment company. See the next section for a discussion of the tax
consequences to the Fund of hedging transactions engaged in by the Portfolio.
TAXATION OF THE PORTFOLIO -- The Portfolio will be treated as a separate
partnership for federal income tax purposes and will not be a "publicly traded
partnership." As a result, the Portfolio will not be subject to federal income
tax. Instead, the Fund and other investors in the Portfolio will be required to
take into account, in computing their federal income tax liability, their
respective shares of the Portfolio's income, gains, losses, deductions and
credits, without regard to whether they have received any cash distributions
from the Portfolio. The Portfolio also will not be subject to state income or
franchise tax.
Because, as noted above, the Fund will be deemed to own a proportionate share
of the Portfolio's assets, and to earn a proportionate share of the Portfolio's
income, for purposes of determining whether the Fund satisfies the requirements
to qualify as a regulated investment company, the Portfolio intends to conduct
its operations so that the Fund will be able to satisfy all those requirements.
Distributions received by the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) generally will not result in the
Fund's recognizing any gain or loss for federal income tax purposes, except that
(a) gain will be recognized to the extent any cash that is distributed exceeds
the Fund's basis for its interest in the Portfolio prior to the distribution,
(b) income or gain will be realized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio, and (c) gain or loss will be
recognized if a liquidation distribution consists solely of cash and/or
unrealized receivables. The Fund's basis for its interest in the Portfolio
generally will equal the amount of cash and the basis of any property the Fund
invests in the Portfolio, increased by the Fund's share of the Portfolio's net
income and gains and decreased by (i) the amount of any cash and the basis of
any property distributed from the Portfolio to the Fund and (ii) the Fund's
share of the Portfolio's losses, if any.
The Portfolio's use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts, involves complex rules that will
determine for income tax purposes the amount, character and timing of
recognition of the gains and losses it realizes in connection therewith. Gains
from options and futures contracts derived by the Portfolio with respect to its
business of investing in securities will qualify as permissible income for the
Fund under the Income Requirement.
Certain futures and foreign currency contracts in which the Portfolio may
invest may be subject to section 1256 of the Code ("section 1256 contracts").
Any section 1256 contracts held by the Portfolio at the end of each taxable
year, other than contracts subject to a "mixed straddle" election made by the
Portfolio, must be "marked-to-market" (that is, treated as having been sold at
that time for their fair market value) for federal income tax purposes, with the
result that unrealized gains or losses will be treated as though they were
realized. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net realized gain or loss from any actual sales of section
1256 contracts, will be treated as long-term capital gain or loss, and the
balance will be treated as short-term capital gain or loss. Section 1256
contracts also may be marked-to-market for purposes of the 4% excise tax
mentioned above.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Portfolio may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Under
that section, any loss from the disposition of a position in a straddle
generally may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle; in addition, these rules may
apply to postpone the recognition of loss that otherwise would be recognized
under the mark-to-market rules discussed above. The regulations under section
1092 also provide certain "wash sale" rules, which apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period, and "short sale" rules applicable to straddles. If the
Portfolio makes certain elections, the amount, character and timing of
recognition of gains and losses from the affected straddle positions would be
determined under rules that vary according to the elections made. Because only a
few of the regulations implementing the straddle rules have been promulgated,
the tax consequences to the Portfolio of straddle transactions are not entirely
clear.
If the Portfolio has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward contract,
or short sale) with respect to any debt instrument (other than "straight debt")
or partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Portfolio will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting notional
principal contract, or a futures or forward contract entered into by the
Portfolio or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale. The foregoing will not
apply, however, to any transaction during any taxable year that otherwise would
be treated as a constructive sale if the transaction is closed within 30 days
after the end of that year and the Portfolio holds the appreciated financial
position unhedged for 60 days after that closing (I.E., at no time during that
60-day period is the Portfolio's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially similar
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale or granting an option to buy
substantially identical stock or securities).
OTHER TAXATION -- The investment by the Fund in the Portfolio should not cause
the Fund to be liable for any income or franchise tax in the State of New York.
The Portfolio is organized as a New York trust. The Portfolio is not subject
to any income or franchise tax in the State of New York or the State of Kansas.
FOREIGN WITHHOLDING TAXES -- Income received and gains realized by the Portfolio
from sources within foreign countries may be subject to withholding and other
taxes imposed by those countries that would reduce the yield and/or total return
on its securities. Tax conventions between certain countries and the United
States may reduce or eliminate these foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
FINANCIAL STATEMENTS
The Portfolio did not begin operations until ______________________ and the Fund
did not begin operations until May of 1999. Therefore, neither the Portfolio nor
the Fund have audited financial statements at this time.
<PAGE>
APPENDIX
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DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both (good and bad times over the future). Uncertainty of position characterizes
bonds in this class.
B -- Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca -- Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C -- Bonds rated C are the lowest-rated class of bonds and issued so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.
BB -- Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B -- Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC -- Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.
CC -- Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C -- The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligation when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC -- Well below investment-grade securities. Considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD -- Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP -- Preferred stock with dividend arrearages.
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leasing
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rates Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
DESCRIPTION OF S&P SHORT-TERM ISSUER CREDIT RATINGS
A-1 -- An obligor rated `A-1' has STRONG capacity to meet its financial
commitments. It is rated in the highest category by Standard & Poor's. Within
this category, certain obligors are designated with a plus sign (+). This
indicates that the obligor's capacity to meet its financial commitments is
EXTREMELY STRONG.
A-2 -- An obligor rated `A-2' has SATISFACTORY capacity to meet its financial
commitments. However, it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligors in the highest
rating category.
A-3 -- An obligor rated `A-3' has ADEQUATE capacity to meet its financial
obligations. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitments.
DESCRIPTION OF DUFF & PHELPS' COMMERCIAL PAPER RATINGS
D-1+ -- Highest certainty of timely payment. Short term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk free U.S.Treasury short term
obligations.
D-1 -- Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
D-1- -- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 -- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3 -- Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
DESCRIPTION OF MOODY'S INSURANCE FINANCIAL STRENGTH RATINGS
Aaa -- Insurance companies rated Aaa offer exceptional financial security. While
the financial strength of these companies is likely to change, such changes as
can be visualized are most unlikely to impair their fundamentally strong
position.
Aa -- Insurance companies rated Aa offer excellent financial security. Together
with the Aaa group they constitute what are generally known as high grade
companies. They are rated lower than Aaa companies because long-term risks
appear somewhat larger.
A -- Insurance companies rated A offer good financial security. However,
elements may be present which suggest a susceptibility to impairment sometime in
the future.
Baa -- Insurance companies rated Baa offer adequate financial security. However,
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time.
Ba -- Insurance companies rated Ba offer questionable financial security. Often
the ability of these companies to meet policyholder obligations maybe very
moderate and thereby not well safeguarded in the future.
B -- Insurance companies rated B offer poor financial security. Assurance of
punctual payment of policyholder obligations over any long period of time is
small.
Caa -- Insurance companies rated Caa offer very poor financial security. They
may be in default on their policyholder obligations or there may be present
elements of danger with respect to punctual payment of policyholder obligations
and claims.
Ca -- Insurance companies rated Ca offer extremely poor financial security. Such
companies are often in default on their policyholder obligations or have other
marked shortcomings.
C -- Insurance companies rated C are the lowest rated class of insurance company
and can be regarded as having extremely poor prospects of ever offering
financial security.
Numeric modifiers: Numeric modifiers are used to refer to the ranking within
the group -- one being the highest and three being the lowest. However, the
financial strength of companies within a generic rating symbol (Aa, for example)
is broadly the same.
DESCRIPTION OF S&P CLAIMS PAYING ABILITY RATING DEFINITIONS
SECURE RANGE -- AAA to BBB
"AAA" -- Superior financial security on an absolute and relative basis. Capacity
to meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.
"AA" -- Excellent financial security. Capacity to meet policyholder obligations
is strong under a variety of economic and underwriting conditions.
"A" -- Good financial security, but capacity to meet policyholder obligations is
somewhat susceptible to adverse economic and underwriting conditions.
"BBB" -- Adequate financial security, but capacity to meet policyholder
obligations is susceptible to adverse economic and underwriting conditions.
VULNERABLE RANGE -- BB to CCC
"BB" -- Financial security may be adequate, but capacity to meet policyholder
obligations, particularly with respect to long-term or "long-tail" policies, is
vulnerable to adverse economic and underwriting conditions.
"B" -- Vulnerable financial security. Currently able to meet policyholder
obligations, but capacity to meet policyholder obligations is particularly
vulnerable to adverse economic and underwriting conditions.
"CCC" -- Extremely vulnerable financial security. Continued capacity to meet
policyholder obligations is highly questionable unless favorable economic and
underwriting conditions prevail.
"R" -- Regulatory action. As of the date indicated, the insurer is under
supervision of insurance regulators following rehabilitation, receivership,
liquidation, or any other action that reflects regulatory concern about the
insurer's financial condition. Information on this status is provided by the
National Association of Insurance Commissioners and other regulatory bodies.
Although believed to be accurate, this information is not guaranteed. The "R"
rating does not apply to insurers subject only to nonfinancial actions such as
market conduct violations.
Plus (+) or minus (-) Ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DUFF & PHELPS' CLAIMS PAYING ABILITY RATINGS
AAA -- Highest claims paying ability. Risk factors are negligible.
AA+, AA, AA- -- Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic and/or
underwriting conditions.
A+, A, A- -- High claims paying ability. Protection factors are average and
there is an expectation of variability in risk over time due to economic and/or
underwriting conditions.
BBB+, BBB, BBB- -- Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time due to economic
and/or underwriting conditions.
BB+, BB, BB- -- Uncertain claims paying ability and less than investment grade
quality. However, the company is deemed likely to meet these obligations when
due. Protection factors will vary widely with changes in economic and/or
underwriting conditions.
B+, B, B- -- Possessing risk that policyholder and contractholder obligations
will not be paid when due. Protection factors will vary widely with changes in
economic and underwriting conditions or company fortunes.
CCC -- There is substantial risk that policyholder and contractholder
obligations will not be paid when due. Company has been or is likely to be
placed under state insurance department supervision.
DD -- Company is under an order of liquidation.
<PAGE>
SECURITY INCOME FUND
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
As neither the Capital Preservation Fund, nor the BT
PreservationPlus Income Portfolio have completed their first
fiscal year, financial statements are not yet available.
b. Exhibits:
(1) Articles of Incorporation.
(2) Corporate Bylaws of Registrant.(a)
(3) Not applicable.
(4) Specimen copy of share certificate for Registrant's shares
of capital stock.
(5) Investment Advisory Contract.(b)
(6) (a) Form of Distribution Agreement.
(b) Form of Class B Distribution Agreement.
(c) Form of Class C Distribution Agreement.
(d) Underwriter-Dealer Agreement.(d)
(7) Form of Non-Qualified Deferred Compensation Plan.(c)
(8) Custodian Agreement - UMB.(e)
(9) (a) Form of Third Party Feeder Fund Agreement
(b) Form of Recordkeeping and Investment Accounting
Agreement
(c) Form of Management Services Agreement
(d) Form of Administrative Services and Transfer Agency
Agreement
(10) Opinion of counsel as to the legality of the securities
offered.
(11) Consent of Independent Auditors.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) (a) Distribution Plan.(a)
(b) Form of Class B Distribution Plan.
(c) Form of Class C Distribution Plan.
(16) Not applicable.
(17) Not applicable.
(18) Multiple Class Plan.(f)
(19) Powers of Attorney - Bankers Trust
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 50 to Registration Statement No.
2-38414 (May 1, 1995).
(b) Incorporated herein by reference to Post-Effective Amendment No. 9 to BT
Investment Portfolios' Registration Statement as filed with the Commission
on August 1, 1995 and Post-Effective Amendment No. 32 to its Registration
Statement as filed on February 8, 1999.
(c) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 58 to Registration Statement No.
2-38414 (April 30, 1997).
(d) Incorporated herein by reference to the Exhibits filed with Security Equity
Fund's Post-Effective Amendment No. 84 to Registration Statement No.
2-19458 (January 28, 1999).
(e) Incorporated herein by reference to the Exhibits filed with SBL Fund's
Post-Effective Amendment No. 37 to Registration Statement No. 2-59353
(April 30, 1999).
(f) Incorporated herein by reference to the Exhibits filed with Security Equity
Fund's Post-Effective Amendment No. 83 to Registration Statement No.
2-19458 (January 28, 1999).
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES AS OF FEBRUARY 1, 1999.
Not applicable.
ITEM 27. INDEMNIFICATION.
A policy of insurance covering Security Management Company, LLC, its
affiliate Security Distributors, Inc., and all of the registered
investment companies advised by Security Management Company, LLC
insures the Registrant's directors and officers against liability
arising by reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their duties.
Paragraph 30 of the Registrant's Bylaws, as amended February 3, 1995,
provides in relevant part as follows:
30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each
person who is or was a Director or officer of the Corporation or
is or was serving at the request of the Corporation as a Director
or officer of another corporation (including the heirs,
executors, administrators and estate of such person) shall be
indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as
now in effect and is hereafter amended, against any liability,
judgment, fine, amount paid in settlement, cost and expense
(including attorney's fees) asserted or threatened against and
incurred by such person in his/her capacity as or arising out of
his/her status as a Director or officer of the Corporation or, if
serving at the request of the Corporation, as a Director or
officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights
to which those indemnified may be entitled under the Articles of
Incorporation, under any other bylaw or under any agreement, vote
of stockholders or disinterested directors or otherwise, and
shall not limit in any way any right which the Corporation may
have to make different or further indemnification with respect to
the same or different persons or classes of persons.
No person shall be liable to the Corporation for any loss,
damage, liability or expense suffered by it on account of any
action taken or omitted to be taken by him/her as a Director or
officer of the Corporation or of any other corporation which
he/she serves as a Director or officer at the request of the
Corporation, if such person (a) exercised the same degree of care
and skill as a prudent man would have exercised under the
circumstances in the conduct of his/her own affairs, or (b) took
or omitted to take such action in reliance upon advice of counsel
for the Corporation, or for such other corporation, or upon
statement made or information furnished by Directors, officers,
employees or agents of the Corporation, or of such other
corporation, which he/she had no reasonable grounds to
disbelieve.
In the event any provision of this section 30 shall be in
violation of the Investment Company Act of 1940, as amended, or
of the rules and regulations promulgated thereunder, such
provisions shall be void to the extent of such violations.
On March 25, 1988, the shareholders approved the Board of Directors'
recommendation that the Articles of Incorporation be amended by
adopting the following Article Fifteenth:
"A director shall not be personally liable to the corporation or
to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this sentence shall not
eliminate nor limit the liability of a director:
A. for any breach of his or her duty of loyalty to the
corporation or to its stockholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. for any unlawful dividend, stock purchase or redemption under
the provisions of Kansas Statutes Annotated (K.S.A.) 17-6424
and amendments thereto; or
D. for any transaction from which the director derived an
improper personal benefit."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER
Not applicable.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Security Equity Fund
Security Ultra Fund
Security Growth and Income Fund
Security Municipal Bond Fund
Variflex Variable Annuity Account (Variflex)
Variflex Variable Annuity Account (Variflex ES)
Varilife Variable Separate Account
Parkstone Variable Annuity Account
Security Varilife Separate Account
Variable Annuity Account VIII (Variflex LS)
Variable Annuity Account VIII (Variflex Signature)
SBL Variable Annuity Account X
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Registrant
------------------ ------------------------- -------------------------
<S> <C> <C>
Richard K Ryan President & Director None
John D. Cleland Vice President & Director President & Director
James R. Schmank Vice President & Director Vice President & Director
Mark E. Young Vice President & Director Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer and Director Treasurer
William G. Mancuso Regional Vice President None
</TABLE>
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Certain accounts, books and other documents required to be maintained
by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by Security Management Company, LLC, 700 Harrison,
Topeka, Kansas 66636-0001; and Bankers Trust Company, 130 Liberty
Street, New York, New York 10006. Records relating to the duties of
the Registrant's custodian are maintained by UMB Bank, n.a., 928 Grand
Avenue, Kansas City, Missouri 64106.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest report
to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Topeka, and State of Kansas on the 10th day of February, 1999.
SECURITY INCOME FUND
(The Registrant)
By: JOHN D. CLELAND
------------------------------
John D. Cleland, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
Date: February 10, 1999
----------------------------
DONALD A. CHUBB, JR. Director
- ---------------------------
Donald A. Chubb, Jr.
JOHN D. CLELAND President and Director
- ---------------------------
John D. Cleland
BRENDA M. HARWOOD Treasurer (Principal Financial Officer) and Director
- ---------------------------
Brenda M. Harwood
PENNY A. LUMPKIN Director
- ---------------------------
Penny A. Lumpkin
MARK L. MORRIS, JR. Director
- ---------------------------
Mark L. Morris, Jr.
MAYNARD OLIVERIUS Director
- ---------------------------
Maynard Oliverius
JAMES R. SCHMANK Director
- ---------------------------
James R. Schmank
<PAGE>
This Post Effective Amendment No. 61 to the Registration Statement of Security
Income Fund has been signed below by the following persons in the capacities
indicated.
NAME TITLE DATE
- ---- ----- ----
By: /s/ DANIEL O. HIRSCH Secretary (Attorney in Fact February 16, 1999
Daniel O. Hirsch For the Persons Listed Below)
/s/ JOHN Y. KEFFER* President and Chief
John Y Keffer Executive Officer
/s/ JOSEPH A. FINELLI* Treasurer (Principal Financial
Joseph A. Finelli and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
* By Powers of Attorney - Filed herewith.
<PAGE>
EXHIBIT INDEX
(1) Articles of Incorporation
(2) None
(3) None
(4) Specimen copy of share certificates
(5) None
(6) (a) Form of Distribution Agreement
(b) Form of Class B Distribution Agreement
(c) Form of Class C Distribution Agreement
(d) None
(7) None
(8) None
(9) (a) Form of Third Party Feeder Fund Agreement
(b) Form of Recordkeeping and Investment Accounting Agreement
(c) Form of Management Services Agreement
(d) Form of Administrative Services and Transfer Agency Agreement
(10) Opinion of Counsel
(11) Consent of Independent Auditors
(12) None
(13) None
(14) None
(15) (a) None
(b) Form of Class B Distribution Plan
(c) Form of Class C Distribution Plan
(16) None
(17) None
(18) None
(19) Powers of Attorney - Bankers Trust
<PAGE>
ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND, INC.
We, the undersigned incorporators, hereby associate ourselves together
to form and establish a corporation for profit under the laws of the State of
Kansas.
FIRST: The name of the corporation is:
SECURITY BOND FUND, INC.
SECOND: The location of its registered office in Kansas is Security
Benefit Life Building, 700 Harrison Street, Topeka, Kansas 66603.
THIRD: The name and address of its registered agent in Kansas is Will
J. Miller, Jr., Security Benefit Life Building, 700 Harrison Street, Topeka,
Kansas 66603.
FOURTH: This corporation is organized for profit and the nature of its
business, objects and purposes to be transacted, promoted and carried on, is:
(1) To engage in the business of an investment company and mutual fund
and to hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise
acquire, hold for investment or otherwise, trade, purchase on margin, sell,
sell short, assign, pledge, hypothecate, negotiate, transfer, exchange or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall for the purposes of this Article, without
limitation of the generality thereof, be deemed to include any stocks,
bonds, shares, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets) created or issued by any persons, firms, associations,
corporations, syndicates, combinations, organizations, governments or
subdivisions thereof; and to exercise, as owner or holder of any
securities, all rights, powers and privileges in respect thereof; and to do
any and all acts and things for the preservation, protection, improvement
and enhancement in value of any and all such securities.
(2) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including, without limitation thereof, securities)
now or hereafter permitted by the laws of Kansas, by these Articles of
Incorporation and the Bylaws of the corporation, as its Board of Directors
may determine.
(3) To purchase or otherwise acquire, redeem, hold, dispose of,
resell, transfer, or reissue (all without any vote or consent of
stockholders of the corporation) shares of its capital stock, in any manner
and to the extent now or hereafter permitted by the laws of the State of
Kansas, by these Articles of Incorporation and by the Bylaws of the
corporation, provided that shares of its own capital stock belonging to it
shall not be voted directly or indirectly.
(4) To conduct its business in all its branches at one or more offices
in Kansas and elsewhere in any part of the world, without restriction or
limit as to extent.
(5) To carry out all or any of the foregoing purposes as principal or
agent, and alone or with associates or, to the extent now or hereafter
permitted by the laws of Kansas, as a member of, or as the owner or holder
of any stock of, or shares of interest in, any firm, association,
corporation, trust or syndicate; and in connection therewith to make or
enter into such deeds or contracts with any persons, firms, associations,
corporations, syndicates, governments or sub-divisions thereof, and to do
such acts and things and to exercise such powers as a natural person could
lawfully make, enter into, do or exercise.
(6) To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes.
It is the intention that each of the purposes, specified in each of
the paragraphs of this Article FOURTH, shall be in no wise limited or restricted
by reference to or inference from the terms of any other paragraph, but that the
purposes specified in each of the paragraphs of this Article FOURTH shall be
regarded as independent objects, purposes and powers. The enumeration of the
specific purposes of this Article FOURTH shall not be construed to restrict in
any manner the general objects, purposes and powers of this corporation, nor
shall the expression of one thing be deemed to exclude another, although it be
of like nature. The enumeration of purposes herein shall not be deemed to
exclude or in any way limit by inference any objects, purposes or powers which
this corporation has power to exercise, whether expressly or by force of the
laws of the State of Kansas, now or hereafter in effect, or impliedly by any
reasonable construction of such laws.
FIFTH: The total number of shares which the corporation shall have
authority to issue shall be 3,000,000 shares of capital stock, each of the par
value of $1.00. The Board of Directors shall have the power to fix the
consideration to be received by the corporation for any and all shares of stock
issued by the corporation, but at not less than the par value thereof.
The following provisions are hereby adopted for the purpose of setting
forth the powers, rights, qualifications, limitations or restrictions of the
capital stock of the corporation:
(1) At all meetings of stockholders each stockholder of the
corporation shall be entitled to one vote in person or by proxy on each
matter submitted to a vote at such meeting for each share of capital stock
standing in this name on the books of the corporation on the date, fixed in
accordance with the Bylaws, for determination of stockholders entitled to
vote at such meeting. At all elections of directors each stockholder shall
be entitled to as many votes as shall equal the number of shares of stock
multiplied by the number of directors to be elected, and he may cast all of
such votes for a single director or may distribute them among the number to
be voted for, on any two or more of them as he may see fit.
(2) No holder of any shares of stock of the corporation shall be
entitled as such, as a matter of right, to purchase or subscribe for any
shares of stock of the corporation of any class, whether now or hereafter
authorized or whether issued for cash, property or services or as a
dividend or otherwise, or to purchase or subscribe for any obligations,
bonds, notes, debentures, other securities or stock convertible into shares
of stock of the corporation or carrying or evidencing any right to purchase
shares of stock of any class.
(3) All persons who shall acquire stock in the corporation shall
acquire the same subject to the provisions of these Articles of
Incorporation.
SIXTH: The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars.
SEVENTH: The name and places of residence for each of the
incorporators are as follows:
NAMES PLACES OF RESIDENCE
Dean L. Smith 1800 W. 26th
Topeka, Kansas 66611
Will J. Miller, Jr. 2824 Plass Street
Topeka, Kansas 66611
Everett S. Gille 2832 Plass Street
Topeka, Kansas 66611
EIGHTH: The duration of the corporate existence of the corporation is
one hundred years.
NINTH: The number of directors to constitute the Board of Directors of
the corporation, which shall be a minimum of three and a maximum of nine, may be
varied from time to time by the Board of Directors or stockholders of the
corporation between said minimum and maximum. Unless otherwise provided by the
Bylaws of the corporation, the directors of the corporation need not be
stockholders therein.
TENTH:
(1) Except as may be otherwise specifically provided by (i) statute,
(ii) the Articles of Incorporation of the corporation as from time to time
amended or (iii) bylaw provisions adopted from time to time by the
stockholders or directors of the corporation, all powers of management,
direction and control of the corporation shall be, and hereby are, vested
in the Board of Directors.
(2) If the Bylaws so provide, the Board of Directors, by resolution
adopted by a majority of the whole board, may designate two or more
directors to constitute an executive committee, which committee, to the
extent provided in said resolution or in the Bylaws of the corporation,
shall have and exercise all of the authority of the Board of Directors in
the management of the corporation.
(3) Shares of stock in other corporations shall be voted by the
President or a Vice President, or such officer or officers of the
corporation as the Board of Directors shall from time to time designate for
the purpose, or by a proxy or proxies thereunto duly authorized by the
Board of Directors, except as otherwise ordered by vote of the holders of a
majority of the shares of the capital stock of the corporation outstanding
and entitled to vote in respect thereto.
(4) Subject only to the provisions of the federal Investment Company
Act of 1940 and the rules and regulations promulgated thereunder, any
director, officer or employee individually, or any partnership of which any
director, officer or employee may be a member, or any corporation or
association of which any director, officer or employee may be an officer,
director, trustee, employee or stockholder, may be a party to, or may be
pecuniarily or otherwise interested in, any contract or transaction of the
corporation, and in the absence of fraud no contract or other transaction
shall be thereby affected or invalidated; provided that in case a director,
or a partnership, corporation or association of which a director is a
member, officer, director, trustee, employee or stockholder is so
interested, such fact shall be disclosed or shall have been known to the
Board of Directors or a majority thereof; and any director of the
corporation who is so interested, or who is also a director, officer,
trustee, employee or stockholder of such other corporation or association
or a member of such partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of
Directors of the corporation which shall authorize any such contract or
transaction, and may vote thereat to authorize any such contract or
transaction, with like force and effect as if he were not such director,
officer, trustee, employee or stockholder of such other corporation or
association or not so interested or a member of a partnership so
interested.
(5) The Board of Directors is hereby empowered to authorize the
issuance and sale, from time to time, of shares of the capital stock of the
corporation, whether for cash at not less than the par value thereof or for
such other consideration including securities as the Board of Directors may
deem advisable in the manner and to the extent now or hereafter permitted
by the Bylaws of the corporation and by the laws of Kansas.
ELEVENTH: The private property of the stockholders shall not be a
subject to the payment of the debts of the corporation.
TWELFTH: Insofar as permitted under the laws of Kansas, the
stockholders and directors shall have power to hold their meetings, if the
Bylaws so provide, and to keep the books and records of the corporation outside
of the State of Kansas, and to have one or more offices, within or without the
State of Kansas, at such places as may be from time to time designated in the
Bylaws or by resolution of the stockholders or directors.
THIRTEENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them, secured or unsecured,
or between this corporation and its stockholders, or any class of them, any
court, state or federal, of competent jurisdiction within the State of Kansas
may on the application in a summary way of this corporation, or of any creditor,
secured or unsecured, or stockholders thereof, or on the application of trustees
in dissolution, or on the application of any receiver or receivers appointed for
this corporation by any court, state or federal, of competent jurisdiction,
order a meeting of the creditors of class of creditors secured or unsecured or
of the stockholders or class of stockholders of the corporation, as the case may
be, to be summoned in such manner as said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors, or
of the stockholders, or class of stockholders of this corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
FOURTEENTH: The corporation reserves the right to alter, amend or
repeal any provision contained in its Articles of Incorporation in the manner
now or hereafter prescribed by the statutes of Kansas, and all rights and powers
conferred herein are granted subject to this reservation; and, in particular,
the corporation reserves the right and privilege to amend its Articles of
Incorporation from time to time so as to authorize other or additional classes
of shares (including preferential shares), to increase or decrease the number of
shares of any class now or hereafter authorized, to establish, limit or deny to
stockholders of any class the right to purchase or subscribe for any shares of
stock of the corporation of any class, whether now or hereafter authorized or
whether issued for cash, property or services or as a dividend or otherwise, or
to purchase or subscribe for any obligations, bonds, notes, debentures, or
securities or stock convertible into shares of stock of the corporation or
carrying or evidencing any right to purchase shares of stock of any class, and
to vary the preferences, designations, priorities, special powers,
qualifications, limitations, restrictions and the special, participating,
optional or relative rights or other characteristics in respect of the shares of
each class, and to accept and avail itself of, or subject itself to, the
provisions of any statutes of Kansas hereafter enacted pertaining to private
corporations, to exercise all the rights, powers and privileges conferred upon
corporations organized thereunder or accepting the provisions thereof and to
assume the obligations and duties imposed therein, upon the affirmative vote of
the holders of a majority of the shares of stock entitled to vote thereon, or,
in the event the statutes of Kansas then in effect require a separate vote by
classes of shares, upon the affirmative vote of the holders of a majority of the
shares of each class whose separate vote is required thereon, or, in the event
the statutes of Kansas then in effect require a larger vote, upon such larger
vote of the stockholders entitled to vote thereon as may then be required by
such statutes.
IN WITNESS WHEREOF, we have hereunto subscribed our names this 9th day
of September, 1970.
DEAN L. SMITH
-----------------------------------
Dean L. Smith
WILL J. MILLER
-----------------------------------
Will J. Miller, Jr.
EVERETT S. GILLE
-----------------------------------
Everett S. Gille
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Personally appeared before me, a notary public in and for Shawnee County,
Kansas, the above named DEAN L. SMITH, WILL J. MILLER and EVERETT S. GILLE, who
are personally known to me to be the same persons who executed the foregoing
instrument of writing, and such persons duly acknowledged the execution of the
same.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my official
seal this 9th day of September, 1970.
LOIS J. HEDRICK
-----------------------------------
Notary Public
My commission expires January 8, 1972
<PAGE>
Topeka, Kansas September 9, 1970
-----------------
Date
OFFICE OF SECRETARY OF STATE
RECEIVED OF SECURITY BOND FUND, INC.
and deposited in the State Treasury, fees on these Articles of Incorporation as
follows:
Application Fee $25.00
Filing and Recording Fee $2.50
Capitalization Fee $1,550.00
ELWILL M. SHANAHAN
-----------------------------------
Secretary of State
<PAGE>
CHANGE OF LOCATION OF REGISTERED OFFICE
AND/OR
CHANGE OF RESIDENT AGENT
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Everett S. Gille, Vice President and Larry D. Armel, Secretary of
Security Bond Fund, Inc. a corporation organized and existing under and by
virtue of the laws of the State of Kansas, do hereby certify that a regular
meeting of the Board of Directors of said corporation held on the 11th day of
July, 1975, the following resolution was duly adopted.
Be it further resolved that the RESIDENT AGENT of said corporation in
the State of Kansas be changed from Will J. Miller, Jr., 700 Harrison Street,
Topeka, Shawnee, Kansas the same being of record in the office of Secretary of
State of Kansas to Security Management Company, Inc. 700 Harrison Street,
Topeka, Shawnee, Kansas 66636.
The President and Secretary are hereby authorized to file and record
the same in the manner as required by law:
EVERETT S. GILLE
-----------------------------------
Everett S. Gille, Vice-President
LARRY D. ARMEL
-----------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered that before me Lois J. Hedrick a Notary Public in and for the
County and State aforesaid, came Everett S. Gille, Vice-President and Larry D.
Armel, Secretary, of Security Bond Fund, Inc. a corporation personally known to
me to be the persons who executed the foregoing instrument of writing as vice
president and secretary respectively, and duly acknowledged the execution of the
same this 11th day of July, 1975.
LOIS J. HEDRICK
-----------------------------------
Notary Public
My commission expires January 8, 1976
NOTE: This form must be filed in duplicate.
Address of Resident Agent and Registered Office, as set forth above,
must be the same.
The statutory fee for filing is $20.00 and must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND, INC.
- --------------------------------------------------------------------------------
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Lois J. Hedrick, Assistant Secretary
of Security Bond Fund, Inc., a corporation organized and existing under the laws
of the State of Kansas, and whose registered office is Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that
at the regular meeting of the Board of Directors of said corporation held on the
7th day of January, 1977 said board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declared its
advisability, to wit:
RESOLVED, that whereas the board of directors deems it advisable and
in the best interests of the corporation to increase the authorized
capitalization of the corporation, that the articles of incorporation
of the Fund be amended by deleting the first paragraph of Article
FIFTH in its entirety, and by inserting, in lieu thereof, the
following new first paragraph of Article FIFTH:
FIFTH: The total number of shares which the corporation
shall have authority to issue shall be 6,000,000 shares of
capital stock, each of the par valueof $1.00. The board of
directors shall have the power to fix the consideration to be
received by the corporation for any and all shares of stock
issued by the corporation, but at not less than the par value
thereof.
FURTHER RESOLVED, that the foregoing proposed amendment to the
Articles of Incorporation of the Fund be presented to the stockholders
of the Fund for consideration at the annual meeting of stockholders to
be held on March 25, 1977.
That thereafter, pursuant to said resolution and in accordance with the
by-laws and the laws of the State of Kansas, said directors called a
meeting of stockholders for the consideration of said amendment, and
thereafter, pursuant to said notice and in accordance with the statutes of
the State of Kansas, on the 25th day of March, 1977, said stockholders met
and convened and considered said proposed amendment.
That at said meeting the stockholders entitled to vote did vote upon said
amendment, and the majority of voting stockholders of the corporation had
voted for the proposed amendment certifying that the votes were 534,468
(common) shares in favor of the proposed amendment and 9,925 (common)
against the amendment.
That said amendment was duly adopted in accordance with the provisions of
K.S.A. 17-6602.
That the capital of said corporation will not be reduced under or by reason
of said amendment.
IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of
said corporation this 30th day of March, 1977.
EVERETT S. GILLE
------------------------------------
Everett S. Gille, Vice-President
LOIS J. HEDRICK
------------------------------------
Lois J. Hedrick, Assistant Secretary
STATE OF KANSAS )
) ss
COUNTY OF SHAWNEE)
Be it remembered, that before me, Janet M. Ladd a Notary Public in and for
the County and State aforesaid, came Everett S. Gille, President and Lois J.
Hedrick, Assistant Secretary of Security Bond Fund, Inc. a corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as president and assistant secretary respectively, and duly
acknowledged the execution of the same this 30th day of March, 1977.
JANET M. LADD
------------------------------------
Notary Public
My commission expires September 3, 1980.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND, INC.
- --------------------------------------------------------------------------------
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Larry D. Armel, Secretary of Security
Bond Fund, Inc. a corporation organized and existing under the laws of the State
of Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that at the regular
meeting of the Board of Directors of said corporation held on the 5th day of
January, 1979, said board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declared its advisability, to
wit:
RESOLVED, that whereas the board of directors deems it advisable and
in the best interests of the corporation to increase the authorized
capitalization of the corporation, that the articles of incorporation
of the Fund be amended by deleting the first paragraph of Article
FIFTH in its entirety, and by inserting, in lieu thereof, the
following new first paragraph of Article FIFTH:
FIFTH: The total number of shares which the corporation shall
have authority to issue shall be 10,000,000 shares of capital stock,
each of the par value of $1.00. The board of directors shall have the
power to fix the consideration to be received by the corporation for
any and all shares of stock issued by the corporation, but at not less
than the par value thereof.
FURTHER RESOLVED, that the foregoing proposed amendment to the
Articles of Incorporation of the Fund be presented to the stockholders
of the Fund for consideration at the annual meeting of stockholders to
be held on March 23, 1979.
That thereafter, pursuant to said resolution and in accordance with the
by-laws and the laws of the State of Kansas, said directors called a meeting of
stockholders for the consideration of said amendment, and thereafter, pursuant
to said notice and in accordance with the statutes of the State of Kansas, on
the 23rd day of March, 1979, said stockholders met and convened and considered
said proposed amendment.
That at said meeting the stockholders entitled to vote did vote upon said
amendment, and the majority of voting stockholders of the corporation had voted
for the proposed amendment certifying that the votes were 1,987,933 (common)
shares in favor of the proposed amendment and 95,636 (common) shares against the
amendment.
That said amendment was duly adopted in accordance with the provisions of
K.S.A. 17-6602.
That the capital of said corporation will not be reduced under or by reason
of said amendment.
IN WITNESS WHEREOF we have hereunto set out hands and affixed the seal of
said corporation this 23rd day of March, 1979.
EVERETT S. GILLE
-----------------------------------
Everett S. Gille, President
LARRY D. ARMEL
-----------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Lois J. Hedrick a Notary Public in
and for the County and State aforesaid, came Everett S. Gille, President and
Larry D. Armel, Secretary of Security Bond Fund, Inc. a corporation, personally
known to me to be the persons who executed the foregoing instrument of writing
as president and assistant secretary respectively, and duly acknowledged the
execution of the same this 23rd day of March, 1979.
LOIS J. HEDRICK
-----------------------------------
Notary Public
My commission expires January 8, 1980.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND, INC.
We, Everett S. Gille, President, and Larry D. Armel, Secretary of
Security Bond Fund, Inc., a corporation organized and existing under the laws of
the State of Kansas, and whose registered office is Security Benefit Life
Building, 700 Harrison Street, Topeka, Kansas, 66636, do hereby certify that at
the regular meeting of the board of directors of said corporation held on the
9th day of January, 1981, said board adopted resolutions setting forth the
following amendments to the articles of incorporation and declared their
advisability:
"RESOLVED, that the articles of incorporation of Security Bond Fund,
Inc. as heretofore amended, be further amended by deleting Article
FIRST in its entirety and by inserting, in lieu thereof, the following
new Article FIRST:
`FIRST: The name of the corporation is:
SECURITY BOND FUND.'"
"RESOLVED, that the articles of incorporation of Security Bond Fund,
Inc., as heretofore amended, be further amended by deleting the first
paragraph of Article FIFTH and by inserting, in lieu thereof, the
following:
`FIFTH: The total number of shares which the corporation shall
have authority to issue is 100,000,000 shares of capital stock,
each of the par value of $1.00 per share. The board of directors
shall have the power to fix the consideration to be received by
the corporation for any and all shares of stock issued by the
corporation, but at not less than the par value thereof'.
FURTHER RESOLVED, that the board of directors of this corporation
hereby declares the advisability of the foregoing amendments to
the articles of incorporation of this corporation and hereby
recommends that the stockholders of this corporation adopt said
amendments.
FURTHER RESOLVED, that at the annual meeting of the stockholders
of this corporation to be held at the offices of the corporation
in Topeka, Kansas, on March 27, 1981, beginning at 10:00 a.m. on
that day, the matter of the aforesaid proposed amendments to the
articles of incorporation of this corporation shall be submitted
to the stockholders entitled to vote thereon.
FURTHER RESOLVED, that in the event the stockholders of this
corporation shall approve and adopt the proposed amendments to
the articles of incorporation of this corporation as heretofore
adopted and recommended by this board of directors, the
appropriate officers of this corporation be, and they hereby are
authorized and directed, for and in behalf of this corporation,
to make, execute, verify, acknowledge and file or record in any
and all appropriate governmental offices any and all certificates
and other instruments, and to take any and all other action as
may be necessary to effectuate the said proposed amendments to
the articles of incorporation of this corporation."
That thereafter, pursuant to said resolutions and in accordance with
the bylaws and the laws of the State of Kansas, said directors called
a meeting of stockholders for the consideration of said amendments and
thereafter, pursuant to said notice and in accordance with the
statutes of the State of Kansas, on the 27th day of March, 1981, said
stockholders met and convened and considered said proposed amendments.
That at said meeting the stockholders entitled to vote did vote upon
the amendment to Article FIRST, and the majority of voting
stockholders of the corporation had voted for the proposed amendment
certifying that the votes were (Common Stock) 2,559,350 shares in
favor of the proposed amendment, (Common Stock) 223,217 shares against
the amendment, and (Common Stock) 477 shares abstained; and
That at said meeting the stockholders entitled to vote did vote upon
the amendment to Article FIFTH, and the majority of voting stockholders of the
corporation had voted for the proposed amendment certifying that the votes were
(Common Stock) 2,546,301 shares in favor of the proposed amendment, (Common
Stock) 236,266 shares against the amendment, and (Common Stock) 477 shares
abstained.
That said amendments were duly adopted in accordance with the
provisions of K.S.A. 16-6602, as amended.
That the capital of said corporation will not be reduced under or by
reason of said amendments.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of said corporation, this 30th day of March, 1981.
[Seal]
EVERETT S. GILLE
-----------------------------------
Everett S. Gille, President
LARRY D. ARMEL
-----------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Lois J. Hedrick, a Notary Public in
and for the County and State aforesaid, came Everett S. Gille, President, and
Larry D. Armel, Secretary, of Security Bond Fund, Inc., a corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as president and secretary, respectively, and duly acknowledged the
execution of the same this 30th day of March, 1981.
LOIS J. HEDRICK
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 8, 1984.
Submit in duplicate
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Larry D. Armel, Secretary of
Security Bond Fund, Inc., a corporation organized and existing under the laws of
the State of Kansas, and whose registered office is Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that
at the regular meeting of the Board of Directors of said Corporation held on the
7th day of January, 1983, said board adopted resolutions setting forth the
following amendments to the Articles of Incorporation and declared their
advisability, to wit:
"RESOLVED, that the articles of incorporation of Security Bond Fund,
as heretofore amended, be further amended by deleting Article FIFTH in
its entirety and by inserting, in lieu thereof, the following new
Article FIFTH:
`FIFTH: The total number of shares of stock which the Corporation
shall have authority to issue is Five Hundred Million (500,000,000) shares
of common stock, of the par value of One Dollar ($1.00) per share. The
board of directors of the corporation is expressly authorized to cause
shares of common stock of the corporation authorized herein to be issued in
one or more series and to increase or decrease the number of shares so
authorized to be issued in any such series.
The following provisions are hereby adopted for the purpose of setting
forth the powers, rights, qualifications, limitations or restrictions of the
capital stock of the corporation:
(1) At all meetings of stockholders each stockholder of the corporation of
any class or series shall be entitled to one vote in person or by proxy on
each matter submitted to a vote at such meeting for each share of capital
stock of any class or series standing in his name on the books of the
corporation on the date, fixed in accordance with the Bylaws, for
determination of stockholders entitled to vote at such meeting. At all
elections of directors each stockholder of any class or series shall be
entitled to as many votes as shall equal the number of shares of stock of
any class or series multiplied by the number of directors to be elected,
and he may cast all of such votes for a single director or may distribute
them among the number to be voted for, or any two or more of them as he may
see fit.
(2) All shares of stock of the corporation of any class or series shall be
nonassessable.
(3) No holder of any shares of stock of the corporation of any class or
series shall be entitled as such, as a matter of right, to subscribe for or
purchase any shares of stock of the corporation of any class or series,
whether now or hereafter authorized or whether issued for cash, property or
services or as a dividend or otherwise, or to subscribe for or purchase any
obligations, bonds, notes, debentures, other securities or stock
convertible into shares of stock of the corporation of any class or series
or carrying or evidencing any right to purchase shares of stock of any
class or series.
(4) All persons who shall acquire stock in the corporation shall acquire
the same subject to the provisions of these articles of incorporation".
FURTHER RESOLVED, that the board of directors of this corporation
hereby declares the advisability of the foregoing amendment to the
articles of incorporation of this corporation and hereby recommends
that the stockholders of this corporation adopt said amendment.
FURTHER RESOLVED, that at the annual meeting of the stockholders of
this corporation to be held at the offices of the corporation in
Topeka, Kansas, on March 25, 1983, beginning at 10:00 a.m. on that
day, the matter of the aforesaid proposed amendment to the articles of
incorporation of this corporation shall be submitted to the
stockholders entitled to vote thereon.
FURTHER RESOLVED, that in the event the stockholders of this
corporation shall approve and adopt the proposed amendment to the
articles of incorporation of this corporation as heretofore adopted
and recommended by this board of directors, the appropriate officers
of this corporation be, and they hereby are authorized and directed,
for and in behalf of this corporation, to make, execute, verify,
acknowledge and file or record in any and all appropriate governmental
offices any and all certificates and other instruments, and to take
any and all other action as may be necessary to effectuate the
proposed amendment to the articles of incorporation of this
corporation.
That thereafter, pursuant to said resolution and in accordance with
the by-laws and the laws of the State of Kansas, said directors called a meeting
of stockholders for the consideration of said amendment, and thereafter,
pursuant to said notice and in accordance with the statutes of the State of
Kansas, on the 25th day of March, 1983, said stockholders met and convened and
considered said proposed amendment.
That at said meeting the stockholders entitled to vote did vote upon
said amendment, and the majority of voting stockholders of the corporation had
voted for the proposed amendment certifying that the votes were
3,242,059 Common Stock shares in favor of the proposed amendment,
170,544 Common Stock shares against the amendment, and
3,642 Common Stock shares abstained from voting on the amendment.
That said amendment was duly adopted in accordance with the provisions
of K.S.A. 17-6602, as amended.
That the capital of said corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of said Corporation, this 30th day of March, 1983.
[Seal]
EVERETT S. GILLE
-----------------------------------
Everett S. Gille, President
LARRY D. ARMEL
-----------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Lois J. Hedrick, a Notary Public in
and for the County and State aforesaid, came Everett S. Gille, President, and
Larry D. Armel, Secretary, of Security Bond Fund, a corporation, personally
known to me to be the persons who executed the foregoing instrument of writing
as President and Secretary, respectively, and duly acknowledged the execution of
the same this 30th day of March, 1983.
LOIS J. HEDRICK
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 8, 1984.
Submit to this office in duplicate.
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SECURITY BOND FUND
We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of
Security Bond Fund, a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is at 700 Harrison Street, in the
city of Topeka, county of Shawnee, 66636, Kansas, do hereby certify that at the
special meeting of the Board of Directors of said corporation held on the 3rd
day of May, 1985, said board adopted a resolution setting forth the following
amendments to the Articles of Incorporation and declared its advisability:
"RESOLVED, that the articles of incorporation of Security Bond
Fund, as heretofore amended, be further amended by deleting
Article FIRST in its entirety and by inserting, in lieu thereof,
the following new Article FIRST:
"FIRST: The name of the corporation (hereinafter called the
Corporation) is SECURITY INCOME FUND."
FURTHER RESOLVED, that the board of directors of this corporation
hereby declares the advisability of the foregoing amendment to
the articles of incorporation of this corporation and hereby
recommends that the stockholders of this corporation adopt said
amendment.
FURTHER RESOLVED, that in the event the stockholders of this
corporation shall approve and adopt the proposed amendment to the
articles of incorporation of this corporation as heretofore
adopted and recommended by this board of directors, the
appropriate officers of this corporation be, and they hereby are
authorized and directed, for and in behalf of this corporation,
to make, execute, verify, acknowledge and file or record in any
and all appropriate governmental offices any and all certificates
and other instruments, and to take any and all other action as
may be necessary to effectuate the proposed amendment to the
articles of incorporation of this corporation."
We further certify that thereafter, pursuant to said resolution, and
in accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, on the 12th day of July,
1985, said stockholders convened and considered the proposed amendment.
We further certify that at said meeting a majority of the stockholders
entitled to vote voted in favor of the proposed amendment, and that the votes
were 2,996,852 common shares in favor of the proposed amendment and 406,842
common shares against the amendment.
We further certify that the amendment was duly adopted in accordance
with the provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be
reduced under or by reason of said amendment.
IN WITNESS WHEREOF we have hereunto set our hands and affixed the seal
of said corporation this 23rd day of July, 1985.
[Seal]
EVERETT S. GILLE
-----------------------------------
Everett S. Gille, President
BARBARA W. RANKIN
-----------------------------------
Barbara W. Rankin, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, a Notary Public in and for the
aforesaid county and state, personally appeared Everett S. Gille, President, and
Barbara W. Rankin, Secretary, of Security Bond Fund, a corporation, who are
known to me to be the same persons who executed the foregoing Certificate of
Amendment to Articles of Incorporation, and duly acknowledged the execution of
the same this 23rd day of July, 1985.
LOIS J. HEDRICK
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 1, 1988
THIS FORM MUST BE SUBMITTED TO THIS OFFICE IN DUPLICATE.
THE FILING FEE OF $20 MUST ACCOMPANY THIS DOCUMENT.
MAIL THIS DOCUMENT, WITH FEE, TO:
Secretary of State
Capitol, 2nd Floor
Topeka, KS 66612
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
)ss.:
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of
Security Income Fund, a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is the Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify
that pursuant to the authority expressly vested in the board of directors by the
provisions of the corporation's articles of incorporation, the board of
directors of said corporation at its regular meeting duly convened and held on
the 3rd day of May, 1985, adopted resolutions establishing two separate series
of common stock of the corporation and setting forth the preferences, rights,
privileges and restrictions of such series, which resolutions provided in their
entirety as follows:
RESOLVED, that, pursuant to Article FIFTH of the Fund's articles of
incorporation, the Fund shall be authorized to issue 200,000 shares of
common stock of the Fund, each of the par value of One Dollar ($1.00)
per share, in the Corporate Bond Series, the investment objective of
which shall be identical to that of current investment objective of
the Fund, to wit: to conserve principal while generating interest
income by investing in upper medium to high-grade debt securities,
primarily those issued by U.S. and Canadian corporations and
securities which are obligations of or guaranteed by the U.S.
Government or any of its agencies. The Fund shall also be authorized
to issue 200,000 shares of common stock of the Fund, each of the par
value of One Dollar ($1.00) per share, in the U.S. Government Series,
the investment objective of which is to provide a high level of
interest income with security of principal by investing in securities
which are guaranteed or issued by the U.S. Government, its agencies or
instrumentalities.
FURTHER RESOLVED, that the powers, rights, qualifications, limitations
and restrictions of the shares of the Fund's series of common stock,
as set forth in the minutes of the January 7, 1983 meeting of this
board of directors, are hereby reaffirmed and incorporated by
reference in the minutes of this meeting.
FURTHER RESOLVED, that the issuance of shares in the above described
series shall take place upon the effectiveness of the Fund's
post-effective amendment, filed with the Securities and Exchange
Commission, updating the material contained in the Fund's registration
statement and reflecting the conversion of the Fund into an investment
company of the Series type, as further authorized below.
FURTHER RESOLVED, that, the appropriate officers of the corporation
be, and they hereby are authorized and directed, for and in behalf of
this corporation, to make, execute, verify, acknowledge and file or
record in any and all appropriate governmental offices any and all
other action as may be necessary to effectuate the proposed
conversion.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of the corporation this 26th day of July, 1985.
EVERETT S. GILLE
-----------------------------------
EVERETT S. GILLE, President
BARBARA W. RANKIN
-----------------------------------
BARBARA W. RANKIN, Secretary
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE)
Be it remembered, that before me, Lois J. Hedrick, a Notary Public in
and for the County and State aforesaid, came EVERETT S. GILLE, President, and
BARBARA W. RANKIN, Secretary, of Security Income Fund, a Kansas corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as president and secretary, respectively, and duly acknowledged the
execution of the same this 26th day of July, 1985.
LOIS J. HEDRICK
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 1, 1988.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Barbara W. Rankin, Secretary of
Security Income Fund, a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is the Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify
that pursuant to the authority expressly vested in the board of directors by the
provisions of the corporation's articles of incorporation, the board of
directors of said corporation at its regular meeting duly convened and held on
the 10th day of January, 1986, adopted resolutions establishing a third separate
series of common stock of the corporation and setting forth the preferences,
rights, privileges and restrictions of such series, which resolutions provided
in their entirety as follows:
RESOLVED, that, pursuant to the Article FIFTH of the Fund's articles
of incorporation, the Fund shall be authorized to issue 100,000,000
shares of common stock of the Fund, each of the par value of One
Dollar ($1.00) per share, in the High-Yield Series, the investment
objective of which is to seek high current income by investing in
higher yielding, long-term securities.
FURTHER RESOLVED, that, the powers, rights, qualifications,
limitations and restrictions of the shares of the Fund's series of
common stock, as set forth in the minutes of the January 7, 1983
meeting of this board of directors, are hereby reaffirmed and
incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the issuance of shares in the above described
series shall take place upon the effectiveness of the Fund's
post-effective amendment, filed with the Securities and Exchange
Commission, updating the material contained in the Fund's registration
statement and reflecting the conversion of the Fund into an investment
company of the Series type, as further authorized below.
FURTHER RESOLVED, that the appropriate officers of the corporation be,
and they hereby are authorized and directed, for and in behalf of this
corporation, to make, execute, verify, acknowledge and file or record
in any and all appropriate governmental offices any and all
appropriate governmental offices any and all other action as may be
necessary to effectuate the proposed conversion.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of the corporation this 6th day of February, 1986.
EVERETT S. GILLE
-----------------------------------
EVERETT S. GILLE, President
BARBARA W. RANKIN
-----------------------------------
BARBARA W. RANKIN, Secretary
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE)
Be it remembered, that before me, Glenda J. Overstreet, a Notary Public in
and for the County and State aforesaid, came EVERETT S. GILLE, President, and
BARBARA W. RANKIN,Secretary, of Security Income Fund, a Kansas corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as president and secretary, respectively, and duly acknowledged the
execution of the same this 6th day of February, 1986.
GLENDA J. OVERSTREET
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: February 1, 1990
<PAGE>
AMENDED
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE)
We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of
Security Income Fund, a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is the Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify
that pursuant to the authority expressly vested in the board of directors by the
provisions of the corporation's articles of incorporation, the board of
directors of said corporation at its regular meeting duly convened and held on
the 10th day of January, 1986, adopted resolutions establishing two separate
series of common stock of the corporation and setting forth the preferences,
rights, privileges and restrictions of such series, which resolutions provided
in their entirety as follows:
RESOLVED, that, pursuant to the Article FIFTH of the Fund's articles
of incorporation, the Fund shall be authorized to issue 200,000,000
shares of common stock of the Fund, each of the par value of One
Dollar ($1.00) per share, in the Corporate Bond Series, the investment
objective of which shall be identical to that of current investment
objective of the Fund, to wit: to conserve principal while generating
interest income by investing in upper medium to high-grade debt
securities primarily those issued by U.S. and Canadian corporations
and securities which are obligations of or guaranteed by the U.S.
Government or any of its agencies. The Fund shall also be authorized
to issue 200,000,000 shares of common stock of the Fund, each of the
par value of One Dollar ($1.00) per share, in the U.S. Government
Series, the investment objective of which is to provide a high level
of interest income with security of principal by investing in
securities which are guaranteed or issued by the U.S. Government, its
agencies or instrumentalities.
FURTHER RESOLVED, that, the powers, rights, qualifications,
limitations and restrictions of the shares of the Fund's series of
common stock, as set forth in the minutes of the January 7, 1983
meeting of this board of directors, are hereby reaffirmed and
incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the issuance of shares in the above described
series shall take place upon the effectiveness of the Fund's
post-effective amendment, filed with the Securities and Exchange
Commission, updating the material contained in the Fund's registration
statement and reflecting the conversion of the Fund into an investment
company of the Series type, as further authorized below.
FURTHER RESOLVED, that the appropriate officers of the corporation be,
and they hereby are authorized and directed, for and in behalf of this
corporation, to make, execute, verify, acknowledge and file or record
in any and all appropriate governmental offices any and all
appropriate governmental offices any and all other action as may be
necessary to effectuate the proposed conversion.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the
seal of the corporation this 6th day of February, 1986.
EVERETT S. GILLE
-----------------------------------
EVERETT S. GILLE, President
BARBARA W. RANKIN
-----------------------------------
BARBARA W. RANKIN, Secretary
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE)
Be it remembered, that before me, Glenda J. Overstreet, a Notary
Public in and for the County and State aforesaid, came EVERETT S. GILLE,
President, and BARBARA W. RANKIN, Secretary, of Security Income Fund, a Kansas
corporation, personally known to me to be the persons who executed the foregoing
instrument of writing as president and secretary, respectively, and duly
acknowledged the execution of the same this 6th day of February, 1986.
GLENDA J. OVERSTREET
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: February 1, 1990
<PAGE>
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
SECURITY INCOME FUND
We, Michael J Provines, President , and Amy J. Lee, Secretary of the
above named corporation, a corporation organized and existing under the laws of
the State of Kansas, do hereby certify that at a meeting of the Board of
Directors of said corporation, the board adopted a resolution setting forth the
following amendment to the Articles of Incorporation and declaring its
advisability;
"A director shall not be personally liable to the corporation or to
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director:
A. for any breach of his or her duty of loyalty to the corporation or
to itstockholders:
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. for an unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and
amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit."
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at the meeting a majority of the stockholders entitled
to vote voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said
corporation this 19th day of April, 1988.
MICHAEL J. PROVINES
-----------------------------------
Michael J. Provines, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, a Notary Public in and for the
aforesaid county and state, personally appeared Michael J. Provines, President,
and Amy J. Lee, Secretary, of the corporation named in this document, who are
known to me to be the same persons who executed the foregoing certificate, and
duly acknowledged the execution of the same this 19th day of April, 1988.
CONNIE BRUNGARDT
-----------------------------------
Notary Public
My Commission Expires: November 30, 1991.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20.00 FILING FEE, TO:
Secretary of State
Capitol. 2nd Floor
Topeka, KS 66612
(913) 296-2236
<PAGE>
CERTIFICATE OF DISSOLUTION
OF SERIES OF COMMON STOCK
OF
SECURITY INCOME FUND
PURSUANT TO K.S.A. SECTION 17-6401(g)
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, Michael J. Provines, President, and Amy J. Lee, Secretary, of Security
Income Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is the Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to the authority expressly vested in the Board of Directors by the provisions of
the corporation's Articles of Incorporation, the Board of Directors of said
corporation by unanimous written consent dated December 9, 1991, adopted a
resolution dissolving the High Yield Series of common stock of the corporation,
which resolution provided in its entirety as follows:
RESOLVED, that as of December 9, 1991, there are no authorized shares
of the High Yield Series of Security Income Fund outstanding and none
will be issued in the future.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 9th day of December, 1991.
MICHAEL J. PROVINES
-----------------------------------
Michael J. Provines, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
Be it remembered, that on this 9th day of December, 1991, before me, the
undersigned a notary public in and for the county and state aforesaid, came
Michael J. Provines, President, and Amy J. Lee, Secretary of Security Income
Fund, a Kansas corporation, personally known to me to be the persons who
executed the foregoing instrument of writing as President and Secretary,
respectively, and duly acknowledged the execution of the same to be the act and
deed of said corporation.
In testimony whereof, I have hereunto set my hand and affixed my notarial seal
the day and year last above written.
LINDA K. GIFFORD
-----------------------------------
Notary Public
My Commission Expires: November 1, 1993.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SECURITY INCOME FUND
We, Michael J Provines, President , and Amy J. Lee, Secretary of the above named
corporation, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a meeting of the Board of Directors of said
corporation, the board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability:
See attached amendment
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said
corporation this 27th day of July, 1993.
MICHAEL J. PROVINES
-----------------------------------
Michael J. Provines, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered that before me, a Notary Public in and for the aforesaid county
and state, personally appeared Michael J. Provines, President, and Amy J. Lee,
Secretary, the corporation named in this document, who are known to me to be the
same persons who executed the foregoing certificate, and duly acknowledged the
execution of the same this 27th day of July, 1993.
PEGGY S. AVEY
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 21, 1996.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
SECURITY INCOME FUND
The Board of Directors of Security Income Fund recommends that the Articles of
Incorporation be amended by deleting Article Fifth in its entirety and by
inserting, in lieu therefor, the following new Article:
FIFTH: The total number of shares of stock which the corporation shall have
authority to issue shall be Four Hundred Million (400,000,000) shares of common
stock, each of the par value of One Dollar ($1.00) per share. The board of
directors of the corporation is expressly authorized to cause shares of common
stock of the corporation authorized herein to be issued in one or more classes
or series as may be established from time to time by setting or changing in one
or more respects the voting powers, rights, qualifications, limitations or
restrictions of such shares of stock and to increase or decrease the number of
shares so authorized to be issued in any such class or series.
The following provisions are hereby adopted for the purpose of setting forth the
powers, rights, qualifications, limitations or restrictions of the capital stock
of the corporation (unless provided otherwise by the board of directors with
respect to any such additional class or series at the time of establishing and
designating such additional class or series):
(1) At all meetings of stockholders each stockholder of the corporation of any
class or series shall be entitled to one vote in person or by proxy on each
matter submitted to a vote at such meeting for each share of capital stock
of any class or series standing in the stockholder's name on the books of
the corporation on the date, fixed in accordance with the Bylaws, for
determination of stockholders entitled to vote at such meeting. At all
elections of directors each stockholder of any class or series shall be
entitled to as many votes as shall equal the number of shares of stock of
any class or series multiplied by the number of directors to be elected,
and stockholders may cast all of such votes for a single director or may
distribute them among the number to be voted for, or any two or more of
them as they may see fit.
(2) All shares of stock of the corporation of any class or series shall be
nonassessable.
(3) No holder of any shares of stock of the corporation of any class or series
shall be entitled as such, as a matter of right, to subscribe for or
purchase any shares of stock of the corporation of any class or series,
whether now or hereafter authorized or whether issued for cash, property or
services or as a dividend or otherwise, or to subscribe for or purchase any
obligations, bonds, notes, debentures, other securities or stock
convertible into shares of stock of the corporation of any class or series
or carrying or evidencing any right to purchase shares of stock of any
class or series.
(4) All persons who shall acquire stock in the corporation shall acquire the
same subject to the provisions of these articles of incorporation.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
We, Michael J. Provines, President, and Brenda M. Luthi, Assistant Secretary, of
Security Income Fund, a corporation organized and existing under the laws of the
State of Kansas, and whose registered office is the Security Benefit Life
Building, 700 Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that
pursuant to the authority expressly vested in the Board of Directors by the
provisions of the corporation's Articles of Incorporation, the Board of
Directors of said corporation at a meeting duly convened and held on the 23rd
day of July, 1993, adopted resolutions establishing two new series of common
stock in addition to those series of common stock currently being issued by the
corporation. Resolutions were also adopted which set forth the preferences,
rights, privileges and restrictions of the separate series of stock of Security
Income Fund, which resolutions are provided in their entirety as follows:
RESOLVED that, pursuant to the authority vested in the Board of Directors of
Security Income Fund by its Articles of Incorporation, the officers of the Fund
are hereby directed and authorized to establish two new series of the Fund and
to redesignate the existing series. The existing series shall be known as
Corporate Bond Series A and U.S. Government Series A. The new series hereby
established shall be known as Corporate Bond Series B and U.S. Government Series
B. The officers of the Fund are hereby directed and authorized to allocate
100,000,000 $1.00 par value shares of the Fund's authorized capital stock of
400,000,000 shares to each series.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall be
entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled to
as many votes as shall equal the number of shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single director or may distribute them among the number to be voted
for, or any two or more of them as he or she may see fit. Notwithstanding
the foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interest of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset value
thereof, such redemption and the valuation and payment in connection
therewith to be made in compliance with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available thereof.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A and B shall represent
a stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B and the U.S. Government
Series A and B, respectively, all securities and other property held as
a result of the investment and reinvestment of such cash and other
property, all revenues and income received or receivable with respect
to such cash, other property, investments and reinvestments, and all
proceeds derived from the sale, exchange, liquidation or other
disposition of any of the foregoing, shall be allocated to the
Corporate Bond Series A and B or U.S. Government Series A and B to
which they relate and held for the benefit of the stockholders owning
shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged
to the series to which such loss, liability or expense relates. Where
any loss, liability or expense relates to more than one series, the
Board of Directors shall allocate the same between or among such series
pro rata based on the respective net asset values of such series or on
such other basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors out
of funds legally available therefor. Shares of Corporate Bond Series A and B
represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected U.S.
Government Series. Stockholders of the U.S. Government Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Whenever dividends are declared
and paid with respect to the Corporate Bond Series A and B or the U.S.
Government Series A and B, the holders of shares of the other series shall
have no rights in or to such dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B or the U.S. Government Series B (except those purchased through the
reinvestment of dividends and other distributions) will automatically
convert to Corporate Bond Series A or U.S. Government Series A,
respectively, at the relative net asset values of each of the series without
the imposition of any sales load, fee or other charge. All shares in a
stockholder's account that were purchased through the reinvestment of
dividends and other distributions will be considered to be held in a
separate sub-account. Each time Series B shares are converted to Series A
shares, a pro rata portion of the Series B shares held in the sub-account
will also convert to Series A shares.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
Corporation this 19th day of October, 1993.
MICHAEL J. PROVINES
------------------------------------
Michael J. Provines, President
BRENDA M. LUTHI
------------------------------------
Brenda M. Luthi, Assistant Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Peggy S. Avey, a Notary Public in and for the
County and State aforesaid, came Michael J. Provines, President, and Brenda M.
Luthi, Assistant Secretary, of Security Income Fund, a Kansas Corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as President and Secretary, respectively, and duly acknowledged the
execution of the same this 19th day of October, 1993.
PEGGY S. AVEY
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 21, 1996
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SECURITY INCOME FUND
We, John D. Cleland, President , and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a meeting of the Board of Directors of said
corporation, the board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability:
See attached amendment
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote, voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the
corporation this 21st day of December, 1994.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, a Notary Public in and for the aforesaid
county and state, personally appeared John D. Cleland, President, and Amy J.
Lee, Secretary, of Security Income Fund, who are known to me to be the same
persons who executed the foregoing certificate and duly acknowledged the
execution, of the same this 21st day of December, 1994
JUDITH M. RALSTON
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 1, 1995.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
SECURITY INCOME FUND
The Board of Directors of Security Income Fund recommends that the Articles of
Incorporation be amended by deleting the first paragraph of Article Fifth and by
inserting, in lieu therefor, the following new Article:
FIFTH: The total number of shares of stock which the corporation shall have
authority to issue shall be one billion (1,000,000,000) shares of common
stock, each of the par value of one dollar ($1.00) per share. The board of
directors of the corporation is expressly authorized to cause shares of
common stock of the corporation authorized herein to be issued in one or
more classes or series as may be established from time to time by setting
or changing in one or more respects the voting powers, rights,
qualifications, limitations or restrictions of such shares of stock and to
increase or decrease the number of shares so authorized to be issued in any
such class or series.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 21st day of October,
1994, adopted resolutions (i) establishing two new series of common stock in
addition to those four series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the six separate series of common stock of the corporation. Resolutions
were also adopted which for the two new series set forth and for the existing
four series reaffirmed, the preferences, rights, privileges and restrictions of
separate series of stock of Security Income Fund, which resolutions are provided
in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two new series
of common stock of Security Income Fund in addition to the four separate series
of common stock presently issued by the fund designated as U.S. Government
Series A, U.S. Government Series B, Corporate Bond Series A and Corporate Bond
Series B.
WHEREAS, the corporation's shareholders will consider an amendment to the
corporation's articles of incorporation to increase the authorized capital stock
of the corporation from 400,000,000 to 1,000,000,000 shares, at a meeting of
shareholders to be held December 21, 1994; and
WHEREAS, upon approval by shareholders of the proposed amendment to the
corporation's articles of incorporation, the Board of Directors wishes to
reallocate the 1,000,000,000 shares of authorized capital stock among the
series.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish two new series of the Security Income Fund
designated as Limited Maturity Bond Series A and Limited Maturity Bond Series B.
FURTHER RESOLVED, that, upon approval by shareholders of an amendment increasing
the corporation's authorized capital stock from 400,000,000 to 1,000,000,000
shares, the officers of the corporation are hereby directed and authorized to
allocate the corporation's authorized capital stock of 1,000,000,000 shares as
follows: 200,000,000 $1.00 par value shares to each of Corporate Bond Series A
and B; 100,000,000 $1.00 par value shares to each of U.S. Government
Series A and B; 100,000,000 $1.00 par value shares to each of Limited Maturity
Bond Series A and B; and 200,000,000 $1.00 par value shares shall remain
unallocated.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall be
entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled to
as many votes as shall equal the number of shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single director or may distribute them among the number to be voted
for, or any two or more of them as he or she may see fit. Notwithstanding
the foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset value
thereof, such redemption and the valuation and payment in connection
therewith to be made in compliance with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of Limited Maturity Bond Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B, the U.S. Government Series
A and B, and Limited Maturity Bond Series A and B, respectively, all
securities and other property held as a result of the investment and
reinvestment of such cash and other property, all revenues and income
received or receivable with respect to such cash, other property,
investments and reinvestments, and all proceeds derived from the sale,
exchange, liquidation or other disposition of any of the foregoing,
shall be allocated to the Corporate Bond Series A and B, U.S.
Government Series A and B, or Limited Maturity Bond Series A and B, to
which they relate and held for the benefit of the stockholders owning
shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged
to the series to which such loss, liability or expense relates. Where
any loss, liability or expense relates to more than one series, the
Board of Directors shall allocate the same between or among such series
pro rata based on the respective net asset values of such series or on
such other basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors out
of funds legally available therefor. Shares of Corporate Bond Series A and B
represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected U.S.
Government Series. Stockholders of the U.S. Government Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Limited Maturity Bond
Series A and B represent a stockholder interest in a particular fund of
assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate except that expenses attributable to
Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the affected
Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Whenever
dividends are declared and paid with respect to the Corporate Bond Series A
and B, U.S. Government Series A and B, or Limited Maturity Bond Series A and
B, the holders of shares of the other series shall have no rights in or to
such dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B, U.S. Government Series B, or Limited Maturity Bond Series B,
(except those purchased through the reinvestment of dividends and other
distributions), such shares will automatically convert to shares of
Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond
Series A, respectively, at the relative net asset values of each of the
series without the imposition of any sales load, fee or other charge. All
shares in a stockholder's account that were purchased through the
reinvestment of dividends and other distributions paid with respect to
Series B shares will be considered to be held in a separate sub-account.
Each time Series B shares are converted to Series A shares, a pro rata
portion of the Series B shares held in the sub-account will also convert to
Series A shares.
We hereby certify that pursuant to said resolution, and in accordance with the
by-laws of the corporation and the laws of the State of Kansas, the Board of
Directors called a meeting of stockholders for consideration of the proposed
amendment to the articles of incorporation, and thereafter, pursuant to notice
and in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment. We further certify that at the
meeting a majority of the stockholders entitled to vote voted in favor of the
proposed amendment which was duly adopted in accordance with the provisions of
K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 21st day of December, 1994.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
JUDITH M. RALSTON
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 1, 1995.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 3rd day of February,
1995, adopted resolutions (i) establishing two new series of common stock in
addition to those six series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the eight separate series of common stock of the corporation. Resolutions
were also adopted which for the two new series set forth and for the existing
six reaffirmed the preferences, rights, privileges and restrictions of separate
series of stock of Security Income Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two new series
of common stock of Security Income Fund in addition to the six separate series
of common stock presently issued by the fund designated as U.S. Government
Series A, U.S. Government Series B, Corporate Bond Series A, Corporate Bond
Series B, Limited Maturity Bond Series A and Limited Maturity Bond Series B.
WHEREAS, the Board of Directors wishes to reallocate the 1,000,000,000 shares of
authorized capital stock among the series.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish two new series of the Security Income Fund
designated as Global Aggressive Bond Series A and Global Aggressive Bond Series
B.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to allocate the corporation's authorized capital stock of
1,000,000,000 shares as follows: 200,000,000 $1.00 par value shares to each of
Corporate Bond Series A and B; 100,000,000 $1.00 par value shares to each of
U.S. Government Series A and B; 100,000,000 $1.00 par value shares to each of
Limited Maturity Bond Series A and B; and 100,000,000 $1.00 par value shares to
each of Global Aggressive Bond Series A and B.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall be
entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled to
as many votes as shall equal the number of shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single director or may distribute them among the number to be voted
for, or any two or more of them as he or she may see fit. Notwithstanding
the foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset value
thereof, such redemption and the valuation and payment in connection
therewith to be made in compliance with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of Limited Maturity Bond Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Global Aggressive Bond Series A and B
shall represent a stockholder interest in a particular fund of assets
held by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B, the U.S. Government Series
A and B, Limited Maturity Bond Series A and B, and Global Aggressive
Bond Series A and B respectively, all securities and other property
held as a result of the investment and reinvestment of such cash and
other property, all revenues and income received or receivable with
respect to such cash, other property, investments and reinvestments,
and all proceeds derived from the sale, exchange, liquidation or other
disposition of any of the foregoing, shall be allocated to the
Corporate Bond Series A and B, U.S. Government Series A and B, or
Limited Maturity Bond Series A and B, or Global Aggressive Bond Series
A and B, to which they relate and held for the benefit of the
stockholders owning shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged
to the series to which such loss, liability or expense relates. Where
any loss, liability or expense relates to more than one series, the
Board of Directors shall allocate the same between or among such series
pro rata based on the respective net asset values of such series or on
such other basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors out
of funds legally available therefor. Shares of Corporate Bond Series A and B
represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected U.S.
Government Series. Stockholders of the U.S. Government Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Limited Maturity Bond
Series A and B represent a stockholder interest in a particular fund of
assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate except that expenses attributable to
Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the affected
Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares of
Global Aggressive Bond Series A and B represent a stockholder interest in a
particular fund of assets and accordingly, dividends shall be calculated and
declared for these series in the same manner, at the same time, on the same
day, and will be paid at the same dividend rate except that expenses
attributable to Global Aggressive Bond Series A or B and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be born
exclusively by the affected Global Aggressive Bond Series. Stockholders of
the Global Aggressive Bond Series A and B shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Whenever dividends are declared and paid with respect
to the Corporate Bond Series A and B, U.S. Government Series A and B,
Limited Maturity Bond Series A and B, or Global Aggressive Bond Series A and
B, the holders of shares of the other series shall have no rights in or to
such dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B, U.S. Government Series B, Limited Maturity Bond Series B, or
Global Aggressive Bond Series B, (except those purchased through the
reinvestment of dividends and other distributions), such shares will
automatically convert to shares of Corporate Bond Series A, U.S. Government
Series A, Limited Maturity Bond Series A, or Global Aggressive Bond Series A
respectively, at the relative net asset values of each of the series without
the imposition of any sales load, fee or other charge. All shares in a
stockholder's account that were purchased through the reinvestment of
dividends and other distributions paid with respect to Series B shares will
be considered to be held in a separate sub-account. Each time Series B
shares are converted to Series A shares, a pro rata portion of the Series B
shares held in the sub-account will also convert to Series A shares.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 3rd day of February, 1995.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Connie Brungardt a Notary Public in and for
the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of Security Income Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution, of the same
this 3rd day of February, 1995.
CONNIE BRUNGARDT
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 30, 1998
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SECURITY INCOME FUND
We, John D. Cleland, President , and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a regular meeting of the Board of Directors of
said corporation, held on the 2nd day of February, 1996, the board adopted a
resolution setting forth the following amendment to the Articles of
Incorporation and declaring its advisability:
RESOLVED
The Board of Directors of Security Income Fund recommends that the Articles of
Incorporation be amended by deleting Article Fifth in its entirety and by
inserting, in lieu thereof, the following new Article:
FIFTH: The corporation shall have authority to issue an indefinite number of
shares of common stock, of the par value of one dollar ($1.00) per share. The
board of directors of the Corporation is expressly authorized to cause shares of
common stock of the Corporation authorized herein to be issued in one or more
series as may be established from time to time by setting or changing in one or
more respects the voting powers, rights, qualifications, limitations or
restrictions of such shares of stock and to increase or decrease the number of
shares so authorized to be issued in any such series.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said
corporation this 2nd day of February, 1996.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
BE IT REMEMBERED, that before me, L. Charmaine Lucas, a Notary Public in and for
the aforesaid county and state, personally appeared John D. Cleland, President,
and Amy J. Lee, Secretary, of Security Income Fund, who are known to me to be
the same persons who executed the foregoing certificate and duly acknowledged
the execution of the same this 2nd day of February, 1996.
L. CHARMAINE LUCAS
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: April 1, 1998
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE,
WITH $20 FILING FEE, TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 2nd day of February,
1996, adopted resolutions authorizing the corporation to issue an indefinite
number of shares of capital stock of each of the eight series of common stock of
the corporation. Resolutions were also adopted which reaffirmed the preferences,
rights, privileges and restrictions of separate series of stock of Security
Income Fund, which resolutions are provided in their entirety as follows:
WHEREAS, K.S.A. 17-6602 has been amended to allow the board of directors of a
corporation that is registered as an open-end investment company under the
Investment Company Act of 1940 (the "1940 Act") to approve, by resolution, an
amendment of the corporation's Articles of Incorporation, to allow the issuance
of an indefinite number of shares of the capital stock of the corporation;
WHEREAS, the corporation is registered as an open-end investment company under
the 1940 Act; and
WHEREAS, the Board of Directors desire to authorize the issuance of an
indefinite number of shares of capital stock of each of the eight series of
common stock of the corporation;
NOW THEREFORE BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to issue an indefinite number of $1.00 par value shares
of capital stock of each series of the corporation, which consist of U.S.
Government Series A, U.S. Government Series B, Corporate Bond Series A,
Corporate Bond Series B, Limited Maturity Bond Series A, Limited Maturity Bond
Series B, Global Aggressive Bond Series A, and Global Aggressive Bond Series B;
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the corporation's series of common stock, as set forth in
the minutes of the February 3, 1995, meeting of this Board of Directors, are
hereby reaffirmed and incorporated by reference into the minutes of this
meeting; and
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
The undersigned do hereby certify that the foregoing amendment to the
corporation's Articles of Incorporation has been duly adopted in accordance with
the provisions of K.S.A. 17-6602.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 2nd day of February, 1996.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for
the aforesaid County and State, came John D. Cleland, President, and Amy J. Lee,
Secretary, of Security Income Fund, a Kansas corporation, personally known to me
to be the same persons who executed the foregoing instrument of writing and duly
acknowledged the execution of the same this 2nd day of February, 1996.
L. CHARMAINE LUCAS
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: April 1, 1998
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
)ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 3rd day of May, 1996,
adopted resolutions (i) establishing two new series of common stock in addition
to those eight series of common stock currently being issued by the corporation,
and (ii) allocating the corporation's authorized capital stock among the ten
separate series of common stock of the corporation. Resolutions were also
adopted which for the two new series set forth and for the existing eight
reaffirmed the preferences, rights, privileges and restrictions of separate
series of stock of Security Income Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of two new series
of common stock of Security Income Fund in addition to the eight separate series
of common stock presently issued by the fund designated as Corporate Bond Series
A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B,
Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global
Aggressive Bond Series A and Global Aggressive Bond Series B; and
WHEREAS, the Board of Directors desires to authorize the issuance of an
indefinite number of shares of capital stock of each of the ten series of common
stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish two new series of the Security Income Fund
designated as High Yield Series A and High Yield Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Corporate Bond Series
A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B,
Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global
Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A
and High Yield Series B.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall be
entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled to
as many votes as shall equal the number of shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single director or may distribute them among the number to be voted
for, or any two or more of them as he or she may see fit. Notwithstanding
the foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset value
thereof, such redemption and the valuation and payment in connection
therewith to be made in compliance with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of Limited Maturity Bond Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Global Aggressive Bond Series A and B
shall represent a stockholder interest in a particular fund of assets
held by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of High Yield Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B, the U.S. Government Series
A and B, Limited Maturity Bond Series A and B, Global Aggressive Bond
Series A and B, and High Yield Series A and B, respectively, all
securities and other property held as a result of the investment and
reinvestment of such cash and other property, all revenues and income
received or receivable with respect to such cash, other property,
investments and reinvestments, and all proceeds derived from the sale,
exchange, liquidation or other disposition of any of the foregoing,
shall be allocated to the Corporate Bond Series A and B, U.S.
Government Series A and B, or Limited Maturity Bond Series A and B,
Global Aggressive Bond Series A and B, or High Yield Series A and B, to
which they relate and held for the benefit of the stockholders owning
shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged
to the series to which such loss, liability or expense relates. Where
any loss, liability or expense relates to more than one series, the
Board of Directors shall allocate the same between or among such series
pro rata based on the respective net asset values of such series or on
such other basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors out
of funds legally available therefor. Shares of Corporate Bond Series A and B
represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected U.S.
Government Series. Stockholders of the U.S. Government Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Limited Maturity Bond
Series A and B represent a stockholder interest in a particular fund of
assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate except that expenses attributable to
Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the affected
Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares of
Global Aggressive Bond Series A and B represent a stockholder interest in a
particular fund of assets and accordingly, dividends shall be calculated and
declared for these series in the same manner, at the same time, on the same
day, and will be paid at the same dividend rate except that expenses
attributable to Global Aggressive Bond Series A or B and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be born
exclusively by the affected Global Aggressive Bond Series. Stockholders of
the Global Aggressive Bond Series A and B shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Shares of High Yield Series A and B represent a
stockholder interest in a particular fund of assets and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and will be paid at the same
dividend rate except that expenses attributable to High Yield Series A or B
and payments made pursuant to a 12b-1 Plan or Shareholder Services Plan
shall be borne exclusively by the affected High Yield Series. Stockholders
of the High Yield Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Whenever dividends are declared and paid with respect to the
Corporate Bond Series A and B, U.S. Government Series A and B, Limited
Maturity Bond Series A and B, Global Aggressive Bond Series A and B, or High
Yield Series A and B, the holders of shares of the other series shall have
no rights in or to such dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global
Aggressive Bond Series B, or High Yield Series B, (except those purchased
through the reinvestment of dividends and other distributions), such shares
will automatically convert to shares of Corporate Bond Series A, U.S.
Government Series A, Limited Maturity Bond Series A, Global Aggressive Bond
Series A, or High Yield Series A, respectively, at the relative net asset
values of each of the series without the imposition of any sales load, fee
or other charge. All shares in a stockholder's account that were purchased
through the reinvestment of dividends and other distributions paid with
respect to Series B shares will be considered to be held in a separate
sub-account. Each time Series B shares are converted to Series A shares, a
pro rata portion of the Series B shares held in the sub-account will also
convert to Series A shares.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 13th day of May, 1996.
JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
AMY J. LEE
-----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, Jana R. Selley a Notary Public in and for the
County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of Security Income Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 13th day of May, 1996.
JANA R. SELLEY
-----------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 14, 1996
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 7th day of February,
1997, adopted resolutions (i) establishing four new series of common stock in
addition to those ten series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the fourteen separate series of common stock of the corporation.
Resolutions were also adopted, which for the four new series set forth and for
the existing ten reaffirmed the preferences, rights, privileges and restrictions
of separate series of stock of Security Income Fund, which resolutions are
provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of four new
series of common stock of Security Income Fund in addition to the ten separate
series of common stock presently issued by the fund designated as Corporate Bond
Series A, Corporate Bond Series B, U.S. Government Series A, U.S. Government
Series B, Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global
Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A
and High Yield Series B; and
WHEREAS, the Board of Directors desires to authorize the issuance of an
indefinite number of shares of capital stock of each of the fourteen series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish four new series of Security Income Fund
designated as Emerging Markets Total Return Series A, Emerging Markets Total
Return Series B, Global Asset Allocation Series A and Global Asset Allocation
Series B.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Corporate Bond Series
A, Corporate Bond Series B, U.S. Government Series A, U.S. Government Series B,
Limited Maturity Bond Series A, Limited Maturity Bond Series B, Global
Aggressive Bond Series A, Global Aggressive Bond Series B, High Yield Series A,
High Yield Series B, Emerging Markets Total Return Series A, Emerging Markets
Total Return Series B, Global Asset Allocation Series A and Global Asset
Allocation Series B.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless
of series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled
to as many votes as shall equal the number of shares of stock multiplied by
the number of directors to be elected, and he or she may cast all of such
votes for a single director or may distribute them among the number to be
voted for, or any two or more of them as he or she may see fit.
Notwithstanding the foregoing, (i) if any matter is submitted to the
stockholders which does not affect the interests of all series, then only
stockholders of the affected series shall be entitled to vote and (ii) in
the event the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder shall require a greater or different
vote than would otherwise be required herein or by the Articles of
Incorporation of the corporation, such greater or different voting
requirement shall also be satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset
value thereof, such redemption and the valuation and payment in
connection therewith to be made in compliance with the provisions of
the Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as from time to time
amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of Limited Maturity Bond Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Global Aggressive Bond Series A and B
shall represent a stockholder interest in a particular fund of assets
held by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of High Yield Series A and B shall
represent a stockholder interest in a particular fund of assets held
by the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Emerging Markets Total Return Series
A and B shall represent a stockholder interest in a particular fund of
assets held by the corporation which fund shall be invested and
reinvested in accordance with policies and objectives established by
the Board of Directors. Outstanding shares of Global Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested
and reinvested in accordance with policies and objectives established
by the Board of Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B, U.S. Government Series A
and B, Limited Maturity Bond Series A and B, Global Aggressive Bond
Series A and B, High Yield Series A and B, Emerging Markets Total
Return Series A and B, and Global Asset Allocation Series A and B,
respectively, all securities and other property held as a result of
the investment and reinvestment of such cash and other property, all
revenues and income received or receivable with respect to such cash,
other property, investments and reinvestments, and all proceeds
derived from the sale, exchange, liquidation or other disposition of
any of the foregoing, shall be allocated to the Corporate Bond Series
A and B, U.S. Government Series A and B, Limited Maturity Bond Series
A and B, Global Aggressive Bond Series A and B, High Yield Series A
and B, Emerging Markets Total Return Series A and B, or Global Asset
Allocation Series A and B, to which they relate and held for the
benefit of the stockholders owning shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the Board of Directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the Board of Directors deems
appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors
out of funds legally available therefor. Shares of Corporate Bond Series A
and B represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and
B represent a stockholder interest in a particular fund of assets held by
the corporation and, accordingly, dividends shall be calculated and
declared for these series in the same manner, at the same time, on the same
day, and shall be paid at the same dividend rate, except that expenses
attributable to a particular series and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the
affected U.S. Government Series. Stockholders of the U.S. Government Series
shall share in dividends declared and paid with respect to such series pro
rata based on their ownership of shares of such series. Shares of Limited
Maturity Bond Series A and B represent a stockholder interest in a
particular fund of assets and, accordingly, dividends shall be calculated
and declared for these series in the same manner, at the same time, on the
same day, and will be paid at the same dividend rate except that expenses
attributable to Limited Maturity Bond Series A or B and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Limited Maturity Bond Series. Stockholders of
the Limited Maturity Bond Series shall share in dividends declared and paid
with respect to such series pro rata based on their ownership of shares of
such series. Shares of Global Aggressive Bond Series A and B represent a
stockholder interest in a particular fund of assets and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and will be paid at the same
dividend rate except that expenses attributable to Global Aggressive Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Global Aggressive
Bond Series. Stockholders of the Global Aggressive Bond Series A and B
shall share in dividends declared and paid with respect to such series pro
rata based on their ownership of shares of such series. Shares of High
Yield Series A and B represent a stockholder interest in a particular fund
of assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
will be paid at the same dividend rate except that expenses attributable to
High Yield Series A or B and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected High
Yield Series. Stockholders of the High Yield Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Emerging Markets Total
Return Series A and B represent a stockholder interest in a particular fund
of assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
will be paid at the same dividend rate except that expenses attributable to
Emerging Markets Total Return Series A or B and payments made pursuant to a
12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the
affected Emerging Markets Total Return Series. Stockholders of the Emerging
Markets Total Return Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Shares of Global Asset Allocation Series A and B represent a
stockholder interest in a particular fund of assets and, accordingly,
dividends shall be calculated and declared for these series in the same
manner, at the same time, on the same day, and will be paid at the same
dividend rate except that expenses attributable to Global Asset Allocation
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Global Asset
Allocation Series. Stockholders of the Global Asset Allocation Series shall
share in dividends declared and paid with respect to such series pro rata
based on their ownership of shares of such series. Whenever dividends are
declared and paid with respect to the Corporate Bond Series A and B, U.S.
Government Series A and B, Limited Maturity Bond Series A and B, Global
Aggressive Bond Series A and B, High Yield Series A and B, Emerging Markets
Total Return Series A and B, or Global Asset Allocation Series A and B, the
holders of shares of the other series shall have no rights in or to such
dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global
Aggressive Bond Series B, High Yield Series B, Emerging Markets Total
Return Series B, or Global Asset Allocation Series B, (except those
purchased through the reinvestment of dividends and other distributions),
such shares will automatically convert to shares of Corporate Bond Series
A, U.S. Government Series A, Limited Maturity Bond Series A, Global
Aggressive Bond Series A, High Yield Series A, Emerging Markets Total
Return Series A, or Global Asset Allocation Series A, respectively, at the
relative net asset values of each of the series without the imposition of
any sales load, fee or other charge. All shares in a stockholder's account
that were purchased through the reinvestment of dividends and other
distributions paid with respect to Series B shares will be considered to be
held in a separate sub-account. Each time Series B shares are converted to
Series A shares, a pro rata portion of the Series B shares held in the
sub-account will also convert to Series A shares.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 12th day of March, 1997.
JOHN D. CLELAND
------------------------------------------
John D. Cleland, President
AMY J. LEE
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for
the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of the Security Income Fund, a Kansas corporation, personally known
to me to be the persons who executed the foregoing instrument of writing as
President and Secretary, respectively, and duly acknowledged the execution of
the same this 12th day of March, 1997.
L. CHARMAINE LUCAS
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires April 1, 1998
<PAGE>
CERTIFICATE CHANGING NAME OF
SERIES OF STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 7th day of February,
1997, adopted resolutions changing the name of Global Aggressive Bond Series A
and Global Aggressive Bond Series B, existing series of common stock of Security
Income Fund, which resolutions are provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the change in name of an existing
series of common stock, from Global Aggressive Bond Series A and B to Global
High Yield Series A and B to more accurately reflect the investment objectives
of the series.
WHEREAS, there are no changes in the voting powers, designations, preferences
and relative, participating, optional or other rights, if any, or the
qualifications, limitations or restrictions of the series requiring stockholder
approval;
NOW, THEREFORE, BE IT RESOLVED, that, the name of Global Aggressive Bond Series
A and Global Aggressive Bond Series B of Security Income Fund is hereby changed
to Global High Yield Series A and Global High Yield Series B, respectively;
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 12th day of March, 1997.
JOHN D. CLELAND
------------------------------------------
John D. Cleland, President
AMY J. LEE
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for
the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of the Security Income Fund, a Kansas corporation, personally known
to me to be the persons who executed the foregoing instrument of writing as
President and Secretary, respectively, and duly acknowledged the execution of
the same this 12th day of March, 1997.
L. CHARMAINE LUCAS
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires April 1, 1998
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES AND CLASSES OF COMMON STOCK
OF
SECURITY INCOME FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary of Security Income
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 10th day of February,
1999, adopted resolutions (i) establishing three new series of common stock in
addition to those fourteen series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the seventeen separate series of common stock of the corporation.
Resolutions were also adopted, which for the three new series set forth and for
the existing fourteen reaffirmed the preferences, rights, privileges and
restrictions of separate series of stock of Security Income Fund, which
resolutions are provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of three new
series of common stock of Security Income Fund in addition to the fourteen
separate series of common stock presently issued by the fund designated as
Corporate Bond Series A, Corporate Bond Series B, U.S. Government Series A, U.S.
Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond
Series B, Global High Yield Series A, Global High Yield Series B, High Yield
Series A, High Yield Series B, Emerging Markets Total Return Series A, Emerging
Markets Total Return Series B, Global Asset Allocation Series A and Global Asset
Allocation Series B; and
WHEREAS, the Board of Directors desires to authorize the issuance of an
indefinite number of shares of capital stock of each of the seventeen series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish three new series of Security Income Fund
designated as Capital Preservation Series A, Capital Preservation Series B and
Capital Preservation Series C.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Corporate Bond Series
A, Corporate Bond Series B, Corporate Bond Series C, U.S. Government Series A,
U.S. Government Series B, Limited Maturity Bond Series A, Limited Maturity Bond
Series B, Global High Yield Series A, Global High Yield Series B, High Yield
Series A, High Yield Series B, Emerging Markets Total Return Series A, Emerging
Markets Total Return Series B, Global Asset Allocation Series A, Global Asset
Allocation Series B, Capital Preservation Series A, Capital Preservation Series
B and Capital Preservation Series C.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each series of Security Income Fund shall be as follows:
1. Except as set forth below and as may be hereafter established by the Board
of Directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. At all meetings of stockholders each stockholder of the corporation shall be
entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his or her
name on the books of the corporation on the date, fixed in accordance with
the bylaws, for determination of stockholders entitled to vote at such
meeting. At all elections of directors each stockholder shall be entitled to
as many votes as shall equal the number of shares of stock multiplied by the
number of directors to be elected, and he or she may cast all of such votes
for a single director or may distribute them among the number to be voted
for, or any two or more of them as he or she may see fit. Notwithstanding
the foregoing, (i) if any matter is submitted to the stockholders which does
not affect the interests of all series, then only stockholders of the
affected series shall be entitled to vote and (ii) in the event the
Investment Company Act of 1940, as amended, or the rules and regulations
promulgated thereunder shall require a greater or different vote than would
otherwise be required herein or by the Articles of Incorporation of the
corporation, such greater or different voting requirement shall also be
satisfied.
3. (a) The corporation shall redeem any of its shares for which it has
received payment in full that may be presented to the corporation on
any date after the issue date of any such shares at the net asset value
thereof, such redemption and the valuation and payment in connection
therewith to be made in compliance with the provisions of the
Investment Company Act of 1940 and the Rules and Regulations
promulgated thereunder and with the Conduct Rules of the National
Association of Securities Dealers, Inc., as from time to time amended.
(b) From and after the close of business on the day when the shares are
properly tendered for repurchase the owner shall, with respect of said
shares, cease to be a stockholder of the corporation and shall have
only the right to receive the repurchase price in accordance with the
provisions hereof. The shares so repurchased may, as the Board of
Directors determines, be held in the treasury of the Corporation and
may be resold, or, if the laws of Kansas shall permit, may be retired.
Repurchase of shares is conditional upon the corporation having funds
or property legally available therefor.
4. All shares of the corporation, upon issuance and sale, shall be fully paid,
nonassessable and redeemable. Within the respective series of the
corporation, all shares have equal voting, participation and liquidation
rights, but have no subscription or preemptive rights.
5. (a) Outstanding shares of Corporate Bond Series A, and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of U.S. Government Series A and B shall represent a
stockholder interest in a particular fund of assets held by the
corporation which fund shall be invested and reinvested in accordance
with policies and objectives established by the Board of Directors.
Outstanding shares of Limited Maturity Bond Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Global High Yield Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of High Yield Series A and B shall
represent a stockholder interest in a particular fund of assets held by
the corporation which fund shall be invested and reinvested in
accordance with policies and objectives established by the Board of
Directors. Outstanding shares of Emerging Markets Total Return Series A
and B shall represent a stockholder interest in a particular fund of
assets held by the corporation which fund shall be invested and
reinvested in accordance with policies and objectives established by
the Board of Directors. Outstanding shares of Global Asset Allocation
Series A and B shall represent a stockholder interest in a particular
fund of assets held by the corporation which fund shall be invested and
reinvested in accordance with policies and objectives established by
the Board of Directors. Outstanding shares of Capital Preservation
Series A, B and C shall represent a stockholder interest in a
particular fund of assets held by the corporation which fund shall be
invested and reinvested in accordance with policies and objectives
established by the Board of Directors.
(b) All cash and other property received by the corporation from the sale
of shares of Corporate Bond Series A and B, U.S. Government Series A
and B, Limited Maturity Bond Series A and B, Global High Yield Series A
and B, High Yield Series A and B, Emerging Markets Total Return Series
A and B, Global Asset Allocation Series A and B and Capital
Preservation Series A, B and C respectively, all securities and other
property held as a result of the investment and reinvestment of such
cash and other property, all revenues and income received or receivable
with respect to such cash, other property, investments and
reinvestments, and all proceeds derived from the sale, exchange,
liquidation or other disposition of any of the foregoing, shall be
allocated to the Corporate Bond Series A and B, U.S. Government Series
A and B, Limited Maturity Bond Series A and B, Global High Yield Series
A and B, High Yield Series A and B, Emerging Markets Total Return
Series A and B, Global Asset Allocation Series A and B, or Capital
Preservation Series A, B and C to which they relate and held for the
benefit of the stockholders owning shares of such series.
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the Board of
Directors may determine are appropriate) shall be allocated and charged
to the series to which such loss, liability or expense relates. Where
any loss, liability or expense relates to more than one series, the
Board of Directors shall allocate the same between or among such series
pro rata based on the respective net asset values of such series or on
such other basis as the Board of Directors deems appropriate.
(d) All allocations made hereunder by the Board of Directors shall be
conclusive and binding upon all stockholders and upon the corporation.
6. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
7. Dividends may be paid when, as and if declared by the Board of Directors out
of funds legally available therefor. Shares of Corporate Bond Series A and B
represent a stockholder interest in a particular fund of assets and,
accordingly, dividends shall be calculated and declared for these series in
the same manner, at the same time, on the same day, and will be paid at the
same dividend rate except that expenses attributable to Corporate Bond
Series A or B and payments made pursuant to a 12b-1 Plan or Shareholder
Services Plan shall be borne exclusively by the affected Corporate Bond
Series. Stockholders of the Corporate Bond Series shall share in dividends
declared and paid with respect to such series pro rata based on their
ownership of shares of such series. Shares of U.S. Government Series A and B
represent a stockholder interest in a particular fund of assets held by the
corporation and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and
shall be paid at the same dividend rate, except that expenses attributable
to a particular series and payments made pursuant to a 12b-1 Plan or
Shareholder Services Plan shall be borne exclusively by the affected U.S.
Government Series. Stockholders of the U.S. Government Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Limited Maturity Bond
Series A and B represent a stockholder interest in a particular fund of
assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate except that expenses attributable to
Limited Maturity Bond Series A or B and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the affected
Limited Maturity Bond Series. Stockholders of the Limited Maturity Bond
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares of
Global High Yield Series A and B represent a stockholder interest in a
particular fund of assets and, accordingly, dividends shall be calculated
and declared for these series in the same manner, at the same time, on the
same day, and will be paid at the same dividend rate except that expenses
attributable to Global High Yield Series A or B and payments made pursuant
to a 12b-1 Plan or Shareholder Services Plan shall be borne exclusively by
the affected Global High Yield Series. Stockholders of the Global High Yield
Series A and B shall share in dividends declared and paid with respect to
such series pro rata based on their ownership of shares of such series.
Shares of High Yield Series A and B represent a stockholder interest in a
particular fund of assets and, accordingly, dividends shall be calculated
and declared for these series in the same manner, at the same time, on the
same day, and will be paid at the same dividend rate except that expenses
attributable to High Yield Series A or B and payments made pursuant to a
12b-1 Plan or Shareholder Services Plan shall be borne exclusively by the
affected High Yield Series. Stockholders of the High Yield Series shall
share in dividends declared and paid with respect to such series pro rata
based on their ownership of shares of such series. Shares of Emerging
Markets Total Return Series A and B represent a stockholder interest in a
particular fund of assets and, accordingly, dividends shall be calculated
and declared for these series in the same manner, at the same time, on the
same day, and will be paid at the same dividend rate except that expenses
attributable to Emerging Markets Total Return Series A or B and payments
made pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Emerging Markets Total Return Series.
Stockholders of the Emerging Markets Total Return Series shall share in
dividends declared and paid with respect to such series pro rata based on
their ownership of shares of such series. Shares of Global Asset Allocation
Series A and B represent a stockholder interest in a particular fund of
assets and, accordingly, dividends shall be calculated and declared for
these series in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate except that expenses attributable to
Global Asset Allocation Series A or B and payments made pursuant to a 12b-1
Plan or Shareholder Services Plan shall be borne exclusively by the affected
Global Asset Allocation Series. Stockholders of the Global Asset Allocation
Series shall share in dividends declared and paid with respect to such
series pro rata based on their ownership of shares of such series. Shares of
Capital Preservation Series A, B and C represent a stockholder interest in a
particular fund of assets and, accordingly, dividends shall be calculated
and declared for these series in the same manner, at the same time, on the
same day, and will be paid at the same dividend rate except that expenses
attributable to Capital Preservation Series A, B or C and payments made
pursuant to a 12b-1 Plan or Shareholder Services Plan shall be borne
exclusively by the affected Capital Preservation Series. Stockholders of the
Capital Preservation Series shall share in dividends declared and paid with
respect to such series pro rata based on their ownership of shares of such
series. Whenever dividends are declared and paid with respect to the
Corporate Bond Series A and B, U.S. Government Series A and B, Limited
Maturity Bond Series A and B, Global High Yield Series A and B, High Yield
Series A and B, Emerging Markets Total Return Series A and B, Global Asset
Allocation Series A and B, or Capital Preservation Series A, B and C the
holders of shares of the other series shall have no rights in or to such
dividends.
8. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
9. On the eighth anniversary of the purchase of shares of the Corporate Bond
Series B, U.S. Government Series B, Limited Maturity Bond Series B, Global
High Yield Series B, High Yield Series B, Emerging Markets Total Return
Series B, Global Asset Allocation Series B, or Capital Preservation Series B
(except those purchased through the reinvestment of dividends and other
distributions), such shares will automatically convert to shares of
Corporate Bond Series A, U.S. Government Series A, Limited Maturity Bond
Series A, Global High Yield Series A, High Yield Series A, Emerging Markets
Total Return Series A, Global Asset Allocation Series A, or Capital
Preservation Series A, respectively, at the relative net asset values of
each of the series without the imposition of any sales load, fee or other
charge. All shares in a stockholder's account that were purchased through
the reinvestment of dividends and other distributions paid with respect to
Series B shares will be considered to be held in a separate sub-account.
Each time Series B shares are converted to Series A shares, a pro rata
portion of the Series B shares held in the sub-account will also convert to
Series A shares.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this ______ day of ____________, 1999.
------------------------------------------
John D. Cleland, President
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, _______________________, a Notary Public in
and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY
J. LEE, Secretary, of the Security Income Fund, a Kansas corporation, personally
known to me to be the persons who executed the foregoing instrument of writing
as President and Secretary, respectively, and duly acknowledged the execution of
the same this ______ day of ____________, 1999.
------------------------------------------
Notary Public
My commission expires _______________
<PAGE>
No. SHARES _______________
SECURITY INCOME FUNDS
INCORPORATED UNDER THE LAWS OF THE STATE OF KANSAS
The company is authorized to issue an unlimited number of shares.
CAPITAL PRESERVATION SERIES
THIS CERTIFIES THAT
is the owner of
fully paid and non-assessable shares of Common Stock, each of the par value of
$1.00, of SECURITY INCOME FUNDS, transferable on the books of the corporation by
the holder hereof in person or by attorney, upon surrender of this certificate
duly endorsed or assigned.
This certificate and the shares represented hereby are subject to the laws of
the State of Kansas and to the Articles of Incorporation and the Bylaws of the
corporation as from time to time amended.
IN WITNESS WHEREOF, SECURITY INCOME FUND, has caused this certificate to be
signed by its duly authorized officers and to be sealed with the seal of the
corporation.
Dated Account No.
- ----------------------------------- -----------------------------------
SECRETARY-ASSISTANT SECRETARY PRESIDENT-VICE PRESIDENT
(SEAL)
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 14th day of September, 1970, between SECURITY BOND
FUND, INC., a Kansas corporation (hereinafter referred to as the "Company"), and
SECURITY DISTRIBUTORS, INC., a Kansas corporation (hereinafter referred to as
the "Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as an open-end, management
investment company registered under the federal Investment Company Act of 1940;
and
WHEREAS, the Distributor is willing to act as principal underwriter for the
Company to offer for sale, sell and deliver after sale shares of the Company's
$1 par value common stock (hereinafter referred to as the "Shares") on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF DISTRIBUTOR. The Company hereby employs the Distributor to
act as principal underwriter for the Company and hereby agrees that during
the term of this Agreement, and any renewal or extension thereof, or until
any prior termination thereof, the Distributor shall have the exclusive
right to offer for sale and to distribute any and all Shares issued or to
be issued by the Company. The Distributor hereby accepts such employment
and agrees to act as the distributor of the Shares issued or to be issues
by the Company during the period this Agreement is in effect and agrees
during such period to offer for sale such Shares as long as such Shares
remain available for sale, unless the Distributor is unable legally to make
such offer for sale as the result of any law or governmental regulation.
2. OFFERING PRICE AND COMMISSIONS. Prior to the issuance of any Shares by the
Company pursuant to any subscription tendered by or through the Distributor
and confirmed for sale to or through the Distributor, the Distributor shall
pay or cause to be paid to the Custodian of the Company in cash, an amount
equal to the net asset value of such Shares at the time of acceptance of
each such subscription and confirmation by the Company of the sale of such
Shares. The Distributor shall be entitled to charge a commission on each
such sale of Shares in the amount set forth in the Company's Prospectus,
such commission to be an amount equal to the difference between the net
asset value and the offering price of the Shares, as such offering price
may from time to time be determined by the board of directors of the
Company. All Shares shall be sold to the public only at their public
offering price at the time of such sale, and the Company shall receive not
less than the full net asset value thereof.
3. ALLOCATION OF EXPENSES AND CHARGES. During the period this Agreement is in
effect, the Company shall pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, including all
expenses in connection with the preparation and printing of any
registration statements and prospectuses necessary for registration
thereunder but excluding any additional costs and expenses incurred in
furnishing the Distributor with prospectuses.
During the period this Agreement is in effect the Distributor will pay or
reimburse the Company for:
(a) All costs, expenses and fees incurred in connection with the
qualification of the Shares under the applicable Blue Sky laws of the
states in which the Shares are offered;
(b) All costs and expenses of printing and mailing prospectuses (other
than to existing shareholders) and confirmations, and all costs and
expenses of preparing, printing and mailing advertising material sales
literature, circulars, applications, and other materials used or to be
used in connection with the offering for sale and the sale of Shares;
and
(c) All clerical and administrative costs in processing the applications
for and in connection with the sale of Shares.
The Distributor agrees to submit to the Company for its prior approval
all advertising material, sales literature, circulars and any other
material which the Distributor proposes to use in connection with the
offering for sale of Shares.
4. DISTRIBUTOR MAY ACT AS BROKER AND RECEIVE COMMISSIONS. Notwithstanding any
other provisions of this Agreement, it is understood and agreed that the
Distributor may act as a broker, on behalf of the Company, in the purchase
and sale of securities not effected on a securities exchange, provided that
any such transactions and any commission paid in connection therewith shall
comply in every respect with the requirements of the Federal Investment
Company Act of 1940 and in particular with Section 17(c) of said statute
and the Rules and Regulations of the Securities and Exchange Commission
promulgated thereunder.
5. AGREEMENT SUBJECT TO APPLICABLE LAW AND REGULATIONS. The parties hereto
agree that all provisions of this Agreement will be performed in strict
accordance with the requirements of the Investment Company Act of 1940, the
Securities Act of 1933, the Securities Exchange Act of 1934, and the rules
and regulations of the Securities and exchange Commission under said
statutes, in strict accordance with all applicable state "Blue Sky" laws
and the rules and regulations thereunder, and in strict accordance with the
provisions of the Articles of Incorporation and Bylaws of the Company.
6. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective at the date and time that the Company's prospectus, reflecting
the underwriting arrangements provided by this Agreement, shall become
effective under the Securities Act of 1933, and shall continue in force
until December 31, 1971, and from year to year thereafter, but only if such
continuance is specifically approved at least annually by the board of
directors of the Company and the majority of the board of directors who are
not parties to this Agreement or affiliated persons of any such party, or
by the vote of a majority of the outstanding voting securities of the
Company. Written notice of any such approval by the board of directors or
by the holders of a majority of the outstanding voting securities of the
Company shall be given promptly to the Distributor.
This Agreement may be terminated by the Company at any time by giving the
Distributor at least sixty (60) days previous written notice of such
intention to terminate. This Agreement may be terminated by the Distributor
at any time by giving the Company at least sixty (60) days previous written
notice of such intention to terminate.
This Agreement shall terminate automatically in the event of its assignment
by the Distributor. As used in the preceding sentence, the word
"assignment" shall have the meaning set forth in Section 2(a)(4) of the
Investment Company Act of 1940.
7. CONSTRUCTION OF AGREEMENT. No provision of this Agreement is intended to or
shall be construed as protecting the Distributor against any liability to
the Company or to the Company's security holders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of the
Distributor's reckless disregard of its obligations and duties under this
Agreement.
Terms or words used in this Agreement, which also occur in the Articles of
Incorporation or Bylaws of the Company, shall have the same meaning herein
as given to such terms or words in Articles of Incorporation or Bylaws of
the Company.
8. DISTRIBUTOR AN INDEPENDENT CONTRIBUTOR. The Distributor shall be deemed to
be an independent contractor and, except as expressly provided or
authorized by the Company, shall have no authority to act for or represent
the Company.
9. NOTICE. Any notice required or permitted to be given hereunder to either of
the parties hereto shall be deemed to have been given if mailed by
certified mail in a postage prepaid envelope addressed to the respective
party as follows, unless any such party has notified the other party hereto
that notices thereafter intended for such party shall be mailed to some
other address, in which event notices thereafter shall be addressed to such
party at the address designated in such request:
Security Bond Fund, Inc.
Security Benefit Life Building
700 Harrison Street
Topeka, Kansas
Security Distributors, Inc.
Security Benefit Life Building
700 Harrison Street
Topeka, Kansas
10. AMENDMENT OF AGREEMENT. No amendment to this Agreement shall be effective
until approved by (a) a majority of the board of directors of the Company
and a majority of the board of directors of the Company who are not parties
to this Agreement or affiliated persons of any such party, or (b) a vote of
the holders of a majority of the outstanding voting securities of the
Company.
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 BOND FUND, INC.
By DEAN L. SMITH
------------------------------
President
ATTEST:
WILL J. MILLER, JR.
- ------------------------------
Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By DAVE E. DAVIDSON
------------------------------
President
ATTEST:
WILL J. MILLER, JR.
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Bond Fund, Inc. (the "Company") and Security Distributors,
Inc. (the "Distributor") are parties to a Distribution Agreement dated as of
September 14, 1970, (the "Distribution Agreement ) under which the Distributor
agrees to act as principal underwriter in connection with sales of the shares of
the Company's capital stock; and,
WHEREAS, certain provisions of the Federal Investment Company Act of 1940 have
been amended, and those amendments have an effect upon the relationship between
the Company and the Distributor, and the Distribution Agreement; and,
WHEREAS, The Company and the Distributor wish to amend the Distribution
Agreement to conform to the requirements of the Federal Investment Company Act
of 1940, as amended:
NOW, THEREFORE, The Company and Distributor hereby amend the Distribution
Agreement, effective immediately, as follows:
1. Section 6 of the Distribution Agreement is amended to provide as follows:
"6. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective at the date and time that the Company's prospectus,
reflecting the underwriting arrangements provided by this Agreement,
shall become effective under the Securities Act of 1933, and shall
continue in force until December 31, 1971, and from year to year
thereafter, provided that such continuance for each successive year
after April 30, 1972, is specifically approved in advance at least
annually by the vote of the board of directors (including approval by
the vote of a majority of the directors of the Company who are not
parties to the Agreement or interested persons of any such party) cast
in person at a meeting called for the purpose of voting upon such
approval, or by the vote of a majority (as defined in the Investment
Company Act of 1940) of the outstanding voting securities of the
Company and by such a vote of the board of directors. As used in the
preceding sentence, the words "interested persons" shall have the
meaning set forth in Section 2(a)(19) of the Investment Company Act of
1940. Written notice of any such approval by the board of directors or
by the holders of a majority of the outstanding voting securities of
the Company shall be given promptly to the Distributor.
This Agreement may be terminated by the Company at any time by giving the
Distributor at least sixty (60) days previous written notice of such intention
to terminate. This Agreement may be terminated by the Distributor at any time by
giving the Company at least sixty (60) days previous written notice of such
intention to terminate.
This Agreement shall terminate automatically in the event of its assignment. As
used in the preceding sentence, the word "assignment" shall have the meaning set
forth in Section 2(a)(4) of the Investment Company Act of 1940."
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 14th day of January 1972.
SECURITY BOND FUND, INC.
By DEAN L. SMITH
------------------------------
President
(Corporate Seal)
ATTEST:
WILL J. MILLER, JR.
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
By DAVE E. DAVIDSON
------------------------------
President
(Corporate Seal)
ATTEST:
WILL J. MILLER, JR.
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Company"), formerly Security Bond Fund, and
Security Distributors, Inc. (the "Distributor") are parties to a Distribution
Agreement dated as of September 14, 1970, (the "Distribution Agreement") under
which the Distributor agrees to act as principal underwriter in connection with
the sales of shares of the Company's capital stock; and
WHEREAS, a Distribution Plan (the "Plan") has been adopted by the directors and
shareholders of Security Income Fund pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act"), the provisions of which have an effect upon the
relationship between the Company and the Distributor, and the Distribution
Agreement; and
WHEREAS, the Company and Distributor wish to amend the Distribution Agreement to
conform to the requirements of Rule 12b-1 under the Act and to incorporate the
necessary provisions into the Agreement.
NOW THEREFORE, the Company and Distributor hereby amend the Distribution
Agreement, effective immediately, as follows:
1. New Section 4A is added to the Agreement, which provides as follows:
4A. DISTRIBUTION PLAN.
(a) Pursuant to a Distribution Plan adopted by the Fund, the Fund agrees to
make monthly payments to the Distributor in an amount computed at an
annual rate of .25 of 1% of the Fund's average daily net assets, to
finance activities undertaken by the Distributor for the purpose of
distributing the Fund's shares to investors. The Distributor is
obligated to and hereby agrees to use the entire amount of said fee to
finance the following distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus and
Statement of Additional Information and any supplement thereto
used in connection with the offering of shares to the public;
(ii) Printing of additional copies for use by the Distributor as
sales literature, of reports and other communications which were
prepared by the Fund for distribution to existing shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of shares to the
public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Fund to the public; and
(v) Any fees paid by the Distributor to securities dealers as
distribution or service fees who have executed a Dealer's
Distribution Agreement with the Distributor.
(b) All payments to the Distributor pursuant to this paragraph are subject
to the following conditions being met by the Distributor:
(i) For the fiscal year of the Fund during which this Plan becomes
effective and for each subsequent fiscal year of the Fund during
which this Plan remains in effect, the Distributor shall submit
to the Fund a budget setting forth in reasonable detail the
distribution-related activities to which the Distributor
proposes to apply payments made by the Fund hereunder;
(ii) Before any payment is made to the Distributor in respect of any
fiscal year, the budget relating thereto shall be approved by
vote of the Fund's Directors, including the affirmative vote of
a majority of the Independent Directors.
(iii) The Distributor shall furnish the Fund with quarterly reports of
its expenditures pursuant to each budget so approved, together
with receipts or other appropriate written evidence of the
amounts expended, and such other information relating to such
budget or expenditures or to the other distribution-related
activities undertaken or proposed to be undertaken by the
Distributor during such fiscal year under its Distribution
Agreement with the Fund as the Fund may reasonably request;
(c) The Dealer's Distribution Agreement (the "Agreement") contemplated by
paragraph 2(v) above shall permit payments to securities dealers by the
Distributor only in accordance with the provisions of this paragraph
and shall have the approval of the majority of the Board of Directors
of the Fund including a majority of the directors who are not
interested persons of the Fund as required by the Rule. The Distributor
may pay to the other party to any Agreement a quarterly fee for
distribution and marketing services provided by such other party. Such
quarterly fee shall be payable in arrears in an amount equal to such
percentage (not in excess of .000685% per day) of the aggregate net
asset value of the shares held by such other party's customers or
clients at the close of business each day as determined from time to
time by the Distributor. The distribution and marketing services
contemplated hereby shall include, but are not limited to, answering
inquiries regarding the Fund, account designations and addresses,
maintaining the investment of such other party's customers or clients
in the Fund and similar services. In determining the extent of such
other party's assistance in maintaining such investment by its
customers or clients, the Distributor may take into account the
possibility that the shares held by such customer or client would be
redeemed in the absence of such quarterly fee.
(d) The provisions of the Distribution Plan approved by the Shareholders of
the Fund on July 12, 1985, and by the Board of Directors of the Fund on
May 3, 1985, are fully incorporated herein by reference. In the event
the Distribution Plan is terminated by the Board of Directors or
Shareholders of the Fund as provided therein, this paragraph shall no
longer be effective.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 15th day of August 1985.
SECURITY INCOME FUND
By EVERETT S. GILLE
------------------------------
President
ATTEST:
BARBARA W. RANKIN
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
By EVERETT S. GILLE
------------------------------
President
ATTEST:
BARBARA W. RANKIN
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund"), formerly Security Bond Fund, and
Security Distributors, Inc. (the "Distributor") are parties to a Distribution
Agreement dated September 14, 1970, as amended January 14, 1972, and August 15,
1985, (the "Distribution Agreement") under which the Distributor agrees to act
as principal underwriter in connection with the sales of shares of the Fund's
capital stock;
WHEREAS, a Distribution Plan (the "Plan") has been adopted by the directors and
shareholders of the Fund pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act"), certain provisions of which have been incorporated into the
Distribution Agreement;
WHEREAS, the Board of Directors of the Fund (including all directors who are not
interested persons of the Fund as defined in the Act) have approved an amendment
to the Plan to provide for expenditures under the Plan to promote sales of
shares of the Fund by securities dealers; and
WHEREAS, the Fund and Distributor wish to amend the Distribution Agreement to
incorporate the Plan amendments into the Agreement.
NOW, THEREFORE, the Fund and Distributor hereby amend the Distribution
Agreement, effective November 26, 1990, as follows:
Section 4A., Distribution Plan, is amended by adding the following Section
4A.(a)(vi):
(vi) Expenses incurred in promoting sales of shares of the Fund by
securities dealers, including the costs of preparation of materials
for presentations, travel expenses, costs of entertainment, and other
expenses incurred in connection with promoting sales of Fund shares
by dealers.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 26th day of November 1990.
SECURITY INCOME FUND
By MICHAEL J. PROVINES
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
By HOWARD R. FRICKE
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Company") and Security Distributors, Inc.
(the "Distributor") are parties to a Distribution Agreement dated September 14,
1970, as amended (the "Distribution Agreement"), under which the Distributor
agreed to act as principal underwriter in connection with sales of the shares of
the Company's capital stock; and
WHEREAS, the Company expects to receive an exemptive order from the Securities
and Exchange Commission allowing the Company to issue and offer for sale two or
more classes of the Company's capital stock; and
WHEREAS, the Company and the Distributor wish to amend the Distribution
Agreement to clarify that the Distribution Agreement applies only to the sale of
Class A shares of the capital stock of the Corporate Bond Series and U.S.
Government Series of the Company and the Class A shares of all other Series
subsequently established by the Company:
NOW THEREFORE, the Company and Distributor hereby amend the Distribution
Agreement, effective immediately, as follows:
1. The term "Shares" as referred to in the Distribution Agreement shall refer
to the Class A Shares of the Company's $1.00 par value stock.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Distribution Agreement this 1st day of October 1993.
SECURITY INCOME FUND
By: MICHAEL J. PROVINES
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
By: HOWARD R. FRICKE
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
(SEAL)
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated September 14, 1970,
as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class A common stock;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Limited
Maturity Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series and U.S. Government Series;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Limited Maturity Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on October 21, 1994, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Limited Maturity Bond Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the Limited
Maturity Bond Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 30th day of December 1994.
SECURITY INCOME FUND
By: JOHN D. CLELAND
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
By: RICHARD K RYAN
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated September 14, 1970,
as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class A common stock;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Global
Aggressive Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government
Series;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Global Aggressive Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on February 3, 1995, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Global Aggressive Bond Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the Global
Aggressive Bond Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 18th day of April, 1995.
ATTEST: SECURITY INCOME FUND
AMY J. LEE By: JOHN D. CLELAND
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
AMY J. LEE By: RICHARD K RYAN
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated September 14, 1970,
as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class A common stock;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as the High Yield Series,
in addition to its presently offered series of common stock of Corporate Bond
Series, Limited Maturity Bond Series, U.S. Government Series and Global
Aggressive Bond Series;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the High Yield Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on May 3, 1996, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the High Yield Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares of the High Yield
Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 13th day of May, 1996.
ATTEST: SECURITY INCOME FUND
AMY J. LEE By: JOHN D. CLELAND
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
AMY J. LEE By: RICHARD K RYAN
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated September 14, 1970,
as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class A common stock;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in two new series designated as the Emerging
Markets Total Return Series and Global Asset Allocation Series, in addition to
its presently offered series of common stock of Corporate Bond Series, Limited
Maturity Bond Series, U.S. Government Series, Global Aggressive Bond Series and
High Yield Series;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund further
authorized the Fund to offer shares for each of the Emerging Markets Total
Return Series and Global Asset Allocation Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares for each of the Emerging Markets Total Return
Series and Global Asset Allocation Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares for each of the
Emerging Markets Total Return Series and Global Asset Allocation Series of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this 12th day of March, 1997.
ATTEST: SECURITY INCOME FUND
By: AMY J. LEE By: JOHN D. CLELAND
-------------------------------- --------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
By: AMY J. LEE By: RICHARD K RYAN
-------------------------------- --------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Distribution Agreement dated September 14, 1970,
as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class A common stock;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Capital
Preservation Series, in addition to its presently offered series of common stock
of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series,
Global High Yield Series, High Yield Series, Emerging Markets Total Return
Series and Global Asset Allocation Series;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Capital Preservation Series in three
classes, designated Class A shares, Class B shares and Class C shares; and
WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an
amendment to the Distribution Agreement between the Fund and the Distributor to
include the sale of Class A shares of the Capital Preservation Series.
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Distribution Agreement to include the sale of Class A shares for the Capital
Preservation Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Distribution Agreement this ______ day of ____________, 1999.
ATTEST: SECURITY INCOME FUND
By: By:
-------------------------------- --------------------------------
Amy J. Lee, Secretary James R. Schmank, Vice President
ATTEST: SECURITY DISTRIBUTORS, INC.
By: By:
-------------------------------- --------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
CLASS B
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this 1st day of October 1993, between Security Income Fund,
a Kansas corporation (hereinafter referred to as the "Company"), and Security
Distributors, Inc., a Kansas corporation (hereinafter referred to as the
"Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as an open-end, management
investment company registered under the federal Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Distributor is willing to act as principal underwriter for the
Company to offer for sale, sell and deliver after sale, the Class B Shares of
the Company's $1.00 par value common stock (hereinafter referred to as the
"Shares") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF DISTRIBUTOR. The Company hereby employs the Distributor to
act as principal underwriter for the Company with respect to its Class B
Shares and hereby agrees that during the term of this Agreement, and any
renewal or extension thereof, or until any prior termination thereof, the
Distributor shall have the exclusive right to offer for sale and to
distribute any and all of its Class B Shares issued or to be issued by the
Company. The Distributor hereby accepts such employment and agrees to act
as the distributor of the Class B Shares issued or to be issued by the
Company during the period this Agreement is in effect and agrees during
such period to offer for sale such Shares as long as such Shares remain
available for sale, unless the Distributor is unable legally to make such
offer for sale as the result of any law or governmental regulation.
2. OFFERING PRICE AND COMMISSIONS. Prior to the issuance of any Shares by the
Company pursuant to any subscription tendered by or through the Distributor
and confirmed for sale to or through the Distributor, the Distributor shall
pay or cause to be paid to the custodian of the Company in cash, an amount
equal to the net asset value of such Shares at the time of acceptance of
each such subscription and confirmation by the Company of the sale of such
Shares. All Shares shall be sold to the public only at their public
offering price at the time of such sale, and the Company shall receive not
less than the full net asset value thereof.
3. ALLOCATION OF EXPENSES AND CHARGES. During the period this Agreement is in
effect, the Company shall pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933 (the "1933 Act"),
including all expenses in connection with the preparation and printing of
any registration statements and prospectuses necessary for registration
thereunder but excluding any additional costs and expenses incurred in
furnishing the Distributor with prospectuses.
The Company will also pay all costs, expenses and fees incurred in connection
with the qualification of the Shares under the applicable Blue Sky laws of the
states in which the Shares are offered.
During the period this Agreement is in effect, the Distributor will pay or
reimburse the Company for:
(a) All costs and expenses of printing and mailing prospectuses (other
than to existing shareholders) and confirmations, and all costs and
expenses of preparing, printing and mailing advertising material,
sales literature, circulars, applications, and other materials used or
to be used in connection with the offering for sale and the sale of
Shares; and
(b) All clerical and administrative costs in processing the applications
for and in connection with the sale of Shares.
The Distributor agrees to submit to the Company for its prior approval all
advertising material, sales literature, circulars and any other material which
the Distributor proposes to use in connection with the offering for sale of
Shares.
4. REDEMPTION OF SHARES. The Distributor, as agent of and for the account of
the Fund, may redeem Shares of the Fund offered for resale to it at the net
asset value of such Shares (determined as provided in the Articles of
Incorporation or Bylaws) and not in excess of such maximum amounts as may
be fixed from time to time by an officer of the Fund. Whenever the officers
of the Fund deem it advisable for the protection of the shareholders of the
Fund, they may suspend or cancel such authority.
5. SALES CHARGES. A contingent deferred sales charge shall be retained by the
Distributor from the net asset value of Shares of the Fund that it has
redeemed, it being understood that such amounts will not be in excess of
that set forth in the then-current registration statement of the Fund.
Furthermore, the Distributor may retain any amounts authorized for payment
to it under the Fund's Distribution Plan.
6. DISTRIBUTOR MAY ACT AS BROKER AND RECEIVE COMMISSIONS. Notwithstanding any
other provisions of this Agreement, it is understood and agreed that the
Distributor may act as a broker, on behalf of the Company, in the purchase
and sale of securities not effected on a securities exchange, provided that
any such transactions and any commission paid in connection therewith shall
comply in every respect with the requirements of the 1940 Act and in
particular with Section 17(e) of that Act and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
7. AGREEMENTS SUBJECT TO APPLICABLE LAW AND REGULATIONS. The parties hereto
agree that all provisions of this Agreement will be performed in strict
accordance with the requirements of: the 1940 Act, the 1933 Act, the
Securities Exchange Act of 1934, the rules and regulations of the
Securities and Exchange Commission under said statutes, all applicable
state Blue Sky laws and the rules and regulations thereunder, the rules of
the National Association of Securities Dealers, Inc., and, in strict
accordance with, the provisions of the Articles of Incorporation and Bylaws
of the Company.
8. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective at the date and time that the Company's prospectus, reflecting
the underwriting arrangements provided by this Agreement, shall become
effective under the 1933 Act, and shall, unless terminated as provided
herein, continue in force for two years from that date, and from year to
year thereafter, provided that such continuance for each successive year is
specifically approved in advance at least annually by either the Board of
Directors or by the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Company and, in either event, by the
vote of a majority of the directors of the Company who are not parties to
this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting upon such approval. As used in the
preceding sentence, the words "interested persons" shall have the meaning
set forth in Section 2(a)(19) of the 1940 Act. Written notice of any such
approval by the Board of Directors or by the holders of a majority of the
outstanding voting securities of the Company and by the directors who are
not such interested persons shall be given promptly to the Distributor.
This Agreement may be terminated at any time without the payment of any penalty
by the Company by giving the Distributor at least sixty (60) days' previous
written notice of such intention to terminate. This Agreement may be terminated
by the Distributor at any time by giving the Company at least sixty (60) days'
previous written notice of such intention to terminate.
This Agreement shall terminate automatically in the event of its assignment. As
used in the preceding sentence, the word "assignment" shall have the meaning set
forth in Section 2(a)(4) of the 1940 Act.
9. CONSTRUCTION OF AGREEMENT. No provision of this Agreement is intended to or
shall be construed as protecting the Distributor against any liability to
the Company or to the Company's security holders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties under this Agreement.
Terms or words used in the Agreement, which also occur in the Articles of
Incorporation or Bylaws of the Company, shall have the same meaning herein as
given to such terms or words in the Articles of Incorporation or Bylaws of the
Company.
10. DISTRIBUTOR AN INDEPENDENT CONTRACTOR. The Distributor shall be deemed to
be an independent contractor and, except as expressly provided or
authorized by the Company, shall have no authority to act for or represent
the Company.
11. NOTICE. Any notice required or permitted to be given hereunder to either of
the parties hereto shall be deemed to have been given if mailed by
certified mail in a postage-prepaid envelope addressed to the respective
party as follows, unless any such party has notified the other party hereto
that notices thereafter intended for such party shall be mailed to some
other address, in which event notices thereafter shall be addressed to such
party at the address designated in such request:
Security Income Fund
Security Benefit Group Building
700 Harrison
Topeka, Kansas
Security Distributors, Inc.
Security Benefit Group Building
700 Harrison
Topeka, Kansas
12. AMENDMENT OF AGREEMENT. No amendment to this Agreement shall be effective
until approved by (a) a majority of the Board of Directors of the Company
and a majority of the directors of the Company who are not parties to this
Agreement or affiliated persons of any such party, or (b) a vote of the
holders of a majority of the outstanding voting securities of the Company.
IN WITNESS WHEREOF, the parties 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: MICHAEL J. PROVINES
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
(SEAL)
SECURITY DISTRIBUTORS, INC.
BY: HOWARD R. FRICKE
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
(SEAL)
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1994 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Limited
Maturity Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series and U.S. Government Series;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Limited Maturity Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on October 21, 1994, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Limited Maturity Bond
Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Limited Maturity Bond Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 30th day of December 1994.
SECURITY INCOME FUND
By: JOHN D. CLELAND
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
By: RICHARD K RYAN
------------------------------
President
ATTEST:
AMY J. LEE
- ------------------------------
Secretary
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993 (the "Distribution Agreement"), under which the Distributor has agreed to
act as principal underwriter in connection with sales of the shares of the
Fund's Class B common stock;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Global
Aggressive Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government
Series;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Global Aggressive Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on February 3, 1995, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the Global Aggressive Bond
Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the
Global Aggressive Bond Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 18th day of April, 1995.
ATTEST: SECURITY INCOME FUND
AMY J. LEE By: JOHN D. CLELAND
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
AMY J. LEE By: RICHARD K RYAN
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993, as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class B common stock;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as the High Yield Series,
in addition to its presently offered series of common stock of Corporate Bond
Series, U.S. Government Series, Limited Maturity Bond Series, and Global
Aggressive Bond Series;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the High Yield Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on May 3, 1996, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares of the High Yield Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares of the High
Yield Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 13th day of May 1996.
ATTEST: SECURITY INCOME FUND
AMY J. LEE By: JOHN D. CLELAND
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
AMY J. LEE By: RICHARD K RYAN
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993, as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class B common stock;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in two new series designated as the Emerging
Markets Total Return Series and the Global Asset Allocation Series, in addition
to its presently offered series of common stock of Corporate Bond Series, U.S.
Government Series, Limited Maturity Bond Series, Global Aggressive Bond Series,
and High Yield Series;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund further
authorized the Fund to offer shares for each of the Emerging Markets Total
Return Series and the Global Asset Allocation Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares for each of the Emerging
Markets Total Return Series and the Global Asset Allocation Series;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares for each of
the Emerging Markets Total Return Series and the Global Asset Allocation Series
of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this 12th day of March, 1997.
ATTEST: SECURITY INCOME FUND
By: AMY J. LEE By: JOHN D. CLELAND
-------------------------------- --------------------------------
Amy J. Lee, Secretary John D. Cleland, President
ATTEST: SECURITY DISTRIBUTORS, INC.
By: AMY J. LEE By: RICHARD K RYAN
-------------------------------- --------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Distributors, Inc. (the
"Distributor") are parties to a Class B Distribution Agreement dated October 1,
1993, as amended (the "Distribution Agreement"), under which the Distributor has
agreed to act as principal underwriter in connection with sales of the shares of
the Fund's Class B common stock;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Capital
Preservation Series, in addition to its presently offered series of common stock
of Corporate Bond Series, U.S. Government Series, Limited Maturity Bond Series,
Global High Yield Series, High Yield Series, Emerging Markets Total Return
Series and Global Asset Allocation Series;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Capital Preservation Series in three
classes, designated Class A shares, Class B shares and Class C shares; and
WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Agreement between the Fund and the
Distributor to include the sale of Class B shares for the Capital Preservation
Series.
NOW, THEREFORE BE IT RESOLVED, that the Fund and Distributor hereby amend the
Class B Distribution Agreement to include the sale of Class B shares for the
Capital Preservation Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Class
B Distribution Agreement this ______ day of ____________, 1999.
ATTEST: SECURITY INCOME FUND
By: By:
-------------------------------- --------------------------------
Amy J. Lee, Secretary James R. Schmank, Vice President
ATTEST: SECURITY DISTRIBUTORS, INC.
By: By:
-------------------------------- --------------------------------
Amy J. Lee, Secretary Richard K Ryan, President
<PAGE>
CLASS C
DISTRIBUTION AGREEMENT
THIS AGREEMENT, made this ___ day of ________, 1999, between Security Income
Fund, a Kansas corporation (hereinafter referred to as the "Company"), and
Security Distributors, Inc., a Kansas corporation (hereinafter referred to as
the "Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as an open-end, management
investment company registered under the federal Investment Company Act of 1940
(the "1940 Act");
WHEREAS, the Company issues its stock in several series; and
WHEREAS, the Distributor is willing to act as principal underwriter for the
Company to offer for sale, sell and deliver after sale, the Class C Shares of
the Company's Capital Preservation Series of common stock (hereinafter referred
to as the "Shares") on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties hereto agree as follows:
1. Employment of Distributor. The Company hereby employs the Distributor to
act as principal underwriter for the Company with respect to its Class C
Shares and hereby agrees that during the term of this Agreement, and any
renewal or extension thereof, or until any prior termination thereof,
the Distributor shall have the exclusive right to offer for sale and to
distribute any and all of the Class C Shares issued or to be issued by
the Company. The Distributor hereby accepts such employment and agrees
to act as the distributor of the Class C Shares issued or to be issued
by the Company during the period this Agreement is in effect and agrees
during such period to offer for sale such Shares as long as such Shares
remain available for sale, unless the Distributor is unable legally to
make such offer for sale as the result of any law or governmental
regulation.
2. Offering Price and Commissions. Prior to the issuance of any Shares by
the Company pursuant to any subscription tendered by or through the
Distributor and confirmed for sale to or through the Distributor, the
Distributor shall pay or cause to be paid to the custodian of the
Company in cash, an amount equal to the net asset value of such Shares
at the time of acceptance of each such subscription and confirmation by
the Company of the sale of such Shares. All Shares shall be sold to the
public only at their public offering price at the time of such sale, and
the Company shall receive not less than the full net asset value
thereof.
3. Allocation of Expenses and Charges. During the period this Agreement is
in effect, the Company shall pay all costs and expenses in connection
with the registration of Shares under the Securities Act of 1933 (the
"1933 Act"), including all expenses in connection with the preparation
and printing of any registration statements and prospectuses necessary
for registration thereunder but excluding any additional costs and
expenses incurred in furnishing the Distributor with prospectuses.
The Company also will pay all costs, expenses and fees incurred in
connection with the qualification of the Shares under the applicable
Blue Sky laws of the states in which the Shares are offered.
During the period this Agreement is in effect, the Distributor will pay
or reimburse the Company for:
(a) All costs and expenses of printing and mailing prospectuses (other
than to existing shareholders) and confirmations, and all costs and
expenses of preparing, printing and mailing advertising material,
sales literature, circulars, applications, and other materials used
or to be used in connection with the offering for sale and the sale
of Shares; and
(b) All clerical and administrative costs in processing the
applications for and in connection with the sale of Shares.
The Distributor agrees to submit to the Company for its prior approval
all advertising material, sales literature, circulars and any other
material which the Distributor proposes to use in connection with the
offering for sale of Shares.
4. Redemption of Shares. The Distributor, as agent of and for the account
of the Fund, may redeem Shares of the Fund offered for resale to it at
the net asset value of such Shares (determined as provided in the
then-current registration statement of the Fund) and not in excess of
such maximum amounts as may be fixed from time to time by an officer of
the Fund. Whenever the officers of the Fund deem it advisable for the
protection of the shareholders of the Fund, they may suspend or cancel
such authority.
5. Sales Charges. A contingent deferred sales charge shall be retained by
the Distributor from the net asset value of Shares of the Fund that it
has redeemed, it being understood that such amounts will not be in
excess of that set forth in the then-current registration statement of
the Fund. Furthermore, the Distributor may retain any amounts authorized
for payment to it under the Fund's Distribution Plan.
6. Distributor May Act as Broker and Receive Commissions. Notwithstanding
any other provisions of this Agreement, it is understood and agreed that
the Distributor may act as a broker, on behalf of the Company, in the
purchase and sale of securities not effected on a securities exchange,
provided that any such transactions and any commission paid in
connection therewith shall comply in every respect with the requirements
of the 1940 Act and in particular with Section 17(e) of that Act and the
rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
7. Agreements Subject to Applicable Law and Regulations. The parties hereto
agree that all provisions of this Agreement will be performed in strict
accordance with the requirements of: the 1940 Act, the 1933 Act, the
Securities Exchange Act of 1934, the rules and regulations of the
Securities and Exchange Commission under said statutes, all applicable
state Blue Sky laws and the rules and regulations thereunder, the rules
of the National Association of Securities Dealers, Inc., and, in strict
accordance with, the provisions of the Articles of Incorporation and
Bylaws of the Company.
8. Duration and Termination of Agreement. This Agreement shall become
effective at the date and time that the Company's prospectus, reflecting
the underwriting arrangements provided by this Agreement, shall become
effective under the 1933 Act, and shall, unless terminated as provided
herein, continue in force for two years from that date, and from year to
year thereafter, provided that such continuance for each successive year
is specifically approved in advance at least annually by either the
Board of Directors or by the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Class C shares of the
Series and, in either event, by the vote of a majority of the directors
of the Company who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting upon such approval. As used in the preceding sentence,
the words "interested persons" shall have the meaning set forth in
Section 2(a)(19) of the 1940 Act.
This Agreement may be terminated at any time without the payment of any
penalty by the Company by giving the Distributor at least sixty (60)
days' previous written notice of such intention to terminate. This
Agreement may be terminated by the Distributor at any time by giving the
Company at least sixty (60) days' previous written notice of such
intention to terminate.
This Agreement shall terminate automatically in the event of its
assignment. As used in the preceding sentence, the word "assignment"
shall have the meaning set forth in Section 2(a)(4) of the 1940 Act.
9. Construction of Agreement. No provision of this Agreement is intended to
or shall be construed as protecting the Distributor against any
liability to the Company or to the Company's security holders to which
the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties under this Agreement.
Terms or words used in the Agreement, which also occur in the Articles
of Incorporation or Bylaws of the Company, shall have the same meaning
herein as given to such terms or words in the Articles of Incorporation
or Bylaws of the Company.
10. Distributor an Independent Contractor. The Distributor shall be deemed
to be an independent contractor and, except as expressly provided or
authorized by the Company, shall have no authority to act for or
represent the Company.
11. Notice. Any notice required or permitted to be given hereunder to either
of the parties hereto shall be deemed to have been given if mailed by
certified mail in a postage-prepaid envelope addressed to the respective
party as follows, unless any such party has notified the other party
hereto that notices thereafter intended for such party shall be mailed
to some other address, in which event notices thereafter shall be
addressed to such party at the address designated in such request:
Security Income Fund
Security Benefit Group Building
700 Harrison
Topeka, Kansas
Security Distributors, Inc.
Security Benefit Group Building
700 Harrison
Topeka, Kansas
12. Amendment of Agreement. No amendment to this Agreement shall be
effective until approved by (a) a majority of the Board of Directors of
the Company and a majority of the directors of the Company who are not
parties to this Agreement or affiliated persons of any such party, or
(b) a vote of the holders of a majority of the outstanding voting
securities of the Class C shares of the Series.
IN WITNESS WHEREOF, the parties 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:
--------------------------------
James R. Schmank, Vice President
ATTEST:
- ------------------------------
Secretary
SECURITY DISTRIBUTORS, INC.
BY:
--------------------------------
Richard K Ryan, President
ATTEST:
- ------------------------------
Secretary
<PAGE>
THIRD PARTY FEEDER FUND AGREEMENT
AMONG SECURITY MANAGEMENT COMPANY, LLC, SECURITY INCOME FUND,
[NAME OF SERIES FUND] AND
BANKERS TRUST COMPANY
DATED AS OF [MONTH DAY], 1999
<PAGE>
THIRD PARTY FEEDER FUND AGREEMENT
The parties to this Agreement are Security Management Company, LLC ("Security
Management"), Security Income Fund, (the "Company"), a Kansas corporation, in
respect of [NAME OF SERIES FUND], a series thereof (the "Fund"), BT Preservation
Plus Income Portfolio, a New York business trust (the "Portfolio"), Security
Distributors, Inc., a corporation organized under the laws of the State of
Kansas ("Security Distributors"), and Bankers Trust Company, a New York banking
corporation (the "Adviser"), with respect to the proposed investment by the Fund
in the Portfolio. THIS AGREEMENT is made and entered into as of the ___ day of
_________, 1999, with respect to the proposed investment by the Fund in the
Portfolio.
PREAMBLE
WHEREAS, the Company and the Portfolio are each open-end management investment
companies and the Fund and the Portfolio have the same investment objectives and
substantively the same investment policies;
WHEREAS, the Adviser currently serves as the investment adviser of the
Portfolio;
WHEREAS, Security Distributors currently serves as the principal underwriter and
Security Management serves as investment manager of the Fund;
WHEREAS, the Company desires to invest all of the Fund's investable assets in
the Portfolio in exchange for a beneficial interest in the Portfolio (the
"Investment") on the terms and conditions set forth in this Agreement; and
WHEREAS, the Portfolio believes that accepting the Investment is in the best
interests of the Portfolio and that the interests of existing investors in the
Portfolio will not be diluted as a result of its accepting the Investment;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises herein
made and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE ONE
THE INVESTMENT
1.1 Agreement to Effect the Investment. The Company agrees to assign, transfer
and deliver all of the Fund's investable assets (the "Assets") to the
Portfolio at each Closing (as hereinafter defined). The Portfolio agrees
in exchange therefore to issue to the Fund a beneficial interest (the
"Interest") in the Portfolio equal in value to the net asset value of the
Assets of the Fund conveyed to the Portfolio on that date of Closing.
ARTICLE TWO
CLOSING AND CLOSING DATE
2.1 Time of Closing. The conveyance of the Assets in exchange for the
Interest, as described in Article One, together with related acts
necessary to consummate such transactions, shall occur initially on the
date the Company commences its offering of shares of the Fund to the
public and at each subsequent date as the Company desires to make a
further Investment in the Portfolio (each, a "Closing"). All acts
occurring at any Closing shall be deemed to occur simultaneously as of the
last daily determination of the Portfolio's net asset value on the date of
Closing.
2.2 Related Closing Matters. On each date of Closing, the Company, on behalf
of the Fund, shall authorize the Fund's custodian to deliver all of the
Assets held by such custodian to the Portfolio's custodian. The Fund's and
the Portfolio's custodians shall each acknowledge, in a form acceptable to
the other party, their respective delivery and acceptance of the Assets.
The Portfolio shall deliver to the Company acceptable evidence of the
Fund's ownership of the Interest. In addition, each party shall deliver to
each other party such bills of sale, checks, assignments, securities
instruments, receipts or other documents as such other party or its
counsel may reasonably request. Each of the representations and warranties
set forth in Article Three shall be deemed to have been made anew on each
date of Closing.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 THE COMPANY AND SECURITY MANAGEMENT
The Company and Security Management each represents and warrants to the
Portfolio and the Adviser that:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas.
The Fund is a duly and validly designated series of the Company. The
Company and the Fund have the requisite power and authority to own
their property and conduct their business as now being conducted and
as proposed to be conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action
on the part of the Company. No other action or proceeding is
necessary for the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder
and the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the
Company in respect of the Fund, enforceable against them in
accordance with its terms.
(c) Authorization of Investment. The Investment has been duly authorized
by all necessary action on the part of the Board of Directors of the
Company.
(d) No Bankruptcy Proceedings. Neither the Company nor the Fund is under
the jurisdiction of a court in a proceeding under Title 11 of the
United States Code (the "Bankruptcy Code") or similar case within the
meaning of Section 368(a) (3) (A) of the Bankruptcy Code.
(e) Fund Assets. The Fund's Assets will, at the initial Closing, consist
solely of cash.
(f) Fiscal Year. The fiscal year end for the Fund is [ ].
(g) Auditors. The Company has appointed [ ] as the Fund's independent
public accountants to certify the Fund's financial statements in
accordance with Section 32 of the Investment Company Act of 1940, as
amended ("1940 Act").
(h) Registration Statement. The Company has reviewed the Portfolio's
registration statement on Form N-1A, as filed with the Securities and
Exchange Commission ("SEC"), and understands and agrees to the
Portfolio's policies and methods of operation as described therein.
(i) Errors and Omissions Insurance Policy. The Company has in force an
errors and omissions liability insurance policy insuring the Fund
against loss up to $[______] for negligence or wrongful acts.
(j) SEC Filings. The Company has duly filed all forms, reports, proxy
statements and other documents (collectively, the "SEC Filings")
required to be filed under the Securities Act of 1933, as amended
(the "1933 Act"), the Securities Exchange Act of 1934 (the "1934
Act") and the 1940 Act (collectively, the "Securities Laws") in
connection with the registration of its shares, any meetings of its
shareholders and its registration as an investment company. The SEC
Filings were prepared in accordance with the requirements of the
Securities Laws, as applicable, and the rules and regulations of the
SEC and do not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(k) 1940 Act Registration. The Company is duly registered as an open-end
management investment company under the 1940 Act and the Fund and its
shares are registered or qualified in any states where such
registration or qualification is necessary and such registrations or
qualifications are in full force and affect.
3.2 THE PORTFOLIO AND THE ADVISER
The Portfolio and the Adviser each represents and warrants to the Company and
Security Management that:
(a) Organization. The Portfolio is a business trust duly organized and
validly existing under the common law of the State of New York and
has the requisite power and authority to own its property and conduct
its business as now being conducted and as proposed to be conducted
pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of this
Agreement by the Portfolio and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action
on the part of the Portfolio by its Board of Trustees and no other
action or proceeding is necessary for the execution and delivery of
this Agreement by the Portfolio, the performance by the Portfolio of
its obligations hereunder and the consummation by the Portfolio of
the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Portfolio and constitutes a legal,
valid and binding obligation of the Portfolio, enforceable against it
in accordance with its terms.
(c) Authorization of Issuance of Interest. The issuance by the Portfolio
of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part
of the Board of Trustees of the Portfolio. When issued in accordance
with the terms of this Agreement, the Interest will be validly
issued, fully paid and non-assessable by the Portfolio.
(d) No Bankruptcy Proceedings. The Portfolio is not under the
jurisdiction of a court in a proceeding under Title 11 of the
Bankruptcy Code or similar case within the meaning of Section
368(a)(3)(A) of the Bankruptcy Code.
(e) Fiscal Year. The fiscal year end of the Portfolio is September 30.
(f) Auditors. The Portfolio has appointed Ernst & Young LLP as the
Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) Registration Statement. The Portfolio has reviewed the Company's
registration statement on Form N-1A, as filed with the SEC, and
understands and agrees to the Fund's policies and methods of
operation as described therein.
(h) Errors and Omissions Insurance Policy. The Portfolio has in force an
errors and omissions liability insurance policy insuring the
Portfolio against loss up to $10 million for negligence or wrongful
acts.
(i) SEC Filings. The Portfolio has duly filed all SEC Filings required to
be filed with the SEC pursuant to the 1934 Act and the 1940 Act in
connection with any meetings of its investors and its registration as
an investment company. Beneficial interests in the Portfolio are not
required to be registered under the 1933 Act because such interests
are offered solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. The SEC Filings were prepared in accordance with the
requirements of the Securities Laws, as applicable, and the rules and
regulations of the SEC thereunder, and do not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
(j) 1940 Act Registration. The Portfolio is duly registered as an
open-end management investment company under the 1940 Act and such
registration is in full force and effect.
(k) Tax Status. The Portfolio is taxable as a partnership under the
Internal Revenue Code of 1986, as amended (the "Code").
3.3 THE ADVISER
The Adviser represents and warrants to the Company and Security Management that:
(a) Organization. The Adviser is a New York banking corporation duly
organized, validly existing and in good standing under the laws of
the State of New York and has the requisite power and authority to
conduct its business as now being conducted.
(b) Authorization of Agreement. All necessary action on the part of the
Adviser and no other action have duly authorized the execution and
delivery of this Agreement by the Adviser or proceeding is necessary
for the execution and delivery of this Agreement by the Adviser. This
Agreement has been duly executed and delivered by the Adviser and
constitutes a legal, valid and binding obligation of the Adviser.
(c) Advisers Act. The Adviser is exempt from the definition of an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and is not required to register under
that Act.
(d) [Additional statements concerning change of control of the adviser,
as necessary.]
3.4 SECURITY MANAGEMENT AND SECURITY DISTRIBUTORS
(a) Security Management represents and warrants to the Portfolio and the
Adviser that:
(i) Organization. Security Management is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Kansas and has the requisite power and
authority to conduct its business as now being conducted.
(ii) Authorization of Agreement. The execution and delivery of this
Agreement by Security Management have been duly authorized by
all necessary action on the part of Security Management and no
other action or proceeding is necessary for the execution and
delivery of this Agreement by Security Management. This
Agreement has been duly executed and delivered by Security
Management and constitutes a legal, valid and binding
obligation of Security Management.
(iii) Investment Manager. Security Management serves as the Fund's
investment manager and is duly registered as an investment
adviser under the Advisers Act.
(b) Security Distributors represents and warrants to the Portfolio and
the Adviser that:
(i) Authorization of Agreement. The execution and delivery of this
Agreement by Security Distributors has been duly authorized by
all necessary action on the part of Security Distributors and
no other action or proceeding is necessary for the execution
and delivery of this Agreement by Concord. This Agreement has
been duly executed and delivered by Security Distributors and
constitutes a legal, valid and binding obligation of Security
Distributors.
(ii) Security Distributors serves as the Trust's and the Fund's
principal underwriter and is duly registered as a
broker-dealer under the 1934 Act. Security Distributors is
duly organized, validly existing and in good standing under
the laws of the state of Kansas, and has requisite authority
to conduct its business as now being conducted.
ARTICLE FOUR
COVENANTS
4.1 THE COMPANY
The Company covenants that:
(a) Advance Review of Certain Documents. The Company will furnish the
Portfolio and the Adviser, at least 10 business days prior to filing
or first use, as the case may be, with drafts of its registration
statement on Form N-lA (including amendments) and prospectus
supplements or amendments relating to the Fund. The Company will
furnish the Portfolio and the Adviser with any proposed advertising
or sales literature relating to the Fund at least 10 business days
prior to filing or first use. The Company agrees that it will include
in all such Fund documents any disclosures that may be required by
law, particularly those relating to the Adviser's status as a bank,
and it will include in all such Fund documents any material comments
reasonably made by the Adviser or Portfolio. The Portfolio and
Adviser will, however, in no way be liable for any errors or
omissions in such documents, whether or not they make any objection
thereto, except to the extent such errors or omissions result from
information provided by the Adviser or the Portfolio. [The Exclusive
Placement Agent for the Portfolio will in no way be liable for any
errors or omissions in such documents.] The Company will not make any
other written or oral representation about the Portfolio or the
Adviser without their prior written consent.
(b) Tax Status. The Fund will qualify for treatment as a regulated
investment company under Subchapter M of the Code for all periods
during which this Agreement is in effect, except to the extent a
failure to so qualify may result from any action or omission of the
Portfolio.
(c) Investment Securities. The Fund will own no investment security other
than its Interest in the Portfolio.
(d) Proxy Voting. If requested to vote as a shareholder on matters
pertaining to the Portfolio (other than a vote by the Company to
continue the operation of the Portfolio upon the withdrawal of
another investor in the Portfolio), the Company will (i) call a
meeting of shareholders of the Fund for the purpose of seeking
instructions from shareholders regarding such matters, (ii) vote the
Fund's Interest proportionally as instructed by Fund shareholders,
and (iii) vote the Fund's Interest with respect to the shares held by
Fund shareholders who do not give voting instructions in the same
proportion as the shares of Fund shareholders who do give voting
instructions. The Company will hold each such meeting of Fund
shareholders in accordance with a timetable reasonably established by
the Portfolio.
(e) Insurance. The Company shall at all times maintain errors and
omissions liability insurance with respect to the Fund covering
losses for negligence and wrongful acts in an amount not less than
$[____].
(f) Auditors. In the event the Fund's independent public accountants
differ from those of the Portfolio, the Fund shall be responsible for
any costs and expenses associated with the need for the Portfolio's
independent public accountants to provide information to the Fund's
independent public accountants.
(g) Fund Name. The Company agrees on behalf of the Fund that the Fund may
use the name "PreservationPlus" in its name only so long as all of
the Fund's investable assets are invested in the Portfolio. If the
Company elects to withdraw or redeem the Fund's Interest in the
Portfolio, the Fund will immediately change its name.
4.2 INDEMNIFICATION BY SECURITY MANAGEMENT
(a) With respect to those matters listed in subparagraphs (i) through
(vi) below, Security Management will indemnify and hold harmless the
Portfolio, the Adviser and their respective trustees, directors,
officers and employees and each other person who controls the
Portfolio or the Adviser, as the case may be, within the meaning of
Section 15 of the 1933 Act (each, a "Covered Person" and
collectively, "Covered Persons"), against any and all losses, claims,
demands, damages, liabilities and expenses, joint or several, (each,
a "Liability" and collectively, the "Liabilities"). Unless Security
Management elects to assume the defense pursuant to paragraph (b)
Security Management will bear the reasonable cost of investigating
and defending against any claims therefor and any counsel fees
incurred in connection therewith. Any or each Liability which arises
out, is based upon or results from:
(i) any violation or alleged violation of the Securities Laws, any
other statute or common law or are incurred in connection with
or as a result of any formal or informal administrative
proceeding or investigation by a regulatory agency, insofar as
such Liabilities arise out of or are based upon the ground or
alleged ground that any direct or indirect omission or
commission by the Company or the Fund (either during the
course of its daily activities or in connection with the
accuracy of its representations or its warranties in this
Agreement) caused or continues to cause the Portfolio to
violate any federal or state securities laws or regulations or
any other applicable domestic or foreign law or regulations or
common law duties or obligations, but only to the extent that
such Liabilities do not arise out of and are not based upon an
omission or commission of the Portfolio or Adviser;
(ii) Security Management having caused the Portfolio to be an
association taxable as a corporation rather than a
partnership; or
(iii) any misstatement of a material fact or an omission of a
material fact in the Company's registration statement
(including amendments thereto) or included in Fund advertising
or sales literature, other than information provided by the
Portfolio or the Adviser or included in Fund advertising or
sales literature at the request of the Portfolio or the
Adviser;
(iv) the failure of any representation or warranty made by the
Company or Security Management to be accurate when made or the
failure of the Company or Security Management to perform any
covenant contained herein or to otherwise comply with the
terms of this Agreement;
(v) any unlawful or negligent act of the Company, Security
Management or any director, officer, employee or agent of the
Company or Security Management, whether such act was committed
against the Company, the Portfolio, Bankers Trust or any third
party;
(vi) any Liability of the Fund for which the Portfolio is also
liable; provided, however, that in no case shall Security
Management be liable with respect to any claim made against
any Covered Person unless the Covered Person shall have
notified Security Management in writing of the nature of the
claim within a reasonable time after the summons, other first
legal process or formal or informal initiation of a regulatory
investigation or proceeding shall have been served upon or
provided to a Covered Person, or any federal, state or local
tax deficiency has come to the attention of the Adviser, the
Portfolio or a Covered Person. Failure to notify Security
Management of such claim shall not relieve it from any
liability that it may have to any Covered Person otherwise
than on account of the indemnification contained in this
Section.
(b) Security Management will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if Security
Management elects to assume the defense, such defense shall be
conducted by counsel chosen by Security Management. In the event
Security Management elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant or
defendants may retain additional counsel, but shall bear the fees and
expenses of such counsel unless (A) Security Management shall have
specifically authorized the retaining of such counsel or (B) the
parties to such suit include any Covered Person and Security
Management, and any such Covered Person has been advised by counsel
that one or more legal defenses may be available to it that may not
be available to Security Management, in which case Security
Management shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. Security Management shall not be liable to indemnify any
Covered Person for any settlement of any claim affected without
Security Management's written consent, which consent shall not be
unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that the Company
in respect of the Fund might otherwise have to a Covered Person.
4.3 INDEMNIFICATION BY SECURITY DISTRIBUTORS
(a) With respect to those matters listed in subparagraph (i) through (iv)
below, Security Distributors will indemnify and harmless the
Portfolio, the Adviser and their respective trustees, directors,
officers and employees and each other person who controls the
Portfolio or the Adviser, as the case may be, within the meaning of
Section 15 of the 1933 Act (each a "Covered Person" and collectively,
"Covered Persons"), against any and all losses, claims, demands,
damages, liabilities and expenses, joint or several, (each, a
"Liability" and collectively, the "Liabilities"). Unless Security
Distributors elects to assume the defense pursuant to paragraph (b),
Security Distributors will bear the reasonable cost of investigating
and defending against any claims therefor and any counsel fees
incurred in connection therewith. Any or each liability which arises
out, is based upon or results from:
(i) any misstatement of a material fact or an omission of a
material fact included in Fund advertising or sales
literature, other than information provided by the Portfolio
or the Adviser or included in Fund advertising or sales
literature at the request of the Portfolio or the Adviser;
(ii) the failure of any representation or warranty made by Security
Distributors to be accurate when made or the failure of
Security Distributors to perform any covenant contained herein
or to otherwise comply with the terms of this Agreement;
(iii) any unlawful or negligent act of Security Distributors or any
director, officer, employee or agent of the Company or
Security Distributors, whether such act was committed against
the Company, the Portfolio, Bankers Trust or any third party;
or
(iv) any breach of the representations, warranties and covenants
included herein, including the representations that the Fund
will permit investments only by IRAs and Plans as defined in
the prospectus for the BT PreservationPlus Income Fund and
that the redemption rights of shareholders of the Fund will be
the same as those described in the prospectus for the BT
PreservationPlus Income Fund.
(b) Security Distributors will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability. If Security
Distributors elects to assume the defense, such defense shall be
conducted by counsel chosen by Security Distributors. In the event
Security Distributors elects to assume the defense of any such suit
and retain such counsel, each Covered Person and any other defendant
or defendants may retain additional counsel, but shall bear the fees
and expenses of such counsel unless (A) Security Distributors shall
have specifically authorized the retaining of such counsel or (B) the
parties to such suit include any Covered Person and Security
Distributors, and any such Covered Person has been advised by counsel
that one or more legal defenses may be available to it that may not
be available to Security Distributors, in which case Security
Distributors shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. Security Distributors shall not be liable to indemnify any
Covered Person for any settlement of any claim affected without
Security Distributors' written consent. Such consent shall not be
unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that the Company
in respect of the Fund might otherwise have to a Covered Person.
(c) Any breach of the representations, warranties and covenants included
herein (including the representations that the Fund will permit
investments only by IRAs and Plans (as defined in the prospectus for
the BT PreservationPlus Income Fund) and that the redemption rights
of shareholders of the Fund will be the same as those described in
the prospectus for the BT PreservationPlus Income Fund) will
constitute a request for the partial or complete redemption of
Portfolio interests by the Company.
4.4 THE PORTFOLIO
The Portfolio covenants that:
(a) Advance Review of Certain Documents. The Portfolio will furnish the
Company and Security Management, at least 10 business days prior to
filing or first use, as the case may be, with drafts of its
registration statement on Form N-1A (including amendments) and
prospectus supplements or amendments. The Portfolio will not make any
written or oral representation about the Company or Security
Management without their prior written consent.
(b) Tax Status. The Portfolio will qualify to be taxable as a partnership
under the Code for all periods during which this Agreement is in
effect, except to the extent that the failure to so qualify results
from any action or omission of the Fund.
(c) Insurance. The Portfolio shall at all times maintain errors and
omissions liability insurance covering losses for negligence and
wrongful acts in an amount not less than $10 million.
(d) Availability of Interests. Conditional upon the Company complying
with the terms of this Agreement, the Portfolio shall permit the Fund
to make additional Investments in the Portfolio on each business day
on which shares of the Fund are sold to the public; provided,
however, that the Portfolio may refuse to permit the Fund to make
additional Investments in the Portfolio on any day on which:
(i) the Portfolio has refused to permit all other investors in the
Portfolio to make additional investments in the Portfolio, or
(ii) the Trustees of the Portfolio have reasonably determined that
permitting additional investments by the Fund in the Portfolio
would constitute a breach of their fiduciary duties to the
Portfolio.
4.5 INDEMNIFICATION BY THE ADVISER
(a) With respect to those matters listed in subparagraphs (i) through
(viii) below, the Adviser will indemnify and hold harmless the
Company, Security Management, their respective directors, officers
and employees and each other person who controls the Company, the
Fund or Security Management, as the case may be, within the meaning
of Section 15 of the 1933 Act (each, a "Covered Person" and
collectively, "Covered Persons"), against any and all losses, claims,
demands, damages, liabilities and expenses, joint or several, (each,
a "Liability" and collectively, the "Liabilities"). Unless the
Adviser elects to assume the defense pursuant to paragraph (b) the
Adviser will bear the reasonable costs of investigating and defending
against any claims therefore and any counsel fees incurred in
connection therewith), whether incurred directly by the Company or
Security Management or indirectly by the Company or Security
Management through the Company's Investment in the Portfolio. Any or
each Liability which arises out, is based upon or results from:
(i) any of the Securities Laws, any other statute or common law or
are incurred in connection with or as a result of any formal
or informal administrative proceeding or investigation by a
regulatory agency, insofar as such Liabilities arise out of or
are based upon the ground or alleged ground that any direct or
indirect omission or commission by the Portfolio (either
during the course of its daily activities or in connection
with the accuracy of its representations or its warranties in
this Agreement) caused or continues to cause the Company to
violate any federal or state securities laws or regulations or
any other applicable domestic or foreign law or regulations or
common law duties or obligations, but only to the extent that
such Liabilities do not arise out of and are not based upon an
omission or commission of the Company or Security Management;
(ii) an inaccurate calculation of the Portfolio's net asset value
(whether by the Portfolio, the Adviser or any party retained
for that purpose);
(iii) (A) any misstatement of a material fact or an omission of a
material fact in the Portfolio's registration statement
(including amendments thereto) or included at the Adviser's or
Portfolio's request in advertising or sales literature used by
the Fund, or (B) any misstatement of a material fact or an
omission of a material fact in the registration statement or
advertising or sales literature of any investor in the
Portfolio, other than the Company;
(iv) the Portfolio's having caused the Fund to fail to qualify as a
regulated investment company under the Code;
(v) failure of any representation or warranty made by the
Portfolio or Adviser to be accurate when made or the failure
of the Portfolio or Adviser to perform any covenant contained
herein or to otherwise comply with the terms of this
Agreement;
(vi) any unlawful or negligent act by the Portfolio, the Adviser or
any director, trustee, officer, employee or agent of the
Portfolio or Adviser, whether such act was committed against
the Portfolio, the Company, Security Management or any third
party;
(vii) any claim that the systems, methodologies, or technology used
in connection with operating the Portfolio, including the
technologies associated with maintaining the master-feeder
structure of the Portfolio, violates any license or infringes
upon any patent or trademark;
(viii) any Liability of the Portfolio to any investor in the
Portfolio (or shareholder thereof), other than the Fund (and
its shareholders); provided, however, that in no case shall
the Adviser be liable with respect to any claim made against
any such Covered Person unless such Covered Person shall have
notified the Adviser in writing of the nature of the claim
within a reasonable time after the summons, other first legal
process or formal or informal initiation of a regulatory
investigation or proceeding shall have been served upon or
provided to a Covered Person or any federal, state or local
tax deficiency has come to the attention of the Company,
Security Management or a Covered Person. Failure to notify the
Adviser of such claim shall not relieve it from any liability
that it may have to any Covered Person otherwise than on
account of the indemnification contained in this paragraph.
(b) The Adviser will be entitled to participate at its own expense in the
defense or, if it so elects to assume the defense of any suit brought
to enforce any such liability. If the Adviser elects to assume the
defense, such defense shall be conducted by counsel chosen by the
Adviser. In the event the Adviser elects to assume the defense of any
such suit and retain such counsel, each Covered Person and any other
defendant or defendants in the suit may retain additional counsel but
shall bear the fees and expenses of such counsel unless (A) the
Adviser shall have specifically authorized the retaining of such
counsel or (B) the parties to such suit include any Covered Person
and the Adviser, and any such Covered Person has been advised by
counsel that one or more legal defenses may be available to it that
may not be available to the Adviser, in which case the Adviser shall
not be entitled to assume the defense of such suit notwithstanding
the obligation to bear the fees and expenses of such counsel. The
Adviser shall not be liable to indemnify any Covered Person for any
settlement of any such claim effected without the Adviser's written
consent. Such consent shall not be unreasonably withheld or delayed.
The indemnities set forth in paragraph (a) will be in addition to any
liability that the Portfolio might otherwise have to a Covered
Person.
4.6 SCOPE OF AGREEMENT
Nothing contained herein shall be construed to protect any person against any
liability to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, or negligence, in the performance of such person's
duties, or be reason of such person's reckless disregard of such person's
obligations under such contract or agreement.
4.7 IN-KIND REDEMPTION
In the event the Company desires to withdraw or redeem all or a portion of the
Fund's Interests in the Portfolio, unless otherwise agreed to by the parties,
the Portfolio will effect such redemption (i) in cash, (ii) "in kind" (as
described below) or (iii) in some combination of the foregoing determined solely
in the discretion of the Adviser. Further, if the Interest Rate Trigger as
described in the Prospectus for the Portfolio is active, a redemption fee
(currently 3% of the proceeds of such redemption) will be applied. In connection
with a partial or complete payment "in kind", the Portfolio will distribute to
the Company securities and Wrapper Agreements as described in the prospectus for
the BT PreservationPlus Income Fund. The Portfolio will assign to the Company
one or more Wrapper Agreements issued by the Wrapper providers covering the
securities distributed in kind. The terms and conditions of the Wrapper
Agreements distributed to the Company will be substantially similar to the terms
and conditions of the Wrapper Agreements held by the Portfolio. In order to
obtain the benefits provided thereunder, the Company's management of the
securities must be consistent with the Wrapper Agreement requirements and the
Company must complete the assignment by executing the Wrapper Agreements. No
other withdrawal or redemption of any Interest in the Portfolio will be
satisfied by means of an "in kind" redemption except in compliance with Rule
18f-1 under the 1940 Act, provided, however, that for purposes of determining
compliance with Rule 18f-1, each shareholder of the Fund redeeming shares of the
Fund on a particular day will be treated as a direct holder of an Interest in
the Portfolio being redeemed that day.
4.8 REASONABLE ACTIONS
Each party covenants that it will, subject to the provisions of this Agreement,
from time to time, as and when requested by another party or in its own
discretion, as the case may be, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, take or cause to be taken
such actions, and do or cause to be done all things reasonably necessary, proper
or advisable in order to consummate the transactions contemplated by this
Agreement and to carry out its intent and purpose.
ARTICLE FIVE
CONDITIONS PRECEDENT
The obligations of each party to consummate the transactions provided for herein
shall be subject to:
(a) performance by the other parties of all the obligations to be
performed by the other parties hereunder on or before each Closing,
(b) all representations and warranties of the other parties contained in
this Agreement being true and correct in all material respects as of
the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of each date of
Closing, with the same force and effect as if made on and as of the
time of such Closing, and
(c) the following further conditions that shall be fulfilled on or before
each Closing.
5.1 REGULATORY STATUS
All necessary filings shall have been made with the SEC and state securities
authorities, and no order or directive shall have been received that any other
or further action is required to permit the parties to carry out the
transactions contemplated hereby.
5.2 APPROVAL OF AUDITORS
Unless precluded by applicable fiduciary duties or the failure of the Fund's
shareholders to provide necessary ratification, the directors of the Company
that are not "interested persons" of the Company, as defined in the 1940 Act,
shall have selected as the independent certified public accountants for the Fund
the independent certified public accountants selected and ratified for the
Portfolio.
5.3 INVESTMENT OBJECTIVE/RESTRICTIONS
The Fund shall have the same investment objective and substantively the same
investment restrictions as the Portfolio.
ARTICLE SIX
ADDITIONAL AGREEMENTS
6.1 NOTIFICATION OF CERTAIN MATTERS
Each party will give prompt notice to the other parties of:
(a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause either:
(i) any representation or warranty contained in this Agreement to
be untrue or inaccurate, or
(ii) any condition precedent set forth in Article Five hereof to be
unsatisfied in any material respect at the time of any
Closing, and
(b) any material failure of a party or any trustee, director, officer,
employee or agent thereof to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by such
person hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.1 shall not limit or otherwise affect the
remedies available, hereunder or otherwise, to the party receiving
such notice.
6.2 ACCESS TO INFORMATION
The Portfolio and the Company shall afford each other reasonable access at all
reasonable times to such party's officers, employees, agents and offices and to
all its relevant books and records and shall furnish each other party with all
relevant financial and other data and information as requested; provided,
however, that nothing contained herein shall obligate the Company to provide the
Portfolio with access to the books and records of the Company relating to any
series of the Company other than the Fund, nor shall anything contained herein
obligate the Company to furnish the Portfolio with the Fund's shareholder list,
except as may be required to comply with applicable law or any provision of this
Agreement.
6.3 CONFIDENTIALITY
Each party agrees that it shall hold in strict confidence all data and
information obtained from another party (unless such information is or becomes
readily ascertainable from public or published information or trade sources) and
shall ensure that its officers, employees and authorized representatives do not
disclose such information to others without the prior written consent of the
party from whom it was obtained, except if disclosure is required by the SEC,
any other regulatory body or the Fund's or Portfolio's respective auditors, or
in the opinion of counsel such disclosure is required by law, and then only with
as much prior written notice to the other party as is practical under the
circumstances.
6.4 PUBLIC ANNOUNCEMENTS
No party shall issue any press release or otherwise make any public statements
with respect to the matters covered by this Agreement without the prior consent
of the other parties hereto, which consent shall not be unreasonably withheld;
provided, however, that consent shall not be required if, in the opinion of
counsel, such disclosure is required by law, provided further, however, that the
party making such disclosure shall provide the other parties hereto with as much
prior written notice of such disclosure as is practical under the circumstances.
Advance review of sales literature and advertising material shall be subject to
the provisions of Section 4.1 of this Agreement.
6.5 INVESTMENT ACCOUNTING SERVICES
Security Management agrees to delegate to the Adviser certain investment
accounting services with respect to the Fund pursuant to an Investment
Accounting Agreement dated as of [_________ __], 1999.
ARTICLE SEVEN
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
(a) This Agreement may be terminated by the mutual agreement of all
parties.
(b) This Agreement may be terminated at any time by the Company by
withdrawing all of the Fund's Interest in the Portfolio.
(c) This Agreement may be terminated on not less than 120 days' prior
written notice by the Portfolio to the Company and Security
Management.
(d) This Agreement shall terminate automatically with respect to Security
Management upon the effective date of termination by the Company and
this Agreement shall terminate automatically with respect to the
Adviser upon the effective date of termination by the Portfolio.
(e) This Agreement may be terminated at any time immediately upon written
notice to the other parties in the event that formal proceedings are
instituted against another party to this Agreement by the SEC or any
other regulatory body, provided that the terminating party has a
reasonable belief that the institution of the proceeding is not
without foundation and will have a material adverse impact on the
terminating party's ability to perform the obligations hereunder.
(f) This Agreement shall terminate automatically with respect to Security
Distributors upon the effective date of the termination of its duties
as principal underwriter by the Company. At such time the Adviser
shall have the right to immediately terminate this Agreement.
Security Distributors and the Company acknowledge that at such time
in the event this Agreement is not terminated, the Agreement will
require amendment to reflect the Company's appointment of a new
distributor.
(g) The indemnification obligations of the parties set forth in Article
Four shall survive the termination of this Agreement with respect to
any Liability relating to actions or omissions prior to the
termination.
7.2 AMENDMENT
This Agreement may be amended, modified or supplemented at any time in such
manner as may be mutually agreed upon in writing by the parties.
7.3 WAIVER
At any time prior to any Closing, any party may:
(a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained
herein.
ARTICLE EIGHT
DAMAGES
8.1 APPROPRIATE RELIEF
The parties agree that, in the event of a breach of this Agreement, the remedy
of money damages would not be adequate and agree that injunctive relief would be
the appropriate relief.
ARTICLE NINE
GENERAL PROVISIONS
9.1 NOTICES
All notices and other communications given or made pursuant hereto shall be in
writing and shall be deemed to have been duly given or made on the earlier of
(1) when actually received in person or by fax, or (2) three days after being
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed as follows:
If to Security Management or the Company:
[Address]
[Address]
[Attn:]
If to the Portfolio or the Adviser:
1 South Street
Baltimore, MD 21202
Attn: Mr. Brian W. Wixted
Any party to this Agreement may change the identity of the person to receive
notice by providing written notice thereof to all other parties to the
Agreement.
9.2 EXPENSES
All costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.
9.3 HEADINGS
The headings and captions contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
9.5 ENTIRE AGREEMENT
This Agreement and the agreements and other documents delivered pursuant hereto
set forth the entire understanding between the parties concerning the subject
matter of this Agreement and incorporate or supersede all prior negotiations and
understandings. There are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them relating to the subject
matter of this Agreement other than those set forth herein. No representation or
warranty has been made by or on behalf of any party to this Agreement (or any
officer, director, trustee, employee or agent thereof) to induce any other party
to enter into this Agreement or to abide by or consummate any transactions
contemplated by any terms of this Agreement, except representations and
warranties expressly set forth herein.
9.6 SUCCESSORS AND ASSIGNMENTS
Each and all of the provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and, except as otherwise specifically
provided in this Agreement, their respective successors and assigns.
Notwithstanding the foregoing, no party shall make any assignment of this
Agreement or any rights or obligations hereunder without the written consent of
all other parties. As used herein, the term "assignment" shall have the meaning
ascribed thereto in the 1940 Act. The parties hereby consent to the acquisition
of the Adviser by Deutsche Bank, AG.
9.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York without giving effect to the choice of law or conflicts of
law provisions thereof.
9.8 COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which shall
constitute one and the same instrument, and any party hereto may execute this
Agreement by signing one or more counterparts.
9.9 THIRD PARTIES
Nothing herein expressed or implied is intended or shall be construed to confer
upon or give any person, other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
9.10 INTERPRETATION
Any uncertainty or ambiguity existing herein shall not presumptively be
interpreted against any party, but shall be interpreted according to the
application of the rules of interpretation for arm's length agreements.
9.11 LIMITATION OF LIABILITY
The parties hereby acknowledge that the Company has entered into this Agreement
solely on behalf of the Fund and that no other series of the Company shall have
any obligation hereunder with respect to any liability of the Company arising
hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers, thereunto duly authorized, as of the date first
written above.
SECURITY MANAGEMENT COMPANY, LLC
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
SECURITY INCOME FUND on behalf of itself and the [FUND NAME], a series thereof
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
BT PRESERVATIONPLUS INCOME PORTFOLIO
By:
---------------------------
Name: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST COMPANY
By:
---------------------------
Name: Brian Wixted
Title: Principal
<PAGE>
RECORDKEEPING AND INVESTMENT
ACCOUNTING AGREEMENT
The parties to this Agreement are Security Management Company, LLC,
("Security Management"), a Kansas Corporation, having its principal place of
business at __________ on behalf of SECURITY INCOME FUND (the "TRUST") and
SECURITY CAPITAL PRESERVATION FUND (the "FUND"), a series of the Trust, and
BANKERS TRUST COMPANY ("BANKERS"), a New York banking corporation, having its
principal place of business at 130 Liberty Street, New York, NY 10006. This
Agreement is made effective as of _______________, 1999.
WITNESS
WHEREAS, the Trust is registered as an "investment company" under the
Investment Company Act of 1940 (the "1940 Act") and the Fund is a duly
authorized series of the Trust; and
WHEREAS, Bankers performs certain investment accounting and recordkeeping
services on a computerized accounting system (the "Portfolio Accounting System")
in connection with maintaining certain accounting records of the Fund;
WHEREAS, Security Management desires to appoint Bankers as recordkeeping and
investment accounting sub-agent for the Fund, and Bankers is willing to accept
such appointment;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF INVESTMENT ACCOUNTING AND RECORDKEEPING SUB-AGENT. Security
Management hereby constitutes and appoints Bankers as investment accounting
and recordkeeping sub-agent for the Fund to perform accounting and
recordkeeping functions related to portfolio transactions required of the
Fund under Rule 31a-1 of the 1940 Act and to calculate the net asset value
of the Fund.
2. REPRESENTATIONS AND WARRANTIES OF SECURITY MANAGEMENT. Security Management
hereby represents, warrants and acknowledges to Bankers:
(a) That it is a corporation duly organized and existing and in good
standing under the laws of Kansas;
(b) That it has the requisite power and authority under applicable law, its
charter and its bylaws to enter into this Agreement; that it has taken
all requisite action necessary to appoint Bankers as investment
accounting and recordkeeping sub-agent for Fund; that this Agreement
has been duly executed and delivered by Security Management on behalf
of the Fund; and that this Agreement constitutes a legal, valid and
binding obligation of Security Management, enforceable in accordance
with its terms; and
(c) That it has determined to its satisfaction that the Portfolio
Accounting System is appropriate and suitable for its needs.
3. REPRESENTATIONS AND WARRANTIES OF BANKERS. Bankers hereby represents,
warrants and acknowledges to Security Management:
(a) That it is a New York banking corporation duly organized and existing
and in good standing under the laws of the State of New York;
(b) That it has the requisite power and authority under applicable law, its
charter and its bylaws to enter into and perform this Agreement; that
this Agreement has been duly executed and delivered by Bankers; and
that this Agreement constitutes a legal, valid and binding obligation
of Bankers, enforceable in accordance with its terms; and
(c) That the accounts and records maintained and preserved by Bankers shall
be the property of the Fund and that it will not use any information
made available to it under the terms hereof for any purpose other than
complying with its duties and responsibilities hereunder or as
specifically authorized by the Fund in writing.
4. DUTIES AND RESPONSIBILITIES OF THE FUND.
(a) Fund shall turn over to Bankers all of Fund's accounts and records
previously maintained, if any.
(b) Fund shall provide to Bankers the information necessary to perform
Bankers' duties and responsibilities hereunder in a written or printed
instrument, or an electronic equivalent acceptable to Bankers, prior to
the close of the New York Stock Exchange on each day on which Bankers
prices the Funds' securities and foreign currency holdings.
(c) Fund shall furnish Bankers with the declaration, record and payment
dates and amounts of any dividends or income and any other special
actions required concerning the securities in the portfolio when such
information is not readily available from generally accepted securities
industry services or publications.
(d) Fund shall pay to Bankers such compensation at such time as may from
time to time be agreed upon in writing by Bankers and Fund. The initial
compensation schedule is attached as Exhibit A.
(e) Fund shall provide to Bankers, as conclusive proof of any fact or
matter required to be ascertained from Fund as reasonably determined by
Bankers, a certificate signed by Fund's president or other officer of
Fund, or other authorized individual, as reasonably requested by
Bankers. Fund shall also provide to Bankers instructions with respect
to any matter concerning this Agreement requested by Bankers. Bankers
may rely upon any instruction or information furnished by any person
reasonably believed by it to be an officer or agent of Fund, and shall
not be held to have notice of any change of authority of any such
person until receipt of written notice thereof from Fund.
(f) Fund shall preserve the confidentiality of the Portfolio Accounting
System and the tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other materials
relevant to, the Portfolio Accounting System and the business of
Bankers (collectively, "Confidential Information"). Fund shall not
voluntarily disclose such Confidential Information to any other person
other than its own employees or agents who reasonably have a need to
know such information pursuant to this Agreement. Fund shall return all
such Confidential Information to Bankers upon termination or expiration
of this Agreement.
(g) If Bankers shall provide Fund direct access to the computerized
recordkeeping and reporting system used hereunder or if Bankers and
Fund shall agree to utilize any electronic system of communication,
Fund shall be fully responsible for any and all consequences of the use
or misuse of the terminal device, passwords, access instructions and
other means of access to such system(s) which are utilized by, assigned
to or otherwise made available to the Fund. Fund agrees to implement
and enforce appropriate security policies and procedures to prevent
unauthorized or improper access to or use of such system(s). Bankers
shall be fully protected in acting hereunder upon any instructions,
communications, data or other information received by Bankers by such
means as fully and to the same effect as if delivered to Bankers by
written instrument signed by the requisite authorized representative(s)
of the Fund.
5. DUTIES AND RESPONSIBILITIES OF BANKERS.
(a) Bankers shall calculate Fund's net asset value in accordance with
Fund's registration statement and applicable regulations.
(b) With the direction of Fund, or Fund's accountants, or other advisors,
Bankers shall prepare and maintain, in complete, accurate, and current
form, all accounts and records necessary as a basis for calculation of
Fund's net asset value, and shall preserve such records in the manner
and for the periods required by law or for such longer period as the
parties may agree upon in writing.
(c) Bankers shall make available to Fund for inspection or reproduction
within a reasonable time, upon demand, all accounts and records of Fund
maintained and preserved by Bankers.
(d) Bankers shall be entitled to rely conclusively on the completeness and
correctness of any and all accounts and records turned over to it by
Fund.
(e) Bankers shall assist Fund's independent accountants, or upon approval
of Fund or upon demand, any regulatory body, in any requested review of
Fund's accounts and records maintained by Bankers but shall be
reimbursed by Fund for all expenses and employee time invested in any
such review outside of routine and normal periodic reviews. Inspections
conducted by the Securities and Exchange Commission shall be considered
routine.
(f) Bankers shall respond to reasonable requests for information from Fund
books and records maintained by Bankers. Reasonable requests include
information necessary for Fund to prepare tax returns, questionnaires,
periodic reports to shareholders and other such other reports as Fund
and Bankers shall agree upon from time to time.
(g) Bankers shall not have any responsibility hereunder to Fund, Fund's
shareowners or any other person or entity for moneys or securities of
Fund, whether held by Fund or Fund's custodians.
6. INDEMNIFICATION.
(a) Fund shall indemnify and hold Bankers harmless from and against any and
all costs, expenses, losses, damages, charges, reasonable counsel fees,
payments and liabilities which may be asserted against or incurred by
Bankers, or for which it may be liable, arising out of or attributable
to:
1. Bankers' action or omission to act pursuant hereto, except for any
loss or damage arising from any negligent act or willful
misconduct of Bankers.
2. Bankers' payment of money as requested by Fund, or the taking of
any action which might make Bankers liable for payment of money;
provided, however, that Bankers shall not be obligated to expend
its own moneys or to take any such action except in Bankers' sole
discretion.
3. Bankers' action or omission to act hereunder upon any
instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to
have been properly executed.
4. Bankers' action or omission to act in good faith reliance on the
advice or opinion of counsel acceptable to both the Fund and
Bankers.
5. Banker's action or omission to act in good faith reliance on
statements of counsel to the Fund, the Fund's independent
accountants, and the Fund's officers or other authorized
individuals provided by Fund resolution.
6. The legality of the issue, sale or purchase of any shares of the
Fund, the sufficiency of the purchase or sale price, or the
declaration of any dividend by the Fund, whether paid in cash or
stock.
7. Any error, omission, inaccuracy or other deficiency in Fund's
accounts and records or other information provided by or on behalf
of Fund to Bankers, or the failure of the Fund to provide, or
provide in a timely manner, the information needed by Bankers to
perform its functions.
8. The Fund's refusal or failure to comply with the terms of this
Agreement, the Fund's negligence or willful misconduct in
connection with the performance of its duties hereunder, or the
failure of any representation of the Fund hereunder to be and
remain true and correct in all respects at all times.
9. The use or misuse, whether authorized or unauthorized, of the
Portfolio Accounting System or other computerized recordkeeping
and reporting system to which Bankers provides Fund direct access
hereunder or of any other electronic system of communication used
hereunder by Fund or by any person who acquires access to such
system(s) through the terminal device, passwords, access
instruction or other means of access to such system(s) which are
utilized by, assigned to or otherwise made available to the Fund,
except to the extent attributable to any negligence or willful
misconduct by Bankers.
(b) Bankers shall indemnify and hold Fund harmless from and against any and
all costs, expenses, losses, damages, charges, reasonable counsel fees,
payments and liabilities which may be asserted against or incurred by
Fund or for which it may be liable, arising out of or attributable to:
1. Bankers' refusal to comply with the terms of this Agreement or the
failure of any representation or warranty of Bankers hereunder to
be and remain true and correct in all respects at all times.
2. Any negligent or willful misconduct of Bankers, including direct
losses occasioned by the negligent error of Bankers in calculating
the Fund's net asset value; provided, however, that the Fund shall
accept Bankers' offer to minimize or eliminate any resulting
monetary damages by employing such alternatives as reprocessing
fund shareowner transaction, which alternative shall be done at
the reasonable expense of Bankers.
3. The failure of Bankers to comply with applicable law in connection
with the performance of its duties hereunder.
(c) In no event shall Bankers or Fund be liable for consequential, special
or punitive damages.
7. FORCE MAJEURE. Bankers shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation: any interruption, loss or
malfunction of any utility, transportation, computer (hardware or software)
or communication service; inability to obtain labor, material, equipment or
transportation, or a delay in mails; governmental or exchange action,
statute, ordinance, rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, vandalism, explosions, labor
disputes, freezes, floods, fires, tornadoes, acts of God or public enemy,
revolutions, or insurrection.
8. PROCEDURES. Bankers and Fund may from time to time adopt procedures as they
agree upon, and Bankers may conclusively assume that any procedure approved
or directed by Fund or its accountants or other advisors does not conflict
with or violate any requirements of Fund's prospectus, charter or
declaration of trust, bylaws, any applicable law, rule or regulation, or any
order, decree or agreement by which the Fund may be bound.
9. TERM AND TERMINATION. The initial term of this Agreement shall be a period
of one year commencing on the effective date hereof. This Agreement shall
continue thereafter until terminated by either party by notice in writing
received by the other party not less than ninety (90) days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement:
(a) Fund shall pay to Bankers its fees and compensation due hereunder.
(b) Fund shall designate a successor (which may be Fund) by notice in
writing to Bankers on or before the termination date.
(c) Bankers shall deliver to the successor, or if none has been designated,
to Fund, at Bankers' office, all records, funds and other properties of
Fund deposited with or held by Bankers hereunder. In the event that
neither a successor nor Fund takes delivery of all records, funds and
other properties of Fund by the termination date, Bankers' sole
obligation with respect thereto from the termination date until
delivery to a successor or Fund shall be to exercise reasonable care to
hold the same in custody in its form and condition as of the
termination date, and Bankers shall be entitled to reasonable
compensation therefor, including but not limited to all of its
out-of-pocket costs and expenses incurred in connection therewith.
10. NOTICES. All notices, requests, instructions and other writings shall be
deemed to have been properly given hereunder if addressed as follows:
If to the Fund:
_______________________________
_______________________________
Attention: ____________________
If to Bankers Trust Company
One South Street
Baltimore, MD 21202
Attention: Brian W. Wixted
or to such other address as a party may designate, in writing, to each
other party.
11. MISCELLANEOUS.
(a) This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the
State of New York, without reference to the choice of laws principles
thereof.
(b) All terms and provisions of this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
(c) The representations and warranties and the indemnification extended
hereunder, are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
(d) The confidentiality provisions of Sections 4.F., 4.G., 4.H. shall
continue after and survive the expiration, termination or cancellation
of this Agreement.
(e) No provisions of the Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by each
party hereto.
(f) The failure of either party to insist upon the performance of any terms
or conditions of this Agreement or to enforce any rights resulting from
any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a
continuing or permanent waiver of any such terms, conditions, rights or
privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
(g) The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in two or more separate counterparts,
each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
(i) If any provision of this Agreement shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement shall not be
affected thereby, and every provision of this Agreement shall remain in
full force and effect and shall remain enforceable to the fullest
extent permitted by applicable law.
(j) This Agreement may not be assigned by either party hereto without the
prior written consent of the other. The parties hereby consent to the
acquisition of Bankers by Deutsche Bank AG or an affiliate of Deutsche
Bank AG.
(k) Neither the execution nor performance of this Agreement shall be deemed
to create a partnership or joint venture by and between Fund and
Bankers.
(l) Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by any party hereunder shall not
affect any rights or obligations of any other party hereunder.
(m) Notice is hereby given that a copy of Trust's declaration of trust and
all amendments thereto is on file with the Secretary of State of the
state of its organization; that this Agreement has been executed on
behalf of Fund by the undersigned duly authorized representative of
Fund in his/her capacity as such and not individually; and that the
obligations of this Agreement shall only be binding upon the assets and
property of Trust and shall not be binding upon any trustee, officer or
shareholder of Trust individually.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective and duly authorized officers, to be effective as of the day and
year first above written.
BANKERS TRUST COMPANY
By:
-----------------------------
Title: [ ]
SECURITY MANAGEMENT COMPANY, LLC
By:
-----------------------------
Title: [ ]
SECURITY INCOME FUND
By:
-----------------------------
Title: [ ]
SECURITY CAPITAL PRESERVATION FUND
By:
-----------------------------
Title: [ ]
<PAGE>
EXHIBIT A
FEES
For one fund and one class of that fund $10,000.00
For each additional class $ 2,000 00.
<PAGE>
MANAGEMENT SERVICES AGREEMENT
AGREEMENT, made this _____ day of _______, between Security Income Fund, a
Kansas corporation (the "Fund"), and Security Management Company, LLC, a Kansas
corporation ("Manager").
WHEREAS, the Fund is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue its shares in multiple series with
each such series representing a separate portfolio of securities and other
assets; and
WHEREAS, one of the series of the Fund is the Capital Preservation Series
(referred to hereinafter as the "Series"); and
WHEREAS, the Fund desires to engage the Manager to provide certain services
to the Series; and
WHEREAS, the Manager is willing, in accordance with the terms and conditions
hereof, to provide such services to the Series; and
NOW THEREFORE, in consideration of the mutual agreements set forth herein and
intending to be legally bound hereby, the parties agree as follows:
1. APPOINTMENT AND DUTIES OF MANAGER
(a) The Fund, on behalf of the Series, hereby employs the Manager to
perform the services set forth in this Agreement, subject to the
supervision of the Board of Directors of the Fund, for the period and
on the terms set forth in this Agreement. The Manager hereby accepts
such employment and undertakes to pay the salaries and expense of all
personnel of the Manager who perform services relating to the services
it performs hereunder. The Manager shall for all purposes herein be
deemed to be an independent contractor and shall, except as otherwise
expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed an agent of the
Fund.
(b) Notwithstanding the foregoing, the Manager shall not be deemed to have
assumed any duties hereunder with respect to, and shall not, by the
execution of this Agreement be responsible for, the management of the
Funds' assets or the rendering of investment advice and supervision
with respect thereto, or the distribution of shares of the Funds, nor
shall the Manager be deemed to have assumed any responsibility
hereunder with respect to functions specifically assumed by any
administrator, transfer agent, custodian or shareholder servicing agent
of the Fund or the Series.
(c) Without limiting the generality of the foregoing, the Manager shall
provide the following services to the Series (as well as the services
set forth in Section1(d) below):
i. Provide information to and coordinate the Series' relationship
with registered investment advisors and other securities
professionals who have discretionary authority over Series
shareholder accounts, assist in facilitating instructions
received by such persons relating to Fund business and furnish
facilities and personnel necessary to perform such activities.
ii. Assist as appropriate and coordinate with the Fund's service
providers in administering the affairs of the Series and perform
services on the Series' behalf.
iii. Pay the salaries and expenses of all officers and Directors of
the Fund who are employees of the Manager.
(d) It is intended that the assets of the Series will be invested in a
portfolio (the Portfolio") having substantially the same investment
objective, policies and restrictions as the Series. In addition to its
duties hereunder, set forth in paragraph 1(c), above, with respect to
the Series, the Manager shall perform the following:
i. Monitor the performance of the Portfolio;
ii. Coordinate the relationship of the Series with the Portfolio;
iii. Communicate with the Board of Directors of the Fund regarding the
performance of the Portfolio and the Series;
iv. Furnish reports regarding the Portfolio as reasonably requested
from time-to-time by the Fund's Board of Directors.
v. Perform such other necessary and desirable services regarding the
"Master Feeder" structure of the Series as the Directors may
reasonably request from time to time, including providing certain
indemnification to the Portfolio and the investment advisor on
behalf of the Series.
(e) In carrying out its responsibilities under this Agreement, the Manager
shall at all times act in accordance with applicable provisions of the
1940 Act and the rules and regulations promulgated thereunder and other
applicable federal securities laws.
(f) The Manager shall render regular reports as requested by the Board of
Directors, and will, at the reasonable request of the Board, attend
meetings of the board or its validly constituted committees, and will
make its officers and employees available to meet with the Board to
discuss its duties hereunder.
2. EXPENSES AND COMPENSATION
(a) Allocation of Expenses. The Manager shall, at its expense, employ or
associate with itself such persons as it believes appropriate to assist
in performing its obligations under this Agreement and provide all
services, equipment, facilities and personnel necessary to perform it
obligations under this Agreement. The Fund shall be responsible for all
its expenses and liabilities not otherwise specifically assumed by the
Manager hereunder.
(b) Compensation. For its services under this Agreement, Manager shall be
entitled to receive a fee at the annual rate of 20% of the average
daily net asset value of the Series payable monthly. For the purpose of
accruing compensation, the net asset value of the Series will be
determined in the manner provided in the then-current Prospectus of the
Fund.
3. LIABILITY OF MANAGER. Neither the Manager nor its officers, directors,
employees, agents or controlling person ("Associated Person") of the Manager
shall be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund or Series in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Manager or such Associated Persons
in the performance of their duties or from reckless disregard by them of
their duties under this Agreement.
4. DURATION AND TERMINATION OF THIS AGREEMENT
(a) DURATION. This Agreement shall become effective on the date hereof.
Unless terminated as herein provided, this Agreement shall remain in
full force and effect for two years from the date hereof. Subsequent to
such initial period of effectiveness, this Agreement shall continue in
full force and effect for successive periods of one year thereafter so
long as such continuance is approved at least annually by the Directors
of the Fund, including the vote of a majority of the Directors of the
Fund who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of any such party.
(b) AMENDMENT. Any amendment to this Agreement shall become effective only
upon the written approval of the Manager and the Fund.
(c) TERMINATION. This Agreement may be terminated at any time, without
payment of any penalty, by vote of the Directors or by vote of a
majority of the outstanding voting securities (as defined in the 1940
Act) of the Series, or by the Manager, in each case upon sixty (60)
days' prior written notice to the other party. Any termination of this
Agreement will be without prejudice to the completion of transactions
already initiated by the Manager on behalf of the Series at the time of
such termination. The Manager shall take all steps reasonably necessary
after such termination to complete any such transactions and is hereby
authorized to take such steps.
(d) AUTOMATIC TERMINATION. This Agreement shall automatically and
immediately terminate in the event of its assignment (as defined in the
1940 Act).
5. SERVICES NOT EXCLUSIVE. The services of the Manager to the Series of the
Fund hereunder are not to be deemed exclusive, and the Manager shall be free
to render similar services to others so long as its services hereunder are
not impaired thereby.
6. MISCELLANEOUS
(a) NOTICE. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for the receipt of
such notices.
(b) SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
shall not be thereby affected.
(c) APPLICABLE LAW. This Agreement shall be construed in accordance with
and governed by the laws of Kansas.
Security Management Company, LLC Security Income Fund
- ---------------------------------- -------------------------------
By: By:
Title: Title:
Attest: Attest:
- ---------------------------------- -------------------------------
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
This Agreement, made and entered into this 1st day of April, 1987, by and
between Security Income Fund, a Kansas corporation ("Fund"), and Security
Management Company, a Kansas corporation, ("SMC").
WHEREAS, the Fund is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940; and
WHEREAS, Security Management Company is willing to provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. EMPLOYMENT OF SECURITY MANAGEMENT COMPANY
SMC will provide the Fund with general administrative, fund accounting,
transfer agency, and dividend disbursing services described and set forth
in Schedule A attached hereto and made a part of this agreement by
reference. SMC agrees to maintain sufficient trained personnel and
equipment and supplies to perform such services in conformity with the
current prospectus of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify, and otherwise in an
accurate, timely, and efficient manner.
2. COMPENSATION
As consideration for the services described in Section I, the Fund agrees
to pay SMC a fee as described and set forth in Schedule B attached hereto
and made a part of this agreement by reference, as it may be amended from
time to time, such fee to be calculated and accrued daily and payable
monthly.
3. EXPENSES
A. EXPENSES OF SMC. SMC shall pay all of the expenses incurred in
providing Fund the services and facilities described in this agreement,
whether or not such expenses are billed to SMC or the fund, except as
otherwise provided herein.
B. DIRECT EXPENSES. Anything in this agreement to the contrary
notwithstanding, the Fund shall pay, or reimburse SMC for the payment
of, the following described expenses of the Fund (hereinafter called
"direct expenses") whether or not billed to the Fund, SMC or any
related entity:
1. Fees and expenses of its independent directors and the meetings
thereof;
2. Fees and costs of investment advisory services;
3. Fees and costs of independent auditors and income tax
preparation;
4. Fees and costs of outside legal counsel and any legal counsel
directly employed by the Fund or its Board of Directors;
5. Custodian and banking services, fees and costs;
6. Costs of printing and mailing prospectuses to existing
shareholders, proxy statements and other reports to shareholders,
where such costs are incurred through the use of unaffiliated
vendors or mail services.
7. Fees and costs for the registration of its securities with the
Securities and Exchange Commission and the jurisdictions in which
it qualifies its share for sale, including the fees and costs of
registering and bonding brokers, dealers and salesmen as
required;
8. Dues and expenses associated with membership in the Investment
Company Institute;
9. Expenses of fidelity and liability insurance and bonding covering
Fund;
10. Organizational costs.
4. INSURANCE
The Fund and SMC agree to procure and maintain, separately or as joint
insureds with themselves, their directors, employees, agents and others,
and other investment companies for which SMC acts as investment advisor and
transfer agent, a policy or policies of insurance against loss arising from
breaches of trust, errors and omissions, and a fidelity bond meeting the
requirements of the Investment Company Act of 1940, in the amounts and with
such deductibles as may be agreed upon from time to time, and to pay such
portions of the premiums therefor as amount of the coverage attributable to
each party is to the aggregate amount of the coverage for all parties.
5. REGISTRATION AND COMPLIANCE
A. SMC represents that as of the date of this agreement it is registered
as a transfer agent with the Securities and Exchange Commission ("SEC")
pursuant to Subsection 17A of the Securities and Exchange Act of 1934
and the rules and regulations thereunder, and agrees to maintain said
registration and comply with all of the requirements of said Act, rules
and regulations so long as this agreement remains in force.
B. The Fund represents that it is a diversified management investment
company registered with the SEC in accordance with the Investment
Company Act of 1940 and the rules and regulations thereunder, and
authorized to sell its shares pursuant to said Act, the Securities Act
of 1933 and the rules and regulations thereunder.
6. LIABILITIES AND INDEMNIFICATION
SMC shall be liable for any actual losses, claims, damages or expenses
(including any reasonable counsel fees and expenses) resulting from SMC's
bad faith, willful misfeasance, reckless disregard of its obligations and
duties, negligence or failure to properly perform any of its
responsibilities or duties under this agreement. SMC shall not be liable
and shall be indemnified and held harmless by the Fund, for any claim,
demand or action brought against it arising out of, or in connection with:
A. Bad faith, willful misfeasance, reckless disregard of its duties or
negligence of the Board of Directors of the Fund, or SMC's acting upon
any instructions properly executed and authorized by the Board of
Directors of the Fund;
B. SMC acting in reliance upon advice given by independent counsel
retained by the Board of Directors of the Fund.
In the event that SMC requests the Fund to indemnify or hold it harmless
hereunder, SMC shall use its best efforts to inform the Fund of the
relevant facts concerning the matter in question. SMC shall use reasonable
care to identify and promptly notify the Fund concerning any matter which
presents, or appears likely to present, a claim for indemnification against
the Fund.
The Fund shall have the election of defending SMC against any claim which
may be the subject of indemnification hereunder. In the event the Fund so
elects, it will so notify SMC and thereupon the Fund shall take over
defenses of the claim, and (if so requested by the Fund, SMC shall incur no
further legal or other claims related thereto for which it would be
entitled to indemnity hereunder provided, however, that nothing herein
contained shall prevent SMC from retaining, at its own expense, counsel to
defend any claim. Except with the Fund's prior consent, SMC shall in no
event confess any claim or make any compromise in any matter in which the
Fund will be asked to indemnify or hold SMC harmless hereunder.
PUNITIVE DAMAGES. SMC shall not be liable to the Fund, or any third
party, for punitive, exemplary, indirect, special or consequential
damages (even if SMC has been advised of the possibility of such
damages) arising from its obligations and the services provided under
this agreement, including but not limited to loss of profits, loss of
use of the shareholder accounting system, cost of capital and expenses
of substitute facilities, programs or services.
FORCE MAJEURE. Anything in this agreement to the contrary
notwithstanding, SMC shall not be liable for delays or errors occurring
by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies,
work stoppages, fire, flood, catastrophe, earthquake, acts of God,
insurrection, war, riot, failure of communication or interruption.
7. DELEGATION OF DUTIES
SMC may, at its discretion, delegate, assign or subcontract any of the
duties, responsibilities and services governed by this agreement, to its
parent company, Security Benefit Group, Inc., whether or not by formal
written agreement. SMC 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.
8. AMENDMENT
This agreement and the schedules forming a part hereof may be amended at
any time, without shareholder approval, by a writing signed by each of the
parties hereto. Any change in the Fund's registration statements or other
documents of compliance or in the forms relating to any plan, program or
service offered by its current prospectus which would require a change in
SMC's obligations hereunder shall be subject to SMC's approval, which shall
not be unreasonably withheld.
9. TERMINATION
This agreement may be terminated by either party without cause upon 120
days' written notice to the other, and at any time for cause in the event
that such cause remains unremedied for more than 30 days after receipt by
the other party of written specification of such cause.
In the event Fund designates a successor to any of SMC's obligations
hereunder, SMC shall, at the expense and pursuant to the direction of the
Fund, transfer to such successor all relevant books, records and other data
of Fund in the possession or under the control of SMC.
10. SEVERABILITY
If any clause or provision of this agreement is determined to be illegal,
invalid or unenforceable under present or future laws effective during the
term hereof, then such clause or provision shall be considered severed
herefrom and the remainder of this agreement shall continue in full force
and effect.
11. TERM
This agreement initially shall become effective upon its approval by a
majority vote of the Board of Directors of the Fund, including a majority
vote of the Directors who are not "interested persons" of Fund or SMC, as
defined in the Investment Company Act of 1940, and shall continue until
terminated pursuant to its provisions.
12. APPLICABLE LAW
This agreement shall be subject to and construed in accordance with the
laws of the State of Kansas.
SECURITY MANAGEMENT COMPANY
BY: Everett S. Gille, President
------------------------------
ATTEST:
Barbara W. Rankin, Secretary
SECURITY INCOME FUND
BY: Everett S. Gille, President
------------------------------
ATTEST:
Barbara W. Rankin, Secretary
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule of Administrative and Fund Accounting
Facilities and Services
Security Management Company agrees to provide the Fund the following
Administrative facilities and services:
1. FUND AND PORTFOLIO ACCOUNTING
A. Maintenance of Fund General Ledger and Journal.
B. Preparing and recording disbursements for direct fund expenses.
C. Preparing daily money transfers.
D. Reconciliation of all Fund bank and custodian accounts.
E. Assisting Fund independent auditors as appropriate.
F. Prepare daily projection of available cash balances.
G. Record trading activity for purposes of determining net asset values and
daily dividend.
H. Prepare daily portfolio evaluation report to value portfolio securities
and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine the daily, monthly, quarterly, semiannual or annual dividend
per share.
K. Prepare monthly, quarterly, semiannual and annual financial statements.
L. Provide financial information for reports to the securities and exchange
commission in compliance with the provisions of the Investment Company
Act of 1940 and the Securities Act of 1933, the Internal Revenue Service
and other regulatory agencies as required.
M. Provide financial, yield, net asset value, etc. information to NASD and
other survey and statistical agencies as instructed by the Fund.
N. Report to the Audit Committee of the Board of Directors, if applicable.
2. LEGAL
A. Provide registration and other administrative services necessary to
qualify the shares of the Fund for sale in those jurisdictions
determined from time to time by the Fund's Board of Directors (commonly
known as "Blue Sky Registration").
B. Provide registration with and reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Company
Act of 1940 and the Securities Act of 1933.
C. Prepare and review Fund prospectus and Statement of Additional
Information.
D. Prepare proxy statements and oversee proxy tabulation for annual
meetings.
E. Prepare Board materials and maintain minutes of Board meetings.
F. Draft, review and maintain contractual agreements between Fund and
Investment Advisor, Custodian, Distributor and Transfer Agent.
G. Oversee printing of proxy statements, financial reports to shareholders,
prospectuses and Statements of Additional Information.
H. Provide legal advice and oversight regarding shareholder transactions,
administrative services, compliance with contractual agreements and the
provisions of the 1940 and 1933 Acts.
(Notwithstanding the above, outside counsel for the Funds may provide the
services listed above as a direct Fund expense or at the option of the
Funds, the Funds may employ their own counsel to perform any of these
services.)
<PAGE>
SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES
Security Management Company agrees to provide the Fund the following transfer
agency and dividend disbursing services:
1. Maintenance of shareholder accounts, including processing of new accounts.
2. Posting address changes and other file maintenance for shareholder
accounts.
3. Posting all transactions to the shareholder file, including:
A. Direct purchases
B. Wire order purchases
C. Direct redemptions
D. Wire order redemptions
E. Draft redemptions
F. Direct exchanges
G. Transfers
H. Certificate issuances
I. Certificate deposits
4. Monitor fiduciary processing, insuring accuracy and deduction of fees.
5. Prepare daily reconciliations of shareholder processing to money movement
instructions.
6. Handle bounced check collections. Immediately liquidate shares purchased
and return to the shareholder the check and confirmation of the
transaction.
7. Issuing all checks and stopping and replacing lost checks.
8. Draft clearing services.
A. Maintenance of signature cards and appropriate corporate resolutions.
B. Comparison of the signature on the check to the signatures on the
signature card for the purpose of paying the face amount of the check
only.
C. Receiving checks presented for payment and liquidating shares after
verifying account balance.
D. Ordering checks in quantity specified by the Fund for the shareholder.
9. Mailing confirmations, checks and/or certificates resulting from
transaction requests to shareholders.
10. Performing all of the Fund's other mailings, including:
A. Dividend and capital gain distributions.
B. Semiannual and annual reports.
C. 1099/year-end shareholder reporting.
D. Systematic withdrawal plan payments.
E. Daily confirmations.
11. Answering all service related telephone inquiries from shareholders and
others, including:
A. General and policy inquiries (research and resolve problems).
B. Fund yield inquiries.
C. Taking shareholder processing requests and account maintenance changes
by telephone as described above.
D. Submit pending requests to correspondence.
E. Monitor online statistical performance of unit.
F. Develop reports on telephone activity.
12. Respond to written inquiries (research and resolve problems), including:
A. Initiate shareholder account reconciliation proceeding when
appropriate.
B. Notify shareholder of bounced investment checks.
C. Respond to financial institutions regarding verification of deposit.
D. Initiate proceedings regarding lost certificates.
E. Respond to complaints and log activities.
F. Correspondence control.
13. Maintaining and retrieving all required past history for shareholders and
provide research capabilities as follows:
A. Daily monitoring of all processing activity to verify back-up
documentation.
B. Provide exception reports.
C. Microfilming.
D. Storage, retrieval and archive.
14. Prepare materials for annual meetings.
A. Address and mail annual proxy and related material.
B. Prepare and submit to Fund and affidavit of mailing.
C. Furnish certified list of shareholders (hard copy or microfilm) and
inspectors of election.
15. Report and remit as necessary for state escheat requirements.
Approved: Fund _________________________________________SMC Everette S. Gille
<PAGE>
---------------------------------------------------------------
MODEL: MONTHLY FUNDS
-------------
MAINTENANCE FEE.................................. $8.00
TRANSACTIONS..................................... $1.00
DIVIDENDS........................................ $0.50
ADMINISTRATION FEE............................... 0.00045
(BASED ON DAILY NET ASSET VALUE)
----------------------------------------------------------------
MASTER WORKSHEET BOND GOV HIGH YIELD
-----------------------------------------------
1986:
TRANSACTIONS - 6,897 603 260
DIVIDENDS - 23,264 2,195 314
SHAREHOLDER ACCTS - 3,574 226 258
AVERAGE NET ASSETS - 45,164,242.34 2,260,755.40 2,948,233.60
INCOME - 4,804,113.27 207,258.25 223,104.47
EXPENSES - 449,036.13 21,101.91 17,675.96
SERVICE FEES - 50,806.27 962.23 1,118.94
1986 1986
SERVICE TRANSFER & EXPENSE EXPENSE
FEES ADMINISTRATION PERCENT RATIO RATIO
ACTUAL MODEL INCREASE ACTUAL MODEL
-----------------------------------------------------------------
BOND 50,806.27 67,444.91 32.75% 0.994% 1.031%
GOVERNMENT 962.23 4,525.84 370.35% 0.933% 1.091%
HIGH YIELD 1,118.94 2,603.71 132.69% 0.600% 0.862%
<PAGE>
SCHEDULE B
AMENDMENT TO SECURITY INCOME FUND
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule of Fees
Annual Maintenance Fee........................$8.00 per account
Transactions..................................$1.00 per transaction
Administration Fee............................0.09% of the average net assets of
the Fund (calculated daily and payable monthly).
This amendment shall take effect as of April 28, 1989.
In witness thereof, the parties hereto have caused this amendment to be
executed on the date indicated.
Security Income Fund
By: Michael J. Provines, President
Date: January 27, 1989
Attest:
Amy J. Lee, Secretary
Security Management Company
By: Michael J. Provines, President
Date: January 27, 1989
Attest:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and
Security Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, (the
"Administrative Services Agreement") under which SMC agrees to provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund in return for the compensation specified in the
Administrative Services Agreement; and
WHEREAS, on July 7, 1989, the Board of Directors of the Fund voted to amend the
Administrative Services Agreement to provide for payment by the Fund of the fees
of all directors;
NOW THEREFORE, the Fund and the Management Company hereby amend the
Administrative Services Agreement, dated April 1, 1987, effective July 7, 1989,
as follows:
Paragraph 3.B.1. shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
3. EXPENSES
B. DIRECT EXPENSES
1. Fees and expenses of its directors (including the fees of those
directors who are deemed to be "interested persons" of the Fund
as that term is defined in the Investment Company Act of 1940)
and the meetings thereof;
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Services Agreement this 7th day of July, 1989.
SECURITY INCOME FUND
By: Michael J. Provines, President
Attest:
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Michael J. Provines, President
Attest:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and
Security Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, as
amended January 27, 1989, and July 7, 1989, (the "Administrative Services
Agreement") under which SMC agrees to provide general administrative, fund
accounting, transfer agency, and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Services Agreement;
and
WHEREAS, on July 27, 1990, the Board of Directors of the Fund voted to amend the
Administrative Services Agreement to provide for payment by the Fund of the fees
of only those directors who are not "interested persons" of the Fund;
NOW THEREFORE, the Fund and SMC hereby amend the Administrative Services
Agreement, dated April 1, 1987, effective July 27, 1990, as follows:
Paragraph 3.B.1. shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
3. EXPENSES
B. DIRECT EXPENSES
1. Fees and expenses of its directors (including the fees of those
directors who are deemed to be "interested persons" of the Fund
as that term is defined in the Investment Company Act of 1940)
and the meetings thereof;
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Services Agreement this 27th day of July, 1990.
SECURITY INCOME FUND
By: Michael J. Provines, President
Attest:
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Michael J. Provines, President
Attest:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE
SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Limited
Maturity Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series and U.S. Government Series;
WHEREAS, on October 21, 1994, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Limited Maturity Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on October 21, 1994, the Board of Directors approved the amendment of
the Administrative Agreement to provide that the Management Company would
provide general administrative, fund accounting, transfer agency, and dividend
disbursing services to each class of the Limited Maturity Bond Series under the
terms and conditions of the Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, to provide that the Management Company shall
provide those administrative and other services described in the Administrative
Contract, and each of the Management Company and the Fund shall fulfill all of
their respective obligations under the Administrative Contract, as to each of
the Series of the Fund, including the Limited Maturity Bond Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this 30th day of December 1994.
SECURITY INCOME FUND
By: John D. Cleland
-----------------------------------
John D. Cleland, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Global
Aggressive Bond Series, in addition to its presently offered series of common
stock of Corporate Bond Series, Limited Maturity Bond Series and U.S. Government
Series;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Global Aggressive Bond Series in two
classes, designated Class A shares and Class B shares; and
WHEREAS, on February 3, 1995, the Board of Directors approved the amendment of
the Administrative Agreement to provide that the Management Company would
provide general administrative, fund accounting, transfer agency, and dividend
disbursing services to each class of the Global Aggressive Bond Series under the
terms and conditions of the Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, dated April 1, 1987, as follows, effective May 1,
1995,
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover the Global
Aggressive Bond Series of the Fund.
3. Paragraph 7 shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
DELEGATION OF DUTIES
The Management Company may, at its discretion, delegate, assign or
subcontract any of the duties, responsibilities and services governed by
this agreement, to its parent company, Security Benefit Group, Inc., whether
or not by formal written agreement, or to any third party, provided that
such arrangement with a third party has been approved by the Board of
Directors of the Fund. The Management Company 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this 28th day of April, 1995.
SECURITY INCOME FUND
By: John D. Cleland
-----------------------------------
John D. Cleland, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
SECURITY INCOME FUND ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of Security Income Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: 0.45% (based on daily net asset value)
The following charges apply only to Global Aggressive Bond Series of the
Security Income Fund:
Global Administration Fee: In addition to the above fees, Global Aggressive Bond
Series shall pay an annual fee equal to the greater of .10 percent of its
average net assets or (i) $30,000 in the year ending April 29, 1996; (ii)
$45,000 in the year ending April 29, 1997; and (iii) $60,000 thereafter. If this
Agreement shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees set forth above.
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (hereinafter referred to as the "Fund") and
Security Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, as
amended, (the "Administrative Agreement"), under which SMC provides general
administrative, fund accounting, transfer agency and dividend disbursing
services to the Fund in return for the compensation specified in the
Administrative Agreement;
WHEREAS, on February 2, 1996, the Board of Directors of the Fund voted to amend
the Administrative Agreement to provide for payment by the Fund for costs
associated with preparing and transmitting electronic filings to the Securities
and Exchange Commission or any other regulating authority;
NOW THEREFORE, the Fund and SMC hereby amend paragraph 3B of the Administrative
Agreement, effective February 2, 1996, by adding the following language at the
end of paragraph 3B:
11. Costs associated with the preparation and transmission of any
electronic filings to the Securities and Exchange Commission or any
other regulating authority.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 2nd day of February, 1996.
SECURITY INCOME FUND
By: John D. Cleland
-----------------------------------
John D. Cleland, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as the High Yield Series,
in addition to its presently offered series of common stock of Corporate Bond
Series, Limited Maturity Bond Series, U.S. Government Series, and Global
Aggressive Bond Series;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund further authorized
the Fund to offer shares of the High Yield Series in two classes, designated
Class A shares and Class B shares; and
WHEREAS, on May 3, 1996, the Board of Directors approved the amendment of the
Administrative Agreement to provide that the Management Company would provide
general administrative, fund accounting, transfer agency, and dividend
disbursing services to each class of the High Yield Series under the terms and
conditions of the Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, dated April 1, 1987, as follows, effective July 1,
1996,
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover the High Yield
Series of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this 13th day of May, 1996.
SECURITY INCOME FUND
By: John D. Cleland
-----------------------------------
John D. Cleland, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
SECURITY INCOME FUND ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of Security Income Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: 0.09% (based on daily net asset value)
The following charges apply only to Global Aggressive Bond Series of the
Security Income Fund:
Global Administration Fee: In addition to the above fees, Global Aggressive Bond
Series shall pay an annual fee equal to (i) the greater of .10 percent of its
average net assets or $30,000 in the year beginning April 30, 1995 and ending
April 29, 1996; (ii) the greater of .10 percent of its average net assets or
$45,000 in the year beginning April 30, 1996 and ending April 29, 1997; and
(iii) the greater of .10 percent of its average net assets or $60,000
thereafter. If this Agreement shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees set forth
above.
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Management Company (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement, dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on October 31, 1996, the operations of the Management Company, a Kansas
corporation, will be transferred to Security Management Company, LLC ("SMC,
LLC"), a Kansas limited liability company; and
WHEREAS, SMC, LLC desires to assume all rights, duties and obligations of the
Management Company under the Administrative Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. The Administrative Agreement is hereby amended to substitute SMC, LLC for
Security Management Company, with the same effect as though SMC, LLC were
the originally named management company, effective November 1, 1996;
2. SMC, LLC agrees to assume the rights, duties and obligations of Security
Management Company pursuant to the terms of the Administrative Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Administrative Services and Transfer Agency Agreement this 1st day of November,
1996.
SECURITY INCOME FUND SECURITY MANAGEMENT COMPANY, LLC
By: JOHN D. CLELAND By: JAMES R. SCHMANK
------------------------------ ------------------------------
John D. Cleland, President James R. Schmank, President
ATTEST: ATTEST:
AMY J. LEE AMY J. LEE
- ----------------------------------- -----------------------------------
Amy J. Lee, Secretary Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, Security Income Fund (the "Fund") and Security Management Company, LLC
("SMC") are parties to an Administrative Services and Transfer Agency Agreement
dated April 1, 1987, as amended (the "Administrative Agreement"), under which
the Management Company provides general administrative, fund accounting,
transfer agency and dividend disbursing services to the Fund in return for the
compensation specified in the Administrative Agreement;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Capital
Preservation Series, in addition to its presently offered series of common stock
of Corporate Bond Series, Limited Maturity Bond Series, U.S. Government Series,
Global High Yield Series, High Yield Series, Emerging Markets Total Return
Series and Global Asset Allocation Series;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund further
authorized the Fund to offer shares of the Capital Preservation Series in three
classes, designated Class A shares, Class B shares and Class C shares; and
WHEREAS, on February 10, 1999, the Board of Directors approved the amendment of
the Administrative Agreement to provide that SMC would provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to each class of the Capital Preservation Series under the terms and
conditions of the Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC hereby amend the
Administrative Agreement, dated April 1, 1987, as follows, effective April 30,
1999:
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover the Capital
Preservation Series of the Fund.
3. The following paragraph 2(a) is added:
a) For each of the Fund's full fiscal years this Administrative Agreement
remains in force, SMC agrees that if total annual expenses of the
Capital Preservation Series of the Fund, exclusive of interest, taxes,
extraordinary expenses (such as litigation), and brokerage fees and
commissions, and Rule 12b-1 fees, but inclusive of SMC's compensation,
exceeds the amount of 1.50% (the "Expense Cap"), SMC 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 Administrative
Agreement shall be effective for only a portion of the Series' fiscal
year, then the maximum annual expenses shall be prorated for such
portion.
4. Paragraph 7 shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
DELEGATION OF DUTIES
SMC may, at is discretion, delegate, assign or subcontract any of the
duties, responsibilities and services governed by this agreement, to an
affiliated company, whether or not be formal written agreement, or to any
third party, provided that such arrangement with a third party has been
approved by the Board of Directors of the Fund. SMC 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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this ______ day of _____________, 1999.
ATTEST: SECURITY INCOME FUND
By:
- ------------------------------- ------------------------------
Amy J. Lee, Secretary James R. Schmank, President
ATTEST: SECURITY MANAGEMENT COMPANY, LLC
By:
- ------------------------------- ------------------------------
Amy J. Lee, Secretary James R. Schmank, President
<PAGE>
SECURITY INCOME FUND ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of Security Income Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: 0.09% (based on daily net asset value)
The following charges apply only to Global High Yield Series of the Security
Income Fund: Global Administration Fee: In addition to the above fees, Global
High Yield Series shall pay an annual fee equal to (i) the greater of .10
percent of its average net assets or $30,000 in the year beginning April 30,
1995 and ending April 29, 1996; (ii) the greater of .10 percent of its average
net assets or $45,000 in the year beginning April 30, 1996 and ending April 29,
1997; and (iii) the greater of .10 percent of its average net assets or $60,000
thereafter. If this Agreement shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees set forth
above.
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (785) 431-3000
Security Management Company, LLC
February 9, 1999
Security Income Fund
700 Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
I refer to the registration statement, File No. 2-38414, of Security Income
Fund, a Kansas corporation, hereinafter referred to as the "Company," being
filed with the Securities and Exchange Commission for the purpose of registering
under the Securities Act of 1933 the shares of the Company.
I have examined the Articles of Incorporation and the bylaws of the Company,
minutes of the applicable meetings of the Board of Directors and stockholders of
the Company, and other corporate records, applicable certificates of public
officials, and other documents I have deemed relevant.
Based upon the foregoing, it is my opinion that:
1. The Company is duly organized, existing and in good standing under the laws
of the State of Kansas.
2. The Company has authorization to sell an indefinite number of shares of
capital stock of par value of $1.00 per share pursuant to an indefinite
registration of such shares made effective December 4, 1984.
3. All necessary corporate actions have been taken to authorize the sale by the
company, for the consideration set forth in the registration statement, and,
upon the sale by the Company of those shares, they will be duly issued,
fully paid and nonassessable.
Sincerely,
AMY J. LEE
Amy J. Lee, Esq.
Secretary
Security Income Fund
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
in the Post-Effective Amendment No. 61 to the Registration Statement (Form N-1A)
and related Statement of Additional Information of Capital Preservation Series
of the Security Income Fund filed with the Securities and Exchange Commission
under the Securities Act of 1933 (Registration No. 2-38414) and under the
Investment Company Act of 1940 (Registration No. 811-2120).
Ernst & Young LLP
Kansas City, Missouri
February 16, 1999
<PAGE>
SECURITY INCOME FUND
CLASS B
DISTRIBUTION PLAN
1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing by
Security Income Fund (the "Fund") of activities which are, or may be deemed
to be, primarily intended to result in the sale of class B shares of the
Fund (hereinafter called "distribution-related activities"). The principal
purpose of this Plan is to enable the Fund to supplement expenditures by
Security Distributors, Inc., the Distributor of its shares (the
"Distributor") for distribution-related activities. This Plan is intended to
comply with the requirements of Rule 12b-1 (the "Rule") under the Investment
Company Act of 1940 (the "1940 Act").
The Board of Directors, in considering whether the Fund should implement the
Plan, has requested and evaluated such information as it deemed necessary to
make an informed determination as to whether the Plan should be implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Fund for such purposes.
In voting to approve the implementation of the Plan, the Directors have
concluded, in the exercise of their reasonable business judgment and in
light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
2. COVERED EXPENSES.
(a) The Fund may make payments under this Plan, or any agreement relating
to the implementation of this Plan, in connection with any activities
or expenses primarily intended to result in the sale of class B shares
of the Fund, including, but not limited to, the following
distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus and
Statement of Additional Information and any supplement thereto
used in connection with the offering of shares to the public;
(ii) Printing of additional copies for use by the Distributor as
sales literature, of reports and other communications which were
prepared by the Fund for distribution to existing shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of shares to the
public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Fund to the public;
(v) Any fees paid by the Distributor to securities dealers who have
executed a Dealer's Distribution Agreement with the Distributor
for account maintenance and personal service to shareholders (a
"Service Fee");
(vi) Commissions to sales personnel for selling shares of the Fund
and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the Fund by
securities dealers, including the costs of preparation of
materials for presentations, travel expenses, costs of
entertainment, and other expenses incurred in connection with
promoting sales of Fund shares by dealers.
(b) Any payments for distribution-related activities shall be made pursuant
to an agreement. As required by the Rule, each agreement relating to
the implementation of this Plan shall be in writing and subject to
approval and termination pursuant to the provisions of Section 7 of
this Plan. However, this Plan shall not obligate the Fund or any other
party to enter into such agreement.
3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to this
Plan shall be subject to and be made in compliance with a written agreement
between the Fund and the Distributor containing a provision that the
Distributor shall furnish the Fund with quarterly written reports of the
amounts expended and the purposes for which such expenditures were made and
such other information relating to such expenditures or to the other
distribution-related activities undertaken or proposed to be undertaken by
the Distributor during such fiscal year under its Distribution Agreement
with the Fund as the Fund may reasonably request.
4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the
"Agreement") contemplated by Section 2(a)(v) above shall permit payment of
Service Fees to securities dealers by the Distributor only in accordance
with the provisions of this paragraph and shall have the approval of the
majority of the Board of Directors of the Fund, including the affirmative
vote of a majority of those Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan ("Independent Directors"),
as required by the Rule. The Distributor may pay to the other party to any
Agreement a Service Fee for distribution and marketing services provided by
such other party. Such Service Fee shall be payable (a) for the first year,
initially, in any amount equal to .25 percent annually of the aggregate net
asset value of the shares purchased by such other party's customers or
clients, and (b) for each year thereafter, quarterly, in arrears in an
amount equal to such percentage (not in excess of .000685 percent per day or
.25 percent annually) of the aggregate net asset value of the shares held by
such other party's customers or clients at the close of business each day as
determined from time to time by the Distributor. The distribution and
marketing services contemplated hereby shall include, but are not limited
to, answering inquiries regarding the Fund, account designations and
addresses, maintaining the investment of such other party's customers or
clients in the Fund and similar services. In determining the extent of such
other party's assistance in maintaining such investment by its customers or
clients, the Distributor may take into account the possibility that the
shares held by such customer or client would be redeemed in the absence of
such fee.
5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses
incurred by the Fund under Section 2 of this Plan (including Service Fees)
in any fiscal year of the Fund shall be one percent (1.00%) of the Fund's
average daily net assets for such fiscal year. The payments to be paid
pursuant to this Plan shall be calculated and accrued daily and paid monthly
or at such other intervals as the Directors shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and
nomination of Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. Nothing herein shall prevent the
involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of the
Independent Directors.
7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each
Agreement relating to the implementation of this Plan shall go into effect
when approved.
(a) By vote of the Fund's Directors, including the affirmative vote of a
majority of the Independent Directors, cast in person at a meeting
called for the purpose of voting on the Plan or the Agreement;
(b) By a vote of holders of at least a majority of the outstanding voting
securities of the Fund; and
(c) Upon the effectiveness of an amendment to the Fund's registration
statement, reflecting this Plan, filed with the Securities and Exchange
Commission under the Securities Act of 1933.
This Plan and any Agreements relating to the implementation of this Plan
shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at
least annually by vote of the Fund's Directors, including the affirmative
vote of a majority of its Independent Directors, cast in person at a meeting
called for the purpose of voting on such continuance. This Plan and any
Agreements relating to the implementation of this Plan may be terminated, in
the case of the plan, at any time or, in the case of any agreements upon not
more than sixty (60) days' written notice to any other party to the
Agreement by vote of a majority of the Independent Directors or by the vote
of the holders of a majority of the outstanding voting securities of the
Fund. Any Agreement relating to the implementation of this Plan shall
terminate automatically in the event it is assigned. Any material amendment
to this Plan shall require approval by vote of the Fund's Directors,
including the affirmative vote of a majority of the Independent Directors,
cast in person at a meeting called for the purpose of voting on such
amendment and, if such amendment materially increases the limitations on
expenses payable under the Plan, it shall also require approval by a vote of
holders of at least a majority of the outstanding voting securities of the
Fund. As applied to the Fund the phrase "majority of the outstanding voting
securities" shall have the meaning specified in Section 2(a) of the 1940
Act.
In the event this Plan should be terminated by the shareholders or Directors
of the Fund, the payments paid to the Distributor pursuant to the Plan up to
the date of termination shall be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments will be the sole
responsibility of the Distributor.
8. RECORDS. The Fund shall preserve copies of this Plan and any related
Agreements and all reports made pursuant to Section 3 hereof, for a period
of not less than six (6) years from the date of this Plan, any such
Agreement or any such report, as the case may be, the first two years in an
easily accessible place.
SECURITY INCOME FUND
Date: September 24, 1993 By: Amy J. Lee
<PAGE>
AMENDMENT TO CLASS B DISTRIBUTION PLAN
WHEREAS, Security Income Fund (the "Fund") has adopted a Class B Distribution
Plan dated September 24, 1993 (the "Distribution Plan"), under which the Fund
supplements the expenditures of its principal underwriter, Security
Distributors, Inc. (the "Distributor") for distribution related activities with
respect to Fund shares;
WHEREAS, on February 10, 1999, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated Capital Preservation
Series, in addition to its presently offered series of common stock of Corporate
Bond Series, U.S. Government Series, Limited Maturity Bond Series, Global High
Yield Series, High Yield Series, Emerging Markets Total Return Series and Global
Asset Allocation Series;
WHEREAS, on February 10, 1999 the Board of Directors of the Fund further
authorized the Capital Preservation Series of the Fund in three classes,
designated Class A, Class B and Class C shares; and
WHEREAS, on February 10, 1999, the Board of Directors of the Fund approved an
amendment to the Class B Distribution Plan with respect to Class B shares of the
Capital Preservation Series.
NOW, THEREFORE BE IT RESOLVED, that the Fund amend its Distribution Plan as
follows:
Paragraph 5 shall be deleted in its entirety and replaced with the following new
Paragraph:
5. LIMITATION ON COVERED EXPENSES. The basic limitation on the expenses
incurred by each Series of the Fund, other than the Capital Preservation
Series, under Section 2 of this Plan (including Service Fees) in any fiscal
year of the Fund shall be one percent (1.00%) of the Fund's average daily
net assets for such fiscal year, and with respect to the Capital
Preservation Series, shall be .75% (75 basis points) of its average daily
net assets for its fiscal year. The payments to be paid pursuant to this
Plan shall be calculated and accrued daily and paid monthly or at such other
intervals as the Directors shall determine, subject to any applicable
restrictions imposed by the National Association of Securities Dealers, Inc.
IN WITNESS WHEREOF, the Security Income Fund has adopted this Amendment to the
Class B Distribution Plan this _____ day of __________, 1999.
SECURITY INCOME FUND
By:
------------------------------
Amy J. Lee
Title: Secretary
<PAGE>
SECURITY INCOME FUND
CLASS C
DISTRIBUTION PLAN
1. THE PLAN. This Distribution Plan (the "Plan"), provides for the financing
by Security Income Fund (the "Fund") of activities which are, or may be
deemed to be, primarily intended to result in the sale of class C shares of
the Fund (hereinafter called "distribution-related activities") with
respect to those Series of the Fund set forth in Appendix A to the Plan
(referred to herein as the "Series"). Appendix A, as it may be amended from
time to time, is incorporated herein by reference. The principal purpose of
this Plan is to enable the Fund to supplement expenditures by Security
Distributors, Inc., the Distributor of its shares (the "Distributor") for
distribution-related activities. This Plan is intended to comply with the
requirements of Rule 12b-1 (the "Rule") under the Investment Company Act of
1940 (the "1940 Act").
The Board of Directors, in considering whether the Fund should implement
the Plan, has requested and evaluated such information as it deemed
necessary to make an informed determination as to whether the Plan should
be implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of the Fund for
such purposes.
In voting to approve the implementation of the Plan, the Directors have
concluded, in the exercise of their reasonable business judgment and in
light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Series and its shareholders.
2. COVERED EXPENSES.
(a) The Fund may make payments under this Plan, or any agreement relating
to the implementation of this Plan, in connection with any activities
or expenses primarily intended to result in the sale of Class C shares
of the Series, including, but not limited to, the following
distribution-related activities:
(i) Preparation, printing and distribution of the Prospectus and
Statement of Additional Information and any supplement thereto
used in connection with the offering of Series' shares to the
public;
(ii) Printing of additional copies for use by the Distributor as
sales literature, of reports and other communications which
were prepared by the Fund for distribution to existing
shareholders;
(iii) Preparation, printing and distribution of any other sales
literature used in connection with the offering of Series'
shares to the public;
(iv) Expenses incurred in advertising, promoting and selling shares
of the Series to the public;
(v) Any fees paid by the Distributor to securities dealers who
have executed a Dealer's Distribution Agreement with the
Distributor for account maintenance and personal service to
shareholders (a "Service Fee");
(vi) Commissions to sales personnel for selling shares of the
Series and interest expenses related thereto; and
(vii) Expenses incurred in promoting sales of shares of the Fund by
securities dealers, including the costs of preparation of
materials for presentations, travel expenses, costs of
entertainment, and other expenses incurred in connection with
promoting sales of Series shares by dealers.
(b) Any payments for distribution-related activities shall be made
pursuant to an agreement. As required by the Rule, each agreement
relating to the implementation of this Plan shall be in writing and
subject to approval and termination pursuant to the provisions of
Section 7 of this Plan. However, this Plan shall not obligate the Fund
or any other party to enter into such agreement.
3. AGREEMENT WITH DISTRIBUTOR. All payments to the Distributor pursuant to
this Plan shall be subject to and be made in compliance with a written
agreement between the Fund and the Distributor containing a provision that
the Distributor shall furnish the Fund with quarterly written reports of
the amounts expended and the purposes for which such expenditures were made
and such other information relating to such expenditures or to the other
distribution-related activities undertaken or proposed to be undertaken by
the Distributor during such fiscal year under its Distribution Agreement
with the Fund as the Fund may reasonably request.
4. DEALER'S DISTRIBUTION AGREEMENT. The Dealer's Distribution Agreement (the
"Agreement") contemplated by Section 2(a)(v) above shall permit payment of
Service Fees to securities dealers by the Distributor only in accordance
with the provisions of this paragraph and shall have the approval of the
majority of the Board of Directors of the Fund, including the affirmative
vote of a majority of those Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the operation
of the Plan or any agreement related to the Plan ("Independent Directors"),
as required by the Rule. The Distributor may pay to the other party to any
Agreement a Service Fee for account maintenance and shareholder services
provided by such other party. Such Service Fee shall be payable (a) for the
first year, initially, in any amount equal to 0.25 percent annually of the
aggregate net asset value of the shares purchased by such other party's
customers or clients, and (b) for each year thereafter, quarterly, in
arrears in an amount equal to such percentage (not in excess of .000685
percent per day or 0.25 percent annually) of the aggregate net asset value
of the shares held by such other party's customers or clients at the close
of business each day as determined from time to time by the Distributor.
The distribution and marketing services contemplated hereby shall include,
but are not limited to, answering inquiries regarding the Series, account
designations and addresses, maintaining the investment of such other
party's customers or clients in the Series and similar services. In
determining the extent of such other party's assistance in maintaining such
investment by its customers or clients, the Distributor may take into
account the possibility that the shares held by such customer or client
would be redeemed in the absence of such fee.
5. LIMITATIONS ON COVERED EXPENSES. The basic limitation on the expenses
incurred by each Series of the Fund identified in Appendix A, other than
the Capital Preservation Series under Section 2 of this Plan (including
Service Fees) in any fiscal year of the Fund shall be one percent (1.00%)
of the Fund's average daily net assets for such fiscal year, with respect
to the Capital Preservation Series, shall be 0.50% (50 basis points) of its
average daily net assets for its fiscal year. The payments to be paid
pursuant to this Plan shall be calculated and accrued daily and paid
monthly or at such other intervals as the Directors shall determine,
subject to any applicable restrictions imposed by the National Association
of Securities Dealers, Inc.
6. INDEPENDENT DIRECTORS. While this Plan is in effect, the selection and
nomination of Independent Directors of the Fund shall be committed to the
discretion of the Independent Directors. Nothing herein shall prevent the
involvement of others in such selection and nomination if the final
decision on any such selection and nomination is approved by a majority of
the Independent Directors.
7. EFFECTIVENESS, CONTINUATION, TERMINATION AND AMENDMENT. This Plan and each
Agreement relating to the implementation of this Plan shall go into effect
when approved.
(a) By vote of the Fund's Directors, including the affirmative vote of a
majority of the Independent Directors, cast in person at a meeting
called for the purpose of voting on the Plan or the Agreement;
(b) By a vote of holders of at least a majority of the outstanding voting
securities of the Fund; and
(c) Upon the effectiveness of an amendment to the Fund's registration
statement, reflecting this Plan, filed with the Securities and
Exchange Commission under the Securities Act of 1933.
This Plan and any Agreements relating to the implementation of this Plan
shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at
least annually by vote of the Fund's Directors, including the affirmative
vote of a majority of its Independent Directors, cast in person at a
meeting called for the purpose of voting on such continuance. This Plan and
any Agreements relating to the implementation of this Plan may be
terminated, in the case of the plan, at any time or, in the case of any
agreements upon not more than sixty (60) days' written notice to any other
party to the Agreement by vote of a majority of the Independent Directors
or by the vote of the holders of a majority of the outstanding voting
securities of the Fund. Any Agreement relating to the implementation of
this Plan shall terminate automatically in the event it is assigned. Any
material amendment to this Plan shall require approval by vote of the
Fund's Directors, including the affirmative vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose
of voting on such amendment and, if such amendment materially increases the
limitations on expenses payable under the Plan, it shall also require
approval by a vote of holders of at least a majority of the outstanding
voting securities of the Fund. As applied to the Fund the phrase "majority
of the outstanding voting securities" shall have the meaning specified in
Section 2(a) of the 1940 Act.
In the event this Plan should be terminated by the shareholders or
Directors of the Fund, the payments paid to the Distributor pursuant to the
Plan up to the date of termination shall be retained by the Distributor.
Any expenses incurred by the Distributor in excess of those payments will
be the sole responsibility of the Distributor.
8. RECORDS. The Fund shall preserve copies of this Plan and any related
Agreements and all reports made pursuant to Section 3 hereof, for a period
of not less than six (6) years from the date of this Plan, any such
Agreement or any such report, as the case may be, the first two years in an
easily accessible place.
SECURITY INCOME FUND
Date: By:
----------------------- ---------------------------------
<PAGE>
APPENDIX A
Series of Security Income Fund:
Capital Preservation Series
<PAGE>
Power of Attorney
The undersigned Trustees and officers, as indicated respectively below, of
BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, The
Leadership Trust, and BT Advisor Funds (each, a "Trust") and, Cash Management
Portfolio, Treasury Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, International Equity Portfolio, Utility Portfolio, Short/Intermediate
U.S. Government Securities Portfolio, Equity 500 Index Portfolio, Asset
Management Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free
Portfolio, and BT Investment Portfolios (each, a "Portfolio Trust") each hereby
constitutes and appoints the Secretary and each Assistant Secretary of each
Trust and each Portfolio Trust and the Deputy General Counsel of Federated
Investors, each of them with full powers of substitution, as his true and lawful
attorney-in-fact and agent to execute in his name and on his behalf in any and
all capacities the Registration Statements on Form N-1A, and any and all
amendments thereto, and all other documents, filed by a Trust or a Portfolio
Trust with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940, as amended, and (as applicable) the Securities
Act of 1933, as amended, and any and all instruments which such attorneys and
agents, or any of them, deem necessary or advisable to enable the Trust or
Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 30th day of September, 1996.
SIGNATURES TITLE
President and Treasurer (Chief Executive
/s/ RONALD M. PETNUCH Officer, Principal Financial and Accounting
Ronald M. Petnuch Officer) of each Trust and Portfolio Trust
/s/ PHILIP W. COOLIDGE Trustee of each Trust and Portfolio Trust
Philip W. Coolidge
/s/ CHARLES P. BIGGAR Trustee of each Portfolio Trust and BT
Charles P. Biggar Institutional Funds
/s/ S. LELAND DILL Trustee of each Portfolio Trust and BT
S. Leland Dill Investment Funds
/s/ PHILIP SAUNDERS, JR. Trustee of each Portfolio Trust and BT
Philip Saunders, Jr. Investment Funds
/s/ KELVIN J. LANCASTER Trustee of BT Investment Funds and BT
Kelvin J. Lancaster Pyramid Mutual Funds
/s/ RICHARD J. HERRING Trustee of BT Institutional Funds and BT
Richard J. Herring Advisor Funds
/s/ BRUCE E. LANGTON Trustee of BT Institutional Funds and BT
Bruce E. Langton Advisor Funds
/s/ MARTIN J. GRUBER Trustee of BT Pyramid Mutual Funds, The
Martin J. Gruber Leadership Trust, and BT Advisor Funds
/s/ HARRY VON BENSCHOTEN Trustee of BT Pyramid Mutual Funds, The
Harry Von Benschoten Leadership Trust, and BT Advisor Funds
<PAGE>
Power of Attorney
The undersigned Trustees and officers, as indicated respectively below, of
BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and, Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Utility Portfolio, Short/Intermediate U.S. Government
Securities Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand as of
the 31st day of December, 1998.
SIGNATURES TITLE
President and Chief Executive Officer of each
/s/ JOHN Y. KEFFER Trust and Portfolio Trust
John Y. Keffer
/s/ JOSEPH A. FINELLI Treasurer (Principal Financial and Accounting
Joseph A. Finelli Officer) of each Trust and Portfolio Trust
